10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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

For the quarterly period ended September 30, 2010

or

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

For the transition period from                      to                     

Commission File Number 001-12647

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o 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	Smaller Reporting Company o
		(Do not check if a smaller reporting company)

     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:

46,317,008 common shares ($1.00 par value per share) outstanding as of October 31, 2010

TABLE OF CONTENTS

	Page
Part I FINANCIAL INFORMATION:
Item 1 Financial Statements
Unaudited consolidated statements of financial condition at September 30, 2010 and December 31, 2009		1
Unaudited consolidated statements of operations for the quarters and nine-month periods ended September 30, 2010 and 2009		2
Unaudited consolidated statements of changes in stockholders’ equity for the nine-month periods ended September 30, 2010 and 2009		3
Unaudited consolidated statements of comprehensive income for the quarters and nine-month periods ended September 30, 2010 and 2009		4
Unaudited consolidated statements of cash flows for the nine-month periods ended September 30, 2010 and 2009		5
Notes to unaudited consolidated financial statements		7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		53
Item 3 Quantitative and Qualitative Disclosures About Market Risk		79
Item 4 Controls and Procedures		82
PART II OTHER INFORMATION:
Item 1 Legal Proceedings		83
Item 1A Risk Factors		83
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		86
Item 3 Defaults Upon Senior Securities		86
Item 4 [Removed and Reserved by the SEC.]		86
Item 5 Other Information		86
Item 6 Exhibits		86
Signatures		87
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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.

ORIENTAL FINANCIAL GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

	September 30,			December 31,
	2010			2009
	(In thousands, except share data)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	89,703		$	247,691
Money market investments		53,233			29,432
Total cash and cash equivalents		142,936			277,123
Investments:
Trading securities, at fair value, with amortized cost of $100 (December 31, 2009 - $522)		102			523
Investment securities available-for-sale, at fair value, with amortized cost of $4,304,055 (December 31, 2009 - $5,044,017)		4,317,088			4,953,659
Other investments		150			150
Federal Home Loan Bank (FHLB) stock, at cost		22,496			19,937
Total investments		4,339,836			4,974,269
Securities sold but not yet delivered		317,209			—
Loans:
Mortgage loans held-for-sale, at lower of cost or fair value		31,432			27,261
Loans not covered under shared loss agreements with the FDIC, net of allowance for loan and lease losses of $29,640 (December 31, 2009 - $23,272)		1,107,338			1,112,808
Loans covered under shared loss agreements with the FDIC		722,858			—
Total loans, net		1,861,628			1,140,069
FDIC shared-loss indemnification asset		562,364			—
Foreclosed real estate covered under shared loss agreements with the FDIC		19,322			—
Foreclosed real estate not covered under shared loss agreements with the FDIC		13,765			9,347
Accrued interest receivable		30,644			33,656
Deferred tax asset, net		30,650			31,685
Premises and equipment, net		17,125			19,775
Core deposit intangible		1,363			—
Servicing asset		9,647			7,120
Other assets		56,568			57,789
Total assets	$	7,403,057		$	6,550,833
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	888,011		$	693,506
Savings accounts		234,501			86,792
Certificates of deposit		1,472,763			965,203
Total deposits		2,595,275			1,745,501
Borrowings:
Short-term borrowings		29,959			49,179
Securities sold under agreements to repurchase		3,541,520			3,557,308
Advances from FHLB		281,753			281,753
FDIC-guaranteed term notes		105,112			105,834
Subordinated capital notes		36,083			36,083
Total borrowings		3,994,427			4,030,157
Securities purchased but not yet received		—			413,359
FDIC net settlement payable		41,601			—
Accrued expenses and other liabilities		54,694			31,650
Total liabilities		6,685,997			6,220,667
Stockholders’ equity:
Preferred stock, $1 par value; 10,000,000 shares authorized; 1,340,000 shares of Series A and 1,380,000 shares of Series B issued and outstanding, $25 liquidation value		68,000			68,000
Common stock, $1 par value; 100,000,000 shares authorized as of September 30, 2010 (December 31, 2009 - 40,000,000); 47,807,734 shares issued; 46,317,008 shares outstanding (December 31, 2009 - 25,739,397; 24,235,088)		47,808			25,739
Additional paid-in capital		498,486			213,445
Legal surplus		46,958			45,279
Retained earnings		59,845			77,584
Treasury stock, at cost, 1,490,726 shares (December 31, 2009 - 1,504,309 shares)		(17,116	)		(17,142	)
Accumulated other comprehensive income (loss), net of tax of ($128) (December 31, 2009 - $7,445)		13,079			(82,739	)
Total stockholders’ equity		717,060			330,166
Total liabilities and stockholders’ equity	$	7,403,057		$	6,550,833

See notes to unaudited consolidated financial statements.

1

ORIENTAL FINANCIAL GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

	Quarter Ended September 30,						Nine-Month Period Ended September 30,
	2010			2009			2010			2009
				(In thousands, except per share data)
Interest income:
Loans	$	34,347		$	18,248		$	81,382		$	55,329
Mortgage-backed securities		40,429			48,750			125,542			151,179
Investment securities and other		6,445			11,552			24,476			38,078
Total interest income		81,221			78,550			231,400			244,586
Interest expense:
Deposits		12,680			13,990			35,874			41,962
Securities sold under agreements to repurchase		25,128			27,209			75,900			90,937
Advances from FHLB and other borrowings		3,082			3,106			9,147			9,277
Note Payable to the FDIC		823			—			1,887			—
FDIC-guaranteed term notes		1,021			1,021			3,063			2,154
Subordinated capital notes		327			333			930			1,158
Total interest expense		43,061			45,659			126,801			145,488
Net interest income		38,160			32,891			104,599			99,098
Provision for loan and lease losses		4,100			4,400			12,214			11,250
Net interest income after provision for loan and lease losses		34,060			28,491			92,385			87,848
Non-interest income:
Wealth management revenues		4,554			3,764			13,157			10,163
Banking service revenues		3,414			1,424			8,030			4,330
Mortgage banking activities		3,418			2,232			7,555			7,191
Investment banking revenues (losses)		59			—			93			(4	)
Total banking and wealth management revenues		11,445			7,420			28,835			21,680
Total loss on other-than-temporarily impaired securities		(14,739	)		(44,737	)		(39,674	)		(107,331	)
Portion of loss on securities recognized in other comprehensive income		—			36,478			22,508			94,656
Other-than-temporary impairments on securities		(14,739	)		(8,259	)		(17,166	)		(12,675	)
Net gain (loss) on:
Sale of securities		13,954			35,528			37,807			56,388
Derivatives		(22,580	)		(64	)		(59,832	)		19,778
Early extinguishment of repurchase agreements		—			(17,551	)		—			(17,551	)
Trading securities		4			(505	)		2			12,427
Bargain purchase from FDIC-assisted acquisition		—			—			9,940			—
Fair value adjustment on FDIC equity appreciation instrument		—			—			909			—
Accretion of FDIC loss-share indemnification asset		1,756			—			3,314			—
Foreclosed real estate		(140	)		(278	)		(283	)		(576	)
Other		(8	)		31			61			94
Total non-interest income (loss), net		(10,308	)		16,322			3,587			79,565
Non-interest expenses:
Compensation and employee benefits		11,732			7,882			30,440			23,626
Occupancy and equipment		5,620			3,747			13,815			10,994
Professional and service fees		5,480			2,459			11,552			7,461
Insurance		1,651			1,273			5,218			5,560
Taxes, other than payroll and income taxes		1,611			834			3,759			2,129
Advertising and business promotion		1,275			1,097			3,339			3,329
Electronic banking charges		1,322			471			3,112			1,607
Communication		826			382			1,905			1,163
Loan servicing expenses		443			397			1,321			1,167
Clearing and wrap fees expenses		579			293			1,217			860
Foreclosure and repossession expenses		545			204			1,117			650
Director and investors relations		396			348			1,098			1,029
Printing, postage, stationery and supplies		299			194			795			665
Training and travel		167			194			639			444
Other		759			710			1,623			1,287
Total non-interest expenses		32,705			20,485			80,950			61,971
Income (loss) before income taxes		(8,953	)		24,328			15,022			105,442
Income tax expense (benefit)		(2,358	)		3,001			(262	)		8,452
Net income (loss)		(6,595	)		21,327			15,284			96,990
Less: Dividends on preferred stock		(1,200	)		(1,201	)		(4,134	)		(3,602	)
Less: Deemed dividend on preferred stock beneficial conversion feature		(22,711	)		—			(22,711	)		—
Income available (loss) to common shareholders	$	(30,506	)	$	20,126		$	(11,561	)	$	93,388
Income (loss) per common share:
Basic	$	(0.67	)	$	0.83		$	(0.33	)	$	3.85
Diluted	$	(0.67	)	$	0.83		$	(0.33	)	$	3.84
Average common shares outstanding		45,354			24,303			34,823			24,284
Average potential common shares-options		128			65			105			17
Average diluted common shares outstanding		45,482			24,368			34,928			24,301
Cash dividends per share of common stock	$	0.04		$	0.04		$	0.12		$	0.12

See notes to unaudited consolidated financial statements.

2

ORIENTAL FINANCIAL GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

	Nine-Month Period Ended September 30,
	2010			2009
	(In thousands)
Preferred stock:
Balance at beginning of period	$	68,000		$	68,000
Issuance of preferred stock		177,289			—
Conversion of preferred stock to common stock		(177,289	)		—
Balance at end of period		68,000			68,000
Additional paid-in capital from beneficial conversion feature
Balance at beginning of period		—			—
Issuance of preferred stock — beneficial conversion feature		22,711			—
Conversion of preferred stock to common stock — beneficial conversion feature		(22,711	)		—
Balance at end of period		—			—
Common stock:
Balance at beginning of period		25,739			25,739
Issuance of common stock		8,740			—
Conversion of preferred stock to common stock		13,320			—
Exercised stock options		9			—
Balance at end of period		47,808			25,739
Additional paid-in capital:
Balance at beginning of period		213,445			212,625
Issuance of common stock		90,896			—
Conversion of preferred stock to common stock		186,680			—
Deemed dividend on preferred stock beneficial conversion feature		22,711			—
Exercised stock options		64			—
Stock-based compensation expense		865			550
Capital contribution		—			89
Common stock issuance costs		(5,250	)		—
Preferred stock issuance costs		(10,925	)		—
Balance at end of period		498,486			213,264
Legal surplus:
Balance at beginning of period		45,279			43,016
Transfer from retained earnings		1,679			9,643
Balance at end of period		46,958			52,659
Retained earnings:
Balance at beginning of period		77,584			51,233
Cumulative effect on initial adoption of accounting principle		—			14,359
Net income		15,284			96,990
Cash dividends declared on common stock		(4,499	)		(2,916	)
Cash dividends declared on preferred stock		(4,134	)		(3,602	)
Deemed dividend on preferred stock beneficial conversion feature		(22,711	)		—
Transfer to legal surplus		(1,679	)		(9,643	)
Balance at end of period		59,845			146,421
Treasury stock:
Balance at beginning of period		(17,142	)		(17,109	)
Stock purchased		—			(182	)
Stock used to match defined contribution plan		26			144
Balance at end of period		(17,116	)		(17,147	)
Accumulated other comprehensive income (loss), net of tax:
Balance at beginning of period		(82,739	)		(122,187	)
Cumulative effect on initial adoption of accounting principle		—			(14,359	)
Other comprehensive income, net of tax		95,818			30,179
Balance at end of period		13,079			(106,367	)
Total stockholders’ equity	$	717,060		$	382,569

See notes to unaudited consolidated financial statements.

3

ORIENTAL FINANCIAL GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

							Nine-Month Period Ended
	Quarter Ended September 30,						September 30,
	2010			2009			2010			2009
				(In thousands)
Net income (loss)	$	(6,595	)	$	21,327		$	15,284		$	96,990
Other comprehensive income:
Unrealized gain (loss) on securities available-for-sale arising during the period		(15,072	)		30,026			124,302			75,015
Realized gain on investment securities included in net income		(14,224	)		(35,528	)		(38,077	)		(56,388	)
Total loss on other- than-temporarily impaired securities		14,739			44,737			39,674			107,331
Portion of loss on securities recognized in other comprehensive income		—			(36,478	)		(22,508	)		(94,656	)
Income tax effect related to unrealized gain on securities available-for-sale		2,274			716			(7,573	)		(1,123	)
Other comprehensive income (loss) for the period		(12,283	)		3,473			95,818			30,179
Comprehensive income (loss)	$	(18,878	)	$	24,800		$	111,102		$	127,169

See notes to unaudited consolidated financial statements.

4

ORIENTAL FINANCIAL GROUP INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

	Nine-Month Period Ended September 30,
	2010			2009
	(In thousands)
Cash flows from operating activities:
Net income	$	15,284		$	96,990
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of deferred loan origination fees, net of costs		565			151
Amortization of premiums, net of accretion of discounts		24,663			9,070
Amortization of core deposit intangible		60			—
Accretion of FDIC loss-share indemnification asset		(3,314	)		—
Amortization of accretable yield on loans covered by FDIC shared-loss agreements		(28,592	)		—
Other-than-temporary impairments on securities		17,166			12,675
Depreciation and amortization of premises and equipment		4,152			4,505
Deferred income tax expense (benefit)		(6,538	)		750
Provision for loan and lease losses		12,214			11,250
Stock-based compensation		865			550
Fair value adjustment of servicing asset		(1,538	)		(4,430	)
Bargain purchase gain from FDIC assisted acquisition		(9,940	)		—
(Gain) loss on:
Sale of securities		(37,807	)		(56,388	)
Sale of mortgage loans held for sale		(4,332	)		(2,761	)
Derivatives		59,832			(19,778	)
Early extinguishment of repurchase agreements		—			17,551
Sale of foreclosed real estate		283			576
Sale of premises and equipment		44			(60	)
Originations and purchases of loans held-for-sale		(169,205	)		(169,598	)
Proceeds from sale of loans held-for-sale		58,646			88,838
Net (increase) decrease in:
Trading securities		422			217
Accrued interest receivable		3,012			3,944
Other assets		(226	)		(4,679	)
Net increase (decrease) in:
Accrued interest on deposits and borrowings		(260	)		(3,525	)
Accrued expenses and other liabilities		34,808			10,954
Net cash used in operating activities		(29,735	)		(3,198	)
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale		(5,308,688	)		(9,290,454	)
FHLB stock		(2,560	)		(13,355	)
Equity options		(1,747	)		(3,738	)
Maturities and redemptions of:
Investment securities available-for-sale		2,370,912			3,251,327
FHLB stock		10,077			14,431
Proceeds from sales of:
Investment securities available-for-sale		3,052,533			6,090,572
Foreclosed real estate		5,197			6,594
Premises and equipment		573			114
Origination and purchase of loans, excluding loans held-for-sale		(101,595	)		(60,370	)
Principal repayment of loans		180,140			92,437
Additions to premises and equipment		(1,483	)		(3,577	)
Cash and cash equivalents received in FDIC-assisted transaction		89,777			—
Net cash provided by investing activities		293,137			83,981
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		119,544			142,761
Securities sold under agreements to repurchase		(15,000	)		(217,551	)
Short term borrowings		(19,220	)		6,135
Proceeds from:
Issuance of FDIC-guaranteed term notes		—			105,000
Advances from FHLB		—			761,380
Exercise of stock options		73			—
Issuance of common stock, net		94,386			—
Issuance of preferred stock, net		189,075			—
Capital contribution		—			89
Repayments of advances from FHLB		—			(788,080	)
Repayments of advances from note payable to the FDIC		(715,970	)		—
Purchase of treasury stock		—			(182	)
Termination of derivative instruments		(42,727	)		20,254
Dividends paid on preferred stock		(2,934	)		(3,602	)
Dividends paid on common stock		(4,816	)		(2,916	)
Net cash provided by (used in) financing activities		(397,589	)		23,288
Net change in cash and cash equivalents		(134,187	)		104,071
Cash and cash equivalents at beginning of period		277,123			66,372
Cash and cash equivalents at end of period	$	142,936		$	170,443

See notes to unaudited consolidated financial statements.

5

ORIENTAL FINANCIAL GROUP INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2010 AND 2009

	Nine-Month Period Ended September 30,
	2010		2009
	(In thousands)
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities:
Interest paid	$	126,569	$	149,012
Income taxes paid	$	6,281	$	74
Mortgage loans securitized into mortgage-backed securities	$	109,386	$	105,676
Securities sold but not yet delivered	$	317,209	$	417,280
Securities purchased but not yet received	$	—	$	30,945
Transfer from loans to foreclosed real estate	$	11,693	$	6,327
Reclassification of loans held for investment portfolio to the held for sale portfolio	$	—	$	19,832
Supplemental Schedule of Non-cash Investing Activities:
Acquisitions:
Non-cash assets acquired:
FHLB stock	$	10,077	$	—
Loans covered under shared-loss agreements with FDIC		787,177		—
Loans not covered under shared-loss agreements with FDIC		2,987		—
Foreclosed real estate covered under shared-loss agreements with FDIC		17,527		—
Other repossessed assets covered under shared-loss agreements with FDIC		3,062		—
FDIC loss-share indemnification asset		559,050		—
Core deposit intangible		1,423		—
Other assets		5,301		—
Total non-cash assets acquired		1,386,604		—
Liabilities assumed:
Deposits		729,546		—
Deferred income tax liability, net		3,876		—
Other liabilities		9,426		—
Total liabilities assumed		742,848		—
Net non-cash assets acquired		643,756		—
Cash and cash equivalents received in the FDIC-assisted transaction		89,777		—
Net assets acquired	$	733,533	$	—
Consideration at fair value:
Note payable issued to the FDIC		715,970		—
Net settlement payable to the FDIC		10,590		—
Equity appreciation instrument		909		—
		727,469		—
Net after tax bargain purchase gain from FDIC-assisted acquisition		6,064		—
	$	733,533	$	—

See notes to unaudited consolidated financial statements.

6

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”). All significant intercompany balances and transactions have been eliminated in consolidation. These unaudited statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to 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 periods ended September 30, 2010 and 2009 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, 2009, included in the Group’s 2009 annual report on Form 10-K, as amended.

Nature of Operations

The Group is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. It has four direct subsidiaries, Oriental Bank and Trust (the “Bank”), Oriental Financial Services Corp. (“Oriental Financial Services”), Oriental Insurance, Inc. (“Oriental Insurance”) and Caribbean Pension Consultants, Inc., which is located in Boca Raton, Florida. The Group also has a special purpose entity, 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, leasing, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services.

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 is subject to the supervision, examination and regulation of the Office of the Commissioner of Financial Institutions of Puerto Rico (“OCFI”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers banking services such as commercial and consumer lending, leasing, savings 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. Oriental International Bank Inc. (“OIB”), a wholly-owned subsidiary of the Bank, operates as an international banking entity (“IBE”) pursuant to the International Banking Center Regulatory Act of Puerto Rico, as amended. OIB offers the Bank certain Puerto Rico tax advantages. OIB activities 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 Financial Industry Regulatory Authority (“FINRA”), the SEC, and the OCFI. Oriental Insurance is subject to the supervision, examination and regulation of the Office of the Commissioner of Insurance of Puerto Rico.

The Group’s mortgage banking activities are conducted through a division of the Bank. The mortgage banking activities consist of the origination and purchase of residential mortgage loans for the Group’s own portfolio and, if the conditions so warrant, the Group engages in the sale of such loans to other financial institutions in the secondary market. The Group originates Federal Housing Administration (“FHA”) insured and Veterans Administration (“VA”)-guaranteed mortgages that are primarily securitized for issuance of Government National Mortgage Association (“GNMA”) mortgage-backed securities which can be resold to individual or institutional investors in the secondary market. Conventional loans that meet the underwriting requirements for sale or exchange under standard Federal National Mortgage Association (the “FNMA”) or Federal Home Loan Mortgage Corporation (the “FHLMC”) programs are referred to as conforming mortgage loans and are also securitized for issuance of FNMA or FHLMC mortgage-backed securities. The Group is an approved seller of FNMA, as well as FHLMC, mortgage loans for issuance of FNMA and FHLMC mortgage-backed securities. The Group is also an approved issuer of GNMA mortgage-backed securities. The Group outsources the servicing of the GNMA, FNMA and FHLMC pools that it issues or originates and of its mortgage loan portfolio.

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Effective April 30, 2010, the Bank assumed all of the retail deposits and other liabilities and acquired certain assets and substantially all of the operations of Eurobank from the FDIC as receiver for Eurobank, pursuant to the terms of a purchase and assumption agreement entered into by the Bank and the FDIC on April 30, 2010. This transaction is referred to as the “FDIC-assisted acquisition”.

Pursuant to a waiver granted by the SEC to the Group on May 28, 2010, and in accordance with the guidance provided in the SEC Staff Accounting Bulleting Topic 1.K, Financial Statements of Acquired Troubled Financial Institutions (“SAB 1:K”), the Group has omitted certain financial information of the FDIC-assisted acquisition otherwise required by Rule 3-05 of Regulation S-X. SAB 1:K provides relief from the requirements of Rule 3-05 of Regulation S-X under certain circumstances, including a transaction such as the Eurobank acquisition, in which the registrant engages in an acquisition of a troubled financial institution for which audited financial statements are not reasonably available and in which federal assistance is so pervasive as to substantially reduce the relevance of such information to an assessment of future operations.

Significant Accounting Policies

The unaudited consolidated financial statements of the Group are prepared in accordance with GAAP as prescribed by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 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.

Loans and Allowance for Loan and Lease Losses

Because of the loss protection provided by the FDIC, the risks of the Eurobank FDIC-assisted transaction acquired loans are significantly different from those loans not covered under the FDIC loss sharing agreements. Accordingly, the Group presents loans subject to the loss sharing agreements as “covered loans” and loans that are not subject to the FDIC loss sharing agreements as “non-covered loans”. Non-covered loans include any loans made outside of the FDIC shared-loss agreements before or after the April 30, 2010 FDIC-assisted acquisition. Non-covered loans also include credit cards balances acquired in the FDIC-assisted acquisition.

Non-covered loans

Non-covered loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for non-covered loan and lease losses, unamortized discount related to mortgage servicing right sold and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees and costs and premiums and discounts on loans purchased are deferred and amortized over the estimated life of the loans as an adjustment of their yield through interest income using the interest method. When a loan is paid off or sold, any unamortized deferred fee (cost) is credited (charged) to income.

Credit cards balances acquired as part of the FDIC-assisted acquisition are to be accounted for under the guidance of ASC 310-20, which requires that any differences between the contractually required loan payment in excess of the Group’s initial investment in the loans be accreted into interest income on a level-yield basis over the life of the loan. Loans accounted for under ASC 310-20 are placed on non-accrual status when past due in accordance with the Group’s non-accruing policy and any accretion of discount is discontinued. These assets were written-down to their estimated fair value on their acquisition date, incorporating an estimate of future expected cash flows. To the extent actual or projected cash flows are less than originally estimated, additional provisions for loan and lease losses will be recognized.

Interest recognition is discontinued when loans are 90 days or more in arrears on principal and/or interest based on contractual terms, except for well collateralized residential mortgage loans in process of collection for which recognition is discontinued when they become 365 days or more past due based on contractual terms and are then written down, if necessary, based on the specific evaluation of the collateral underlying the loan. Loans for which the recognition of interest income has been discontinued are designated as non-accruing. Collections are accounted for on the cash method thereafter, until qualifying to return to accrual status. Such loans are not reinstated to accrual status until interest is received on a current basis and other factors indicative of doubtful collection cease to exist.

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The Group follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan and lease losses to provide for inherent losses in the non-covered loan portfolio. This methodology includes the consideration of factors such as economic conditions, portfolio risk characteristics, prior loss experience, and results of periodic credit reviews of individual loans. The provision for loan and lease losses charged to current operations is based on such methodology. Loan and lease losses are charged and recoveries are credited to the allowance for loan and lease losses on non-covered loans.

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. 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 fair value. The Group measures for impairment all commercial loans over $250 thousand and over 90-days past-due. The portfolios of mortgage, leases 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 non-covered loan portfolio category based on historical credit losses adjusted for current conditions and trends. This calculation is the starting point for management’s systematic determination of the required level of the allowance for loan and lease losses. Other data considered in this determination includes: the credit grading assigned to commercial loans, delinquency levels, loss trends and other information including underwriting standards and economic trends.

Loan loss ratios and credit risk categories are updated at least quarterly and are applied in the context of GAAP as prescribed by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 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 and lease losses, factors beyond the Group’s control such as those affecting general economic conditions may require future changes to the allowance.

Covered loans

Covered loans acquired in the FDIC-assisted acquisition are accounted under the provisions of ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality”, which are applicable when (a) the Group acquires loans deemed to be impaired when there is evidence of credit deterioration and it is probable, at the date of acquisition, that the Group would be unable to collect all contractually required payments and (b) as a general policy election for non-impaired loans that the Group acquires.

The acquired covered loans were recorded at their estimated fair value at the time of acquisition. Fair value of acquired loans is determined using a discounted cash flow model based on assumptions about the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of defaults, and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded on the acquisition date.

In accordance with ASC 310-30 and in estimating the fair value of covered loans at the acquisition date, the Group (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”) and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the non-accretable difference. The non-accretable difference represents an estimate of the loss exposure in the covered loan portfolio, and such amount is subject to change over time based on the performance of the covered loans. The carrying value of covered loans is reduced by payments received and increased by the portion of the accretable yield recognized as interest income.

The excess of undiscounted expected cash flows at acquisition over the initial fair value of acquired loans is referred to as the “accretable yield” and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable. Subsequent to acquisition, the Group aggregates loans into

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pools of loans with common risk characteristics to account for the acquired loans. Increases in expected cash flows over those originally estimated increase the accretable yield and are recognized as interest income prospectively. Decreases in expected cash flows compared to those originally estimated decrease the accretable yield and are recognized by recording a provision for loan and lease losses and establishing an allowance for loan and lease losses.

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income may be recognized on a cash basis or as a reduction of the principal amount outstanding.

Under the accounting guidance of ASC 310-30 for acquired loans, the allowance for loan and lease losses on covered loans is measured at each financial reporting period, or measurement date, based on expected cash flows. Accordingly, decreases in expected cash flows on the acquired covered loans as of the measurement date compared to those initially estimated are recognized by recording a provision for credit losses on covered loans. The portion of the loss on covered loans reimbursable from the FDIC is recorded as an offset to provision for credit losses and increases the FDIC shared-loss indemnification asset.

Financial Instruments

Certain financial instruments, including derivatives, 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 as part of non-interest income, 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.

The Group determines the fair value of its financial instruments based on the fair value measurement framework, which establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 — Level 1 asset and liabilities include equity securities that are traded in an active exchange market, as well as certain U.S. Treasury and other U.S. government agency securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include (i) mortgage-backed securities for which the fair value is estimated based on valuations obtained from third-party pricing services for identical or comparable assets, (ii) debt securities with quoted prices that are traded less frequently than exchange-traded instruments and (iii) derivative contracts and financial liabilities (e.g. callable brokered CDs and medium-term notes elected for fair value option under the fair value measurement framework), whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, for which the determination of fair value requires significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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Impairment of Investment Securities

The Group conducts periodic reviews to identify and evaluate each investment in an unrealized loss position for other-than-temporary impairments. The Group follows ASC 320-10-65-1, which changed the accounting requirements for other-than-temporary impairments for debt securities, and in certain circumstances, separates the amount of total impairment into credit and noncredit-related amounts. The corresponding review takes into consideration current market conditions, issuer rating changes and trends, the creditworthiness of the obligor of the security, current analysts’ evaluations, failure of the issuer to make scheduled interest or principal payments, the Group’s intent to not sell the security or whether it is more-likely-than-not that the Group will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. The term “other-than-temporary impairment” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Any portion of a decline in value associated with credit loss is recognized in income with the remaining noncredit-related component being recognized in other comprehensive income. A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security, discounted at the rate equal to the yield used to accrete current and prospective beneficial interest for the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.”

The Group’s review for impairment generally entails:

• intent to sell the debt security;

• if it is more likely than not that the entity will be required to sell the debt securities before the anticipated recovery;

• identification and evaluation of investments that have indications of possible other-than-temporary impairment;

• analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time the investment has been in an unrealized loss position and the expected recovery period;

• discussion of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify as having other-than-temporary impairment and those that would not support other-than-temporary impairment.

FDIC Shared-Loss Indemnification Asset

The Group has determined that the FDIC shared-loss indemnification asset will be accounted for as an indemnification asset measured separately from the covered loans acquired in the FDIC-assisted acquisition as it is not contractually embedded in any of the covered loans. The shared-loss indemnification asset related to estimated future loan and lease losses is not transferable should the Group sell a loan prior to foreclosure or maturity. The fair value of the shared-loss indemnification asset represents the present value of the estimated cash payments expected to be received from the FDIC for future losses on covered assets, based on the credit adjustment estimated for each covered asset and the loss sharing percentages. These cash flows are then discounted at a market-based rate to reflect the uncertainty of the timing and receipt of the loss sharing reimbursements from the FDIC. The amount ultimately collected for this asset is dependent upon the performance of the underlying covered assets, the passage of time, and claims submitted to the FDIC. The time value of money incorporated into the present value computation is accreted into earnings over the shorter of the life of the shared-loss agreements or the holding period of the covered assets.

The FDIC shared-loss indemnification asset will be reduced as losses are recognized on covered loans and loss sharing payments are received from the FDIC. Realized credit losses in excess of acquisition-date estimates will result in an increase in the FDIC shared-loss indemnification asset. Conversely, if realized credit losses are less than acquisition-date estimates, the FDIC shared-loss indemnification asset will be reduced.

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Core Deposit Intangible

Core deposit intangible (“CDI”) is a measure of the value of checking and savings deposits acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. CDI is amortized straight-line over a 10 year period. The Group evaluates such identifiable intangibles for impairment when an indication of impairment exists. No impairment charges were required to be recorded in the nine-month period ended September 30, 2010. If an impairment loss is determined to exist in the future, the loss would be reflected as a non-interest expense in the consolidated statement of operations for the period in which such impairment is identified.

Foreclosed Real Estate and Other Repossessed Property

Non-covered Foreclosed Real Estate

Foreclosed real estate is initially recorded at the lower of the related loan balance or the fair value less cost to sell of the real estate at the date of foreclosure. At the time properties are acquired in full or partial satisfaction of loans, any excess of the loan balance over the estimated fair value of the property is charged against the allowance for loan and lease losses on non-covered loans. After foreclosure, these properties are carried at the lower of cost or fair value less estimated cost to sell, based on recent appraised values or options to purchase the foreclosed property. Any excess of the carrying value over the estimated fair value, less estimated costs to sell, is charged to non-interest expense. The costs and expenses associated to holding these properties in portfolio are expensed as incurred.

Covered Foreclosed Real Estate and Other Repossessed Property

Covered foreclosed real estate and other repossessed property were initially recorded at their estimated fair value on the acquisition date based on appraisal value less estimated selling costs. Any subsequent write downs due to declines in fair value are charged to non-interest expense with a partially offsetting non-interest income for the loss reimbursement under the FDIC shared-loss agreement. Any recoveries of previous write downs are credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC.

Income Taxes

In preparing the unaudited 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. 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 tax rate in the year of resolution. Unfavorable settlement of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.

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 operations.

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.

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In addition to valuation allowances, the Group establishes accruals for uncertain tax positions when, despite the belief that the Group’s tax return positions are fully supported, the Group believes that certain positions are likely to be challenged. The uncertain tax positions accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law, and emerging legislation. The Group’s uncertain tax positions accruals are reflected as income tax payable as a component of accrued expenses and other liabilities. These accruals are reduced upon expiration of the statute of limitations.

The Group follows a two-step approach for recognizing and measuring uncertain tax positions. 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 process, 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 Group’s policy is to include interest and penalties related to unrecognized income tax benefits within the provision for income taxes on the unaudited consolidated statements of operations.

Equity-Based Compensation Plans

The Group’s Amended and Restated 2007 Omnibus Performance Incentive Plan (the “Omnibus Plan”), provides for equity-based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted units and dividend equivalents, as well as equity-based performance awards. The Omnibus Plan was adopted in 2007, amended and restated in 2008, and it was further amended in 2010.

The purpose of the Omnibus Plan is to provide flexibility to the Group to attract, retain and motivate directors, officers, and key employees through the grant of awards based on performance and to adjust its compensation practices to the best compensation practice and corporate governance trends as they develop from time to time. The Omnibus Plan is further intended to motivate high levels of individual performance coupled with increased shareholder returns. Therefore, awards under the Omnibus Plan (each, an “Award”) are intended to be based upon the recipient’s individual performance, level of responsibility and potential to make significant contributions to the Group. Generally, the Omnibus Plan will terminate as of (a) the date when no more of the Group’s shares of common stock are available for issuance under the Omnibus Plan, or, if earlier, (b) the date the Omnibus Plan is terminated by the Group’s Board of Directors.

The Board’s Compensation Committee (the “Committee”), or such other committee as the Board may designate, has full authority to interpret and administer the Omnibus Plan in order to carry out its provisions and purposes. The Committee has the authority to determine those persons eligible to receive an Award and to establish the terms and conditions of any Award. The Committee may delegate, subject to such terms or conditions or guidelines as it shall determine, to any employee or group of employees any portion of its authority and powers under the Omnibus Plan with respect to participants who are not directors or executive officers subject to the reporting requirements under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Only the Committee may exercise authority in respect of Awards granted to such participants.

The Omnibus Plan replaced and superseded the Group’s 1996, 1998 and 2000 Incentive Stock Option Plans (the “Stock Option Plans”). All outstanding stock options under the Stock Option Plans continue in full force and effect, subject to their original terms and conditions.

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

Subsequent Events

The Group has evaluated other events subsequent to the balance sheet date and prior to the filing of this Quarterly Report on Form 10-Q and has adjusted and disclosed those events that have occurred that would require adjustment or disclosure in the consolidated financial statements.

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Reclassifications

When necessary, certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Recent Accounting Developments:

Derivatives and Hedging — In March 2010, FASB issued a clarification on the scope exception for embedded credit derivatives. The guidance eliminates the scope exception for bifurcation of embedded credit derivatives in interests in securitized financial assets, unless they are created solely by subordination of one financial debt instrument to another. The guidance is effective beginning in the first reporting period after June 15, 2010, with earlier adoption permitted for the quarter beginning after March 31, 2010. This clarification did not have a material impact on the Group’s financial position or results of operations.

Loan Modification — In April 2010, FASB issued an update affecting accounting for loan modifications for those loans that are acquired with deteriorated credit quality and are accounted for on a pool basis. It clarifies that the modifications of such loans do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The new guidance is effective prospectively for modifications occurring in the first interim or annual period ending on or after July 15, 2010. Early application is permitted. The Group adopted this guidance for loans acquired on the FDIC-assisted acquisition accounted for under ASC 310-30. Its adoption did not have a material effect on the Group’s unaudited consolidated financial statements.

Credit Quality and Allowance for Credit Losses Disclosures — In July 2010, FASB issued ASU No. 2010-20, Disclosures about Credit Quality of Financing Receivables and Allowance for Credit Losses. The ASU requires a greater level of disaggregated information about the allowance for credit losses and the credit quality of financing receivables. The period-end balance disclosure requirements for loans and the allowance for loan and lease losses will be effective for reporting periods ending on or after December 15, 2010, while disclosures for activity during a reporting period that occurs in the loan and allowance for loan and lease losses accounts will be effective for reporting periods beginning on or after December 15, 2010.

Other accounting standards that have been issued by FASB or other standards-setting bodies are not expected to have a material impact on the Group’s financial condition, statement of operations or cash flows.

NOTE 2 — FDIC-ASSISTED ACQUISITION

On April 30, 2010 the Bank acquired certain assets and assumed certain deposits and other liabilities of Eurobank from the FDIC as receiver of Eurobank, San Juan, Puerto Rico. As part of the Purchase and Assumption Agreement between the Bank and the FDIC (the “Purchase and Assumption Agreement”), the Bank and the FDIC entered into shared-loss agreements (each, a “shared-loss agreement” and collectively, the “shared-loss agreements”), whereby the FDIC will cover a substantial portion of any future losses on loans (and related unfunded loan commitments), foreclosed real estate and other repossessed properties.

The acquired loans, foreclosed real estate, and other repossessed property subject to the shared-loss agreements are collectively referred as “covered assets.” Under the terms of the shared-loss agreements, the FDIC will absorb 80% of losses and share in 80% of loss recoveries on covered assets. The term for loss share on single family residential mortgage loans is ten years with respect to losses and loss recoveries, while the term for loss share on commercial loans is five years with respect to losses and eight years with respect to loss recoveries, from the April 30, 2010 acquisition date. The shared-loss agreements also provide for certain costs directly related to the collection and preservation of covered assets to be reimbursed at an 80% level.

The operating results of the Group for the nine-month period ended September 30, 2010 include the operating results produced by the acquired assets and liabilities assumed for the period of May 1, 2010 to September 30, 2010. The Group believes that given the nature of assets and liabilities assumed, the significant amount of fair value adjustments, the nature of additional consideration provided to the FDIC and the FDIC shared-loss agreements now in place, historical results of Eurobank are not meaningful to the Group’s results, and thus no pro-forma information is presented.

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The assets acquired and liabilities assumed as of April 30, 2010 were presented at their fair value. In many cases, the determination of these fair values required management to make estimates about discount rates, expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The fair values initially assigned to the assets acquired and liabilities assumed were preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values became available. During the quarter ended September 30, 2010, the Group recorded preliminary measurement period adjustments to the carrying value of loans, FDIC shared-loss indemnification asset, and deferred income tax liability. This was the result of additional analysis on the estimates of fair value, and the Group’s decision to account for all loans acquired in the FDIC-assisted acquisition, except for credit cards balances, in accordance with ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The Bank and the FDIC are engaged in ongoing discussions that may impact certain assets acquired or certain liabilities assumed by the Bank. The amount that the Group realizes on these assets could differ materially from the carrying value included in the unaudited consolidated statements of financial condition primarily as a result of changes in the timing and amount of collections on the acquired loans in future periods. Because of the shared-loss agreements with the FDIC on the covered assets, the Group does not expect to incur significant losses.

Preliminary net-assets acquired and the respective preliminary measurement period adjustments are reflected in the table below:

						April 30, 2010		Preliminary
	Book value April		Fair Value			(As initially		Measurement			April 30, 2010
	30, 2010		Adjustments			reported)		Period Adjustments			(As remeasured)
						(in thousands)
Assets
Cash and cash equivalents	$	89,777	$	—		$	89,777	$	—		$	89,777
Federal Home Loan Bank stock		10,077		—			10,077		—			10,077
Loans covered by shared-loss agreements		1,536,416		(699,910	)		836,506		(49,328	)		787,178
Loans not covered by share-loss agreements		4,275		(1,298	)		2,977		(9	)		2,986
Foreclosed real estate covered by shared-loss agreements		26,082		(8,555	)		17,527		—			17,527
Other repossessed properties covered by shared-loss agreements		3,401		(339	)		3,062		—			3,062
FDIC loss-share indemnification asset		—		516,250			516,250		42,800			559,050
Core deposit intangible		—		1,423			1,423		—			1,423
Other assets		20,168		(14,867	)		5,301		—			5,301
Total assets acquired	$	1,690,196	$	(207,296	)	$	1,482,900	$	(6,519	)	$	1,476,381
Liabilities
Deposits	$	722,442	$	7,104		$	729,546	$	—		$	729,546
Deferred income tax liability, net		—		—			6,419		(2,543	)		3,876
Other liabilities		9,426		—			9,426		—			9,426
Total liabilities assumed	$	731,868	$	7,104		$	745,391	$	(2,543	)	$	742,848
Net assets acquired	$	958,328	$	(214,400	)	$	737,509	$	(3,976	)	$	733,533
Consideration
Note payable issued to the FDIC	$	715,536	$	434		$	715,970	$	—		$	715,970
Net settlement payable to the FDIC		15,244		(4,654	)		10,590		—			10,590
Equity appreciation instrument		—		909			909		—			909
	$	730,780	$	(3,311	)	$	727,469	$	—		$	727,469
Net after tax bargain purchase gain from the FDIC-assisted acquisition						$	10,040	$	(3,976	)	$	6,064

15

The preliminary measurement period adjustments affected the following items presented in the June 30, 2010 unaudited consolidated financial statements:

Net Income for the Six-Month Period Ended June 30, 2010 (As initially reported)	$	29,285
Preliminary Measurement Period Adjustments:
Interest income from covered loans accretable discount		(1,711	)
Bargain purchase from FDIC-assisted acquisition		(6,519	)
Accretion of FDIC loss-share indemnification asset		114
Income tax provision		710
Total Preliminary Measurement Period Adjustments		(7,406	)
Net Income for the Six-Month Period Ended June 30, 2010 (As re-measured)	$	21,879

	(As initially
	reported)		(As re-measured)
Earnings per share (for the six-month period ended June 30, 2010):
Basic		0.79		0.15
Diluted		0.79		0.15
Total Stockholder’s Equity at June 30, 2010	$	746,042	$	738,636

Fair Value of Assets Acquired and Liabilities Assumed

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The methods used to determine the fair values of the significant assets acquired and liabilities assumed are described below.

Cash and cash equivalents — Cash and cash equivalents include cash and due from banks, and interest-earning deposits with banks and the Federal Reserve Bank. Cash and cash equivalents have a maturity of 90 days or less at the time of purchase. The fair value of financial instruments that are short-term or re-price frequently and that have little or no risk were considered to have a fair value that approximates to carrying value.

Federal Home Loan Bank stock — The fair value of acquired FHLB stock was estimated to be its redemption value. Subsequent to April 30, 2010 the FHLB stock was redeemed at its carrying amount.

Loans - Loans acquired in the FDIC-assisted acquisition, excluding extensions of credit pursuant to a credit card plan, are referred as “covered loans” as the Bank will be reimbursed by the FDIC for a substantial portion of any future credit losses on them under the terms of the shared-loss agreements. At the April 30, 2010 acquisition date, the estimated fair value of the FDIC-assisted acquisition loan portfolio was $790.2 million. Loans fair values were estimated by discounting the expected cash flows from the portfolio. In estimating such fair value and expected cash flows, management made several assumptions regarding prepayments, collateral cash flows, the timing of defaults, and the loss severity of defaults. Other factors expected by market participants were considered in determining the fair value of acquired loans, including loan pool level estimated cash flows, type of loan and related collateral, risk classification status (i.e. performing or nonperforming), fixed or variable interest rate, term of loan and whether or not the loan was amortizing and current discount rates.

The methods used to estimate fair value are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Accordingly, readers are cautioned in using this information for purposes of evaluating the financial condition and/or value of the Group in and of itself or in comparison with any other company.

16

Foreclosed real estate and other repossessed properties — Foreclosed real estate and other repossessed properties (primarily vehicles) are presented at their estimated fair value and are also subject to the FDIC shared-loss agreements. The fair values were determined using expected selling price, less selling and carrying costs, discounted to present value.

FDIC shared-loss indemnification asset— The FDIC shared-loss indemnification asset, also known as the indemnification asset, is measured separately from each of the covered asset categories as it is not contractually embedded in any of the covered asset categories. The $559.1 million fair value of the FDIC shared-loss indemnification asset represents the present value of the estimated cash payments (net of amount owed to the FDIC) expected to be received from the FDIC for future losses on covered assets based on the credit assumptions on estimated cash flows for each covered asset pool and the loss sharing percentages. The ultimate collectability of the FDIC shared-loss indemnification asset is dependent upon the performance of the underlying covered loans, the passage of time and claims paid by the FDIC which are impacted by the Bank’s adherence to certain guidelines established by the FDIC.

Core deposit intangible (“CDI”) — CDI is a measure of the value of non-interest checking, savings, and NOW and money market deposits that are acquired in business combinations. The fair value of the CDI stemming from any given business combination was based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding.

Deposit liabilities — The fair values used for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for time deposits were estimated using a discounted cash flow method that applies interest rates currently being offered on time deposits to a schedule of aggregated contractual maturities of such time deposits.

Deferred taxes — Deferred income taxes relate to the differences between the financial statement and tax bases of assets acquired and liabilities assumed in this transaction. The Group’s effective tax rate used in measuring deferred taxes resulting from the FDIC-assisted acquisition is 39%.

Other assets and other liabilities — Given the short-term nature of these financial instruments the carrying amounts reflected in the statement of assets acquired and liabilities assumed approximated fair value.

NOTE 3 — INVESTMENTS

Money Market Investments

The Group considers as cash equivalents all money market instruments that are not pledged and that have maturities of three months of less at the date of acquisition. At September 30, 2010, and December 31, 2009, cash equivalents included as part of cash and due from banks amounted to $53.2 million and $29.4 million, respectively.

17

Investment Securities

The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the securities owned by the Group at September 30, 2010 and December 31, 2009, were as follows:

	September 30, 2010
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized		Fair		Average
	Cost		Gains		Losses		Value		Yield
					(In thousands)
Available-for-sale
Obligations of US Government sponsored agencies	$	301,565	$	—	$	15	$	301,550		0.12	%
Puerto Rico Government and agency obligations		71,318		89		3,002		68,405		5.37	%
Structured credit investments		61,724		—		19,281		42,443		3.77	%
Total investment securities		434,607		89		22,298		412,398
FNMA and FHLMC certificates		3,469,102		41,989		1,965		3,509,126		4.06	%
GNMA certificates		128,951		8,939		—		137,890		5.05	%
CMOs issued by US Government sponsored agencies		185,641		8,793		6		194,428		5.03	%
Non-agency collateralized mortgage obligations		85,754		—		22,508		63,246		4.87	%
Total mortgage-backed-securities and CMOs		3,869,448		59,721		24,479		3,904,690
Total securities available-for-sale	$	4,304,055	$	59,810	$	46,777	$	4,317,088		3.89	%

	December 31, 2009
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized		Fair		Average
	Cost		Gains		Losses		Value		Yield
					(In thousands)
Available-for-sale
Obligations of US Government sponsored agencies	$	1,037,722	$	359	$	30,990	$	1,007,091		3.18	%
Puerto Rico Government and agency obligations		71,537		9		6,181		65,365		5.37	%
Structured credit investments		61,722		—		23,340		38,382		3.69	%
Total investment securities		1,170,981		368		60,511		1,110,838
FNMA and FHLMC certificates		2,766,317		22,154		24,298		2,764,173		4.62	%
GNMA certificates		339,830		7,317		1,044		346,103		4.81	%
CMOs issued by US Government sponsored agencies		279,454		7,057		3		286,508		5.20	%
Non-agency collateralized mortgage obligations		487,435		—		41,398		446,037		5.78	%
Total mortgage-backed-securities and CMOs		3,873,036		36,528		66,743		3,842,821
Total securities available-for-sale	$	5,044,017	$	36,896	$	127,254	$	4,953,659		4.48	%

As of September 30, 2010, the Group’s investment securities portfolio included $301.6 million of obligations of US Government sponsored agencies in the form of discount notes. These securities were all used as collateral for repurchase agreements, and had a remaining maturity of less than three months. In October 2010, such securities were sold at a minimum gain of less than $1 thousand and the proceeds reinvested in US agency mortgage-backed securities with a coupon of 4.50%, and an estimated yield of 4.04%.

18

The amortized cost and fair value of the Group’s investment securities at September 30, 2010, by contractual maturity, are shown in the next table. Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. 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.

	September 30, 2010
	Available-for-sale
	Amortized Cost		Fair Value
	(In thousands)
Investment securities
Due less than 1 year
Obligations of US Government sponsored agencies	$	301,476	$	301,460
Due from 1 to 5 years
Puerto Rico Government and agency obligations		382		388
Due after 5 to 10 years
Obligations of US Government sponsored agencies		89		89
Puerto Rico Government and agency obligations		13,662		12,669
Structured credit investments		11,976		8,344
Total due after 5 to 10 years		25,727		21,102
Due after 10 years
Puerto Rico Government and agency obligations		57,274		55,349
Structured credit investments		49,748		34,099
Total due after 10 years		107,022		89,448
Total investment securities		434,607		412,398
Mortgage-backed securities
Due after 5 to 10 years
FNMA and FHLMC certificates		14,998		15,781
Due after 10 years
CMOs issued by US Government sponsored agencies		185,641		194,427
FNMA and FHLMC certificates		3,454,104		3,493,346
GNMA certificates		128,951		137,890
Non-agency collateralized mortgage obligations		85,754		63,246
Total due after 10 years		3,854,450		3,888,909
Total mortgage-backed securities		3,869,448		3,904,690
Total securities available-for-sale	$	4,304,055	$	4,317,088

Keeping with the Group’s investment strategy, during the nine-month periods ended September 30, 2010 and 2009, there were certain sales of available-for sale securities because the Group felt at the time of such sales that gains could be realized while at the same time having good opportunities to invest the proceeds in other investment securities with attractive yields and terms that would allow the Group to continue to protect its net interest margin. Also, the Group, as part of its asset and liability management, purchases agency discount notes close to their maturities as a short term vehicle to reinvest the proceeds of sale transactions until similar investment securities with attractive yields can be purchased. The discount notes are pledged as collateral for repurchase agreements. During the nine-month period ended September 30, 2010, the Group sold $282.5 million of discount notes with minimal aggregate gross gains amounting to $1 thousand and sold $387.9 million of discounted notes with minimal aggregate gross losses amounting to $1 thousand.

19

In December 2009, the Group made the strategic decision to sell $116.0 million of collateralized debt obligations at a loss of $73.9 million. For the same strategic reasons, in early January 2010, the Group sold $374.3 million of non-agency collateralized mortgage obligations with a loss of $45.8 million. This loss was accounted for as other-than-temporary impairment in the fourth quarter of 2009 and no additional gain or loss was realized on the sale in January 2010, since these assets were sold at the same value reflected at December 31, 2009.

The tables below present an analysis of the gross realized gains and losses by category for the nine-month period ended September 30, 2010 and 2009:

	Nine-Month Period Ended September 30, 2010
Description	Face Value		Cost		Sale Price			Sale Book Value		Gross Gains		Gross Losses
							(In thousands)
Sale of Securities Available-for-Sale
Investment securities
Obligations of U.S. Government sponsored agencies	$	945,425	$	968,451	$	972,642		$	967,926	$	4,716	$	1
Total investment securities		945,425		968,451		972,642			967,926		4,716		1
Mortgage-backed securities and CMOs
FNMA and FHLMC certificates		2,070,159		1,940,384		1,783,631			1,755,808		27,823		—
GNMA certificates		259,386		267,147		245,254			239,985		5,269		—
Non-agency collateralized mortgage obligations		626,619		623,695		368,216			368,216		—		—
Total mortgage-backed securities and CMOs		2,956,164		2,831,226		2,397,101			2,364,009		33,092		—
Total	$	3,901,589	$	3,799,677	$	3,369,743		$	3,331,935	$	37,808	$	1

	Nine-Month Period Ended September 30, 2009
Description	Face Value		Cost			Sale Price		Sale Book Value		Gross Gains		Gross Losses
					(In thousands)
Sale of Securities Available-for-Sale
Investment securities
Obligations of U.S. Government sponsored agencies	$	2,237,785	$	2,238,556		$	2,237,600	$	2,237,414	$	203	$	17
Puerto Rico Government and agency obligations		90,000		90,612			90,000		90,000		—		—
Total investment securities		2,327,785		2,329,168			2,327,600		2,327,414		203		17
Mortgage-backed securities and CMOs
FNMA and FHLMC certificates		3,910,151		3,808,523			3,500,406		3,450,661		50,894		1,150
CMOs issued by U.S. Government sponsored agencies		330,000		330,938			336,993		330,584		6,410		—
GNMA certificates		112,406		113,157			113,155		113,107		48		—
Total mortgage-backed securities and CMOs		4,352,557		4,252,618			3,950,554		3,894,352		57,352		1,150
Total	$	6,680,342	$	6,581,786		$	6,278,154	$	6,221,766	$	57,555	$	1,167

20

The following table shows the Group’s gross unrealized losses and fair value of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2010 and December 31, 2009:

September 30, 2010
Available-for-sale
(In thousands)

	Less than 12 months
	Amortized		Unrealized		Fair
	Cost		Loss		Value
FNMA and FHLMC certificates	$	311,297	$	1,965	$	309,332
Obligations of US Government sponsored agencies		301,476		15		301,461
CMOs issued by US Government sponsored agencies		2,588		6		2,582
		615,361		1,986		613,375

	12 months or more
	Amortized		Unrealized		Fair
	Cost		Loss		Value
Non-agency collateralized mortgage obligations		85,754		22,508		63,246
Structured credit investments		61,723		19,281		42,442
Puerto Rico Government and agency obligations		50,964		3,002		47,962
		198,441		44,791		153,650

	Total
	Amortized		Unrealized		Fair
	Cost		Loss		Value
FNMA and FHLMC certificates		311,297		1,965		309,332
Obligations of US Government sponsored agencies		301,476		15		301,461
Non-agency collateralized mortgage obligations		85,754		22,508		63,246
Structured credit investments		61,723		19,281		42,442
Puerto Rico Government and agency obligations		50,964		3,002		47,962
CMOs issued by US Government sponsored agencies		2,588		6		2,582
	$	813,802	$	46,777	$	767,025

21

December 31, 2009
Available-for-sale
(In thousands)

	Less than 12 months
	Amortized		Unrealized		Fair
	Cost		Loss		Value
FNMA and FHLMC certificates	$	1,772,575	$	24,287	$	1,748,288
Obligations of US Government sponsored agencies		602,926		30,990		571,936
GNMA certificates		154,916		1,030		153,886
CMOs issued by US Government sponsored agencies		2,701		3		2,698
		2,533,118		56,310		2,476,808

	12 months or more
	Amortized		Unrealized		Fair
	Cost		Loss		Value
FNMA and FHLMC certificates		605		11		594
GNMA certificates		350		14		336
Non-agency collateralized mortgage obligations		113,122		41,398		71,724
Puerto Rico Government and agency obligations		71,155		6,181		64,974
Structured credit investments		61,722		23,340		38,382
		246,954		70,944		176,010

	Total
	Amortized		Unrealized		Fair
	Cost		Loss		Value
FNMA and FHLMC certificates		1,773,180		24,298		1,748,882
Obligations of US Government sponsored agencies		602,926		30,990		571,936
GNMA certificates		155,266		1,044		154,222
Non-agency collateralized mortgage obligations		113,122		41,398		71,724
Puerto Rico Government and agency obligations		71,155		6,181		64,974
Structured credit investments		61,722		23,340		38,382
CMOs issued by US Government sponsored agencies		2,701		3		2,698
	$	2,780,072	$	127,254	$	2,652,818

The Group conducts quarterly reviews to identify and evaluate each investment in an unrealized loss position for other-than-temporary impairments. On April 1, 2009, the Group adopted FASB Accounting Standard Codification (“ASC”) 320-10-65-1, which changed the accounting requirements for other than temporary impairments for debt securities, and in certain circumstances, separates the amount of total impairment into credit and noncredit-related amounts.

ASC 320-10-5-1 requires the Group to consider various factors during its review, which include, but are not limited to:

• analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time the investment has been in an unrealized loss position and the expected recovery period;

• the financial condition of the issuer or issuers;

• the creditworthiness of the obligor of the security;

• actual collateral attributes;

• any rating changes by a rating agency;

• the payment structure of the debt security and the likelihood of the issuer being able to make payments;

• current market conditions

• adverse conditions specifically related to the security, industry, or a geographic area;

• the Group’s intent to sell the debt security;

• whether it is more-likely-than-not that the Group will be required to sell the debt security before its anticipated recovery;

• and other qualitative factors that could support or not an other-than-temporary impairment.

22

Any portion of a decline in value associated with credit loss is recognized in income with the remaining noncredit-related component being recognized in other comprehensive income. A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security, discounted at the rate equal to the yield used to accrete current and prospective beneficial interest for the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.”

Other-than-temporary impairment analysis is based on estimates that depend on market conditions and are subject to further change over time. In addition, while the Group believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing refinement, including those made as a result of market developments. Consequently, it is reasonably possible that changes in estimates or conditions could result in the need to recognize additional other-than-temporary impairment charges in the future.

With regards to the structured credit investments and non-agency collateralized mortgage obligations with an unrealized loss position, the Group performs a more detailed analysis of other-than-temporary impairments, which is explained in more detail in the following paragraphs. Other securities in an unrealized loss position at September 30, 2010 are mainly composed of securities issued or backed by U.S. government agencies and U.S. government-sponsored agencies. These investments are primarily highly liquid securities that have a large and efficient secondary market. Valuations are performed on a monthly basis. The Group’s management believes that the unrealized losses of such other securities at September 30, 2010, are temporary and are substantially related to market interest rate fluctuations and not to deterioration in the creditworthiness of the issuer or guarantor. At September 30, 2010, the Group does not have the intent to sell these investments in unrealized loss position.

The determination of the credit loss assumption in the discounted cash flow analysis related to the Group’s structured credit investments is similar to the one used for the non-agency collateralized mortgage obligations, the difference being that the underlying data for each type of security is different, which affects the cash flow calculations. In the case of the CLOs, the determination of the future cash flows is based on the following factors:

• Identification of the estimated fair value of the contractual coupon of the loans underlying the CLO. This information is obtained directly from the trustee’s reports for each CLO security.

• Calculation of the yield-to-maturity for each loan in the CLO, and determination of the interest rate spread (yield less the risk-free rate).

• Estimated default probabilities for each loan in the CLO. These are based on the credit ratings for each company in the structure, and this information also is obtained directly from the trustee’s reports for each CLO security. The default probabilities are adjusted based on the credit rating assuming the highest default probabilities for the loans of those entities with the lowest credit ratings. In addition to determining the current default probabilities, estimates are developed to calculate the cumulative default probabilities in successive years. To establish the reasonability of the default estimates, market-implied default rates are compared to historical credit ratings-based default rates.

• Once the default probabilities are estimated, the average numbers of defaults is calculated for the loans underlying each CLO security. In those cases where defaults are deemed to occur, a recovery rate is applied to the cash flow determination at the time in which the default is expected to occur. The recovery rate is based on average historical information for similar securities, as well as the actual recovery rates for defaults that have occurred within the pool of loans underlying the securities owned by the Group.

• One hundred simulations are carried out and run through a cash flow engine for the underlying pool of loans in each CLO security. Each one of the simulations uses different default estimates and forward yield curve assumptions.

At September 30, 2010, the Group’s portfolio of structured credit investments amounted to $61.7 million (amortized cost) in the available-for-sale portfolio, with net unrealized losses of approximately $19.3 million. The Group’s structured credit investments portfolio consist of two types of instruments: synthetic collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs).

The CLOs are collateralized mostly by senior secured (via first liens) “middle market” commercial and industrial loans, which are securitized in the form of obligations. The Group invested in three of such instruments in 2007, and as of September 30, 2010, have an aggregate amortized cost of $36.2 million and unrealized losses of $10.9 million. These investments are all floating rate notes, which reset quarterly based on the three-month LIBOR rate.

23

The Group estimates that it will recover all interest and principal for the Group’s specific tranches of these securities. This assessment is based on the cash flow analysis mentioned above in which the credit quality of the Group’s positions was evaluated through a determination of the expected losses on the underlying collateral. The model results show that the estimated future collateral losses, if any, are lower than the Group’s subordination levels for each one of these securities. Therefore, these securities are deemed to have sufficient credit support to absorb the estimated collateral losses.

The Group owns a corporate bond that is partially invested in a synthetic CDO with an amortized cost of $25.5 million and unrealized losses of $8.4 million as of September 30, 2010. Due to the nature of this corporate bond, the Group’s analysis focuses primarily on the CDO. The basis for the determination of other-than-temporary impairments on this security consists on a series of analyses that include: the ongoing review of the level of subordination (attachment and detachment) that the structure maintains at each quarter end to determine the level of protection that remains after events of default may affect any of the entities in the CDO’s reference portfolio; simulations performed on such reference portfolio to determine the probability of default by any of the remaining entities; the review of the credit default spreads for each entity in the reference portfolio to monitor their specific performance; and the constant monitoring of the CDO’s credit rating.

As a result of the aforementioned analysis, the Group estimates that it will recover all interest and principal invested in the bond. This is based on the results of the analysis mentioned above which show that the subordination level (attachment/detachment) available under the structure of the CDO is sufficient to allow the Group to recover the value of its investment.

The credit loss assumptions used by the Group in its discounted cash flow analysis for non-agency collateralized mortgage obligations are based on a model developed by a third party that uses individual loan-level inputs. The Group analyzes the underlying loan data based on the security’s structure and based on the following factors to determine the expected cash flows that the security will receive from the underlying pool of loans: loan stages and transitions; prepayment modeling; and severity modeling.

Residential mortgage loans are identified by transition stages that are based on the delinquency status of each loan, and for modeling purposes, roll rates are used in the model to estimate the transition of such loans from one stage to another as part of a loan default modeling process. Loan transition estimates are based on several drivers that include, to the extent available, the following: property type; product type; occupancy; loan purpose; loan documentation; lien type; time to payment shock (which primarily applies to adjustable rate mortgages (ARMs)); effective loan to value ratio (LTV); change of monthly LTV; credit scores of borrowers; debt to income ratio; mortgage rate; initial interest rate spread; loan age; delinquent history; and macroeconomic factors.

Prepayment estimates are applied also on a loan-level basis. The main factor of prepayment modeling is refinancing behavior, which is tied to market interest rates. In addition to market rates and how these affect prepayment modeling, prepayment estimates are calculated based on additional drivers that include the following: housing turnover; refinancing purpose; cash-out purpose; consideration of full pay-offs, partial prepayments and curtailments; and seasonality.

In addition to being able to forecast the rate of default on residential mortgage loans, particularly “subprime” loans, the model also includes projections of the realized loss amount on the loans that do default. Such “loss severity” projections are based on the following drivers: property values, which are affected by its location; property type; occupancy type, which relates to whether the properties are for investment purposes, owner-occupied (primary residence) or second homes; and delinquency status at time of liquidation.

24

The Group constantly monitors the non-agency mortgage-backed security to measure the collateral performance and gauge trends for such positions, and the effect of collateral behavior on credit enhancements, cash flows, and fair values of the bonds. The Group also periodically monitors any rating migration, and takes into account the time lag between underlying performance and rating agency actions.

The factors listed above are used to determine the security’s future expected cash flows. These future cash flows are then discounted based on the instrument’s book yield to arrive at their present value. The present value is then compared to the amortized cost of the security, and any shortfall in the present value is considered to be the credit loss, which is recognized in earnings.

Non-agency mortgage-backed securities in an unrealized loss position consist of only one security, with an amortized cost of $85.8 million and unrealized losses of $22.5 million as of September 30, 2010. The following table summarizes other-than-temporary impairment losses (in thousands) on this security for the quarter and nine-month period ended September 30, 2010:

				Nine-Month
	Quarter Ended			Period Ended
	September 30, 2010			September 30, 2010
Total loss other-than-temporarily impaired securities	$	(14,739	)	$	(39,674	)
Portion of loss on securities recognized in other comprehensive income		—			22,508
Net impairment losses recognized in earnings	$	(14,739	)	$	(17,166	)

The Group does not intend to sell this security, and it is more likely than not, that it will not be required to sell this security prior to the recovery of its amortized cost basis less any current period credit losses.

The following table presents a summary of credit-related impairment losses recognized in earnings (in thousands) on the aforementioned security:

Credit-related impairment losses recognized in earnings in:

2008	$	21,080
2009		4,309
2010		17,166
Total credit related impairment losses recognized in earnings up to September 30, 2010	$	42,555

During the quarter ended September 30, 2010, the Group revised the assumption related to home-price appreciation values used in the cash flow analysis of its non-agency mortgage-backed security. Such cash flow analysis is used to determine the expected losses on the underlying collateral. The revision provided the Group with more detailed information on the real estate values of the security’s underlying collateral, which had the effect of increasing the severity of the losses projected by the cash flow analysis. This is the main reason for the increase in the credit-related impairment losses recognized in earnings during the quarter ended September 30, 2010, as compared to prior periods.

Based on the aforementioned analysis, during the nine-month period ended September 30, 2010, net credit-related impairment losses of $17.2 million were recognized in earnings and $22.5 million of noncredit-related impairment losses were recognized in other comprehensive income for a non-agency collateralized mortgage obligation pool not expected to be sold. Major inputs to measure the amount related to the credit losses were 8.15% of default rate, 63.3% of severity, and 4.05% for prepayment rate.

25

NOTE 4 — PLEDGED ASSETS

At September 30, 2010, residential mortgage loans amounting to $517.7 million were pledged to secure advances and borrowings from the FHLB. Investment securities with fair values totaling $3.9 billion, $75.8 million and $50.8 million at September 30, 2010, were pledged to secure securities sold under agreements to repurchase, public fund deposits and the Puerto Rico Money Market Fund, respectively. Also, at September 30, 2010, investment securities with fair values totaling $20.4 million were pledged against interest rate swaps contracts, while others with fair values of $124 thousand were pledged as a bond for Trust operations to the OCFI. At December 31, 2009, residential mortgage loans amounting to $546.7 million were pledged to secure advances and borrowings from the FHLB. Investment securities with fair values totaling $3.9 billion, $72.6 million and $85.3 million at December 31, 2009, were pledged to secure securities sold under agreements to repurchase, public fund deposits and other funds, respectively. Also, at December 31, 2009, investment securities with fair values totaling $8.4 million were pledged against interest rate swaps contracts, while others with fair value of $128 thousand and $119 thousand, were pledged to the Puerto Rico Treasury Department and as a bond for Trust operations to the OCFI, respectively.

As of September 30, 2010 and December 31, 2009, investment securities available-for-sale not pledged amounted to $555.9 million and $887.1 million, respectively. As of September 30, 2010 and December 31, 2009, mortgage loans not pledged amounted to $397.2 million and $396.2 million, respectively.

NOTE 5 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans Receivable Composition

The composition of the Group’s loan portfolio at September 30, 2010 and December 31, 2009 was as follows:

	September 30, 2010			December 31, 2009
	(In thousands)
Loans not-covered under shared loss agreements with FDIC:
Loans secured by real estate:
Residential - 1 to 4 family	$	861,464		$	898,790
Home equity loans, secured personal loans and others		25,787			20,145
Commercial		163,565			157,631
Deferred loan fees, net		(3,815	)		(3,318	)
		1,047,001			1,073,248
Other loans:
Commercial		53,715			40,146
Personal consumer loans and credit lines		30,757			22,864
Leasing		5,926			—
Deferred loan fees, net		(421	)		(178	)
		89,977			62,832
Loans receivable		1,136,978			1,136,080
Allowance for loan and lease losses		(29,640	)		(23,272	)
Loans receivable, net		1,107,338			1,112,808
Mortgage loans held-for-sale		31,432			27,261
Total loans not-covered under shared loss agreements with FDIC, net		1,138,770			1,140,069
Loans covered under shared loss agreements with FDIC:
Loans secured by 1-4 family residential properties		175,125			—
Construction and development secured by 1-4 family residential properties		18,165			—
Commercial and other construction		414,661			—
Leasing		95,207			—
Consumer		19,700			—
Total loans covered under shared loss agreements with FDIC		722,858			—
Total loans, net	$	1,861,628		$	1,140,069

26

Non-covered Loans

The Group’s credit activities are mainly with customers located in Puerto Rico. The Group’s loan transactions are encompassed within four main categories: mortgage, commercial, consumer and leases. The latter business was added to the Group’s credit activities as a result of the recent FDIC-assisted acquisition.

At September 30, 2010 and December 31, 2009, the Group had $59.6 million and $57.1 million, respectively, of non-accrual non-covered loans including credit cards accounted under ASC 310-20. Covered loans are considered to be performing due to the application of the accretion method under the ASC 310-30, as furthered discussed in Note 2, “FDIC-assisted acquisition.”

The following table presents information regarding the Group’s non-performing loans at September 30, 2010 and December 31, 2009:

	September 30,		December 31,
	2010		2009
	(In thousands)
Non-performing loans:
Residential Mortgage	$	96,286	$	88,238
Commercial		13,862		15,688
Consumer		604		445
Total	$	110,752	$	104,371

In accordance with GAAP, the Group is required to account for certain loan modifications or restructurings as “troubled debt restructurings”. In general, a modification or restructuring of a loan constitutes a troubled debt restructuring if the Group grants a concession to a borrower experiencing financial difficulty. Loans modified in a troubled debt restructuring are placed on non-accrual status until the Group determines that future collection of principal and interest is reasonably assured. Loans modified in a troubled debt restructuring totaled $32.9 million at September 30, 2010 ($10.7 million — December 31, 2009).

Loans Acquired in the FDIC-Assisted Acquisition

Loans acquired in the FDIC-assisted acquisition, except for credit cards, are accounted for by the Group in accordance with ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” Under ASC 310-30, these loans were aggregated into pools based on similar characteristics. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. The covered loans which are accounted for under ASC 310-30 by the Group are not reported as non-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected.

The accretable yield on loans represents the amount by which the undiscounted expected cash flows exceed the estimated fair value. The fair values initially assigned to the assets acquired and liabilities assumed were preliminary and are subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values becomes available. At April 30, 2010, the accretable yield initially reported was $198.5 million. After preliminary measurement period adjustments such accretable yield was approximately $201.3 million, which is expected to amortize as interest income over the life of the loans. The undiscounted contractual cash flows for the loans under ASC 310-30 are $1.775 billion. The undiscounted estimated cash flows expected to be collected for loans under ASC 310-30 are $988.5 million. The non-accretable discount on loans under ASC 310-30 amounted to $786.2 million.

The following summarizes the accretable yield from the loans acquired during the nine-month period ended September 30, 2010:

	Nine-Month Period
	Ended
	September 30, 2010
	(In thousands)
Accretable yield at beginning of period	$	—
Accretable yield determined at date of FDIC — assisted acquisition, as initially reported		198,450
Preliminary measurement period adjustment		2,827
Accretable yield amortized to interest income:
During the quarter ended June 30, 2010		(11,704	)
During the quarter ended September 30, 2010		(16,746	)
Accretable yield at end of period	$	172,827

27

Allowance for Loan and Lease Losses

Non-Covered Loans

The Group maintains an allowance for loan and lease 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 and lease 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 and lease losses, future additions to the allowance may be required based on factors beyond the Group’s control.

The changes in the allowance for loan and lease losses for the quarters and nine-month periods ended September 30, 2010 and 2009 were as follows:

	Quarter Ended September 30,						Nine-Month Period Ended September 30,
	2010			2009			2010			2009
				(In thousands)
Balance at beginning of period	$	28,002		$	16,718		$	23,272		$	14,293
Provision for loan and lease losses		4,100			4,400			12,214			11,250
Charge-offs		(2,517	)		(1,037	)		(6,124	)		(5,652	)
Recoveries		55			95			278			285
Balance at end of period	$	29,640		$	20,176		$	29,640		$	20,176

The Group evaluates all loans, some individually and others as homogeneous groups, for purposes of determining impairment. The Group’s recorded investment in commercial and mortgage loans that were individually evaluated for impairment, excluding FDIC covered loans, and the related allowance for loan and lease losses as of September 30, 2010 and December 31, 2009 are as follows:

	September 30, 2010							December 31, 2009
	Recorded		Specific					Recorded		Specific
	Investment		Allowance		Coverage			Investment		Allowance		Coverage
					(In thousands)
Impaired loans with specific allowance
Commercial	$	10,769	$	524		5	%	$	9,355	$	709		8	%
Mortgage		27,934		1,990		7	%		10,717		684		6	%
Impaired loans with no specific allowance
Commercial		13,997		—		0	%		6,227		—		0	%
Total investment in impaired loans	$	52,700	$	2,514		5	%	$	26,299	$	1,393		5	%

The impaired commercial loans were measured based on the fair value of collateral. Impairment on mortgage loans assessed as troubled debt restructuring was measured using the present value of cash flows.

28

Covered Loans under ASC 310-30

The covered loans were recognized at fair value as of April 30, 2010, which included the impact of expected credit losses and therefore, no allowance for credit losses was recorded at the acquisition date. To the extent credit deterioration occurs after the date of acquisition, the Group would record an allowance for loan and lease losses. Also, the Group would record an increase in the FDIC shared-loss indemnification asset for the expected reimbursement from the FDIC under the shared-loss agreements, which will partially offset the provision. For the nine-month period ended September 30, 2010, there have been deviations between actual and expected cash flows in several pools of loans acquired under the FDIC-assisted acquisition. These deviations are both positive and negative in nature. The Group continues to monitor these deviations at the pool level consistent with relevant accounting literature to assess whether these deviations are due to differences in time lags of collections or due to credit issues of the loans comprising the pools. At September 30, 2010 the Group concluded that the deviations between actual and expected cash flows arise from insignificant timing differences in time lags of collections and therefore no change to the original assumptions used at the acquisition date to determine the expected cash flows were required. In the event that positive trends on certain portfolios continue, there could be the need to adjust the accretable discount which will increase the interest income prospectively on the pools prospectively. On the other hand, if negative trends continue on certain portfolios, these could lead to a recognition of a provision for loan and lease losses and establishing an allowance for loan and lease losses.

NOTE 6 — SERVICING ASSETS

The Group periodically sells or securitizes mortgage loans while retaining the obligation to perform the servicing of such loans. In addition, the Group may purchase or assume the right to service mortgage loans originated by others. Whenever the Group undertakes an obligation to service a loan, management assesses whether a servicing asset and/or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to more than adequately compensate the Group for servicing the loans. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate the Group for its expected cost.

All separately recognized servicing assets are recognized at fair value using the fair value measurement method. Under the fair value measurement method, the Group measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing asset in earnings in the period in which the changes occur, and includes these changes, if any, with mortgage banking activities in the unaudited consolidated statement of operations. The fair value of servicing rights is subject to fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

The fair value of servicing rights is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.

At September 30, 2010 servicing assets are composed of $8.7 million ($6.1 million — September 30, 2009) related to residential mortgage loans and $990 thousand of leasing servicing assets acquired in the FDIC-assisted acquisition on April 30, 2010.

The following table presents the changes in servicing rights measured using the fair value method for the quarter and nine-month periods ended September 30, 2010 and 2009:

	Quarter Ended September 30,						Nine-Month Period Ended September 30,
	2010			2009			2010			2009
	(In thousands)						(In thousands)
Fair value at beginning of period	$	9,285		$	5,242		$	7,120		$	2,819
Acquisition of leasing servicing assets from FDIC assisted acquisition		—			—			1,190			—
Servicing from mortgage securitizations or assets transfers		819			896			2,229			2,174
Changes due to payments on loans		(398	)		(101	)		(614	)		(218	)
Changes in fair value due to changes in valuation model inputs or assumptions		(59	)		98			(278	)		1,360
Fair value at end of period	$	9,647		$	6,135		$	9,647		$	6,135

29

The following table presents key economic assumptions ranges used in measuring the mortgage related servicing asset fair value:

	Quarter Ended September 30,						Nine-Month Period Ended September 30,
	2010			2009			2010			2009
Constant prepayment rate		9.24% - 38.76	%		9.23%-31.64	%		8.40% - 38.76	%		7.52% - 32.22	%
Discount rate		11.00% - 14.00	%		10.50% - 13.50	%		11.00% - 14.00	%		10.50% - 13.50	%

The discount rate used in measuring the leasing servicing asset fair value ranged from 13.06% to 20.00% from April 30, 2010 (acquisition date) to September 30, 2010.

The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adverse changes in the above key assumptions were in isolation as follow:

	September 30, 2010
	(in thousands)
Mortgage related servicing asset
Carrying value of mortgage servicing asset	$	8,657
Constant prepayment rate
Decrease in fair value due to 10% adverse change	$	(325	)
Decrease in fair value due to 20% adverse change	$	(629	)
Discount rate
Decrease in fair value due to 10% adverse change	$	(390	)
Decrease in fair value due to 20% adverse change	$	(749	)
Leasing servicing asset
Carrying value of leasing servicing asset	$	990
Discount rate
Decrease in fair value due to 10% adverse change	$	(12	)
Decrease in fair value due to 20% adverse change	$	(24	)

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.

In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities.

Mortgage banking activities, a component of total banking and wealth management revenues in the unaudited consolidated statements of operations, include the changes from period to period in the fair value of the servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

Servicing fee income is based on a contractual percentage of the outstanding principal and is recorded as income when earned. Servicing fees on mortgage loans totaled $627 thousand and $422 thousand for the quarters ended September 30, 2010 and 2009, respectively. These fees totaled $1.6 million and $1.1 million for the nine-month periods ended September 30, 2010 and 2009, respectively. There were no late fees and ancillary fees recorded in such periods. Servicing fees on leases amounted to $135 thousand and $373 thousand for the quarter and nine-month period ended September 30, 2010, respectively. There were no fees during 2009.

30

NOTE 7 — PREMISES AND EQUIPMENT

Premises and equipment at September 30, 2010 and December 31, 2009 are stated at cost less accumulated depreciation and amortization as follows:

	Useful Life	September 30,			December 31,
	(Years)	2010			2009
	(In thousands)
Land	—	$	978		$	978
Buildings and improvements	40		3,096			2,982
Leasehold improvements	5 — 10		19,504			19,198
Furniture and fixtures	3 — 7		8,760			8,527
Information technology and other	3 — 7		17,467			16,944
Vehicles	3		123			—
			49,928			43,429
Less: accumulated depreciation and amortization			(32,803	)		(28,854	)
		$	17,125		$	19,775

Depreciation and amortization of premises and equipment for the quarters ended September 30, 2010 and 2009 totaled $1.6 million and $1.5 million, respectively. For the nine-month periods ended September 30, 2010 and 2009, these expenses amounted to $4.2 million and $4.5 million, respectively. These are included in the unaudited consolidated statements of operations as part of occupancy and equipment expenses.

During the quarter ended September 30, 2010 the Group communicated to the FDIC that it will exercise its option under the Purchase and Assumption Agreement executed in connection with the Eurobank acquisition to purchase certain real properties where two branch banking operations are conducted for an aggregate amount of $4.6 million. In connection with the purchase of such real properties, the Group has also exercised its option to purchase furniture, equipment and information technology equipment for the aggregate amount of $518 thousand.

NOTE 8 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS

Accrued interest receivable at September 30, 2010 and December 31, 2009 consists of the following:

	September 30,		December 31,
	2010		2009
	(In thousands)
Loans	$	11,186	$	10,888
Investments		19,458		22,768
	$	30,644	$	33,656

31

Other assets at September 30, 2010 and December 31, 2009 consist of the following:

	2010		2009
	(In thousands)
Prepaid FDIC insurance	$	18,235	$	22,568
Investment in equity indexed options		7,106		6,464
Mortgage tax credits		1,954		3,819
Other prepaid expenses		7,134		4,269
Debt issuance costs		2,607		3,531
Goodwill		2,006		2,006
Investment in Statutory Trusts		1,086		1,086
Forward settlement swaps		—		8,511
Other repossessed assets (covered under shared-loss agreements with the FDIC)		2,748		—
Third party servicing advances		2,162		—
Accounts receivable and other assets		11,530		5,535
	$	56,568	$	57,789

On November 12, 2009, the FDIC adopted a final rule requiring insured depository institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012, on December 30, 2009, along with each institution’s risk-based deposit insurance assessment for the third quarter of 2009. The prepayment of the assessment covering fiscal years 2010, 2011 and 2012 amounted to $18.2 million and $22.6 million at September 30, 2010 and December 31, 2009, respectively.

The Group offers its customers certificates of deposit with an option tied to the performance of the Standard & Poor’s 500 stock market 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. At September 30, 2010 and December 31, 2009, the purchased options used to manage the exposure to the stock market on stock indexed deposits represented an asset of $7.1 million (notional amount of $149.9 million) and $6.5 million (notional amount of $150.7 million), respectively. The options sold to customers embedded in the certificates of deposit and recorded as deposits in the unaudited consolidated statement of financial condition, represented at September 30, 2010 and December 31, 2009, a liability of $10.1 million (notional amount of $144.4 million) and $9.5 million (notional amount of $145.4 million), respectively, and are included in other liabilities on the unaudited consolidated statements of financial condition.

In December 2007, the Commonwealth of Puerto Rico established mortgage loan tax credits to financial institutions that provided financing for the acquisition of homes by new homeowners in the period from December 2007 to December 2008 up to a maximum aggregate amount of $220 million in tax credits overall. At September 30, 2010 and December 31, 2009, the Group’s mortgage loan tax credits amounted to $2.0 million and $3.8 million, respectively.

In March 2009, the Group’s banking subsidiary issued $105 million in notes guaranteed under the FDIC Temporary Liquidity Guarantee Program. Shortly after issuance of the notes, the Group paid $3.2 million (equivalent to an annual fee of 100 basis points) to the FDIC to maintain the FDIC guarantee coverage until the maturity of the notes. These costs have been deferred and are being amortized over the term of the notes. At September 30, 2010 and December 31, 2009, this deferred issue cost was $2.6 million and $3.5 million, respectively.

32

At September 30, 2010 and December 31, 2009, there were open forward settlement swaps with an aggregate notional amount of $1.250 billion. The forward settlement date of these swaps is December 28, 2011 for $900.0 million and May 9, 2012 for $350.0 million, with final maturities ranging from December 28, 2013 through December 28, 2015. A derivative liability of $8.3 million and a derivative asset of $8.5 million were recognized at September 30, 2010 and December 31, 2009, respectively, related to the valuation of these swaps.

Other repossessed assets amounting to $2.7 million at September 30, 2010 represent covered assets under the FDIC shared-loss agreements and are related to the Eurobank leasing portfolio acquired under the FDIC-assisted acquisition.

Third-party servicing advances amounting to $2.2 million at September 30, 2010 relates to advances made to a third party acting as servicer of certain commercial and construction loans acquired in the FDIC-assisted acquisition.

NOTE 9 — DEPOSITS AND RELATED INTEREST

Total deposits as of September 30, 2010, and December 31, 2009 consist of the following:

	September 30, 2010		December 31, 2009
	(In thousands)
Non-interest bearing demand deposits	$	168,590	$	73,548
Interest-bearing savings and demand deposits		953,922		706,750
Individual retirement accounts		351,743		312,843
Retail certificates of deposit		436,706		312,410
Total retail deposits		1,910,961		1,405,551
Institutional deposits		406,266		136,683
Brokered deposits		278,048		203,267
	$	2,595,275	$	1,745,501

At September 30, 2010 and December 31, 2009, the weighted average interest rate of the Group’s deposits was 1.98%, and 3.13%, respectively, inclusive of non-interest bearing deposit of $168.6 million, and $73.5 million, respectively. Interest expense for the quarters and nine-month periods ended September 30, 2010 and 2009 is set forth below:

	Quarter Ended September 30,				Nine-Month Period Ended September 30,
	2010		2009		2010		2009
	(In thousands)				(In thousands)
Demand and savings deposits	$	4,586	$	5,295	$	13,047	$	13,766
Certificates of deposit		8,094		8,695		22,827		28,196
	$	12,680	$	13,990	$	35,874	$	41,962

At September 30, 2010 and December 31, 2009, certificates of deposit in denominations of $100 thousand or higher amounted to $684.3 million and $359.1 million, respectively, including public fund deposits from various local government agencies of $67.4 million and $63.4 million, which were collateralized with investment securities with fair value of $75.8 million and $72.6 million, respectively.

33

Excluding equity indexed options in the amount of $10.1 million, which are used by the Group to manage its exposure to the Standard & Poor’s 500 stock market index, and also excluding accrued interest of $5.6 million, unamortized deposit premium in the amount of $3.9 million and unamortized deposit discounts in the amount of $12.6 million, the scheduled maturities of time deposits at September 30, 2010 are as follows:

	(In thousands)
Within one year:
Three (3) months or less	$	288,221
Over 3 months through 1 year		714,410
		1,002,631
Over 1 through 2 years		245,683
Over 2 through 3 years		137,231
Over 3 through 4 years		52,093
Over 4 through 5 years		28,142
	$	1,465,780

The aggregate amount of overdraft in demand deposit accounts that were reclassified to loans amounted to $4.3 million as of September 30, 2010 (December 31, 2009 — $1.6 million).

NOTE 10 — BORROWINGS

Short Term Borrowings

At September 30, 2010, short term borrowings amounted to approximately $30.0 million (December 31, 2009 — $49.2 million), which mainly consisted of overnight borrowings with a weighted average cost of 0.58% (December 31, 2009 — 0.44%).

Securities Sold under Agreements to Repurchase

At September 30, 2010, 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.

At September 30, 2010, securities sold under agreements to repurchase (classified by counterparty), excluding accrued interest in the amount of $6.5 million, were as follows:

			Fair Value of
			Underlying
	Borrowing Balance		Collateral
	(In thousands)
Citigroup Global Markets Inc.	$	1,600,000	$	1,782,220
Credit Suisse Securities (USA) LLC		1,250,000		1,334,907
UBS Financial Services Inc.		500,000		605,277
JP Morgan Chase Bank NA		185,000		210,857
Total	$	3,535,000	$	3,933,261

34

The terms of the Group’s structured repurchase agreements range between three and ten years, and the counterparties have the right to exercise at par on a quarterly basis put options before their contractual maturity from one to three years after the agreements’ settlement dates. The following table shows a summary of these agreements and their terms, excluding accrued interest in the amount of $6.5 million, at September 30, 2010:

			Weighted-Average
Year of Maturity	Borrowing Balance		Coupon			Settlement Date		Maturity Date		Next Put Date
	(In thousands)
2011
	$	100,000		4.17	%		12/28/2006		12/28/2011		12/28/2010
		350,000		4.13	%		12/28/2006		12/28/2011		12/28/2010
		100,000		4.29	%		12/28/2006		12/28/2011		12/28/2010
		350,000		4.25	%		12/28/2006		12/28/2011		12/28/2010
		900,000
2012
		350,000		4.26	%		5/9/2007		5/9/2012		11/9/2010
		100,000		4.50	%		8/14/2007		8/14/2012		11/16/2010
		100,000		4.47	%		9/13/2007		9/13/2012		12/13/2010
		150,000		4.31	%		3/6/2007		12/6/2012		12/6/2010
		700,000
2014
		100,000		4.72	%		7/27/2007		7/27/2014		10/27/2010
		100,000
2017
		500,000		4.51	%		3/2/2007		3/2/2017		12/2/2010
		250,000		0.25	%		3/2/2007		3/2/2017		12/2/2010
		100,000		0.00	%		6/6/2007		3/6/2017		12/6/2010
		900,000		0.00	%		3/6/2007		6/6/2017		12/6/2010
		1,750,000
	$	3,450,000		2.72	%

None of the structured repurchase agreements referred to above with put dates up to the date of this filing were put by the counterparties at their corresponding put dates. The repurchase agreements include $1.25 billion, which reset at the put date at a formula which is based on the three-month LIBOR rate less fifteen times the difference between the ten-year SWAP rate and the two-year SWAP rate, with a minimum of 0.00% on $1.0 billion and 0.25% on $250 million, and a maximum of 10.6%. These repurchase agreements bear the respective minimum rates of 0.0% (from March 6, 2009) and 0.25% (from March 2, 2009) to at least their next put dates scheduled for December 2010.

During the quarter ended September 30, 2010, the Group entered into a short-term repurchase agreement in the amount of $85.0 million at a cost of 0.30%. This repurchase agreement was paid off on October 7, 2010.

Advances from the Federal Home Loan Bank

During 2007, the Group restructured most of its FHLB advances portfolio into longer-term, structured advances. The terms of these advances range between five and seven years, and the FHLB has the right to exercise at par on a quarterly basis put options before the contractual maturity of the advances from six months to one year after the advances’ settlement dates.

35

The following table shows a summary of these advances and their terms, excluding accrued interest in the amount of $1.8 million, at September 30, 2010:

			Weighted-Average
Year of Maturity	Borrowing Balance		Coupon			Settlement Date		Maturity Date		Next Put Date
	(In thousands)
2012
	$	25,000		4.37	%		5/4/2007		5/4/2012		11/4/2010
		25,000		4.57	%		7/24/2007		7/24/2012		10/25/2010
		25,000		4.26	%		7/30/2007		7/30/2012		10/30/2010
		50,000		4.33	%		8/10/2007		8/10/2012		11/10/2010
		100,000		4.09	%		8/16/2007		8/16/2012		11/16/2010
		225,000
2014
		25,000		4.20	%		5/8/2007		5/8/2014		11/9/2010
		30,000		4.22	%		5/11/2007		5/11/2014		11/11/2010
		55,000
	$	280,000		4.24	%

None of the structured advances from the FHLB referred to above with put dates up to the date of this filing were put by the counterparty at their corresponding put dates.

Subordinated Capital Notes

Subordinated capital notes amounted to $36.1 million at September 30, 2010 and December 31, 2009.

In August 2003, the Statutory Trust II, special purpose entity of the Group, was formed for the purpose of issuing trust redeemable preferred securities. In September 2003, $35.0 million of trust redeemable preferred securities were issued by the Statutory Trust II 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 this issuance were used by 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 subordinated capital notes have a par value of $36.1 million, bear interest based on 3-month LIBOR plus 295 basis points (3.24% at September 30, 2010; 3.20% at December 31, 2009), payable quarterly, and mature on September 17, 2033. The subordinated capital notes purchased by the Statutory Trust II may be called at par after five years and quarterly thereafter (next call date December 2010). 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. Under Federal Reserve Board rules, 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. However, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), bank holding companies are prohibited from including in their Tier 1 capital hybrid debt and equity securities, including trust preferred securities, issued on or after May 19, 2010. The Group is therefore permitted to continue to include its existing trust preferred securities as Tier 1 capital.

36

FDIC- Guaranteed Term Notes — Temporary Liquidity Guarantee Program

The Group’s banking subsidiary issued in March 2009 $105 million in notes guaranteed under the FDIC Temporary Liquidity Guarantee Program. These notes are due on March 16, 2012, bear interest at a 2.75% fixed rate, and are backed by the full faith and credit of the United States. Interest on the notes is payable on the 16th of each March and September, beginning September 16, 2009. Shortly after issuance of the notes, the Group paid $3.2 million (equivalent to an annual fee of 100 basis points) to the FDIC to maintain the FDIC guarantee coverage until the maturity of the notes. This cost has been deferred and is being amortized over the term of the notes.

Note Payable to the FDIC

As part of the FDIC-assisted acquisition, the Bank issued to the FDIC a purchase money promissory note (the “Note”) in the amount of $715.5 million. The Note was secured by the loans (other than certain consumer loans) acquired under the Purchase and Assumption Agreement and all proceeds derived from such loans. The entire outstanding principal balance of the Note was due one year from issuance, or such earlier date as such amount became due and payable pursuant to the terms of the Note. The Bank paid interest in arrears on the Note at the annual rate of 0.881% on the 25th day of each month or, if such day was not a business day, the next succeeding business day, commencing June 25, 2010, on the outstanding principal amount of the Note. Interest was calculated on the basis of a 360-day year consisting of twelve 30-day months. On September 27, 2010, the Group made the strategic decision to repay the Note prior to maturity. At the time of repayment the Note had an outstanding principal balance of $595.0 million. For the cancelation of the Note, the Group used approximately $200.0 million of proceeds from the sale of available for sale securities, brokered certificates of deposit amounting to $134.7 million, short-term repurchase agreements amounting to $85.0 million, and $175.3 million of cash.

NOTE 11 — DERIVATIVE ACTIVITIES

The Group may use 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.

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.

The Group generally uses interest rate swaps and options in managing its interest rate risk exposure. Under the swaps, the Group usually pays a fixed monthly or quarterly cost and receives 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. If market conditions warrant, the Group might terminate the swaps prior to their maturity.

The following table shows a summary of these swaps and their terms, at September 30, 2010:

	Notional Amount		Fixed Rate			Trade Date		Settlement Date		Maturity Date
	(In thousands)
Forward settlement into two year contract	$	300,000		1.5040	%		08/18/10		12/28/11		12/28/13
Forward settlement into three year contract		300,000		1.8450	%		08/18/10		12/28/11		12/28/14
Forward settlement into four year contract		300,000		2.1550	%		08/18/10		12/28/11		12/28/15
Forward settlement into two year contract		350,000		1.8275	%		08/13/10		05/09/12		05/09/14
	$	1,250,000

37

During the quarter and nine-month period ended September 30, 2010, losses of $22.6 million and $59.8 million, respectively, were recognized and reflected as “Derivatives” in the unaudited consolidated statements of operations. These losses on derivative activities included realized losses of $17.3 million and $42.0 million in the quarter and nine-month period ended September 30, 2010, respectively, due to the terminations of forward-settle swaps with a notional amount of $900 million. These terminations allowed the Group to enter into new forward-settle swap contracts for the same notional amount and maturity, and effectively reduce the interest rate of the pay-fixed side of such deals from an average rate of 3.53% to an average rate of 1.83%. The remaining losses mainly represent unrealized losses on new interest rate swaps. A derivative liability of $8.3 million and a derivative asset of $8.5 million were recognized at September 30, 2010 and December 31, 2009, respectively, related to the valuation of these swaps.

The Group offers its customers certificates of deposit with an option tied to the performance of the Standard & Poor’s 500 stock market 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.

There were no derivatives designated as a hedge as of September 30, 2010 and December 31, 2009. At September 30, 2010 and December 31, 2009, the purchased options used to manage the exposure to the stock market on stock indexed deposits represented an asset of $7.1 million (notional amount of $149.9 million) and $6.5 million (notional amount of $150.7 million), respectively; the options sold to customers embedded in the certificates of deposit and recorded as deposits in the unaudited consolidated statement of financial condition, represented a liability of $10.1 million (notional amount of $144.4 million) and $9.5 million (notional amount of $145.4 million), respectively, and are included in other liabilities on the unaudited consolidated statements of financial condition.

NOTE 12 — INCOME TAX

Under the Puerto Rico Internal Revenue Code of 1994, as amended, all companies are treated as separate taxable entities and are not entitled to file consolidated returns. The Group and its subsidiaries are subject to Puerto Rico regular income tax or alternative minimum tax (“AMT”) on income earned from all sources. The AMT is payable if it exceeds regular income tax. The excess of AMT over regular income tax paid in any one year may be used to offset regular income tax in future years, subject to certain limitations. The Group maintained an effective tax rate lower than the maximum marginal statutory rate of 40.95% as of September 30, 2010 and 2009, mainly due to the income from the Bank’s international banking entity whose tax rate is 5% on both periods, and interest income arising from investments exempt from Puerto Rico income taxes, net of disallowed 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 entity. Pursuant to the Declaration of Fiscal Emergency and Omnibus Plan for Economic Stabilization and Restoration of the Puerto Rico Credit Act of March 9, 2009, for tax years beginning after December 31, 2008, and ending before January 1, 2012, every taxable corporation engaged in trade or business in Puerto Rico, including banks and insurance companies, are subject to an additional 5% surcharge on corporate income tax, increasing the maximum tax rate from 39% to 40.95%. Also, income earned by international banking entities, which was previously fully exempt, is subject to a 5% income tax during the same period. These temporary taxes were enacted as a measure to generate additional revenues to address the fiscal crisis that the government of Puerto Rico is currently facing.

The Group classifies unrecognized tax benefits in income taxes payable. These gross unrecognized tax benefits would affect the effective tax rate if realized. The balance of unrecognized tax benefits at September 30, 2010 was $6.6 million (December 31, 2009 — $6.3 million), and variance is mainly associated with accrued interests. The tax periods from 2005 to 2009, remain subject to examination by the Puerto Rico Department of Treasury.

The Group’s policy to include interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated statements of operations did not change as a result of implementing these provisions. The Group had accrued $2.4 million at September 30, 2010 (December 31, 2009 — $2.1 million) for the payment of interest and penalties relating to unrecognized tax benefits.

38

NOTE 13 — STOCKHOLDERS’ EQUITY

Treasury Stock

Under the Group’s current stock repurchase program it is authorized to purchase in the open market up to $15.0 million of its outstanding shares on common stock. The shares of common stock repurchased are to be held by the Group as treasury shares. There were no repurchases during the quarters ended September 30, 2010 and 2009. The approximate dollar value of shares that may yet be repurchased under the program amounted to $11.3 million at September 30, 2010.

The activity in connection with common shares held in treasury by the Group for the nine-month period ended September 30, 2010 and 2009 is set forth below:

	Nine-Month Period Ended September 30,
	2010						2009
				Dollar					Dollar
	Shares			Amount			Shares		Amount
	(In thousands)
Beginning of period		1,504		$	17,142			1,442	$	17,109
Common shares repurchased /(used) to match defined contribution plan, net		(14	)		(26	)		65		38
End of period		1,490		$	17,116			1,507	$	17,147

Equity—Based Compensation Plans

The Omnibus Plan was amended and restated in 2008 and further amended in 2010. It provides for equity-based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted units, and dividend equivalents, as well as equity-based performance awards. The Omnibus Plan replaced and superseded the Stock Option Plans. All outstanding stock options under the Stock Option Plans continue in full force and effect, subject to their original terms.

The activity in outstanding stock options for the nine-month period ended September 30, 2010 is set forth below:

	Nine-Month Period Ended
	September 30, 2010
				Weighted
	Number			Average
	Of			Exercise
	Options			Price
Beginning of period		514,376		$	16.86
Options granted		162,700			11.98
Options exercised		(8,337	)		8.60
Options forfeited		(3,000	)		22.21
End of period		665,739		$	15.75

39

The following table summarizes the range of exercise prices and the weighted average remaining contractual life of the options outstanding at September 30, 2010:

	Outstanding						Exercisable
					Weighted				Weighted
			Weighted		Average				Average
	Number of		Average		Contract		Number of		Exercise
Range of Exercise Prices	Options		Exercise Price		Life (Years)		Options		Price
$5.63 to $8.45		15,677	$	8.28		8.6		1	$	7.74
8.45 to 11.27		2,000		10.29		6.9		500		10.29
11.27 to 14.09		408,527		12.24		6.9		144,452		12.41
14.09 to 16.90		62,035		15.60		3.9		54,035		15.68
19.72 to 22.54		29,600		20.70		4.4		22,100		20.30
22.54 to 25.35		88,850		23.98		3.6		88,850		23.98
25.35 to 28.17		59,050		27.46		4.1		59,050		27.46
		665,739	$	15.75		5.8		368,988		18.55
Aggregate Intrinsic Value	$	552,439					$	134,721

The average fair value of each stock option granted in 2010 was $6.02. The average fair value of each stock 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 stock 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 activity in restricted units under the Omnibus Plan for the nine-month period ended September 30, 2010 is set forth below:

	Nine-Month Period Ended
	September 30, 2010
				Weighted
				Average
	Restricted			Grant Date
	Units			Fair Value
Beginning of period		147,625		$	14.64
Restricted units granted		81,000			12.33
Restricted units exercised		—			—
Restricted units forfeited		(5,100	)		14.12
End of period
		223,525		$	13.72

40

Earnings per Common Share

The calculation of earnings per common share for the quarters and nine-month periods ended September 30, 2010 and 2009 is as follows:

	Quarter Ended September 30,						Nine-Month Period Ended September 30,
	2010			2009			2010			2009
	(In thousands, except per share data)
Net income (loss)	$	(6,595	)	$	21,327		$	15,284		$	96,990
Less: Dividends on preferred stock		(1,200	)		(1,201	)		(4,134	)		(3,602	)
Less: Deemed dividend on preferred stock beneficial conversion feature		(22,711	)		—			(22,711	)		—
Income available (loss) to common shareholders	$	(30,506	)	$	20,126		$	(11,561	)	$	93,388
Weighted average common shares and share equivalents:
Average common shares outstanding		45,354			24,303			34,823			24,284
Average potential common shares-options		128			65			105			17
Total		45,482			24,368			34,928			24,301
Earnings (loss) per common share — basic	$	(0.67	)	$	0.83		$	(0.33	)	$	3.85
Earnings (loss) per common share — diluted	$	(0.67	)	$	0.83		$	(0.33	)	$	3.84

For the quarter and nine-month period ended September 30, 2010, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 312,700 and 420,200, respectively, compared to 303,046 and 494,874 for the same periods in 2009. The conversion of mandatorily convertible non-cumulative non-voting perpetual preferred stock, Series C, into shares of the Group’s common stock, resulted in a non-cash beneficial conversion feature of $22.7 million, representing the intrinsic value between the conversion rate of $15.015 and the common stock closing price of $16.72 on April 30, 2010, the date the preferred shares were offered. Upon conversion the beneficial conversion feature was recorded as a deemed dividend to the preferred stockholders reducing retained earnings, with a corresponding offset to surplus (paid in capital), and thus did not affect total stockholders’ equity or the book value of the common stock. However, the deemed dividend increased the net loss applicable to common stock and affected the calculation of basic and diluted EPS for the quarter and nine months ended September 30, 2010. Moreover, in computing diluted EPS, dilutive convertible securities that remained outstanding for the period prior to actual conversion were not included as average potential common shares because the effect would have been antidilutive. In computing both basic and diluted EPS, the common shares issued upon actual conversion were included in the weighted average calculation of common shares, after the date of conversion, that they remained outstanding.

Legal Surplus

The Banking Act requires that a minimum of 10% of the Bank’s net income for the year be transferred to a reserve fund until such fund (legal surplus) equals the total paid in capital on common and preferred stock. At September 30, 2010, legal surplus amounted to $47.0 million (December 31, 2009 - - $45.3 million). The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders. In addition, the Federal Reserve Board has issued a policy statement that bank holding companies should generally pay dividends only from operating earnings of the current and preceding two years.

Preferred Stock

On May 28, 1999, the Group issued 1,340,000 shares of 7.125% Noncumulative Monthly Income Preferred Stock, Series A, at $25 per share. Proceeds from issuance of the Series A Preferred Stock, were $32.4 million, net of $1.1 million of issuance costs. The Series A Preferred Stock has the following characteristics: (1) annual dividends of $1.78 per share, payable monthly, if declared by the Board of Directors; missed dividends are not cumulative, (2) redeemable at the Group’s option beginning on May 30, 2004, (3) no mandatory redemption or stated maturity date and (4) liquidation value of $25 per share.

41

On September 30, 2003, the Group issued 1,380,000 shares of 7.0% Noncumulative Monthly Income Preferred Stock, Series B, at $25 per share. Proceeds from issuance of the Series B Preferred Stock, were $33.1 million, net of $1.4 million of issuance costs. The Series B Preferred Stock has the following characteristics: (1) annual dividends of $1.75 per share, payable monthly, if declared by the Board of Directors; missed dividends are not cumulative, (2) redeemable at the Group’s option beginning on October 31, 2008, (3) no mandatory redemption or stated maturity date, and (4) liquidation value of $25 per share.

At the annual meeting of shareholders held on April 30, 2010, a majority of the outstanding shares entitled to vote approved an increase of the number of authorized shares of preferred stock, par value $1.00 per share, from 5,000,000 to 10,000,000.

On April 30, 2010, the Group issued 200,000 shares of Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”), through a private placement. The preferred stock had a liquidation preference of $1,000 per share. At a special meeting of shareholders of the Group held on June 30, 2010, the majority of the shareholders approved the issuance of 13,320,000 shares of the Group’s common stock upon the conversion of the Series C Preferred Stock, which was converted on July 8, 2010 at a conversion price of $15.015 per share.

The difference between the $15.015 per share conversion price and the market price of the common stock on April 30, 2010 ($16.72) was considered a contingent beneficial conversion feature on June 30, 2010, when the conversion was approved by the majority of the shareholders. Such feature amounted to $22.7 million at June 30, 2010 and was recorded as a dividend of preferred stock upon conversion to common stock.

Common Stock

On March 19, 2010, the Group completed the public offering of 8,740,000 shares of its common stock. The offering resulted in net proceeds of $94.5 million after deducting offering costs.

At the annual meeting of shareholders held on April 30, 2010, a majority of the outstanding shares entitled to vote approved an increase of the number of authorized shares of common stock, par value $1.00 per share, from 40,000,000 to 100,000,000.

At a special meeting of shareholders of the Group held on June 30, 2010, the majority of the shareholders approved the issuance of 13,320,000 shares of the Group’s common stock upon the conversion of the Series C Preferred Stock, which was converted on July 8, 2010 at a conversion price of $15.015 per share.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income (loss), net of income tax, as of September 30, 2010 and December 31, 2009 consisted of:

	September 30,			December 31,
	2010			2009
	(In thousands)
Unrealized gain (loss) on securities available-for-sale which are not other-than-temporarily impaired	$	27,566		$	(48,786	)
Unrealized loss on securities available-for-sale for which a portion of other-than-temporary impairment has been recorded in earnings		(14,359	)		(41,398	)
Tax effect of accumulated other comprehensive (loss) income		(128	)		7,445
	$	13,079		$	(82,739	)

42

Regulatory Capital Requirements

The Group (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Group’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Group and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Under the Dodd-Frank Act, federal banking regulators are required to establish minimum leverage and risk-based capital requirements, on a consolidated basis, for insured institutions, depository institution holding companies, and non-bank financial companies supervised by the Federal Reserve Board. The minimum leverage and risk-based capital requirements are to be determined based on the minimum ratios established for insured depository institutions under prompt corrective action regulations.

Quantitative measures established by regulation to ensure capital adequacy require the Group and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations) and of Tier I capital to average assets (as defined in the regulations). As of September 30, 2010 and December 31, 2009, the Group and the Bank met all capital adequacy requirements to which they are subject.

As of September 30, 2010 and December 31, 2009, the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following tables.

The Group’s and the Bank’s actual capital amounts and ratios as of September 30, 2010 and December 31, 2009 are as follows:

						Minimum Capital
	Actual					Requirement
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Group Ratios
As of September 30, 2010
Total Capital to Risk-Weighted Assets	$	739,062		25.02	%	$	236,269		8.00	%
Tier I Capital to Risk-Weighted Assets	$	708,869		24.00	%	$	118,134		4.00	%
Tier I Capital to Total Assets	$	708,869		8.99	%	$	315,235		4.00	%
As of December 31, 2009
Total Capital to Risk-Weighted Assets	$	437,975		19.84	%	$	176,591		8.00	%
Tier I Capital to Risk-Weighted Assets	$	414,702		18.79	%	$	88,295		4.00	%
Tier I Capital to Total Assets	$	414,702		6.52	%	$	254,323		4.00	%

43

											Minimum to be Well
											Capitalized Under
						Minimum Capital					Prompt Corrective
	Actual					Requirement					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Bank Ratios
As of September 30, 2010
Total Capital to Risk-Weighted Assets	$	701,715		23.98	%	$	234,112		8.00	%	$	292,640		10.00	%
Tier I Capital to Risk-Weighted Assets	$	671,522		22.95	%	$	117,056		4.00	%	$	175,584		6.00	%
Tier I Capital to Total Assets	$	671,522		8.68	%	$	309,548		4.00	%	$	386,934		5.00	%
As of December 31, 2009
Total Capital to Risk-Weighted Assets	$	382,611		17.59	%	$	174,042		8.00	%	$	217,553		10.00	%
Tier I Capital to Risk-Weighted Assets	$	359,339		16.52	%	$	87,021		4.00	%	$	130,532		6.00	%
Tier I Capital to Total Assets	$	359,339		5.78	%	$	248,678		4.00	%	$	310,847		5.00	%

The Group’s ability to pay dividends to its stockholders and other activities can be restricted if its capital falls below levels established by the Federal Reserve Board’s guidelines. In addition, any bank holding company whose capital falls below levels specified in the guidelines can be required to implement a plan to increase capital.

NOTE 14 — FAIR VALUE

As discussed in Note 1, the Group follows the fair value measurement framework under GAAP.

Fair Value Measurement

The fair value measurement framework defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This framework also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs previously described that may be used to measure fair value.

Money market investments

The fair value of money market investments is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

Investment securities

The fair value of investment securities is based on quoted market prices, when available, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument. Structured credit investments and non-agency collateralized mortgage obligations are classified as Level 3. The estimated fair value of the structured credit investments and the non-agency collateralized mortgage obligations are determined by using a third-party cash flow valuation model to calculate the present value of projected future cash flows. The assumptions, which are highly uncertain and require a high degree of judgment, include primarily market discount rates, current spreads, duration, leverage, default, home price depreciation, and loss rates. The assumptions used are drawn from a wide array of data sources, including the performance of the collateral underlying each deal. The external-based valuation, which is obtained at least on a quarterly basis, is analyzed by management and its assumptions are evaluated and incorporated in either an internal-based valuation model when deemed necessary or compared to counterparties prices and agreed by management.

44

Derivative instruments

The fair values of the derivative instruments were provided by valuation experts and counterparties. Certain derivatives with limited market activity are valued using externally developed models that consider unobservable market parameters. Based on the valuation methodology, derivative instruments are classified as Level 3. The Group offers its customers certificates of deposit with an option tied to the performance of the Standard & Poor’s 500 stock market index (“S&P 500 Index”), and uses equity indexed option agreements with major broker-dealer companies to manage its exposure to changes in this index. Their fair value is obtained through the use of an external based valuation that was thoroughly evaluated and adopted by management as its measurement tool for these options. The payoff of these options is linked to the average value of the S&P 500 Index on a specific set of dates during the life of the option. The methodology uses an average rate option or a cash-settled option whose payoff is based on the difference between the expected average value of the S&P 500 Index during the remaining life of the option and the strike price at inception. The assumptions, which are uncertain and require a degree of judgment, include primarily S&P 500 Index volatility, forward interest rate projections, estimated index dividend payout, and leverage.

Fair value of interest rate swaps is based on the net discounted value of the contractual projected cash flows of both the pay-fixed receive-variable legs of the contracts. The projected cash flows are based on the forward yield curve, and discounted using current estimated market rates.

Servicing assets

Servicing assets do not trade in an active market with readily observable prices. Servicing assets are priced using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to unobservable nature of certain valuation inputs, the servicing assets are classified as Level 3.

Loans receivable considered impaired that are collateral dependent

The impairment is measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC 310-10-35. The associated loans considered impaired are classified as Level 3.

Foreclosed real estate

Foreclosed real estate includes real estate properties securing residential mortgage and commercial loans. The fair value of foreclosed real estate may be determined using an external appraisal, broker price option or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

Assets and liabilities measured at fair value on a recurring basis, including financial liabilities for which the Group has elected the fair value option, are summarized below:

	September 30, 2010
	Fair Value Measurements
	Level 1		Level 2			Level 3			Total
			(In thousands)
Investment securities available-for-sale	$	—	$	4,211,399		$	105,689		$	4,317,088
Money market investments		53,233		—			—			53,233
Derivative assets		—		—			7,106			7,106
Derivative liabilities		—		(8,289	)		(10,108	)		(18,397	)
Servicing assets		—		—			9,647			9,647
	$	53,233	$	4,203,110		$	112,334		$	4,368,677

45

The table below presents reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended September 30, 2010:

	Total Fair Value Measurements
	(Quarter Ended September 30, 2010)
	Investment
	securities			Derivative		Derivative			Servicing
	available-for-sale			asset		liability			assets
Level 3 Instruments Only				(In thousands)
Balance at beginning of period	$	113,411		$	4,433	$	(7,473	)	$	9,285
Gains (losses) included in earnings		(14,739	)		2,392		(2,440	)		—
Changes in fair value of investment securities available for sale included in other comprehensive income		10,419			—		—			—
New instruments acquired		—			281		(278	)		819
Principal repayments and amortization		(3,402	)		—		83			(398	)
Changes in fair value of servicing assets		—			—		—			(59	)
Balance at end of period	$	105,689		$	7,106	$	(10,108	)	$	9,647

The table below presents reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine-month period ended September 30, 2010:

	Total Fair Value Measurements
	(Nine-Month period Ended September 30, 2010)
	Investment
	securities
	available-			Derivative			Derivative			Servicing
	for-sale			asset			liability			assets
Level 3 Instruments Only				(In thousands)
Balance at beginning of period	$	110,106		$	6,464		$	(9,543	)	$	7,120
Gains (losses) included in earnings		(17,166	)		(177	)		(128	)		—
Changes in fair value of investment securities available for sale included in other comprehensive income		22,949			—			—			—
New instruments acquired		—			1,147			(1,157	)		3,419
Principal repayments and amortization		(10,200	)		(328	)		720			(614	)
Changes in fair value of servicing assets		—			—			—			(278	)
Balance at end of period	$	105,689		$	7,106		$	(10,108	)	$	9,647

There were no transfers into and out of Level 1 and Level 2 fair value measurements during the nine-month period ended September 30, 2010.

46

The table below presents a detail of investment securities available-for-sale classified as Level 3 at September 30, 2010:

	September 30, 2010
	Amortized		Unrealized				Weighted Average			Principal
Type	Cost		Losses		Fair Value		Yield			Protection
					(In thousands)
Non-agency collateralized mortgage obligations
Alt-A Collateral	$	85,754	$	22,508	$	63,246		4.87	%		0.00	%
Structured credit investments
CDO		25,548		8,419		17,129		5.80	%		6.22	%
CLO		15,000		4,803		10,197		2.53	%		7.64	%
CLO		11,975		3,632		8,344		2.06	%		26.18	%
CLO		9,200		2,427		6,773		2.38	%		20.64	%
		61,723		19,281		42,443		3.77	%
	$	147,477	$	41,789	$	105,689		4.41	%

Additionally, the Group may be required to measure certain assets at fair value in periods subsequent to initial recognition on a nonrecurring basis in accordance with GAAP. The adjustments to fair value usually result from the application of lower of cost or fair value accounting, identification of impaired loans requiring specific reserves under ASC 310-10-35 or write-downs of individual assets.

The following table presents financial and non-financial assets that were subject to a fair value measurement on a nonrecurring basis during the quarter ended September 30, 2010 and which were still included in the unaudited consolidated statement of financial condition at such date. The amounts disclosed represent the aggregate of the fair value measurements of those assets as of the end of the reporting period.

	Carrying value at
	September 30, 2010		December 31, 2009
	Level 3		Level 3
	(In thousands)		(In thousands)
Impaired commercial loans	$	24,766	$	26,299
Foreclosed real estate		33,087		9,347
	$	57,853	$	35,646

Impaired commercial loans relates mostly to certain impaired collateral dependent loans. The impairment of commercial loans was measured based on the fair value of collateral, which is derived from appraisals that take into consideration prices on observed transactions involving similar assets in similar locations, in accordance with provisions of ASC 310-10-35. Foreclosed real estate represents the fair value of foreclosed real estate (including those covered under FDIC shared-loss agreements) that was measured at fair value less estimated costs to sell.

Impaired commercial loans, which are measured using the fair value of the collateral for collateral dependent loans, had a carrying amount of $24.8 million and $9.4 million at September 30, 2010 and December 31, 2009, respectively, with a valuation allowance of $524 thousand and $709 thousand at September 30, 2010 and December 31, 2009, respectively.

Fair Value of Financial Instruments

The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Group.

47

The estimated fair value is subjective in nature and involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments are the value of long-term customer relationships of the retail deposits, and premises and equipment.

The estimated fair value and carrying value of the Group’s financial instruments at September 30, 2010 and December 31, 2009 is as follows:

	September 30, 2010				December 31, 2009
	Fair		Carrying		Fair		Carrying
	Value		Value		Value		Value
			(In thousands)
Financial Assets:
Cash and cash equivalents	$	142,936	$	142,936	$	277,123	$	277,123
Trading securities		102		102		523		523
Investment securities available-for-sale		4,317,088		4,317,088		4,953,659		4,953,659
FHLB stock		22,496		22,496		19,937		19,937
Securities sold but not yet delivered		317,209		317,209		—		—
Total loans (including loans held-for-sale)		1,823,093		1,861,628		1,150,340		1,140,069
Investment in equity indexed options		7,106		7,106		6,464		6,464
FDIC loss-share indemnification asset		567,898		562,364		—		—
Accrued interest receivable		30,644		30,644		33,656		33,656
Derivative asset		—		—		8,511		8,511
Servicing asset		9,647		9,647		7,120		7,120
Financial Liabilities:
Deposits		2,595,109		2,595,275		1,741,417		1,745,501
Securities sold under agreements to repurchase		3,856,245		3,541,520		3,777,157		3,557,308
Advances from FHLB		308,591		281,753		301,004		281,753
FDIC-guaranteed term notes		106,939		105,112		111,472		105,834
Subordinated capital notes		36,083		36,083		36,083		36,083
Short term borrowings		29,959		29,959		49,179		49,179
Securities purchased but not yet received		—		—		413,359		413,359
Derivative liability		8,289		8,289		—		—
Accrued expenses and other liabilities		88,006		88,006		31,650		31,650

The following methods and assumptions were used to estimate the fair values of significant financial instruments at September 30, 2010 and December 31, 2009:

• Cash and cash equivalents, money market investments, time deposits with other banks, securities sold but not yet delivered, accrued interest receivable and payable, securities and loans purchased but not yet received, short term borrowings, accrued expenses and other liabilities have been valued at the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

• Investments in FHLB stock are valued at their redemption value.

48

• The fair value of investment securities is based on quoted market prices, when available, or market prices provided by recognized broker dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument. The estimated fair value of the structured credit investments and the non-agency collateralized mortgage obligations are determined by using a third-party cash flow valuation model to calculate the present value of projected future cash flows. The assumptions used, which are highly uncertain and require a high degree of judgment, include primarily market discount rates, current spreads, duration, leverage, default, home price depreciation, and loss rates. The assumptions used are drawn from a wide array of data sources, including the performance of the collateral underlying each security. The external-based valuation, which is obtained at least on a quarterly basis, is analyzed and its assumptions are evaluated and incorporated in either an internal-based valuation model when deemed necessary or compared to counterparties prices and agreed by management.

• The FDIC shared-loss indemnification asset is measured separately from each of the covered asset categories as it is not contractually embedded in any of the covered asset categories. The $562.4 million fair value of the FDIC shared-loss indemnification asset represents the present value of the estimated cash payments (net of amount owed to the FDIC) expected to be received from the FDIC for future losses on covered assets based on the credit assumptions on estimated cash flows for each covered asset pool and the loss sharing percentages. The ultimate collectability of the FDIC shared-loss indemnification asset is dependent upon the performance of the underlying covered loans, the passage of time and claims paid by the FDIC which are impacted by the Bank’s adherence to certain guidelines established by the FDIC.

• The fair values of the derivative instruments are provided by valuation experts and counterparties. Certain derivatives with limited market activity are valued using externally developed models that consider unobservable market parameters. The Group offers its customers certificates of deposit with an option tied to the performance of the S&P 500 Index, and uses equity indexed option agreements with major broker-dealer companies to manage its exposure to changes in this index. Their fair value is obtained through the use of an external based valuation that was thoroughly evaluated and adopted by management as its measurement tool for these options. The payoff of these options is linked to the average value of the S&P 500 Index on a specific set of dates during the life of the option. The methodology uses an average rate option or a cash-settled option whose payoff is based on the difference between the expected average value of the S&P 500 Index during the remaining life of the option and the strike price at inception. The assumptions, which are uncertain and require a degree of judgment, include primarily S&P 500 Index volatility, forward interest rate projections, estimated index dividend payout, and leverage.

• Fair value of interest rate swaps is based on the net discounted value of the contractual projected cash flows of both the pay-fixed receive-variable legs of the contracts. The projected cash flows are based on the forward yield curve, and discounted using current estimated market rates.

• The fair value of the loan portfolio (including loans held-for-sale) is estimated by segregating by type, such as mortgage, commercial, consumer and leases. Each loan category is further segmented into fixed and adjustable interest rates and by performing and non-performing categories. The fair value of performing loans is calculated by discounting contractual cash flows, adjusted for prepayment estimates, if any, using estimated current market discount rates that reflect the credit and interest rate risk inherent in the loan, which is not currently an indication of an exit price. An exit price valuation approach could result in a different fair value estimate.

• The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is based on the discounted value of the contractual cash flows, using estimated current market discount rates for deposits of similar remaining maturities.

• For short-term borrowings, the carrying amount is considered a reasonable estimate of fair value. The subordinated capital note has a par value of $36.1 million, bears interest based on 3-month LIBOR plus 295 basis points (3.24% at September 30, 2010; 3.20% at December 31, 2009), payable quarterly. The fair value of long-term borrowings is based on the discounted value of the contractual cash flows, using current estimated market discount rates for borrowings with similar terms and remaining maturities and put dates.

• The fair value of commitments to extend credit and unused lines of credit is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings.

• The fair value of servicing assets is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.

49

NOTE 15 — SEGMENT REPORTING

The Group segregates its businesses into the following major reportable segments of business: Banking, Wealth Management, and Treasury. 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 its 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. The Group’s methodology for allocating non-interest expenses among segments is based on several factors such as revenues, employee headcount, occupied space, dedicated services or time, among others. These factors are reviewed on a periodical basis and may change if the conditions warrant.

Banking includes the Bank’s branches and mortgage banking, with traditional banking products such as deposits and mortgage, commercial, leasing 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. As part of its mortgage banking activities, the Group may sell loans directly into the secondary market or securitize conforming loans into mortgage-backed securities.

Wealth Management is comprised of the Bank’s trust division (Oriental Trust), the broker-dealer 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 banking, brokerage services, insurance sales activity, corporate and individual trust and retirement services, as well as pension plan administration services.

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. 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 as those described in the “Summary of Significant Accounting Policies” included in the Group’s annual report on Form 10-K, as amended.

50

Following are the results of operations and the selected financial information by operating segment as of and for the quarters ended September 30, 2010 and 2009:

				Wealth						Total Major						Consolidated
	Banking			Management			Treasury			Segments			Eliminations			Total
							(In thousands)
Quarter Ended September 30, 2010
Interest income	$	34,345		$	3		$	46,873		$	81,221		$	—		$	81,221
Interest expense		(10,727	)		—			(32,334	)		(43,061	)		—			(43,061	)
Net interest income		23,618			3			14,539			38,160			—			38,160
Provision for loan and lease losses		(4,100	)		—			—			(4,100	)		—			(4,100	)
Non-interest income (loss)		9,303			3,693			(23,304	)		(10,308	)		—			(10,308	)
Non-interest expenses		(24,670	)		(4,690	)		(3,345	)		(32,705	)		—			(32,705	)
Intersegment revenues		449			—			—			449			(449	)		—
Intersegment expenses		—			(384	)		(65	)		(449	)		449			—
Income (loss) before income taxes	$	4,600		$	(1,378	)	$	(12,175	)	$	(8,953	)	$	—		$	(8,953	)
Total assets as of September 30, 2010	$	3,310,914		$	11,249		$	4,801,370		$	8,123,533		$	(720,476	)	$	7,403,057
Quarter Ended September 30, 2009
Interest income	$	18,248		$	5		$	60,297		$	78,550		$	—		$	78,550
Interest expense		(9,370	)		—			(36,289	)		(45,659	)		—			(45,659	)
Net interest income		8,878			5			24,008			32,891			—			32,891
Provision for loan and lease losses		(4,400	)		—			—			(4,400	)		—			(4,400	)
Non-interest income (loss)		3,404			3,755			9,163			16,322			—			16,322
Non-interest expenses		(13,153	)		(4,224	)		(3,108	)		(20,485	)		—			(20,485	)
Intersegment revenues		297			—			—			297			(297	)		—
Intersegment expenses		—			(299	)		2			(297	)		297			—
Income (loss) before income taxes	$	(4,974	)	$	(763	)	$	30,065		$	24,328		$	—		$	24,328
Total assets as of September 30, 2009	$	1,667,257		$	8,981		$	5,093,235		$	6,769,473		$	(388,427	)	$	6,381,046

51

Following are the results of operations and the selected financial information by operating segment as of and for the nine-month periods ended September 30, 2010 and 2009:

				Wealth						Total Major						Consolidated
	Banking			Management			Treasury			Segments			Eliminations			Total
							(In thousands)
Nine-Month period ended September 30, 2010
Interest income	$	81,381		$	10		$	150,009		$	231,400		$	—		$	231,400
Interest expense		(29,238	)		—			(97,563	)		(126,801	)		—			(126,801	)
Net interest income		52,143			10			52,446			104,599			—			104,599
Provision for loan and lease losses		(12,214	)		—			—			(12,214	)		—			(12,214	)
Non-interest income (loss)		29,762			12,910			(39,085	)		3,587			—			3,587
Non-interest expenses		(58,576	)		(12,714	)		(9,660	)		(80,950	)		—			(80,950	)
Intersegment revenues		1,169			763			—			1,932			(1,932	)		—
Intersegment expenses		—			(1,784	)		(148	)		(1,932	)		1,932			—
Income (loss) before income taxes	$	12,284		$	(815	)	$	3,553		$	15,022		$	—		$	15,022
Nine-Month period ended September 30, 2009
Interest income	$	55,329		$	39		$	189,218		$	244,586		$	—		$	244,586
Interest expense		(26,923	)		—			(118,565	)		(145,488	)		—			(145,488	)
Net interest income		28,406			39			70,653			99,098			—			99,098
Provision for loan and lease losses		(11,250	)		—			—			(11,250	)		—			(11,250	)
Non-interest income (loss)		11,034			10,169			58,362			79,565			—			79,565
Non-interest expenses		(41,994	)		(11,411	)		(8,566	)		(61,971	)		—			(61,971	)
Intersegment revenues		979			—			—			979			(979	)		-
Intersegment expenses		—			(874	)		(105	)		(979	)		979			-
Income (loss) before income taxes	$	(12,825	)	$	(2,077	)	$	120,344		$	105,442		$	—		$	105,442

52

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SELECTED FINANCIAL DATA
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009
(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Quarter Ended September 30,									Nine-Month Period Ended September 30,
	2010			2009			Variance %			2010			2009			Variance %
EARNINGS DATA:
Interest income	$	81,221		$	78,550			3.4	%	$	231,400		$	244,586			-5.4	%
Interest expense		43,061			45,659			-5.7	%		126,801			145,488			-12.8	%
Net interest income		38,160			32,891			16.0	%		104,599			99,098			5.6	%
Provision for loan and lease losses		4,100			4,400			-6.8	%		12,214			11,250			8.6	%
Net interest income after provision for loan and lease losses		34,060			28,491			19.5	%		92,385			87,848			5.2	%
Non-interest income		(10,308	)		16,322			-163.2	%		3,587			79,565			-95.5	%
Non-interest expenses		32,705			20,485			59.7	%		80,950			61,971			30.6	%
Income (loss) before taxes		(8,953	)		24,328			-136.8	%		15,022			105,442			-85.8	%
Income tax expense		(2,358	)		3,001			-178.6	%		(262	)		8,452			-103.1	%
Net Income (loss)		(6,595	)		21,327			-130.9	%		15,284			96,990			-84.2	%
Less: Dividends on preferred stock		(1,200	)		(1,201	)		-0.1	%		(4,134	)		(3,602	)		14.8	%
Less: Deemed dividend on preferred stock beneficial conversion feature		(22,711	)		—			-100.0	%		(22,711	)		—			-100.0	%
Income available (loss) to common shareholders	$	(30,506	)	$	20,126			-251.6	%	$	(11,561	)	$	93,388			-112.4	%
PER SHARE DATA:
Basic	$	(0.67	)	$	0.83			-181.2	%	$	(0.33	)	$	3.85			-108.6	%
Diluted	$	(0.67	)	$	0.83			-181.2	%	$	(0.33	)	$	3.84			-108.6	%
Average common shares outstanding		45,354			24,303			86.6	%		34,823			24,284			43.4	%
Average potential common share-options		128			65			96.9	%		105			17			517.6	%
Average shares and shares equivalents		45,482			24,368			86.6	%		34,928			24,301			43.7	%
Book value per common share	$	14.01		$	12.98			7.9	%	$	14.01		$	12.98			7.9	%
Market price at end of period	$	13.30		$	12.70			4.7	%	$	13.30		$	12.70			4.7	%
Cash dividends declared per common share	$	0.04		$	0.04			-0.2	%	$	0.12		$	0.12			-19.3	%
Cash dividends declared on common shares	$	1,855		$	972			90.8	%	$	4,500		$	2,916			54.3	%
PERFORMANCE RATIOS:
Return on average assets (ROA)		-0.33	%		1.32	%		-125.1	%		0.28	%		1.98	%		-85.8	%
Return on average common equity (ROE)		-19.28	%		28.12	%		-168.6	%		-3.40	%		51.61	%		-106.6	%
Equity-to-assets ratio		9.69	%		6.00	%		61.6	%		9.69	%		6.00	%		61.6	%
Efficiency ratio		65.93	%		50.82	%		29.7	%		60.67	%		51.31	%		18.2	%
Expense ratio		1.24	%		0.86	%		43.5	%		1.09	%		0.88	%		24.0	%
Interest rate spread		2.31	%		2.07	%		11.6	%		2.24	%		2.02	%		10.9	%
Interest rate margin		2.22	%		2.17	%		2.3	%		2.18	%		2.15	%		1.4	%

53

	September 30,			December 31,
	2010			2009			Variance %
PERIOD END BALANCES AND CAPITAL RATIOS:
Investments and loans
Investments securities	$	4,339,836		$	4,974,269			-12.8	%
Loans and leases not covered under shared loss agreements with the FDIC, net		1,138,770			1,140,069			-0.1	%
Loans and leases covered under shared loss agreements with the FDIC, net		722,858			—			100.0	%
Securities sold but not yet delivered		317,209			—			100.0	%
	$	6,518,673		$	6,114,338			6.6	%
Deposits and borrowings
Deposits	$	2,595,275		$	1,745,501			48.7	%
Securities sold under agreements to repurchase		3,541,520			3,557,308			-0.4	%
Other borrowings		452,907			472,849			-4.2	%
Securities purchased but not yet received		—			413,359			-100.0	%
	$	6,589,702		$	6,189,017			6.5	%
Stockholders’ equity
Preferred stock		68,000			68,000			0.0	%
Common stock		47,808			25,739			85.7	%
Additional paid-in capital		498,486			213,445			133.5	%
Legal surplus		46,958			45,279			3.7	%
Retained earnings		59,845			77,584			-22.9	%
Treasury stock, at cost		(17,116	)		(17,142	)		-0.2	%
Accumulated other comprehensive income (loss)		13,079			(82,739	)		-115.8	%
	$	717,060		$	330,166			117.2	%
Capital ratios
Leverage capital		8.99	%		6.52	%		37.9	%
Tier I risk-based capital		24.00	%		18.79	%		27.7	%
Total risk-based capital		25.02	%		19.84	%		26.1	%
Financial assets managed and owned
Trust assets managed	$	2,120,833		$	1,818,498			16.6	%
Broker-dealer assets gathered		1,425,445			1,269,284			12.3	%
Total assets managed	$	3,546,278		$	3,087,782			14.8	%
Assets owned	$	7,403,057		$	6,550,833			13.0	%

54

OVERVIEW OF FINANCIAL PERFORMANCE

Introduction

The Group’s diversified mix of businesses and products generates both the interest income traditionally associated with a banking institution and non-interest income traditionally associated with a financial services institution (generated by such businesses as securities brokerage, fiduciary services, investment banking, insurance and pension administration). Although all of these businesses, to varying degrees, are affected by interest rate and financial markets fluctuations and other external factors, the Group’s commitment is to continue producing a balanced and growing revenue stream.

From time to time, the Group uses certain non-GAAP measures of financial performance to supplement the financial statements presented in accordance with GAAP. The Group presents non-GAAP measures when its management believes that the additional information is useful and meaningful to investors. Non-GAAP measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-GAAP measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP. The Group’s management has reported and discussed the results of operations herein both on a GAAP basis and on a pre-tax operating income basis. The Group’s management believes that, given the nature of the items excluded from the definition of pre-tax operating income, it is useful to state what the results of operations would have been without them so that investors can see the financial trends from the Group’s continuing business.

For the quarter ended September 30, 2010, the Group’s loss to common shareholders totaled $30.5 million, or ($0.67) per basic and diluted earnings per common share. This compares to $20.1 million in income available to common shareholders, or $0.83 per basic and diluted earnings per common share for the quarter ended September 30, 2009. The income available for common shareholders for the quarter ended September 30, 2010 has been affected by a $22.7 million deemed dividend on the Series C Preferred Stock, which corresponds to the difference between the $15.015 per share conversion price and the market price of the common stock on April 30, 2010 ($16.72) the date the Preferred Stock was offered.

Highlights

• Greater proportion of interest income from loans. For the quarter ended September 30, 2010, interest income of $81.2 million increased 3.4% compared to the same period in 2009, as 88.2% growth from loans more than offset a 22.3% decline from investment securities due to lower yields and reduced size of the portfolio. Interest income from loans represented a record 42.3% of total interest income compared to 23.2% in the year ago quarter. Interest income included $16.7 million from acquired Eurobank loans for the three months.

• Deleveraged balance sheet. The Group paid off a 4.39%, $100 million repurchase agreement that matured August 16, 2010 and redeemed the $595 million remaining balance of its 0.88% note to the FDIC, which originated as part of the Eurobank transaction. As a result of these transactions, total investments declined to 58.6% of assets at September 30, 2010 compared to 75.9% at December 31, 2009, and borrowings declined to 60.6% of interest-bearing liabilities compared to 69.8%, respectively.

• Strong growth in commercial production. While total loan production and purchases increased 49.4%, to $103.4 million during the quarter ended September 30, 2010, from the same period in 2009, production of commercial loans and leases combined increased 194.3% to $31.0 million. To date for the year, commercial loans and lease production is up 102.3% to $73.1 million, representing 27.0% of total loan production and purchases, versus 15.7% for the year ago period.

• Continued growth of banking and wealth management revenues. These revenues totaled $11.4 million during the quarter ended September 30, 2010, up 54.2% from the same period in 2009. Bank service revenues increased 139.7%, primarily reflecting the former Eurobank commercial point of sale business and deposit fees. Mortgage banking activities increased 53.1% due in part to higher production, reflecting expanded market share. Year to date, total banking and wealth management revenues are up 33.0%, to $28.8 million, representing 23.8% of total net revenues versus 19.8% a year ago.

• Increased growth of wealth management assets. Total assets managed of $3.5 billion at September 30, 2010 grew 14.8% from December 31, 2009, with 16.6% growth of trust assets and 12.3% growth of broker-dealer assets. Growth is benefitting from improved market values as well as increased asset gathering from the Group’s strong capital position in the local market.

55

• Continued growth of core retail deposits. Total retail deposits increased $505.4 million, to $1.9 billion from December 31, 2009, reflecting growth from both Group customers as the Group began to benefit from its larger and more strategically located network of 30 branches and core deposits assumed on the FDIC-assisted acquisition. Core retail deposits, which have grown sequentially nine quarters in a row, increased to 29.0% of interest bearing liabilities at September 30, 2010 compared to 24.3% in December 31, 2009.

Other Highlights

• Net interest margin of 2.22% for the quarter ended September 30, 2010 increased 5 basis points from the same period in 2009. Higher yield from three months of former Eurobank loans and lower cost of funds were able to offset the decline in yield from investments. Cost of funds is expected to decline further in the fourth quarter as a result of the third quarter deleveraging.

• Non interest expenses of $32.7 million for the quarter ended September 30, 2010 were $12.2 million higher than in the same period in 2009. The third quarter included $10.2 million related to Eurobank. In late September, the Group closed nine former Eurobank branches and consolidated two Oriental branches into the 11 Eurobank branches retained. The Group’s network now consists of 30 branches, most of them concentrated in greater San Juan. In late October, most former Eurobank Information Technology functions transferred to the Group’s platform. These actions are expected to reduce Eurobank related expenses in the fourth quarter, and along with other steps, achieve 30-35% Eurobank cost savings by the start of 2011.

• Net credit losses (excluding loans covered under shared-loss agreements with the FDIC) of $2.5 million increased $1.5 million during the quarter ended September 30, 2010 from the same period in 2009 and total $5.8 million year to date, in line with the Group’s previously stated expectations of $8-$9 million in 2010. Non-performing loans (NPLs) increased 6.1% from December 31, 2009. The Group’s NPLs generally reflect the economic environment in Puerto Rico. The Group does not expect NPLs to result in significantly higher losses as most are well-collateralized residential mortgages with adequate loan-to-value ratios.

• Approximately 96% of the Group’s investment portfolio consists of fixed-rate mortgage-backed securities or notes, guaranteed or issued by FNMA, FHLMC or GNMA, and U.S. agency senior debt obligations, backed by a U.S. government sponsored entity or the full faith and credit of the U.S. government.

Capital

• Total stockholders’ equity of $717.1 million increased $386.9 million from December 31, 2009, reflecting issuances of common and preferred stock, the net income for the nine-month period, and an improvement of approximately $95.8 million in the fair value of the investment securities portfolio.

• The Group continues to maintain regulatory capital ratios well above the requirements for a well-capitalized institution. At September 30, 2010, the Leverage Capital Ratio was 8.99%, Tier-1 Risk-Based Capital Ratio was 24.00%, and Total Risk-Based Capital Ratio was 25.02%. In addition, Tangible Common Equity to risk-weighted assets was 21.86%.

Non-Operating Items

These included the following major items:

• Deemed dividend of $22.7 million related to the conversion of the Group’s Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock, Series C, which raised a net $189 million in connection with the Eurobank acquisition, which was converted into 13.32 million shares of common stock on July 8, 2010. The deemed dividend did not affect total stockholders’ equity or book value per common share, but did reduce income per common share for the quarter and nine months ended September 30, 2010. The $22.7 million represents the intrinsic value between the conversion rate of $15.01 and the common stock closing price of $16.62 on April 30, 2010, the date the Preferred Stock was offered.

• Gain of $14.0 million on the sale of securities for the quarter ended September 30, 2010, as the Group took further advantage of the low interest rate environment to lock in profits. For the quarter ended September 30, 2009 the Group had a $35.5 million gain on the sale of securities.

56

• Charges of $14.8 million in other-than-temporary impairment on the BALTA private label CMO during the quarter ended September 30, 2010. The other-than-temporary impairment was the result of increasingly conservative modeling that now takes into consideration the macro economic effect of the recent foreclosure moratorium in some states and other economic uncertainties. For the quarter ended September 30, 2009, other-than-temporary impairment on securities amounted to $8.3 million.

• Loss of $22.6 million on derivative activities for the quarter ended September 30, 2010. This reflected realized losses of $17.3 million due to the termination of forward-settle swaps with a notional amount of $1.25 billion. These terminations allowed the Group to enter into new forward-settle swap contracts for the same notional amount, while effectively reducing the interest rate of the pay-fixed side of such deals from an average rate of 2.45% to an average rate of 1.83%. The balance reflected an unrealized valuation loss of $4.9 million on the new swaps. These forward-settle swaps will enable the Group to fix, at 1.83%, the price of $1.25 billion in repurchase agreement funding ($900 million up for renewal in December 2011 and $350 million in May 2012) that currently have a blended cost of 4.40%. During the quarter ended September 30, 2009 the Group had a loss of $64 thousand on derivative activities.

• Accretion of $1.8 million of the FDIC loss share indemnification asset related to the former Eurobank loan portfolio. The estimated fair value of this asset was determined by discounting the projected cash flows related to the loss sharing agreements based on expected reimbursements, primarily for credit losses on covered assets. The time value of money incorporated into the present value computation is accreted over the shorter life of the loss sharing agreements or the holding period of the covered assets.

57

TABLE 1 — QUARTERLY ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE QUARTERS ENDED SEPTEMBER 30, 2010 AND 2009
(Dollars in thousands)

	Interest				Average rate						Average balance
	September		September		September			September			September			September
	2010		2009		2010			2009			2010			2009
A — TAX EQUIVALENT SPREAD
Interest-earning assets	$	81,221	$	78,550		4.73	%		5.19	%	$	6,868,971		$	6,055,662
Tax equivalent adjustment		26,358		27,038		1.53	%		1.79	%		—			—
Interest-earning assets — tax equivalent		107,579		105,588		6.26	%		6.98	%		6,868,971			6,055,662
Interest-bearing liabilities		43,061		45,659		2.42	%		3.12	%		7,116,702			5,855,924
Tax equivalent net interest income / spread		64,518		59,929		3.84	%		3.86	%		(247,731	)		199,738
Tax equivalent interest rate margin						3.76	%		3.96	%
B — NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities		46,794		60,161		3.84	%		5.11	%		4,876,274			4,708,209
Trading securities		2		5		4.00	%		5.88	%		200			340
Money market investments		78		136		0.37	%		0.31	%		84,054			177,555
		46,874		60,302		3.78	%		4.94	%		4,960,528			4,886,104
Loans not covered under shared loss agreements with the FDIC:
Mortgage		14,007		15,081		6.08	%		6.32	%		921,802			954,820
Commercial		2,862		2,689		5.53	%		5.53	%		206,838			194,646
Leasing		93		—		10.09	%		0.00	%		3,688			—
Consumer		639		478		8.80	%		9.52	%		29,037			20,092
		17,601		18,248		6.06	%		6.24	%		1,161,365			1,169,558
Loans covered under shared loss agreements with the FDIC:
Loans secured by residential properties		3,883		—		7.90	%		0.00	%		196,510			—
Commercial and construction		9,106		—		8.64	%		0.00	%		421,448			—
Leasing		3,103		—		11.49	%		0.00	%		107,989			—
Consumer		654		—		12.38	%		0.00	%		21,131			—
		16,746		—		8.97	%		0.00	%		747,078			—
		34,347		18,248		7.20	%		6.24	%		1,908,443			1,169,558
		81,221		78,550		4.73	%		5.19	%		6,868,971			6,055,662
Interest-bearing liabilities: Deposits:
Non-interest bearing deposits		—		—		0.00	%		0.00	%		165,524			46,234
Now accounts		3,646		5,046		2.05	%		3.01	%		712,072			671,454
Savings and money market		940		249		1.69	%		1.50	%		223,140			66,424
Certificates of deposit		8,094		8,695		2.32	%		3.41	%		1,393,430			1,019,343
		12,680		13,990		2.03	%		3.10	%		2,494,167			1,803,455
Borrowings:
Securities sold under agreements to repurchase		25,128		27,209		2.84	%		3.04	%		3,542,785			3,582,362
Advances from FHLB and other borrowings		3,082		3,106		3.82	%		3.83	%		322,512			324,024
FDIC-guaranteed term notes		1,021		1,021		3.86	%		3.71	%		105,818			110,000
Purchase money note issued to the FDIC		823		—		0.53	%		0.00	%		615,337			—
Subordinated capital notes		327		333		3.62	%		3.69	%		36,083			36,083
		30,381		31,669		2.63	%		3.13	%		4,622,535			4,052,469
		43,061		45,659		2.42	%		3.12	%		7,116,702			5,855,924
Net interest income / spread	$	38,160	$	32,891		2.31	%		2.07	%
Interest rate margin						2.22	%		2.17	%
Excess of average interest-earning assets over average interest- bearing liabilities (excess of average interest-bearing liabilities over average interest-earning assets)											$	(247,731	)	$	199,738
Average interest-earning assets to average interest-bearing liabilities ratio												96.52	%		103.41	%

C — CHANGES IN NET INTEREST INCOME DUE TO:

	Volume			Rate			Total
Interest Income:
Investments	$	919		$	(14,347	)	$	(13,428	)
Loans		16,618			(519	)		16,099
		17,537			(14,866	)		2,671
Interest Expense:
Deposits		2,056			(3,366	)		(1,310	)
Repurchase agreements		(301	)		(1,780	)		(2,081	)
Other borrowings		769			24			793
		2,524			(5,122	)		(2,598	)
Net Interest Income	$	15,013		$	(9,744	)	$	5,269

58

TABLE 1/A — YEAR-TO-DATE ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009
(Dollars in thousands)

	Interest				Average rate						Average balance
	September		September		September			September			September			September
	2010		2009		2010			2009			2010			2009
A — TAX EQUIVALENT SPREAD
Interest-earning assets	$	231,400	$	244,586		4.82	%		5.32	%	$	6,402,316		$	6,135,733
Tax equivalent adjustment		75,625		80,690		1.57	%		1.75	%		—			—
Interest-earning assets — tax equivalent		307,025		325,276		6.39	%		7.07	%		6,402,316			6,135,733
Interest-bearing liabilities		126,801		145,488		2.58	%		3.30	%		6,560,613			5,887,022
Tax equivalent net interest income / spread		180,224		179,788		3.81	%		3.77	%		(158,296	)		248,711
Tax equivalent interest rate margin						3.75	%		3.91	%
B — NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities		149,750		187,770		4.22	%		5.24	%		4,731,213			4,781,345
Trading securities		5		933		3.06	%		3.65	%		218			34,128
Money market investments		263		554		0.39	%		0.55	%		88,930			134,341
		150,018		189,257		4.15	%		5.10	%		4,820,361			4,949,814
Loans not covered under shared loss agreements with the FDIC:
Mortgage		42,656		46,170		6.14	%		6.30	%		926,513			977,032
Commercial		8,592		7,677		5.69	%		5.43	%		201,364			188,425
Leasing		117		—		5.26	%		0.00	%		2,963			—
Consumer		1,567		1,482		8.03	%		9.66	%		26,023			20,462
		52,932		55,329		6.10	%		6.22	%		1,156,863			1,185,919
Loans covered under shared loss agreements with the FDIC:
Loans secured by residential properties		6,493		—		7.81	%		0.00	%		110,844			—
Commercial and construction		15,350		—		8.61	%		0.00	%		237,744			—
Leasing		5,436		—		11.28	%		0.00	%		64,271			—
Consumer		1,171		—		12.76	%		0.00	%		12,234			—
		28,450		—		8.92	%		0.00	%		425,092			—
		81,382		55,329		6.86	%		6.22	%		1,581,955			1,185,919
		231,400		244,586		4.82	%		5.32	%		6,402,316			6,135,733
Interest-bearing liabilities: Deposits:
Non-interest bearing deposits		—		—		0.00	%		0.00	%		120,054			42,586
Now accounts		10,973		13,151		2.17	%		3.12	%		672,826			562,885
Savings and money market		2,074		615		1.67	%		1.38	%		165,988			59,382
Certificates of deposit		22,827		28,196		2.48	%		3.49	%		1,225,099			1,077,891
		35,874		41,962		2.19	%		3.21	%		2,183,967			1,742,744
Borrowings:
Securities sold under agreements to repurchase		75,900		90,937		2.84	%		3.28	%		3,566,354			3,696,862
Advances from FHLB and other borrowings		9,147		9,277		3.78	%		3.75	%		322,507			329,899
FDIC-guaranteed term notes		3,063		2,154		3.86	%		3.53	%		105,676			81,434
Purchase money note issued to the FDIC		1,887		—		0.73	%		0.00	%		346,027			—
Subordinated capital notes		930		1,158		3.44	%		4.28	%		36,083			36,083
		90,927		103,526		2.77	%		3.33	%		4,376,646			4,144,278
		126,801		145,488		2.58	%		3.30	%		6,560,613			5,887,022
Net interest income / spread	$	104,599	$	99,098		2.24	%		2.02	%
Interest rate margin						2.18	%		2.15	%
Excess of average interest-earning assets over average interest- bearing liabilities (excess of average interest-bearing liabilities over average interest-earning assets)											$	(158,296	)	$	248,711
Average interest-earning assets to average interest-bearing liabilities ratio												97.59	%		104.22	%

C — CHANGES IN NET INTEREST INCOME DUE TO:

	Volume			Rate			Total
Interest Income:
Investments	$	(4,950	)	$	(34,289	)	$	(39,239	)
Loans		27,094			(1,041	)		26,053
		22,144			(35,330	)		(13,186	)
Interest Expense:
Deposits		3,932			(10,020	)		(6,088	)
Repurchase agreements		(3,210	)		(11,827	)		(15,037	)
Other borrowings		2,361			77			2,438
		3,083			(21,770	)		(18,687	)
Net Interest Income	$	19,061		$	(13,560	)	$	5,501

59

Net interest income is a function of the difference between rates earned on the Group’s interest-earning assets and rates paid on its interest-bearing liabilities (interest rate spread) and the relative amounts of its interest-earning assets and interest-bearing liabilities (interest rate margin). The Group constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels.

For the quarter and nine-month period ended September 30, 2010, net interest income amounted to $38.2 million and $104.6 million, respectively, an increase of 16.0% and 5.6% from $32.9 million and $99.0 million in the same periods of 2009. These increases reflect a 5.7% and 12.8% reduction in interest expense for the quarter and nine-month period ended September 30, 2010, respectively, primarily the result of a decrease of $5.1 million and $21.8 million in rate variance, respectively, and an increase of $2.5 million and $3.1 million, respectively, in volume variance. The increase of 3.4% in interest income for the quarter ended September 30, 2010 was primarily the result of a $17.5 million increase in volume variance, partially offset by a decrease of $14.9 million in rate variance. For the nine-month period ended September 30, 2010, the 5.4% decrease in interest income was primarily the result of a $35.3 million decrease in rate variance, partially offset by a $22.1 million increase in volume variance.

Interest rate spread increased 24 basis points to 2.31% for the quarter ended September 30, 2010 from 2.07% in the September 30, 2009 quarter, and increased 22 basis points to 2.24% for the nine-month period ended September 30, 2010 from 2.02% for the same period in 2009. These increases reflect a 70 basis points decrease in the average cost of funds to 2.42% in the quarter ended September 30, 2010 from 3.12% in September 30, 2009 quarter, partially offset by a 46 basis point decrease in the average yield of interest earning assets to 4.73% in the quarter ended September 30, 2010 from 5.19% in September 30, 2009 quarter; and a 72 basis point decrease in the average cost of funds to 2.58% in the nine-month period ended September 30, 2010 from 3.30% for the year ago period, partially offset by a 49 basis point decrease in the average yield of interest earning assets to 4.82% in the nine-month period ended September 30, 2010 from 5.31% for the year ago period, as further explained below.

For the quarter and nine-month period ended September 30, 2010, the average balances of total interest-earning assets were $6.869 billion and $6.402 billion, respectively, a 13.4% and 4.3% increase from the same periods in 2009. The increase in the quarterly and year-to-date average balance of interest-earning assets was mainly attributable to the contribution made to average balances by covered loans acquired in the FDIC-assisted acquisition, which averaged $747.1 million and $425.1 million, respectively, accompanied by a 1.5% increase in averaged investments, and partially offset by a 0.7% decrease in average non-covered loans, on a linked-quarter basis, and a 2.6% and 2.5% decrease in averaged investments and non-covered loans, respectively, on a linked- year-to-date basis. The decline in the average volume of non-covered mortgage loans listed in the preceding table was principally influenced by lower origination activity. In December 2009 and January 2010, the Group sold certain non-agency securities. Rather than reinvesting all of the proceeds in the purchase of new, long-term securities, the Group built up its cash position. Nevertheless, during the quarter ended September 30, 2010, the Group used some of this cash to repay $100.0 million of securities sold under agreements to repurchase that matured on August 16, 2010. In addition, cash decreased from the previous quarter as a result of the repayment of the Note issued to the FDIC prior to maturity. As of September 30, 2010, the Group had $142.9 million in cash versus $277.1 million as of December 31, 2009 and $170.4 million as of September 30, 2009.

For the quarter and nine-month period ended September 30, 2010, the average yield on interest-earning assets was 4.73% and 4.82%, respectively, compared to 5.19% and 5.32% for the same periods of last year. These decreases were mainly due to lower average yields in the investment portfolio, mainly due to aforementioned sale transactions and higher cash positions, which were partially offset by higher yields contributed by the acquired covered loan portfolio, as previously mentioned.

Interest income on investments decreased 22.3% to $46.9 million and 20.7% to $150.0 million for the quarter and nine-month period ended September 30, 2010, respectively, compared to $60.3 million and $189.3 million for the same periods in 2009, reflecting the decrease in yield. The investment portfolio yield decreased to 3.78% and 4.15% in the quarter and nine-month period ended September 30, 2010, versus 4.94% and 5.10% in the same periods last year. Interest income from loans increased 88.2% to $34.3 million and 47.2% to $81.4 million for the quarter and nine-month period ended September 30, 2010, respectively, mainly due to the contribution of loans acquired. Considering covered loans, the loan portfolio yield increased to 7.20% and 6.86% in the quarter and nine-month period ended September 30, 2010, respectively, compared to 6.24% and 6.22% for the same periods in 2009.

On April 30, 2010 the Bank acquired certain assets with a book value of $1.690 billion and a fair value of $915.9 million and assumed certain deposits and other liabilities with a book value of $731.9 million and a fair value of $739.0 million in the FDIC-assisted acquisition of former Eurobank. Since the assets acquired were considerably higher than the liabilities assumed, it makes the interest rate margin to be lower than the net interest income spread for the quarter and nine-month period ended September 30, 2010.

60

Interest expense decreased 5.7% and 12.8%, to $43.1 million and $126.8 million, for the quarter and nine-month period ended September 30, 2010, respectively, from $45.7 million and $145.5 million for the same periods of 2009. These decreases are due to a significant reduction in cost of funds, which decreased 70 basis points on a linked-quarter basis, from 3.12% to 2.42%, and by 72 basis points on a linked year-to-date basis, from 3.30% to 2.58%. Reduction in the cost of funds is mostly due to a reduction in the rate paid on deposits, mainly due to the premium amortization on certificates of deposit assumed in the FDIC-assisted acquisition, In addition, the reduction in the cost of funds was also affected by the maturity of $100.0 million in securities sold under agreements to repurchase that occurred in August 2010. For the quarter and nine-month period ended September 30, 2010, the cost of deposits decreased by 107 basis points and 102 basis points, to 2.03% and 2.19%, respectively, compared to 3.10% and 3.21% for the same periods of 2009. The net interest income also benefitted from a reduction in the interest expense with reductions of $15.0 million in securities sold under agreements to repurchase, and $6.1 million on deposits.

61

TABLE 2 — NON-INTEREST INCOME SUMMARY
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009
(Dollars in thousands)

	Quarter Ended September 30,									Nine-Month Period Ended September 30,
	2010			2009			Variance %			2010			2009			Variance %
Wealth management revenues	$	4,554		$	3,764			21.0	%	$	13,157		$	10,163			29.5	%
Banking service revenues		3,414			1,424			139.7	%		8,030			4,330			85.5	%
Mortgage banking activities		3,418			2,232			53.1	%		7,555			7,191			5.1	%
Investment banking revenues (losses)		59			—			100.0	%		93			(4	)		2425.0	%
Total banking and wealth management revenues		11,445			7,420			54.2	%		28,835			21,680			33.0	%
Total loss on other-than-temporarily impaired securities		(14,739	)		(44,737	)		-67.1	%		(39,674	)		(107,331	)		-47.7	%
Portion of loss on securities recognized in other comprehensive income		—			36,478			-100.0	%		22,508			94,656			-58.8	%
Loss on other-than-temporary impairments on securities		(14,739	)		(8,259	)		78.5	%		(17,166	)		(12,675	)		35.4	%
Net gain (loss) on:
Sale of securities		13,954			35,528			-60.7	%		37,807			56,388			-33.0	%
Derivatives		(22,580	)		(64	)		35181.3	%		(59,832	)		19,778			-402.5	%
Early extinguishment of repurchase agreements		—			(17,551	)		-100.0	%		—			(17,551	)		-100.0	%
Trading securities		4			(505	)		-100.8	%		2			12,427			-100.0	%
Bargain purchase from FDIC assisted acquisition		—			—			0.0	%		9,944			—			100.0	%
Fair value adjustment on FDIC equity appreciation instrument		—			—			0.0	%		909			—			100.0	%
Accretion of FDIC loss-share indemnification asset		1,756			—			100.0	%		3,314			—			100.0	%
Foreclosed real estate		(140	)		(278	)		-49.6	%		(283	)		(576	)		-50.9	%
Other		(8	)		31			-125.8	%		57			94			-39.4	%
		(21,753	)		8,902			-344.4	%		(25,248	)		57,885			-143.6	%
Total non-interest income (loss)	$	(10,308	)	$	16,322			-163.2	%	$	3,587		$	79,565			-95.5	%

62

Non-interest income is affected by the amount of securities, derivatives and trading transactions, the level of trust assets under management, transactions generated by the gathering of financial assets by the securities broker-dealer subsidiary, the level of investment and mortgage banking activities, and the fees generated from loans, deposit accounts, and insurance activities. Non-interest loss totaled $10.3 million for the quarter and non-interest income totaled $3.6 million for the nine-month period ended September 30, 2010, a decrease of 163.2% and 95.5% when compared to non-interest income of $16.3 million and $79.6 million during the same periods of last year.

Wealth management revenues, consisting of commissions and fees from fiduciary activities, from securities brokerage, and from insurance activities, increased 21.0%, to $4.6 million and 29.5% to $13.2 million in the quarter and nine-month period ended September 30, 2010, from $3.8 million and $10.1 million in the same periods of 2009. Banking service revenues, consisting primarily of fees generated by deposit accounts, electronic banking services, and customer services, increased 139.7% to $3.4 million and 85.5% to $8.0 million in the quarter and nine-month period ended September 30, 2010, from $1.4 million and $4.4 million in the same periods of 2009. These increases are attributable to increases in electronic banking service fees and the fees generated from the customers of the former Eurobank banking business.

Income generated from mortgage banking activities increased 53.1% to $3.4 million and 5.1% to $7.6 million in the quarter and nine-month period ended September 30, 2010, respectively, from $2.2 million and $7.2 million in the same periods of 2009, mainly the result of an increase in the sale of conforming mortgage loans in the secondary market.

For the quarter and nine-month period ended September 30, 2010, losses from securities, derivatives, trading activities and other investment activities were $23.4 million and $39.1 million respectively, compared to gains of $26.7 million and $76.0 million for the same periods of 2009. The decrease was mostly due to net losses of $22.6 million in derivatives during the quarter and $59.8 million for the nine-month period ended September 30, 2010, compared with losses of $64 thousand and gains of $19.8 million, respectively, for the same periods in 2009.

Losses on derivative activities for the quarter and the nine-month period ended September 30, 2010 included realized losses of $24.7 million and $42.0 million, respectively, due to the termination of forward-settle swaps with a notional amount of $900 million. These terminations allowed the Group to enter into new forward-settle swap contracts for the same notional amount, and effectively reduce the interest rate of the pay-fixed side of such deals from an average rate of 3.53% to an average rate of 1.83%. The remaining losses mainly represent unrealized losses on new interest rate swaps. The realization of these losses and the actual valuation results reversed the valuation gains from the preceding nine-month period ended September 30, 2009 of $19.8 million.

Keeping with the Group’s investment strategy, during the quarter ended September 30, 2010 and 2009, there were certain sales of available-for-sale securities because the Group felt at the time of such sales that gains could be realized while at the same time having good opportunities to invest the proceeds in other investment securities with attractive yields and terms that would allow the Group to continue to protect its net interest margin. Sale of securities available-for-sale, which generated gains of $14.0 million for the quarter and $37.8 million for the nine-month period ended September 30, 2010, decreased 60.7% and 33.0% when compared to $35.5 million and $56.4 million for the same periods a year ago. During the nine-month period ended September 30, 2010, a gains on sales of $2 thousand was recognized in trading securities, compared to gains on sales of $12.4 million in the previous year.

During the quarter and nine-month period ended September 30, 2010 the Group recorded other-than-temporary impairment losses of $14.7 million and $17.2 million, respectively, compared to losses of $8.3 million and $12.7 million, for the same periods of 2009. During the quarter ended September 30, 2010, the Group revised the assumption related to home-price appreciation values used in the cash flow analysis of its non-agency mortgage-backed security. Such cash flow analysis is used to determine the expected losses on the underlying collateral. The revision provided the Group with more recent information on the real estate values of the security’s underlying collateral, which had the effect of increasing the severity of the losses projected by the cash flow analysis.

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TABLE 3 — NON-INTEREST EXPENSES SUMMARY
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009
(Dollars in thousands)

	Quarter Ended September 30,									Nine-Month Period Ended September 30,
	2010			2009			Variance %			2010			2009			Variance %
Compensation and employee benefits	$	11,732		$	7,882			48.8	%	$	30,440		$	23,626			28.8	%
Occupancy and equipment		5,620			3,747			50.0	%		13,815			10,994			25.7	%
Professional and service fees		5,480			2,459			122.9	%		11,552			7,461			54.8	%
Insurance		1,651			1,273			29.7	%		5,218			5,560			-6.2	%
Taxes, other than payroll and income taxes		1,611			834			93.2	%		3,759			2,129			76.6	%
Advertising and business promotion		1,275			1,097			16.2	%		3,339			3,329			0.3	%
Electronic banking charges		1,322			471			180.7	%		3,112			1,607			93.7	%
Communication		826			382			116.2	%		1,905			1,163			63.8	%
Loan servicing expenses		443			397			11.6	%		1,321			1,167			13.2	%
Clearing and wrap fees		579			293			97.6	%		1,217			860			41.5	%
Director and investors relations		396			348			13.8	%		1,098			1,029			6.7	%
Other operating expenses		1,770			1,302			36.0	%		4,174			3,046			37.0	%
Total non-interest expenses	$	32,705		$	20,485			59.7	%	$	80,950		$	61,971			30.6	%
Relevant ratios and data:
Efficiency ratio		65.9	%		50.8	%					60.7	%		51.3	%
Expense ratio		1.2	%		0.9	%					1.1	%		0.9	%
Compensation and benefits to non-interest expense		35.9	%		38.5	%					37.6	%		38.1	%
Compensation to total assets owned		0.63	%		0.49	%					0.55	%		0.49	%
Average number of employees		846			538						716			547
Average compensation per employee	$	55.5		$	58.6					$	56.7		$	57.6
Assets owned per average employee	$	8,751		$	11,861					$	10,339		$	11,666

64

Non-interest expenses for the quarter ended September 30, 2010 increased 59.7% to $32.7 million, compared to $20.5 million for the same period of 2009. For the nine-month period ended September 30, 2010 non-interest expense reached $81.0 million representing an increase of 30.6% compared to $62.0 million for the same period of 2009. The increase in non-interest expense is primarily driven by higher compensation and employees’ benefits and by higher professional and service fees.

Compensation and employee benefits increased 48.8% to $11.7 million from $7.9 million in the quarter ended September 30, 2010. The increase is mainly driven by the integration of the employees of Eurobank since April 30, 2010. This factor represented an increase of approximately $3.1 million in payroll for the quarter ended September 30, 2010. The increase against the nine-month period ended September 30, 2009 is also affected by the integration of former Eurobank’s employees.

Occupancy and equipment expense increased 50.0% to $5.6 million for the quarter ended September 30, 2010. The increase is mainly driven by the integration of branches of Eurobank since April 30, 2010. This factor represented an increase of approximately $2.0 million in occupancy and equipment for the quarter ended September 30, 2010. The increase against the nine-month period ended September 30, 2009 is also affected by the integration of former Eurobank branches.

Professional and service fees for the quarter increased 122.9% mainly due to servicing expenses during the quarter for certain commercial and construction loans acquired from the FDIC-assisted acquisition amounting to $2.4 million. The fluctuation for the nine-month period ended September 30, 2010 is also affected by one-time professional expenses amounting to approximately $1.2 million, as part of the FDIC assisted acquisition.

Insurance expenses increased from $1.3 million for the quarter ended September 30, 2009 to $1.7 million for the quarter ended September 30, 2010. This increase is mainly due to a one-time credit related to SAIF insurance; which was for the 2009 period. Insurance expenses decreased from $5.6 million for the nine-month period ended September 30, 2009 to $5.2 million for the nine-month period ended September 30, 2010. This decrease is mainly due to the reduced re-assessment of the FDIC due to lower overall risk categorization of the Bank.

Increases in taxes, other than payroll and income taxes for the quarter and nine-month period ended September 30, 2010 as compared to same period of 2009, are principally due to increase in municipal license tax, based on business volume and assets, which increased compared to previous year period. The increase in overall business volume and assets is also related to the addition of new branches and the assets acquired in the FDIC-assisted acquisition.

Increases in electronic banking charges for both the quarter and the nine-month period ended September 30, 2010 against the same period of 2009, are mainly due to increase in point-of-sale (“POS”) transactions, in addition to Eurobank’s increased transactions as the result of the Group’s commercial POS cash management business.

The non-interest expense results reflect an efficiency ratio of 65.9% for the quarter ended September 30, 2010, compared to 50.8% for the quarter ended September 30, 2009. The efficiency ratio measures how much of a company’s revenue is used to pay operating expenses. The Group computes its efficiency ratio by dividing non-interest expenses by the sum of its net interest income and non-interest income, but excluding gains on sale of investments securities, derivatives gains or losses, credit-related other-than-temporary impairment losses, and other income that may be considered volatile in nature. Management believes that the exclusion of those items permit greater comparability. Amounts presented as part of non-interest income that are excluded from the efficiency ratio computation amounted to a loss of $17.1 million for quarter ended September 30, 2010 and gains of $8.9 million for quarter ended 2009, respectively.

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TABLE 4 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY (NON-COVERED LOANS)

FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

										Nine-Month Period Ended
	Quarter Ended September 30,						Variance			September 30,						Variance
	2010			2009			%			2010			2009			%
	(In thousands)
Balance at beginning of period	$	28,002		$	16,718			67.5	%	$	23,272		$	14,293			62.8	%
Provision for loan and lease losses		4,100			4,400			-6.8	%		12,214			11,250			8.6	%
Charge-offs		(2,517	)		(1,037	)		142.7	%		(6,124	)		(5,652	)		8.4	%
Recoveries		55			95			-42.1	%		278			285			-2.5	%
Balance at end of period	$	29,640		$	20,176			46.9	%	$	29,640		$	20,176			46.9	%

TABLE 5 — NET CREDIT LOSSES STATISTICS:

FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

										Nine-Month Period Ended
	Quarter Ended September 30,						Variance			September 30,						Variance
	2010			2009			%			2010			2009			%
							(In thousands)
Mortgage
Charge-offs	$	(432	)	$	(575	)		-24.9	%	$	(2,871	)	$	(2,776	)		3.4	%
Recoveries		—			31			-100.0	%		76			70			8.6	%
		(432	)		(544	)		-20.6	%		(2,795	)		(2,706	)		3.3	%
Commercial
Charge-offs		(1,720	)		(78	)		2105.1	%		(2,220	)		(1,811	)		22.6	%
Recoveries		10			8			25.0	%		32			44			-27.3	%
		(1,710	)		(70	)		2342.9	%		(2,188	)		(1,767	)		23.8	%
Consumer
Charge-offs		(365	)		(384	)		-4.9	%		(1,033	)		(1,065	)		-3.0	%
Recoveries		45			56			-19.6	%		170			171			-0.6	%
		(320	)		(328	)		-2.4	%		(863	)		(894	)		-3.5	%
Net credit losses
Total charge-offs		(2,517	)		(1,037	)		142.7	%		(6,124	)		(5,652	)		8.4	%
Total recoveries		55			95			-42.1	%		278			285			-2.5	%
		(2,462	)		(942	)		161.4	%		(5,846	)		(5,367	)		8.9	%
Net credit losses to average loans outstanding (excluding loans covered by FDIC shared-loss agreements):
Mortgage		0.19	%		0.23	%					0.40	%		0.37	%
Commercial		3.31	%		0.14	%					1.45	%		1.25	%
Leasing		0.00	%		0.00	%					0.00	%		0.00	%
Consumer		4.41	%		6.53	%					4.42	%		5.83	%
Total		0.85	%		0.32	%					0.67	%		0.60	%
Recoveries to charge-off’s		2.19	%		9.16	%					4.54	%		5.04	%
Average loans (excluding loans covered by FDIC shared-loss agreements):
Mortgage	$	921,802		$	954,820			-3.5	%	$	926,513		$	977,032			-5.2	%
Commercial		206,838			194,646			6.3	%		201,364			188,425			6.9	%
Leasing		3,688			—			100.0	%		2,963			—			100.0	%
Consumer		29,037			20,092			44.5	%		26,023			20,462			27.2	%
Total	$	1,161,365		$	1,169,558			-0.7	%	$	1,158,513		$	1,185,919			-2.3	%

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TABLE 6 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (NON-COVERED LOANS)

	September 30,			December 31,			Variance			September 30,
	2010			2009			%			2009
Allowance for loans and lease losses:
Mortgage	$	19,175		$	15,044			27.5	%	$	11,207
Commercial		8,504			7,112			19.6	%		7,485
Consumer		589			864			-31.8	%		1,155
Leasing		216			—			100.0	%		—
Unallocated allowance		1,156			252			358.7	%		329
	$	29,640		$	23,272			27.4	%	$	20,176
Allowance composition:
Mortgage		64.7	%		64.6	%					55.5	%
Commercial		28.7	%		30.6	%					37.1	%
Consumer		2.0	%		3.7	%					5.7	%
Leasing		0.7	%		0.0	%					0.0	%
Unallocated allowance		3.9	%		1.1	%					1.6	%
		100.0	%		100.0	%					100.0	%
Allowance coverage ratio at end of period applicable to:
Mortgage		2.1	%		1.6	%					1.2	%
Commercial		3.9	%		3.6	%					3.8	%
Consumer		1.9	%		3.8	%					5.4	%
Leasing		3.6	%		0.0	%					0.0	%
Unallocated allowance to total loans and leases		0.1	%		0.0	%					0.0	%
Total allowance to total loans (excluding loans covered by FDIC shared-loss agreements)		2.5	%		2.0	%					1.8	%
Other selected data and ratios:
Allowance coverage ratio to:
Non-performing loans		26.8	%		22.0	%					21.7	%
Non-mortgage non-performing loans		204.9	%		144.3	%					211.4	%

The provision for loan and lease losses for the quarter ended September 30, 2010 totaled $4.1 million, a 6.8% decrease from the $4.4 million reported for the same quarter in 2009. For the nine-month period ended September 30, 2010, the provision for loan and lease losses amounted to $12.2 million or 8.6% higher than the $11.3 million recorded for the same period of 2009. This increase is the result of higher non-performing loans mainly in the Group’s mortgage and commercial portfolios. Non-performing loans of $110.8 million at September 30, 2010, were 6.1% higher than the $104.4 million at December 31, 2009 and 19% higher than the $93.1 million reported at September 30, 2009. Compared to December 31, 2009, non-performing mortgage loans increased 9.1% and non-performing commercial loans decreased 11.6%.

Net credit losses for the quarter ended September 30, 2010 increased to $2.5 million when compared to $942 thousand for the same period of 2009. For the nine-month period ended September 30, 2010, net credit losses reached $5.8 million compared to $5.4 million for the nine-month period ended September 30, 2009.

The Group maintains an allowance for loan and lease 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 and lease losses policy provides for a detailed quarterly analysis of probable losses. Based on an analysis of the credit quality and the composition of the Group’s loan portfolio, management determined that the provision for 2010 was adequate in order to maintain the allowance for loan and lease losses at an adequate level.

67

The Group follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan and lease losses to provide for inherent losses in the loan portfolio. This methodology includes the consideration of factors such as economic conditions, portfolio risk characteristics, prior loss experience, and results of periodic credit reviews of individual loans. The provision for loan and lease losses charged to current operations is based on such methodology. Loan and lease losses are charged and recoveries are credited to the allowance for loan and lease losses.

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. 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 portfolios of mortgage and consumer loans are considered homogeneous, and are evaluated collectively for impairment. For the commercial loans portfolio, all loans over $250 thousand and over 90-days past due are evaluated for impairment. At September 30, 2010, the total investment in impaired loans was $52.7 million, compared to $26.3 million at December 31, 2009. Impaired commercial loans are measured based on the fair value of collateral method, since all impaired loans during the period were collateral dependant. The valuation allowance for impaired commercial loans amounted to approximately $524 thousand and $709 thousand at September 30, 2010 and December 31, 2009, respectively. At September 30, 2010, the total investment in impaired mortgage loans was $27.9 million, compared to $10.7 million at December 31, 2009. Impairment on mortgage loans assessed as troubled debt restructuring was measured using the present value of cash flows. The valuation allowance for impaired mortgage loans amounted to approximately $2.0 million and $684 thousand at September 30, 2010 and December 31, 2009, respectively.

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 calculation is the starting point for management’s systematic determination of the required level of the allowance for loan and lease losses. Other data considered in this determination includes: the credit grading assigned to commercial loans, delinquency levels, 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 Joint Interagency Statement on the importance of depository institutions having prudent, conservative, but not excessive loan loss allowances that fall within an acceptable range of estimated losses. While management uses available information in estimating probable loan and lease losses, future changes to the allowance may be necessary, based on factors beyond the Group’s control, such as factors affecting general economic conditions.

In the current quarter, the Group has not changed in any material respect its overall approach in the determination of the allowance for loan and lease losses. There have been no material changes in criteria or estimation techniques as compared to prior periods that impacted the determination of the current period allowance for loan and lease losses.

The loans covered by the FDIC shared loss agreement were recognized at fair value as of April 30, 2010, which included the impact of expected credit losses, and therefore, no allowance for credit losses was recorded at the acquisition date. To the extent credit deterioration occurs after the date of acquisition, the Group would record an allowance for loan and lease losses.

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TABLE 7 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS

AS OF SEPTEMBER 30, 2010

	Higher-Risk Residential Mortgage Loans*
																	High Loan-to-Value (LTV) Ratio Mortgages
	Junior Lien Mortgages								Interest Only Loans								LTV 90% to 100%								LTV Over 100%
	Carrying								Carrying								Carrying								Carrying
	Value			Allowance		%			Value			Allowance		%			Value			Allowance		%			Value			Allowance		%
	(thousands)
Delinquency:
Up to 90 days	$	22,113		$	219		0.99	%	$	35,272		$	1,018		2.89	%	$	110,841		$	1,503		1.36	%	$	8,557		$	136		1.59	%
91- 120 days		496			10		2.03	%		114			7		5.88	%		1,051			22		2.06	%		130			3		2.06	%
121 - 180 days		579			23		3.94	%		164			19		11.76	%		1,801			74		4.12	%		111			5		4.12	%
181- 365 days		765			29		3.80	%		1,705			201		11.76	%		4,175			235		5.63	%		—			—		—
Over 365 days		1,780			150		8.44	%		4,001			1,059		26.46	%		8,258			1,066		12.91	%		—			—		—
Total	$	25,732		$	431		1.68	%	$	41,256		$	2,303		5.58	%	$	126,126		$	2,900		2.30	%	$	8,799		$	143		1.63	%
Percentage of total loans not covered by FDIC shared-loss agreements		2.26	%							3.62	%							11.08	%							0.77	%
Refinanced or Modified Loans:
Amount	$	1,745		$	22		1.27	%	$	—		$	—		—		$	8,909		$	100		1.13	%	$	2,107		$	26		1.26	%
Percentage of Higher-Risk Loan Category		6.78	%							—								7.06	%							23.95	%
Current Loan-to-Value:
Under 70%	$	19,611		$	355		1.81	%	$	3,810		$	425		11.17	%	$	—		$	—		—		$	—		$	—		—
70%- 79%		3,016			39		1.31	%		7,714			388		5.03	%		—			—		—			—			—		—
80% - 89%		2,120			20		0.92	%		12,134			651		5.36	%		—			—		—			—			—		—
90% - 100%		985			17		1.78	%		15,096			765		5.07	%		126,126			2,900		2.30	%		—			—		—
Over 100%		—			—		—			2,502			74		2.94	%		—			—		—			8,799			143		1.63	%
	$	25,732		$	431		1.68	%	$	41,256		$	2,303		5.58	%	$	126,126		$	2,900		2.30	%	$	8,799		$	143		1.63	%

* Loans may be included in more than one higher-risk loan category

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TABLE 8 — NON-PERFORMING NON-COVERED ASSETS

	September 30,		December 31,		%			September 30,
(Dollars in thousands)	2010		2009		Variance			2009
Non-performing assets:
Non-accruing
Troubled Debt Restructuring (TDR) loans	$	318	$	214		48.6	%	$	—
Other loans		59,235		56,854		4.2	%		46,794
Accruing
Troubled Debt Restructuring (TDR) loans		3,902		443		780.8	%		—
Other loans		47,297		46,860		0.9	%		46,300
Total non-performing loans		110,752		104,371		6.1	%		93,094
Foreclosed real estate		13,765		9,347		47.3	%		8,319
	$	124,517	$	113,718		9.5	%	$	101,413

TABLE 9 — NON-PERFORMING NON-COVERED LOANS

AS OF SEPTEMBER 30, 2010 AND 2009 AND DECEMBER 31, 2009

	September 30,			December 31,			Variance			September 30,
	2010			2009			%			2009
Non-performing loans:
Mortgage	$	96,286		$	88,238			9.1	%	$	83,551
Commercial		13,862			15,688			-11.6	%		8,792
Consumer		604			445			35.7	%		751
Leasing		—			—			—			—
Total	$	110,752		$	104,371			6.1	%	$	93,094
Non-performing loans composition percentages:
Mortgage		86.9	%		84.5	%					89.8	%
Commercial, mainly real estate		12.5	%		15.0	%					9.4	%
Consumer		0.6	%		0.5	%					0.8	%
Total		100.00	%		100.00	%					100.00	%
Non-performing loans to:
Total loans (excluding loans covered by FDIC shared-loss agreements)		9.48	%		8.97	%		5.69	%		7.94	%
Total assets (excluding assets covered by FDIC shared-loss agreements)		1.66	%		1.59	%		4.40	%		1.46	%
Total capital		15.50	%		31.61	%		-50.98	%		24.33	%

Total non-performing loans as of September 30, 2010 and December 31, 2009 amounting to $110.8 million and $104.4 million do not consider loans classified as current and modified under troubled debt restructuring programs. Total investment in mortgage loans with troubled debt restructuring amounted to $27.9 million as of September 30, 2010 and $10.7 million as of December 31, 2009. Out of these amounts, a total of $23.9 million and $9.7 million, respectively, were not included in the aforementioned non-performing loan amounts because the loans were current in their payment schedules. Also, for the nine-month period ended September 30, 2010 and the year ended December 31, 2009 a total of $5.0 million and $436,000, respectively, in commercial loans have been modified of which $4.7 million and $106,000 are not considered in the non-performing loan amounts because the loans are current.

70

Detailed information concerning each of the items that comprise non-performing assets follows:

• Mortgage loans well collateralized and in process of collection are placed on a non-accrual basis when they become 365 days or more past due and are written-down, if necessary, based on the specific evaluation of the collateral underlying the loan. At September 30, 2010, the Group’s non-performing mortgage loans totaled $96.3 million (86.9% of the Group’s non-performing loans), a 9.1% increase from the $88.2 million(84.6% of the Group’s non-performing loans) reported at December 31, 2009. Non-performing loans in this category are primarily residential mortgage loans.

• Commercial loans are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the underlying collateral, if any. At September 30, 2010, the Group’s non-performing commercial loans amounted to $13.9 million (12.5% of the Group’s non-performing loans), an 11.6% decrease when compared to non-performing commercial loans of $15.7 million reported at December 31, 2009 (15.0% of the Group’s non-performing loans). Most of this portfolio is collateralized by commercial real estate properties.

• Consumer loans are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 120 days in personal loans and 180 days in credit cards and personal lines of credit. At September 30, 2010, the Group’s non-performing consumer loans amounted to $604 thousand (0.5% of the Group’s total non-performing loans), a 35.7% increase from the $445 thousand reported at December 31, 2009 (0.4% of total non-performing loans).

• Foreclosed real estate is initially recorded at the lower of the related loan balance or fair value less cost to sell as of the date of foreclosure. Any excess of the loan balance over the fair value of the property is charged against the allowance for loan and lease losses. Subsequently, any excess of the carrying value over the estimated fair value less disposition cost is charged to operations. Net losses on the sale of foreclosed real estate for the quarter ended September 30, 2010 amounted to $140 thousand compared to $278 thousand in the quarter ended September 30, 2009. For the nine-month period ended September 30, 2010, net losses on foreclosed real estate amounted to $283 thousand compared to $576 thousand for the same period of 2009.

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TABLE 10 — ASSETS SUMMARY AND COMPOSITION

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

(Dollars in thousands)

	September 30,			December 31,			Variance			September 30,
	2010			2009			%			2009
Investments:
FNMA and FHLMC certificates	$	3,509,126		$	2,764,172			27.0	%	$	2,601,515
Obligations of US Government sponsored agencies		301,550			1,007,091			-70.1	%		695,912
Non-agency collateralized mortgage obligations		63,246			446,037			-85.8	%		457,216
CMO’s issued by US Government sponsored agencies		194,427			286,509			-32.1	%		302,502
GNMA certificates		137,890			346,103			-60.2	%		229,760
Structured credit investments		42,443			38,383			10.6	%		141,259
Puerto Rico Government and agency obligations		68,406			65,364			4.7	%		64,462
FHLB stock		22,496			19,937			12.8	%		19,937
Other investments		252			673			-62.6	%		189
		4,339,836			4,974,269			-12.8	%		4,512,752
Loans:
Loans receivable		1,136,978			1,136,080			0.1	%		1,145,555
Allowance for loan and lease losses		(29,640	)		(23,272	)		27.4	%		(20,176	)
Loans receivable, net		1,107,338			1,112,808			-0.5	%		1,125,379
Mortgage loans held for sale		31,432			27,261			15.3	%		26,213
Total loans not covered under shared loss agreements with the FDIC, net		1,138,770			1,140,069			-0.1	%		1,151,592
Total loans covered under shared loss agreements with the FDIC		722,858			—			100.0	%		—
Total loans, net		1,861,628			1,140,069			63.3	%		1,151,592
Securities sold but not yet delivered		317,209			—			100.0	%		417,280
Total securities and loans		6,518,673			6,114,338			6.6	%		6,081,624
Other assets:
Cash and due from banks		89,703			247,691			-63.8	%		141,198
Money market investments		53,233			29,432			80.9	%		29,245
Accrued interest receivable		30,644			33,656			-8.9	%		39,970
Deferred tax asset, net		30,650			31,685			-3.3	%		26,590
Premises and equipment, net		17,125			19,775			-13.4	%		20,202
FDIC shared-loss indemnification asset		562,364			—			100.0	%		—
Core deposit intangible		1,363			—			100.0	%		—
Foreclosed real estate		33,087			9,347			254.0	%		8,319
Servicing asset		9,647			7,120			35.5	%		6,135
Other assets		56,568			57,789			-2.1	%		27,763
Total other assets		884,384			436,495			102.6	%		299,422
Total assets	$	7,403,057		$	6,550,833			13.0	%	$	6,381,046
Investments portfolio composition:
FNMA and FHLMC certificates		80.8	%		55.5	%					57.8	%
Obligations of US Government sponsored agencies		6.9	%		20.2	%					15.4	%
Non-agency collateralized mortgage obligations		1.5	%		9.0	%					10.1	%
CMO’s issued by US Government sponsored agencies		4.5	%		5.8	%					6.7	%
GNMA certificates		3.2	%		7.0	%					5.1	%
Structured credit investments		1.0	%		0.8	%					3.1	%
Puerto Rico Government and agency obligations		1.6	%		1.3	%					1.4	%
FHLB stock		0.5	%		0.4	%					0.4	%
		100.0	%		100.0	%					100.0	%

72

At September 30, 2010, the Group’s total assets amounted to $7.403 billion, an increase of 13.0% when compared to $6.551 billion at December 31, 2009, and interest-earning assets reached $6.519 billion, up 6.6%, versus $6.114 billion at December 31, 2009.

Investments principally consist of money market instruments, U.S. government and agency bonds, mortgage-backed securities and Puerto Rico government and agency bonds. At September 30, 2010, the investment portfolio decreased 12.8% from $4.974 billion in December 31, 2009 to $4.340 billion. This decrease is mostly due to a decrease of $705.5 million or 70.1% in U.S. Government sponsored agency bonds, a decrease of $382.8 million or 85.8% in non-agency collateralized mortgage obligations, a decrease of $208.2 million or 60.2% in GNMA certificates and a decrease of $92.1 million or 32.1% in collateralized mortgage obligations issued by US Government sponsored agencies, partially offset by an increase of $745.0 million or 27.0% in FMNA and FHLMC certificates, when compared to December 31, 2009.

The Group’s loan portfolio is mainly comprised of residential loans, home equity loans, commercial loans collateralized by mortgages on real estate located in Puerto Rico, and leases, the latter were added as part of the recent FDIC-assisted acquisition. At September 30, 2010, the Group’s loan portfolio, the second largest category of the Group’s interest-earning assets, amounted to $1.862 billion, an increase of 63.3% when compared to the $1.140 billion at December 31, 2009. The loan portfolio increase was mainly attributable to the $790.2 million in Eurobank loans acquired in the Eurobank’s FDIC-assisted acquisition. At September 30, 2010, the balance of these loans amounted to $723.0 million. The fair values initially assigned to the assets acquired and liabilities assumed were preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values became available. Preliminary composition of the loans acquired, their respective unpaid principal balances, and the fair value reflecting preliminary measurement period adjustments are reflected in the table below:

	At April 30, 2010
	Unpaid		Fair
	Principal		Value			Fair		Total
	Balance		Adjustment			Value		Mark
	(In thousands)
Covered loans:
Loans secured by residential properties	$	387,483	$	(179,388	)	$	208,095		-46.30	%
Construction secured by residential properties		87,709		(68,544	)		19,165		-78.15	%
Commercial and other construction		865,420		(454,410	)		411,010		-52.51	%
Leasing		160,492		(34,841	)		125,651		-21.71	%
Consumer		35,312		(12,055	)		23,257		-34.14	%
		1,536,416		(749,238	)		787,178		-48.77	%
Non-covered loans:
Credit cards		4,275		(1,289	)		2,986		-30.15	%
Total loans acquired in the FDIC-assisted transaction	$	1,540,691	$	(750,527	)	$	790,164		-48.71	%

The mortgage loan portfolio amounted to $918.7 million or 80.7% of the non-covered loan portfolio as of September 30, 2010, compared to $946.2 million or 83.0% of the non-covered loan portfolio at December 31, 2009. Mortgage production and purchases of $68.4 million for the quarter ended September 30, 2010 increased 21.7%, from $56.2 million, when compared to the quarter ended September 30, 2009. The Group sells most of its conforming mortgages in the secondary market, retaining servicing rights.

The second largest component of the Group’s loan portfolio is commercial loans. At September 30, 2010, the commercial loan portfolio totaled $217.3 million (19.1% of the Group’s total non-covered loan portfolio), in comparison to $197.8 million at December 31, 2009 (17.3% of the Group’s total non-covered loan portfolio). The increase of $19.5 million in the portfolio as compared to December 31, 2009 is mainly related to the origination of new credit relationships. Commercial loan production increased 150.6% to $26.4 million for the quarter ended September 30, 2010 from $10.5 million in the same period of 2009.

The consumer loan portfolio totaled $30.8 million (2.7% of total non-covered loan portfolio at September 30, 2010), in comparison to $22.9 million at December 31, 2009 (2.0% total non-covered loan portfolio at such date).

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TABLE 11 — LIABILITIES SUMMARY AND COMPOSITION

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

(Dollars in thousands)

	September 30,			December 31,			Variance			September 30,
	2010			2009			%			2009
	(Dollars in thousands)
Deposits:
Non-interest bearing deposits	$	168,590		$	73,548			129.2	%	$	73,097
Now accounts		719,401			619,947			16.0	%		702,397
Savings and money market accounts		234,484			86,791			170.2	%		66,710
Certificates of deposit		1,467,182			961,344			52.6	%		1,068,777
		2,589,657			1,741,630			48.7	%		1,910,981
Accrued interest payable		5,618			3,871			45.1	%		6,924
		2,595,275			1,745,501			48.7	%		1,917,905
Borrowings:
Short term borrowings		29,959			49,179			-39.1	%		35,328
Securities sold under agreements to repurchase		3,541,520			3,557,308			-0.4	%		3,557,086
Advances from FHLB		281,753			281,753			0.0	%		281,741
FDIC-guaranteed term notes		105,112			105,834			-0.7	%		105,112
Subordinated capital notes		36,083			36,083			0.0	%		36,083
		3,994,427			4,030,157			-0.9	%		4,015,350
Total deposits and borrowings		6,589,702			5,775,658			14.1	%		5,933,255
FDIC net settlement payable		41,601			—			100.0	%		—
Derivative liability		8,289			—			100.0	%		690
Securities and loans purchased but not yet received		—			413,359			-100.0	%		30,945
Other liabilities		46,405			31,650			46.6	%		33,587
Total liabilities	$	6,685,997		$	6,220,667			7.5	%	$	5,998,477
Deposits portfolio composition percentages:
Non-interest bearing deposits		6.5	%		4.2	%					3.8	%
Now accounts		27.8	%		35.6	%					36.8	%
Savings accounts		9.1	%		5.0	%					3.5	%
Certificates of deposit		56.6	%		55.2	%					55.9	%
		100.0	%		100.0	%					100.0	%
Borrowings portfolio composition percentages:
Short term borrowings		0.8	%		1.2	%					0.9	%
Securities sold under agreements to repurchase		88.6	%		88.3	%					88.6	%
Advances from FHLB		7.1	%		7.0	%					7.0	%
FDIC-guaranteed term notes		2.6	%		2.6	%					2.6	%
Subordinated capital notes		0.9	%		0.9	%					0.9	%
		100.0	%		100.0	%					100.0	%
Securities sold under agreements to repurchase
Amount outstanding at year-end	$	3,541,520		$	3,557,308					$	3,557,086
Daily average outstanding balance	$	3,566,354		$	3,659,442					$	3,696,862
Maximum outstanding balance at any month-end	$	3,566,588		$	3,762,353					$	3,779,627

74

At September 30, 2010, the Group’s total liabilities reached $6.686 billion, 7.5% higher than the $6.221 billion reported at December 31, 2009. This increase is mostly due to an increase of $849.8 million in deposits, resulting from the FDIC-assisted acquisition. Deposits and borrowings, the Group’s funding sources, amounted to $6.590 billion at September 30, 2010 versus $5.776 billion at December 31, 2009, a 14.1% increase. Borrowings represented 60.6% of interest-bearing liabilities and deposits represented 39.4%. The increase was partially offset by securities purchased but not yet received at December 31, 2009 amounting to $413.4 million compared to none at September 30, 2010.

Borrowings consist mainly of funding sources through the use of repurchase agreements, FHLB advances, FDIC-guaranteed term notes, subordinated capital notes, and other borrowings. At September 30, 2010, borrowings amounted to $3.994 billion, 0.9% lower than the $4.030 billion recorded at December 31, 2009. Repurchase agreements as of September 30, 2010 amounted to $3.542 billion and decreased as compared to December 31, 2009. The decrease is mainly due to the maturity and pay off of a repurchase agreement in August 2010 amounting to $100.0 million.

As part of the FDIC-assisted acquisition, the Bank issued to the FDIC a purchase money promissory note (the “Note”) in the amount of $715.5 million. The Note was secured by the loans (other than certain consumer loans) acquired under the agreement and all proceeds derived from such loans. The entire outstanding principal balance of the Note was due one year from issuance, or such earlier date as such amount became due and payable pursuant to the terms of the Note. The Bank paid interest in arrears on the Note at the annual rate of 0.881% on the 25th of each month or, if such day was not a business day, the next succeeding business day, commencing June 25, 2010, on the outstanding principal amount of the Note. Interest was calculated on the basis of a 360-day year consisting of twelve 30-day months. On September 27, 2010, the Group made the strategic decision to repay the Note prior to maturity. At the time of repayment the Note had an outstanding principal balance of $595.0 million. For the cancelation of the Note, the Group used approximately $200.0 million of proceeds from the sale of available for sale securities, brokered certificates of deposit amounting to $134.7 million, short-term repurchase agreements amounting to $85.0 million, and $175.3 million of cash.

The Federal Home Loan Bank (“FHLB”) system functions as a source of credit for financial institutions that are members of a regional FHLB. As a member of the FHLB, the Group can obtain advances from the FHLB, secured by the FHLB stock owned by the Group, as well as by certain of the Group’s mortgage loans and investment securities. Advances from FHLB amounted to $281.8 million as of September 30, 2010, and December 31, 2009. These advances mature from May 2012 through May 2014.

The Group’s banking subsidiary issued in March 2009 $105.0 million in notes guaranteed under the FDIC Temporary Liquidity Guarantee Program. These notes are due on March 16, 2012, bear interest at a 2.75% fixed rate, and are backed by the full faith and credit of the United States. Interest on the note is payable on the 16th of each March and September, beginning September 16, 2009. Shortly after issuance of the notes, the Group paid $3.2 million (equivalent to an annual fee of 100 basis points) to the FDIC to maintain the FDIC guarantee coverage until the maturity of the notes. This cost has been deferred and is being amortized over the term of the notes. The total cost of the notes for 2009, including the amount of the debt issuance costs, was 3.58%.

At September 30, 2010, deposits, the second largest category of the Group’s interest-bearing liabilities reached $2.595 billion, up 48.7% from $1.746 billion at December 31, 2009. Brokered deposits increased $74.8 million or 36.8% to $278.0 million. This decrease was driven by $134.7 million in new brokered deposits issued during the quarter ended September 30, 2010.

Stockholders’ Equity

On March 19, 2010, the Group completed an underwritten public offering of 8,740,000 shares of its common stock. The offering resulted in net proceeds of $94.5 million after deducting offering costs. The net proceeds of this offering were intended for general corporate purposes, which included funding organic acquisition and acquisition growth opportunities, including the participation in government assisted transactions in Puerto Rico. It also contributed a portion of the net proceeds in the form of capital to the Group’s banking subsidiary, which used such amount to bolster its regulatory capital needs and general corporate purposes.

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On April 30, 2010, the Group issued 200,000 shares of Series C Preferred Stock, through a private placement. The Series C Preferred Stock had a liquidation preference of $1,000 per share. At a special meeting of shareholders of the Group held on June 30, 2010, the majority of the shareholders approved the issuance of 13,320,000 shares of the Group’s common stock upon the conversion of the Series C Preferred Stock, which converted on July 8, 2010 at a conversion price of $15.015 per share.

The difference between the $15.015 per share conversion price and the market price of the common stock on April 30, 2010 ($16.72) is considered a beneficial conversion feature. Such feature amounted to $22.7 million at September 30, 2010 and was recorded as a preferred stock dividend.

At September 30, 2010, the Group’s total stockholders’ equity was $717.1 million, a 117.2% increase, when compared to $330.2 million at December 31, 2009. This increase reflects the aforementioned issuance of stock, the net income for the nine-month period ended September 30, 2010, and an improvement of approximately $95.8 million in the fair value of the investment securities portfolio.

The Group maintains capital ratios in excess of regulatory requirements. At September 30, 2010, Tier I Leverage Capital Ratio was 8.99% (2.25 times the requirement of 4.00%), Tier I Risk-Based Capital Ratio was 24.00% (6.00 times the requirement of 4.00%), and Total Risk-Based Capital Ratio was 25.02% (3.13 times the requirement of 8.00%).

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The following are the consolidated capital ratios of the Group at September 30, 2010 and 2009, and December 31, 2009:

TABLE 12 — CAPITAL, DIVIDENDS AND STOCK DATA

(In thousands, except for per share data)

	September 30,			December 31,			Variance			September 30,
	2010			2009			%			2009
Capital data:
Stockholders’ equity	$	717,060		$	330,166			117.2	%	$	382,569
Regulatory Capital Ratios data:
Leverage Capital Ratio		8.99	%		6.52	%		39.0	%		7.69	%
Minimum Leverage Capital Ratio Required		4.00	%		4.00	%					4.00	%
Actual Tier I Capital	$	708,869		$	414,702			72.4	%	$	496,541
Minimum Tier I Capital Required	$	315,235		$	254,323			24.0	%	$	258,445
Excess over regulatory requirement	$	393,634		$	160,379			149.0	%	$	238,096
Tier I Risk-Based Capital Ratio		24.00	%		18.79	%		28.5	%		15.81	%
Minimum Tier I Risk-Based Capital Ratio Required		4.00	%		4.00	%					4.00	%
Actual Tier I Risk-Based Capital	$	708,869		$	414,702			72.4	%	$	496,541
Minimum Tier I Risk-Based Capital Required	$	118,134		$	88,295			34.1	%	$	125,657
Excess over regulatory requirement	$	590,734		$	326,407			82.7	%	$	370,884
Risk-Weighted Assets	$	2,953,361		$	2,207,383			34.1	%	$	3,141,420
Total Risk-Based Capital Ratio		25.02	%		19.84	%		26.8	%		16.45	%
Minimum Total Risk-Based Capital Ratio Required		8.00	%		8.00	%					8.00	%
Actual Total Risk-Based Capital	$	739,062		$	437,975			70.1	%	$	516,717
Minimum Total Risk-Based Capital Required	$	236,269		$	176,591			34.1	%	$	251,314
Excess over regulatory requirement	$	502,793		$	261,384			94.4	%	$	265,403
Risk-Weighted Assets	$	2,953,361		$	2,207,383			34.1	%	$	3,141,420
Tangible common equity (common equity less goodwill) to total assets		8.72	%		3.97	%		119.6	%		4.90	%
Tangible common equity to risk-weighted assets		21.86	%		11.79	%		85.0	%		9.95	%
Total equity to total assets		9.69	%		5.04	%		92.3	%		6.00	%
Total equity to risk-weighted assets		24.28	%		14.96	%		61.9	%		12.18	%
Stock data:
Outstanding common shares, net of treasury		46,317			24,235			91.1	%		24,232
Book value per common share	$	14.01		$	10.82			29.5	%	$	12.98
Market price at end of period	$	13.30		$	10.80			23.1	%	$	12.70
Market capitalization at end of period	$	616,016		$	261,738			135.4	%	$	307,746
				Nine-Month Period Ended			Nine-Month Period Ended
				September 30,			September 30,			Variance
				2010			2009			%
Common dividend data:
Cash dividends declared				$	4,499		$	2,916			54.3	%
Cash dividends declared per share				$	0.12		$	0.12			-0.3	%
Payout ratio					-29.35	%		3.13	%		-1037.7	%
Dividend yield					1.20	%		1.26	%		-4.5	%

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The following provides the high and low prices and dividend per share of the Group’s common stock for each quarter of the last three years:

					Cash
	Price				Dividend
	High		Low		Per share
2010
September 30, 2010	$	14.45	$	12.13	$	0.04
June 30, 2010	$	16.72	$	12.49	$	0.04
March 31, 2010	$	14.09	$	10.00	$	0.04
2009
December 31, 2009	$	13.69	$	9.43	$	0.04
September 30, 2009	$	15.41	$	7.48	$	0.04
June 30, 2009	$	11.27	$	4.88	$	0.04
March 31, 2009	$	7.38	$	0.91	$	0.04
2008
December 31, 2008	$	18.56	$	5.37	$	0.14
September 30, 2008	$	20.99	$	14.21	$	0.14
June 30, 2008	$	20.57	$	14.26	$	0.14
March 31, 2008	$	23.28	$	12.79	$	0.14

The Bank is considered “well capitalized” under the regulatory framework for prompt corrective action. The table below shows the Bank’s regulatory capital ratios at September 30, 2010 and 2009, and at December 31, 2009:

	September 30,			December 31,			Variance			September 30,
(Dollars in thousands)	2010			2009			%			2009
Oriental Bank and Trust Regulatory Capital Ratios:
Total Tier I Capital to Total Assets		8.68	%		5.78	%		51.4	%		6.99	%
Actual Tier I Capital	$	671,522		$	359,339			88.5	%	$	438,796
Minimum Capital Requirement (4%)	$	309,548		$	248,671			24.6	%	$	250,967
Minimum to be well capitalized (5%)	$	386,934		$	310,839			24.6	%	$	313,709
Tier I Capital to Risk-Weighted Assets		22.95	%		16.52	%		39.8	%		14.19	%
Actual Tier I Risk-Based Capital	$	671,522		$	359,339			88.5	%	$	438,796
Minimum Capital Requirement (4%)	$	117,056		$	87,021			34.8	%	$	123,727
Minimum to be well capitalized (6%)	$	175,584		$	130,532			34.8	%	$	185,591
Total Capital to Risk-Weighted Assets		23.98	%		17.59	%		37.1	%		14.84	%
Actual Total Risk-Based Capital	$	701.715		$	382,611			84.9	%	$	458,972
Minimum Capital Requirement (8%)	$	234,112		$	174,042			34.8	%	$	247,454
Minimum to be well capitalized (10%)	$	292,640		$	217,553			34.8	%	$	309,318

The Group’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol OFG. At September 30, 2010, the Group’s market capitalization for its outstanding common stock was $616.0 million ($13.30 per share). The Oriental Financial Group Inc. Amended and Restated 2007 Omnibus Performance Incentive Plan (the “Omnibus Plan”), provides for equity-based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted units and dividend equivalents, as well as equity-based performance awards. The Omnibus Plan was adopted in 2007 and amended and restated in 2008. It was further amended in 2010.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK MANAGEMENT

Background

The Group’s risk management policies are established by its Board of Directors (the “Board”), implemented by management, through the adoption of a risk management program, which is overseen and monitored by the Chief Risk Officer and the Risk and Compliance Management Committee. The Group has continued to refine and enhance its risk management program by strengthening policies, processes and procedures necessary to maintain effective risk management.

All aspects of the Group’s business activities are susceptible to risk. Consequently, risk identification and monitoring are essential to risk management. As more fully discussed below, the Group’s primary risk exposures include, market, interest rate, credit, liquidity, operational and concentration risks.

Market Risk

Market risk is the risk to earnings or capital arising from adverse movements in market rates or prices, such as interest rates or prices. The Group evaluates market risk together with interest rate risk.

The Group’s financial results and capital levels are constantly exposed to market risk. The Board and management are primarily responsible for ensuring that the market risk assumed by the Group complies with the guidelines established by policies approved by the Board. The Board has delegated the management of this risk to the Asset and Liability Management Committee (“ALCO”) which is composed of certain executive officers from the business, treasury and finance areas. One of ALCO’s primary goals is to ensure that the market risk assumed by the Group is within the parameters established in such policies.

Interest Rate Risk

Interest rate risk is the exposure of the Group’s earnings or capital to adverse movements in interest rates. It is a predominant market risk in terms of its potential impact on earnings. The Group manages its asset/liability position in order to limit the effects of changes in interest rates on net interest income.

ALCO oversees interest rate risk, liquidity management and other related matters.

In discharging its responsibilities, ALCO examines current and expected conditions in world financial markets, competition and prevailing rates in the local deposit market, liquidity, unrealized gains and losses in securities, recent or proposed changes to the investment portfolio, alternative funding sources and their costs, hedging and the possible purchase of derivatives such as swaps, and any tax or regulatory issues which may be pertinent to these areas.

Each quarter, the Group performs a net interest income simulation analysis on a consolidated basis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a one-year time horizon, assuming gradual upward and downward interest rate movements of 200 basis points, achieved during a twelve-month period. Simulations are carried out in two ways:

(1)	using a static balance sheet as the Group had on the simulation date, and
(2)	using a dynamic balance sheet based on recent growth patterns and business strategies.

The balance sheet is divided into groups of assets and liabilities detailed by maturity or re-pricing and their corresponding interest yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future funding sources and cost, the possible exercise of options, changes in prepayment rates, deposits decay and other factors which may be important in projecting the future growth of net interest income.

The Group uses a software application to project future movements in the Group’s balance sheet and income statement. The starting point of the projections generally corresponds to the actual values of the balance sheet on the date of the simulations.

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These simulations are highly complex, and use many simplifying assumptions that are intended to reflect the general behavior of the Group over the period in question. There can be no assurance that actual events will match these assumptions in all cases. For this reason, the results of these simulations are only approximations of the true sensitivity of net interest income to changes in market interest rates. The following table presents the results of the simulations at September 30, 2010, assuming a one-year time horizon:

	Net Interest Income Risk (one year projection)
	Static Balance Sheet						Dynamic simulation
Change in interest rate	Amount			Percent			Amount			Percent
(Dollars in thousands)	Change			Change			Change			Change
+ 200 Basis points	$	30,482			19.34	%	$	31,324			19.79	%
+ 100 Basis points	$	22,009			13.97	%	$	23,100			14.59	%
- 100 Basis points	$	(33,682	)		-21.37	%	$	(35,218	)		-22.25	%
- 200 Basis points	$	(51,217	)		-32.50	%	$	(52,133	)		-32.93	%

Future net interest income could be affected by the Group’s investments in callable securities, prepayment risk related to mortgage loans and mortgage-backed securities, and its structured repurchase agreements and advances from the FHLB. As part of the strategy to limit the interest rate risk and reduce the re-pricing gaps of the Group’s assets and liabilities, the maturity and the re-pricing frequency of the liabilities has been extended to longer terms.

The Group uses derivative instruments and other strategies to manage its exposure to interest rate risk caused by changes in interest rates beyond management’s control. The following summarizes strategies, including derivative activities, used by the Group in managing interest rate risk:

Interest rate swaps — Interest rate swap agreements generally involve the exchange of fixed and floating-rate interest payment obligations without the exchange of the underlying principal. At September 30, 2010 and December 31, 2009, there were open forward settlement swaps with an aggregate notional amount of $1.250 billion. The forward settlement date of these swaps is December 28, 2011 for $900.0 million and May 9, 2012 for $350.0 million, with final maturities ranging from December 28, 2013 through December 28, 2015. The forward settlement date of the interest rate swaps is the same as the maturity date of five repurchase agreements with an aggregate balance of $1.250 billion. The Group’s current strategy is to refinance such borrowings as short term repurchase agreements, and utilize the interest rate swaps to convert the short term repurchase agreements into fixed rate at a cost 283bps lower that the cost of the current long term repurchase agreements. A derivative liability of $8.3 million and a derivative asset of $8.5 million were recognized at September 30, 2010 and December 31, 2009, respectively, related to the valuation of these swaps.

Structured borrowings — The Group uses structured repurchase agreements and advances from FHLB, with embedded put options, to reduce the Group’s exposure to interest rate risk by lengthening the contractual maturities of its liabilities.

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, the depositor receives a minimum return or a specified percentage of the average increase of the month-end value of the stock index. The Group uses option agreements with major money center banks and major broker-dealer companies to manage its exposure to changes in that index. Under the terms of the option agreements, the Group receives the average increase in the month-end value of such index in exchange for a fixed premium. The changes in fair value of the options purchased and the options embedded in the certificates of deposit are recorded in earnings.

Derivatives 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.

At September 30, 2010 and December 31, 2009, the fair value the purchased options used to manage the exposure to the stock market on stock indexed deposits represented an asset of $7.1 million, and $6.5 million, respectively; and the options sold to customers embedded in the certificates of deposit represented a liability of $10.1 million and $9.5 million, respectively, recorded in deposits.

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Credit Risk

Credit risk is the possibility of loss arising from a borrower or counterparty in a credit-related contract failing to perform in accordance with its terms. The principal source of credit risk for the Group is its lending activities.

The Group manages its credit risk through a comprehensive credit policy which establishes sound underwriting standards, by monitoring and evaluating loan portfolio quality, and by the constant assessment of reserves and loan concentrations. The Group also employs proactive collection and loss mitigation practices.

The Group may also encounter risk of default in relation to its securities portfolio. The securities held by the Group are principally mortgage-backed securities and U.S. Treasury and agency securities. Thus, a substantial portion of these instruments are guaranteed by mortgages, a U.S. government-sponsored entity or the full faith and credit of the U.S. government, and are deemed to be of the highest credit quality. The available-for-sale securities portfolio also includes approximately $63.2 million in non-government agency pass-through collateralized mortgage obligations and $42.4 million in structured credit investments that are considered of a higher credit risk than agency securities.

Management’s Credit Committee, composed of the Group’s Chief Executive Officer, Chief Credit Risk Officer and other senior executives, has primary responsibility for setting strategies to achieve the Group’s credit risk goals and objectives. Those goals and objectives are set forth in the Group’s Credit Policy as approved by the Board.

Liquidity Risk

Liquidity risk is the risk of the Group not being able to generate sufficient cash from either assets or liabilities to meet obligations as they become due, without incurring substantial losses. The Board has established a policy to manage this risk. The Group’s cash requirements principally consist of deposit withdrawals, contractual loan funding, repayment of borrowings as they mature, and funding of new and existing investments as required.

The Group’s business requires continuous access to various funding sources. While the Group is able to fund its operations through deposits as well as through advances from the FHLB of New York and other alternative sources, the Group’s business is significantly dependent upon other wholesale funding sources, such as repurchase agreements and brokered deposits. While most of the Group’s repurchase agreements have been structured with initial terms to maturity of between three and ten years, the counterparties have the right to exercise put options before the contractual maturities.

Brokered deposits are typically offered through an intermediary to small retail investors. The Group’s ability to continue to attract brokered deposits is subject to variability based upon a number of factors, including volume and volatility in the global securities markets, the Group’s credit rating and the relative interest rates that it is prepared to pay for these liabilities. Brokered deposits are generally considered a less stable source of funding than core deposits obtained through retail bank branches. Investors in brokered deposits are generally more sensitive to interest rates and will generally move funds from one depository institution to another based on small differences in interest rates offered on deposits.

Although the Group expects to have continued access to credit from the foregoing sources of funds, there can be no assurance that such financing sources will continue to be available or will be available on favorable terms. In a period of financial disruption or if negative developments occur with respect to the Group, the availability and cost of the Group’s funding sources could be adversely affected. In that event, the Group’s cost of funds may increase, thereby reducing its net interest income, or the Group may need to dispose of a portion of its investment portfolio, which, depending upon market conditions, could result in realizing a loss or experiencing other adverse accounting consequences upon the dispositions. The Group’s efforts to monitor and manage liquidity risk may not be successful to deal with dramatic or unanticipated changes in the global securities markets or other reductions in liquidity driven by the Group or market-related events. In the event that such sources of funds are reduced or eliminated and the Group is not able to replace them on a cost-effective basis, the Group may be forced to curtail or cease its loan origination business and treasury activities, which would have a material adverse effect on its operations and financial condition.

As of September 30, 2010, the Group had approximately $142.9 million in cash and cash equivalents, $555.9 million in investment securities, and $397.2 million in mortgage loans available to cover liquidity needs.

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The terms of the Group’s structured repurchase agreements range between three and ten years, and the counterparties have the right to exercise at par on a quarterly basis put options before their contractual maturity from one to three years after the agreements’ settlement date.

Operational Risk

Operational risk is the risk of loss from inadequate or failed internal processes, personnel and systems or from external events. All functions, products and services of the Group are susceptible to operational risk.

The Group faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products. Coupled with external influences such as market conditions, security risks, and legal risk, the potential for operational and reputational loss has increased. In order to mitigate and control operational risk, the Group has developed, and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. The purpose of these policies and procedures is to provide reasonable assurance that the Group’s business operations are functioning within established limits.

The Group classifies operational risk into two major categories: business specific and corporate-wide affecting all business lines. For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate wide risks, such as information security, business recovery, legal and compliance, the Group has specialized groups, such as Information Security, Corporate Compliance, Information Technology and Operations. These groups assist the lines of business in the development and implementation of risk management practices specific to the needs of the business groups. All these matters are reviewed and discussed in the Information Technology Steering Committee.

The Group is subject to extensive federal and Puerto Rico regulation, and this regulatory scrutiny has been significantly increasing over the last several years. The Group has established and continues to enhance procedures based on legal and regulatory requirements that are reasonably designed to ensure compliance with all applicable statutory and regulatory requirements. The Group has a corporate compliance function, headed by a Compliance Director who reports to the Chief Risk Officer and is responsible for the oversight of regulatory compliance and implementation of a company-wide compliance program.

Concentration Risk

Substantially all of the Group’s business activities and a significant portion of its credit exposure are concentrated in Puerto Rico. As a consequence, the Group’s profitability and financial condition may be adversely affected by an extended economic slowdown, adverse political or economic developments in Puerto Rico or the effects of a natural disaster, all of which could result in a reduction in loan originations, an increase in non-performing assets, an increase in foreclosure losses on mortgage loans, and a reduction in the value of its loans and loan servicing portfolio.

The Commonwealth of Puerto Rico is in the fourth year of economic recession, and the central government is currently facing a significant fiscal deficit. The Commonwealth’s access to the municipal bond market and its credit ratings depend, in part, on achieving a balanced budget. In March 2009, the Legislature passed, and Governor signed, laws to reduce spending by 10% in an attempt to control expenditures, including public-sector employment, raise revenues through selective tax increases, and stimulate the economy. Although the size of the Commonwealth’s deficit has been reduced by the central government, the Puerto Rico economy continues to struggle.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Group’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Group’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon such evaluation, the CEO and the CFO have concluded that, as of the end of such period, the Group’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Group in the reports that it files or submits under the Exchange Act.

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Internal Control over Financial Reporting

The internal control over financial reporting of the acquired assets and assumed liabilities in the FDIC-assisted acquisition was excluded from the evaluation of effectiveness of the Group’s disclosure controls and procedures as of the period end covered by this report because of the timing of the acquisition. As a result of the acquisition, the Group will be evaluating changes to processes, information technology systems, and other components of internal control over financial reporting as part of its integration process.

There was no change in the Group’s internal control over financial reporting (as such term is defined on rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Group’s internal control over financial reporting.

PART — II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Group and its subsidiaries are defendants in a number of legal proceedings incidental to their business. The Group is vigorously contesting such claims. Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on the Group’s financial condition or results of operations.

Item 1A. RISK FACTORS

In addition to other information set forth in this report, you should carefully consider the risk factors included in the Group’s Annual Report on Form 10-K, as updated by this report and other filings the Group makes with the SEC under the Exchange Act. Additional risks and uncertainties not presently known to us at this time or that the Group currently deems immaterial may also adversely affect the Group’s business, financial condition or results of operations.

Risks Related to the Group’s Business

The Group may fail to realize the anticipated benefits of the FDIC-assisted acquisition.

The success of the FDIC-assisted acquisition will depend on, among other things, the Group’s ability to realize anticipated cost savings and to integrate the acquired Eurobank assets and operations in a manner that permits growth opportunities and does not materially disrupt the Group’s existing customer relationships or result in decreased revenues resulting from any loss of customers. If the Group is not able to successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. Additionally, the Group made fair value estimates of certain assets and liabilities in recording the acquisition. Actual values of these assets and liabilities could differ from the Group’s estimates, which could result in not achieving the anticipated benefits of the acquisition.

The Group cannot assure that the FDIC-assisted acquisition will have positive results, including results relating to: correctly assessing the asset quality of the assets acquired; the total cost of integration, including management attention and resources; the time required to complete the integration successfully; the amount of longer-term cost savings; being able to profitably deploy funds acquired in the transaction; or the overall performance of the combined business.

The Group’s future growth and profitability depend, in part, on the ability to successfully manage the combined operations. Integration of an acquired business can be complex and costly, sometimes including combining relevant accounting and data processing systems and management controls, as well as managing relevant relationships with employees, clients, suppliers and other business partners. Integration efforts could divert management attention and resources, which could adversely affect the Group’s operations or results. The loss of key employees in connection with this acquisition could adversely affect our ability to successfully conduct the combined operations.

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Given the continued economic recession in Puerto Rico, notwithstanding the shared-loss agreements with the FDIC with respect to certain Eurobank assets that the Group acquired, the Group may continue to experience increased credit costs or need to take additional markdowns and make additional provisions to the allowance for loan and lease losses on the assets and loans acquired that could adversely affect the Group’s financial condition and results of operations in the future. There is no assurance that as the integration efforts continue in connection with this transaction, other unanticipated costs, including the diversion of personnel, or losses, will not be incurred.

The FDIC-assisted acquisition may also result in business disruptions that cause the Group to lose customers or cause customers to move their accounts or business to competing financial institutions. It is possible that the integration process related to this acquisition could disrupt the Group’s ongoing business or result in inconsistencies in customer service that could adversely affect the Group’s ability to maintain relationships with clients, customers, depositors and employees.

For the nine-month period ended September 30, 2010, there have been deviations between actual and expected cash flows in several pools of loans acquired under the FDIC-assisted acquisition. These deviations are both positive and negative in nature. The Group continues to monitor these deviations at the pool level consistent with relevant accounting literature to assess whether these deviations are due to differences in time lags of collections or due to credit issues of the loans comprising the pools. At September 30, 2010 the Group concluded that the deviations between actual and expected cash flows arise from differences in time lags of collections and therefore no change to the original assumptions used at the acquisition date to determine the expected cash flows were required. In the event that positive trends continue, there could be the need to adjust the accretable discount which will increase the interest income prospectively on the pools prospectively. Inversely, if negative trends continue, these could lead to a recognition of a provision for loan and lease losses and establishing an allowance for loan and lease losses.

Loans that the Group acquired in the FDIC-assisted acquisition may not be covered by the shared-loss agreements if the FDIC determines that the Group has not adequately performed under these agreements or if the shared-loss agreements have ended.

Although the FDIC has agreed to reimburse the Group for 80% of qualifying losses on covered loans, the Group is not protected for all losses resulting from charge-offs with respect to such loans. Also, the FDIC has the right to refuse or delay payment for loan and lease losses if the shared-loss agreements are not performed by the Group in accordance with their terms. Additionally, the shared-loss agreements have limited terms. Therefore, any charge-offs that the Group experiences after the terms of the shared-loss agreements have ended would not be recoverable from the FDIC.

Certain provisions of the shared-loss agreements entered into with the FDIC may have anti-takeover effects and could limit the Group’s ability to engage in certain strategic transactions that the Group’s Board of Directors believes would be in the best interests of shareholders.

The FDIC’s agreement to bear 80% of qualifying losses on single family residential loans for ten years and commercial loans for five years is a significant asset of the Group and a feature of the FDIC-assisted acquisition without which the Group would not have entered into the transaction. The Group’s agreement with the FDIC requires that the Group receive prior FDIC consent, which may be withheld by the FDIC in its sole discretion, prior to the Group or the Group’s shareholders engaging in certain transactions. If any such transaction is completed without prior FDIC consent, the FDIC would have the right to discontinue the loss sharing arrangement.

Among other things, prior FDIC consent is required for (a) a merger or consolidation of the Group with or into another company if the Group’s shareholders will own less than 2/3 of the combined company and (b) a sale of shares by one or more of our shareholders that will effect a change in control of Oriental Bank, as determined by the FDIC with reference to the standards set forth in the Change in Bank Control Act (generally, the acquisition of between 10% and 25% the Group’s voting securities where the presumption of control is not rebutted, or the acquisition of more than 25% the Group’s voting securities). Such a sale by shareholders may occur beyond the Group’s control. If the Group or any shareholder desired to enter into any such transaction, there can be no assurances that the FDIC would grant its consent in a timely manner, without conditions, or at all. If one of these transactions were to occur without prior FDIC consent and the FDIC withdrew its loss share protection, there could be a material adverse impact on the Group.

The FDIC-assisted acquisition increases the Group’s commercial real estate and construction loan portfolio, which have a greater credit risk than residential mortgage loans.

With the acquisition of most of the former Eurobank’s loan portfolios, the commercial real estate loan and construction loan portfolios represent a larger portion of the Group’s total loan portfolio than prior to such transaction. This type of lending is generally considered to have more complex credit risks than traditional single-family residential or consumer lending because the principal is concentrated in a limited number of loans with repayment dependent on the successful operation or completion of the related real

84

estate or construction project. Consequently, these loans are more sensitive to the current adverse conditions in the real estate market and the general economy. These loans are generally less predictable, more difficult to evaluate and monitor, and their collateral may be more difficult to dispose of in a market decline. Although, the negative economic aspects of these risks are substantially reduced as a result of the FDIC shared-loss agreements, changes in national and local economic conditions could lead to higher loan charge-offs in connection with the FDIC-assisted acquisition, all of which would not be supported by the shared-loss agreements with the FDIC.

Loans that the Group acquired in the FDIC-assisted acquisition may be subject to impairment.

Although the loan portfolios acquired by the Group were initially accounted for at fair value, there is no assurance that such loans will not become impaired, which may result in additional provision for loan and lease losses related to these portfolios. The fluctuations in economic conditions, including those related to the Puerto Rico residential, commercial real estate and construction markets, may increase the level of credit losses that the Group makes to its loan portfolio, portfolios acquired in the FDIC-assisted transaction, and consequently, reduce its net income. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on the Group’s operations and financial condition even if other favorable events occur.

The Group’s decisions regarding the fair value of assets acquired could be inaccurate and its estimated FDIC shared-loss indemnification asset may be inadequate, which could materially and adversely affect the Group’s business, financial condition, results of operations, and future prospects.

The Group makes various assumptions and judgments about the collectability of the acquired loan portfolios, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured loans. In the FDIC-assisted acquisition, the Group recorded a shared-loss indemnification asset that it considers adequate to absorb future losses which may occur in the acquired loan portfolios. In determining the size of the shared-loss indemnification asset, the Group analyzed the loan portfolios based on historical loss experience, volume and classification of loans, volume and trends in delinquencies, and nonaccruals, local economic conditions, and other pertinent information. If the Group’s assumptions are incorrect, the current shared-loss indemnification asset may be insufficient to cover future loan losses, and increased loss reserves may be needed to respond to different economic conditions or adverse developments in the acquired loan portfolios. However, in the event expected losses from the acquired loan portfolios were to increase more than originally expected, the related increase in loss reserves would be largely offset by higher than expected indemnity payments from the FDIC. Any increase in future loan losses could have a negative effect on our operating results.

Risks Related to Bank Regulatory Matters

The Group is subject to extensive regulation which could adversely affect our business.

The Group’s operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of the Group’s operations. Because the Group’s business is highly regulated, the laws, rules and regulations applicable to the Group are subject to regular modification and change. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was recently signed into law. The Dodd-Frank Act will have a broad impact on the financial services industry, including significant regulatory and compliance changes, such as: (1) enhanced resolution authority of troubled and failing banks and their holding companies; (2) enhanced lending limits strengthening the existing limits on a depository institution’s credit exposure to one borrower; (3) increased capital and liquidity requirements; (4) increased regulatory examination fees; (5) changes to assessments to be paid to the FDIC for federal deposit insurance; (6) prohibiting bank holding companies, such as the Group, from including in regulatory Tier 1 capital future issuances of trust preferred securities or other hybrid debt and equity securities; and (7) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC. Further, the Dodd-Frank Act addresses many corporate governance and executive compensation matters that will affect most U.S. publicly traded companies, including the Group. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years.

85

Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on the Group’s operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of the Group’s business activities, require changes to certain of the Group’s business practices, impose upon the Group more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect the Group’s business. In particular, the potential impact of the Dodd-Frank Act on the Group’s operations and activities, both currently and prospectively, include, among others:

• a reduction in the Group’s ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;

• increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;

• the limitation on the Group’s ability to raise capital through the use of trust preferred securities as these securities may no longer be included as Tier I capital going forward; and

• the limitation on the Group’s ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations.

Further, the Group may be required to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact the Group’s results of operations and financial condition. While the Group cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on the Group, these changes could be materially adverse to the Group’s investors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. [Removed and Reserved by the SEC.]

Item 5. Other Information

None.

Item 6. Exhibits

10.1	Securities Purchase Agreement, dated as of April 23, 2010, between the Group and each of the purchasers of the Series C Preferred Stock.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ORIENTAL FINANCIAL GROUP INC.
(Registrant)

By:	/s/ José Rafael Fernández	Date: November 4, 2010
	José Rafael Fernández
	President and Chief Executive Officer
By:	/s/ Norberto González	Date: November 4, 2010
	Norberto González
	Executive Vice President and Chief Financial Officer

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EX-10.1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of April 23, 2010, by and among Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

RECITALS

     A. The Company and each Purchaser is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act.

     B. Each Purchaser, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, that aggregate number of shares of the Company’s mandatorily convertible non-cumulative non-voting perpetual preferred stock, $1,000 liquidation preference per share (the “Preferred Stock”), set forth below such Purchaser’s name on the signature page of this Agreement (which aggregate amount for all Purchasers together shall be 200,000 shares of Preferred Stock and shall be collectively referred to herein as the “Preferred Shares”). When purchased, the Preferred Stock will have the terms set forth in a certificate of designations for the Preferred Stock in the form attached as Exhibit A hereto (the “Certificate of Designations”) made a part of the Company’s Certificate of Incorporation, as amended, by the filing of the Certificate of Designations with the Secretary of State of the Commonwealth of Puerto Rico (the “Secretary of State”). The Preferred Stock will be convertible into shares of common stock, par value $1.00 per share (the “Common Stock”), of the Company (the “Underlying Shares” and, together with the Preferred Shares, the “Securities”), subject to and in accordance with the terms and conditions of the Certificate of Designations.

     C. The Company has engaged Keefe, Bruyette & Woods, Inc. as its exclusive placement agent (the “Placement Agent”) for the offering of the Securities.

     D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, substantially in the form attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which, among other things, the Company will agree to provide certain registration rights with respect to the Securities under the Securities Act and the rules and regulations promulgated thereunder and applicable state securities laws.

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows:

ARTICLE 1:
DEFINITIONS

     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

     “Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or, to the Company’s Knowledge, threatened in writing against the Company, any Subsidiary or any of their respective properties or any officer, director or employee of the Company or any Subsidiary acting in his or her capacity as an officer, director or employee before or by any federal, state, county, local or foreign court, arbitrator, governmental or administrative agency, regulatory authority, stock market, stock exchange or trading facility.

     “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act.

     “Agreement” shall have the meaning ascribed to such term in the Preamble.

     “AST” has the meaning set forth in Section 2.1(b).

     “AST Escrow Agreement” has the meaning set forth in Section 2.1(b).

     “Bank” has the meaning set forth in Section 6.17.

     “BHCA” has the meaning set forth in Section 3.1(b).

     “Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

     “Certificate of Designations” has the meaning set forth in the Recitals.

     “Certificate of Incorporation” means the Certificate of Incorporation of the Company and all amendments and certificates of determination thereto, as the same may be amended from time to time.

     “Closing” means the closing of the purchase and sale of the Preferred Shares pursuant to this Agreement.

     “Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all of the conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2 hereof are satisfied, or such other date as the parties may agree.

     “Code” means the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder.

     “Commission” has the meaning set forth in the Recitals.

     “Common Stock” has the meaning set forth in the Recitals, and also includes any securities into which the Common Stock may hereafter be reclassified or changed.

     “Company Deliverables” has the meaning set forth in Section 2.2(a).

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     “Company Puerto Rican Counsel” means McConnell Valdes LLC.

     “Company Reports” has the meaning set forth in Section 3.1(kk).

     “Company U.S. Counsel” means Skadden, Arps, Slate, Meagher & Flom LLP.

     “Company’s Knowledge” means with respect to any statement made to the knowledge of the Company, that the statement is based upon the actual knowledge of the executive officers of the Company having responsibility for the matter or matters that are the subject of the statement after reasonable investigation.

     “Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

     “Custodian” has the meaning set forth in Section 2.1(b).

     “Custodian Agreement” has the meaning set forth in Section 2.1(b).

     “DTC” means The Depository Trust Company.

     “Effectiveness Date” has the meaning set forth in Section 6.16.

     “Environmental Laws” has the meaning set forth in Section 3.1(l).

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder.

     “ERISA Affiliate”, as applied to the Company, means any Person under common control with the Company, who together with the Company, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

     “Escrow Agent” has the meaning set forth in Section 2.1(b).

     “Escrow Agreement” has the meaning set forth in Section 2.1(b).

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

     “Failed Bank” has the meaning set forth in Section 6.17.

     “FDIC” means the Federal Deposit Insurance Corporation.

     “FRB” means the Board of Governors of the Federal Reserve System.

     “GAAP” means U.S. generally accepted accounting principles, as applied by the Company.

     “Indemnified Person” has the meaning set forth in Section 4.8(b).

     “Intellectual Property” has the meaning set forth in Section 3.1(r).

     “Lien” means any lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.

     “Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of this Agreement, the Registration Rights Agreement, the Certificate of Designations or the Escrow Agreement, (ii) a material and adverse effect on the results of operations, assets, properties, business, condition (financial or otherwise) of the Company and the

3

Subsidiaries, taken as a whole, or (iii) any adverse impairment to the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement, the Registration Rights Agreement, the Certificate of Designations or the Escrow Agreement; provided, that in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect to the extent resulting from the following: (A) changes, after the date hereof, in U.S. GAAP or regulatory accounting principles generally applicable to banks, savings associations or their holding companies, (B) changes, after the date hereof, in applicable laws, rules and regulations or interpretations thereof by any court, administrative agency or other governmental authority, whether federal, state, local or foreign, or any applicable industry self-regulatory organization, (C) actions or omissions of the Company expressly required by the terms of this Agreement or taken with the prior written consent of an affected Purchaser, (D) changes, after the date hereof, in general economic, monetary or financial conditions, (E) changes in the market price or trading volumes of the Common Stock (but not the underlying causes of such changes), (F) changes in global or national political conditions, including the outbreak or escalation of war or acts of terrorism and (G) the public disclosure of this Agreement or the transactions contemplated hereby; except, with respect to clauses (A), (B), (D) and (F), to the extent that the effects of such changes have a disproportionate effect on the Company and the Subsidiaries, taken as a whole, relative to other similarly situated banks, savings associations or their holding companies generally.

     “Material Contract” means any contract of the Company that was filed as an exhibit to the SEC Reports pursuant to Item 601 of Regulation S-K.

     “Material Permits” has the meaning set forth in Section 3.1(p).

     “Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate is making, or is accruing an obligation to make, contributions or has made, or been obligated to make, contributions within the preceding six (6) years.

     “New York Court” means the courts of the State of New York and the United States District Courts located in the city of New York.

     “NYSE” means the New York Stock Exchange.

     “OCFI” means the Office of the Commissioner of Financial Institutions of Puerto Rico.

     “P&A Agreement” has the meaning set forth in Section 6.17.

     “P&A Closing” has the meaning set forth in Section 6.17.

     “Pension Plan” means any employee pension benefit plan within the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA and which (i) is maintained for employees of the Company or any of its ERISA Affiliates or (ii) has at any time during the last six (6) years been maintained for the employees of the Company or any current or former ERISA Affiliate.

     “Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization or governmental authority.

     “Placement Agent” has the meaning set forth in the Recitals.

     “Preferred Shares” has the meaning set forth in the Recitals.

4

     “Preferred Stock” has the meaning set forth in the Recitals.

     “Principal Trading Market” means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the date of this Agreement and the Closing Date, shall be the NYSE.

     “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

     “Purchase Price” means $1,000 per Preferred Share.

     “Purchaser Deliverables” has the meaning set forth in Section 2.2(b).

     “Purchaser Party” has the meaning set forth in Section 4.8(a).

     “Registration Rights Agreement” has the meaning set forth in the Recitals.

     “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Registrable Securities (as defined in the Registration Rights Agreement).

     “Regulation D” has the meaning set forth in the Recitals.

     “Regulatory Agreement” has the meaning set forth in Section 3.1(mm).

     “Required Approvals” has the meaning set forth in Section 3.1(e).

     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

     “Scheduled Date” has the meaning set forth in Section 6.16.

     “SEC Reports” has the meaning set forth in Section 3.1(h).

     “Secretary of State” has the meaning set forth in the Recitals.

     “Section 2.1(c)(iii) Purchaser” has the meaning set forth in Section 2.1(c)(iii).

     “Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(v).

     “Securities” has the meaning set forth in the Recitals.

     “Securities Act” has the meaning set forth in the Recitals.

     “Stockholder Approvals” has the meaning set forth in Section 4.11.

     “Stockholder Proposals” has the meaning set forth in Section 4.11.

     “Subscription Amount” means with respect to each Purchaser, the aggregate amount to be paid for the Preferred Shares purchased hereunder as indicated on such Purchaser’s signature page to this Agreement next to the heading “Aggregate Purchase Price (Subscription Amount)”.

     “Subsidiary” means any entity in which the Company, directly or indirectly, owns sufficient capital stock or holds a sufficient equity or similar interest such that it is consolidated with the Company in the financial statements of the Company.

     “Trading Day” means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is

5

not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided , that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

     “Trading Market” means whichever of the NYSE, the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

     “Transaction Documents” means this Agreement, the schedules and exhibits attached hereto, the Registration Rights Agreement, the Certificate of Designations, the Escrow Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.

     “Transfer Agent” means The Registrar and Trust Company, or any successor transfer agent for the Company.

     “Underlying Shares” has the meaning set forth in the Recitals.

ARTICLE 2:
PURCHASE AND SALE

     2.1 Closing.

          (a) Purchase of Preferred Shares. Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, the number of Preferred Shares set forth below such Purchaser’s name on the signature page of this Agreement at a per Preferred Share price equal to the Purchase Price.

          (b) Escrow. Unless Purchaser is a Section 2.1(c)(iii) Purchaser, concurrent with the signing hereof, (i) each Purchaser has (A) deposited the Subscription Amount with American Stock Transfer & Trust Company, LLC, as Escrow Agent (“AST” and, collectively with any Custodians, the "Escrow Agent”), pursuant to that certain Escrow Agreement (in the form attached hereto as Exhibit I) between the Company and AST (as it may be amended or otherwise modified from time to time, the “AST Escrow Agreement”, and collectively with any Custodian Agreements, the "Escrow Agreement”) or (B) segregated cash equal to the Subscription Amount in an account with a custodian (a “Custodian”) of funds held on behalf of an “investment company” under the Investment Company Act of 1940, as amended, pursuant to binding escrow instructions (“Custodian Agreements”) for release of such funds by such Custodian to the Company, at the direction of the Company, upon the satisfaction of conditions set forth in the AST Escrow Agreement, and (ii) the Company has issued instructions to the Transfer Agent authorizing the issuance, in book-entry form, of the number of Preferred Shares specified on such Purchaser’s signature page hereto (or, if the Company and such Purchaser shall have agreed, as indicated on such Purchaser’s signature page hereto, that such Purchaser will receive Preferred Shares in certificated form, then the Company shall instead instruct the Transfer Agent to issue such specified Preferred Shares in certificated form (the "Stock Certificates”), or as otherwise set forth on the

6

Stock Certificate Questionnaire included as Exhibit C-2 hereto) concurrent with the Escrow Agent’s release of the Subscription Amount to the Company pursuant to the Escrow Agreement.

          (c) Closing.

               (i) The Closing of the purchase and sale of the Preferred Shares shall take place at 10:00 a.m., New York City time, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, on the Closing Date or at such other locations or remotely by facsimile transmission or other electronic means as the parties may mutually agree. The “Closing Date” shall be April 30, 2010, unless the FDIC shall have notified the Company that the P&A Closing will not occur on April 30, 2010. In the event that the FDIC notifies the Company that the P&A Closing will not occur on April 30, 2010 (or any other Scheduled Date as contemplated by this paragraph), the Company will provide each Purchaser notice thereof. Upon notice from the FDIC of a different Scheduled Date for the P&A Closing, the Company shall promptly provide each Purchaser notice thereof. Unless the FDIC shall have notified the Company that the P&A Closing will not occur on a particular Scheduled Date, then the “Closing Date” shall mean such Scheduled Date. The “Closing” means the release of funds and issuance of Preferred Shares as contemplated hereby.

               (ii) Unless Purchaser is a Section 2.1(c)(iii) Purchaser, pursuant to the terms of the Escrow Agreement, on the Closing Date, the Escrow Agent shall release the Subscription Amount to the Company and the Transfer Agent shall issue the Preferred Shares to each Purchaser as provided in the instructions referred to in paragraph (b) above. If Purchaser and the Company have previously agreed (as indicated on such Purchaser’s signature page hereto) that such Purchaser may rely on Section 2.1(c)(iii) instead of on Sections 2.1 (c)(i) and (ii), such Purchaser is a “Section 2.1(c)(iii) Purchaser”.

               (iii) If Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition (any such Purchaser, a “Section 2.1(c)(iii) Purchaser”), then with respect to such Purchaser Section 2.1(c)(ii) shall not apply and shall have no force and effect, and this Section 2.1(c)(iii) shall apply instead. This Section 2.1(c)(iii) shall not apply and shall have no force or effect for any Purchaser that is not a Section 2.1(c)(iii) Purchaser. If a Purchaser is a Section 2.1(c)(iii) Purchaser, then at 9:00 a.m., New York City time, on the Closing Date (i) Purchaser shall pay the Subscription Amount by wire transfer of immediately available funds to an account designated by the Company and (ii) the Company shall issue instructions to the Transfer Agent to issue in book-entry form the number of Preferred Shares specified on such Purchaser’s signature page hereto (or, if the Company and such Purchaser shall have agreed, as indicated on such Purchaser’s signature page hereto, that such Purchaser will receive Preferred Shares in certificated form, then the Company shall instead instruct the Transfer Agent to issue such specified Preferred Shares in Stock Certificates, or as otherwise set forth on the Stock Certificate Questionnaire included as Exhibit C-2 hereto) concurrent with such Purchaser’s payment of the Subscription Amount to the Company.

     2.2 Closing Deliveries.

          (a) On or prior to the Closing, the Company shall issue, deliver or cause to be delivered to each Purchaser the following (the “Company Deliverables”):

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               (i) this Agreement, duly executed by the Company;

               (ii) as the Company and such Purchaser agree, the Company shall cause the Transfer Agent to issue, in book-entry form the number of Preferred Shares specified on such Purchaser’s signature page hereto (or, if the Company and such Purchaser shall have agreed, as indicated on such Purchaser’s signature pages hereto, that such Purchaser will receive Stock Certificates for their Preferred Shares, then the Company shall instead instruct the Transfer Agent to issue such specified Stock Certificates registered in the name of such Purchaser or as otherwise set forth on the Stock Certificate Questionnaire);

               (iii) a legal opinion of Company Puerto Rican Counsel, dated as of the Closing Date and in the form attached hereto as Exhibit D, executed by such counsel and addressed to the Purchasers;

               (iv) a legal opinion of Company U.S. Counsel, dated as of the Closing Date and in the form attached hereto as Exhibit E, executed by such counsel and addressed to the Purchasers;

               (v) the Registration Rights Agreement, duly executed by the Company (which shall be delivered on the date hereof);

               (vi) the AST Escrow Agreement, duly executed by the Company and AST (which shall be delivered on the date hereof);

               (vii) a certificate of the Secretary of the Company, in the form attached hereto as Exhibit F (the “Secretary’s Certificate”), dated as of the Closing Date, (a) certifying the resolutions adopted by the Board of Directors of the Company or a duly authorized committee thereof approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Securities, (b) certifying the current versions of the Certificate of Incorporation, as amended, and by-laws, as amended, of the Company and (c) certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company; and

               (viii) the Compliance Certificate referred to in Section 5.1(f).

          (b) Each Purchaser shall deliver or cause to be delivered to the Company or the Escrow Agent, as applicable, the following (the “Purchaser Deliverables”):

               (i) On or prior to the date hereof:

                    a) this Agreement, duly executed by such Purchaser;

                    b) the Registration Rights Agreement, duly executed by such Purchaser;

                    c) a Custodian Agreement, if applicable, duly executed by such Purchaser;

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                    d) a fully completed and duly executed Accredited Investor Questionnaire, reasonably satisfactory to the Company, and the Stock Certificate Questionnaire in the forms attached hereto as Exhibits C-1 and C-2 , respectively; and

                    e) if such Purchaser is not a Section 2.1(c)(iii) Purchaser, its Subscription Amount, in United States dollars and in immediately available funds, in the amount indicated below such Purchaser’s name on the applicable signature page hereto under the heading “Aggregate Purchase Price (Subscription Amount)” by wire transfer to the Escrow Account in accordance with the Escrow Agent’s written instructions.

               (ii) On or prior to the Closing Date:

                    a) if such Purchaser is a Section 2.1(c)(iii) Purchaser, then such Purchaser shall deliver or cause to be delivered to the Company on or prior to the Closing Date, its Subscription Amount, in United States dollars and in immediately available funds, in the amount indicated below such Purchaser’s name on the applicable signature page hereto under the heading “Aggregate Purchase Price (Subscription Amount)” by wire transfer in accordance with the Company’s written instructions.

ARTICLE 3:
REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. The Company hereby represents and warrants as of the date hereof and the Closing Date (except for the representations and warranties that speak as of a specific date, which shall be made as of such date), to each of the Purchasers that:

          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than as set forth in Exhibit H. The Company owns, directly or indirectly, all of the capital stock or comparable equity interests of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock or comparable equity interest of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

          (b) Organization and Qualification. The Company and each of its “Significant Subsidiaries” (as defined in Rule 1-02 of Regulation S-X) is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own or lease and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Significant Subsidiary is in violation of any of the provisions of its respective articles or certificate of incorporation, bylaws or other organizational or charter documents. The Company and each of its Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not in the reasonable judgment of the Company be expected to have a Material Adverse Effect. The Company is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and a financial holding company under the Gramm-Leach-Bliley Act of 1999, as amended. The

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Company’s depository institution Subsidiary’s deposit accounts are insured up to applicable limits by the FDIC. The Company has conducted its business in compliance with all applicable federal, state and foreign laws, orders, judgments, decrees, rules, regulations and applicable stock exchange requirements, including all laws and regulations restricting activities of bank holding companies and banking organizations, except for any noncompliance that, individually or in the aggregate, has not had and would not be reasonably expected to have a Material Adverse Effect.

          (c) Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder, including, without limitation, to issue the Preferred Shares in accordance with the terms hereof and, subject to the Stockholder Approvals, to issue the Underlying Shares in accordance with the Certificate of Designations. The Company’s execution and delivery of each of the Transaction Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Preferred Shares and the Underlying Shares) have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate action is required by the Company, its Board of Directors or its stockholders in connection therewith other than in connection with the Required Approvals. Each of the Transaction Documents to which it is a party has been (or upon delivery will have been) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. Except for Material Contracts, there are no stockholder agreements, voting agreements, or other similar arrangements with respect to the Company’s capital stock to which the Company is a party or, to the Company’s Knowledge, between or among any of the Company’s stockholders.

          (d) No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Preferred Shares and the Underlying Shares) do not and will not (i) conflict with or violate any provisions of the Company’s or any Subsidiary’s articles or certificate of incorporation, bylaws or otherwise result in a violation of the organizational documents of the Company or any Subsidiary, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would result in a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any Material Contract, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by the Purchasers herein, of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company is

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bound or affected, except in the case of clauses (ii) and (iii) such as would not have or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

          (e) Filings, Consents and Approvals. Neither the Company nor any of its Subsidiaries is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including, without limitation, the issuance of the Preferred Shares and the Underlying Shares), other than (i) obtaining the Stockholder Approvals to issue the Underlying Shares in accordance with the terms of the Certificate of Designations, (ii) the filing of the Certificate of Designations with the Secretary of State, (iii) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (iv) filings required by applicable state securities laws, (v) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (vi) the filing of any requisite notices and/or application(s) to the Principal Trading Market for the issuance and sale of the Underlying Shares and the listing of the Underlying Shares for trading or quotation, as the case may be, thereon in the time and manner required thereby, (vii) the filings required in accordance with Section 4.6 of this Agreement and (viii) those that have been made or obtained prior to the date of this Agreement (collectively, the “Required Approvals”).

          (f) Issuance of the Preferred Shares. The issuance of the Preferred Shares has been duly authorized and the Preferred Shares, when issued and paid for in accordance with the terms of the Transaction Documents, will be duly and validly issued, fully paid and non-assessable and free and clear of all Liens, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights. The issuance of the Underlying Shares has been duly authorized and the Underlying Shares, when issued in accordance with the terms of the Certificate of Designations, will be duly and validly issued, fully paid and non-assessable and free and clear of all Liens, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights. Assuming the accuracy of the representations and warranties of the Purchasers in this Agreement, the Securities will be issued in compliance with all applicable federal and state securities laws.

          (g) Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) has been set forth in the SEC Reports and has changed since the date of such SEC Reports only due to (i) the sale and issuance of 8,740,000 shares of Common Stock in March 2010, and (ii) stock grants or other equity awards or stock option and warrant exercises that do not, individually or in the aggregate, have a material effect on the issued and outstanding capital stock, options and other securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable, have been issued in compliance in all material respects with all applicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase any capital stock of the Company. Except as specified in the SEC Reports: (i) no shares of the Company’s outstanding capital stock are subject to preemptive rights or any other similar rights; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever

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relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company, other than those issued or granted pursuant to Material Contracts or equity or incentive plans or arrangements described in the SEC Reports; (iii) there are no material outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing indebtedness of the Company or by which the Company is bound; (iv) except for the Registration Rights Agreement, there are no agreements or arrangements under which the Company is obligated to register the sale of any of its securities under the Securities Act; (v) there are no outstanding securities or instruments of the Company that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company; (vi) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (vii) the Company has no liabilities or obligations required to be disclosed in the SEC Reports but not so disclosed in the SEC Reports, which, individually or in the aggregate, will have or would reasonably be expected to have a Material Adverse Effect. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities.

          (h) SEC Reports. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since January 1, 2009 (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”), on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective filing dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. On March 19, 2010, the Company issued 8,740,000 shares of Common Stock pursuant to a prospectus supplement and an accompanying prospectus, each filed with the Commission pursuant to Rule 424(b); such prospectus supplement and the accompanying prospectus contain important information about the Company’s Common Stock and certain other material information about the Company. The Company advises any Purchaser to read such prospectus supplement and accompanying prospectus, in particular the sections entitled “Risk Factors,” “Description of Capital Stock” and “Material United States Federal Income Tax Consideration.”

          (i) Financial Statements. The financial statements of the Company and its Subsidiaries included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the balance sheet of the

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Company and its consolidated Subsidiaries taken as a whole as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments, which would not be material, either individually or in the aggregate.

          (j) Tax Matters. The Company and each of its Subsidiaries has (i) filed all material foreign, U.S. federal, Puerto Rico and local tax returns, information returns and similar reports that are required to be filed, and all such tax returns are true, correct and complete in all material respects, and (ii) paid all material taxes required to be paid by it and any other material assessment, fine or penalty levied against it other than taxes (x) currently payable without penalty or interest, or (y) being contested in good faith by appropriate proceedings.

          (k) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as disclosed in subsequent SEC Reports filed prior to the date hereof, (i) there have been no events, occurrences or developments that have had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered materially its method of accounting or the manner in which it keeps its accounting books and records, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock (other than in connection with repurchases of unvested stock issued to employees of the Company and a quarterly cash dividend of $0.04 per share of Common Stock on April 15, 2010), (v) the Company has not issued any equity securities to any officer, director or Affiliate, except (A) Common Stock issued pursuant to existing Company option plans or equity based plans disclosed in the SEC Reports and (B) 8,740,000 shares of Common Stock issued in March 2010, and (vi) there has not been any material change or amendment to, or any waiver of any material right by the Company under, any Material Contract under which the Company or any of its Subsidiaries is bound or subject. Except for the transactions contemplated by this Agreement (including, for the avoidance of doubt, the execution of any P&A Agreement and the consummation of any of the transactions contemplated thereunder, including any purchase of the Failed Bank or portion thereof), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made that has not been publicly disclosed at least one Trading Day prior to the date that this representation is made.

          (l) Environmental Matters. Except as disclosed in the SEC Reports, neither the Company nor any of its Subsidiaries (i) is in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), (ii) is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or (iii) is subject to any claim relating to any Environmental Laws; in each case, which violation, contamination, liability or claim has had or would reasonably be expected to have, individually or in

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the aggregate, a Material Adverse Effect; and, to the Company’s Knowledge, there is no pending or threatened investigation that might lead to such a claim.

          (m) Litigation. There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the issuance of the Preferred Shares or (ii) except as disclosed in the SEC Reports, is reasonably likely to have a Material Adverse Effect, individually or in the aggregate, if there were an unfavorable decision. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the Company’s knowledge there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.

          (n) Employment Matters. No material labor dispute exists or, to the Company’s Knowledge, is imminent with respect to any of the employees of the Company which would have or reasonably be expected to have a Material Adverse Effect. To the Company’s Knowledge, no executive officer is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of a third party, and to the Company’s Knowledge, the continued employment of each such executive officer does not subject the Company or any Subsidiary to any liability with respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not have or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

          (o) Compliance. Neither the Company nor any of its Subsidiaries (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any of its Subsidiaries under), nor has the Company or any of its Subsidiaries received written notice of a claim that it is in default under or that it is in violation of, any Material Contract (whether or not such default or violation has been waived), (ii) is in violation of any order of which the Company has been made aware in writing of any court, arbitrator or governmental body having jurisdiction over the Company or its properties or assets, or (iii) is in violation of, or in receipt of written notice that it is in violation of, any statute, rule or regulation of any governmental authority applicable to the Company, or which would have the effect of revoking or limiting FDIC deposit insurance, except in each case as would not have or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

          (p) Regulatory Permits. The Company and each of its Subsidiaries possess or have applied for all certificates, authorizations, consents and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as currently conducted and as described in the SEC Reports, except where the failure to possess such permits, individually or in the aggregate, has not and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (“Material Permits”), and (i) neither the Company nor any of its Subsidiaries has received any notice in writing of proceedings relating to the revocation or material adverse modification of any such Material Permits

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and (ii) the Company is unaware of any facts or circumstances that would give rise to the revocation or material adverse modification of any Material Permits.

          (q) Title to Assets. The Company and its Subsidiaries have good and marketable title to all real property and tangible personal property owned by them which is material to the business of the Company and its Subsidiaries, taken as a whole, in each case free and clear of all Liens except such as do not materially affect the value of such property or do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

          (r) Patents and Trademarks. The Company and its Subsidiaries own, possess, license, or can acquire on reasonable terms, or have other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, inventions, trade secrets, technology, Internet domain names, know-how and other intellectual property (collectively, the “Intellectual Property”) necessary for the conduct of their respective businesses as now conducted, except where the failure to own, possess, license or have such rights would not have or reasonably be expected to have a Material Adverse Effect. Except as set forth in the SEC Reports and except where such violations or infringements would not have or reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, (a) there are no rights of third parties to any such Intellectual Property; (b) there is no infringement by third parties of any such Intellectual Property; (c) there is no pending or threatened action, suit, proceeding or claim by others challenging the Company’s and its Subsidiaries’ rights in or to any such Intellectual Property; (d) there is no pending or threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property; and (e) there is no Proceeding by others that the Company and/or any Subsidiary infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others.

          (s) Insurance. The Company and each of the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes to be prudent and customary in the businesses and locations in which the Company and the Subsidiaries are engaged. Neither the Company nor any of its Subsidiaries has received any notice of cancellation of any such insurance, nor, to the Company’s Knowledge, will it or any Subsidiary be unable to renew their respective existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

          (t) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports and other than the grant of stock options or other equity awards that are not individually or in the aggregate material in amount, none of the officers or directors of the Company and, to the Company’s Knowledge, none of the employees of the Company, is presently a party to any transaction with the Company or to a presently contemplated transaction (other than for services as employees, officers and directors) that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Securities Act.

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          (u) Internal Control Over Financial Reporting. Except as set forth in the SEC Reports, the Company maintains internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and such internal control over financial reporting was effective as of the date of the most recent SEC Report.

          (v) Sarbanes-Oxley; Disclosure Controls. The Company is in compliance in all material respects with all of the provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it. Except as disclosed in the SEC Reports, the Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), and such disclosure controls and procedures are effective.

          (w) Certain Fees. No person or entity will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or a Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company, other than the Placement Agent with respect to the offer and sale of the Preferred Shares (which placement agent fees are being paid by the Company). The Company shall indemnify, pay, and hold each Purchaser harmless against, any liability, loss or expense (including, without limitation, attorneys’ fees and out-of-pocket expenses) arising in connection with any such right, interest or claim.

          (x) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2 of this Agreement and the accuracy of the information disclosed in the Accredited Investor Questionnaires, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers under the Transaction Documents. The issuance and sale of the Preferred Shares hereunder does not contravene the rules and regulations of the Principal Trading Market and, upon the receipt of the Stockholder Approvals, the issuance of the Underlying Shares in accordance with the Certificate of Designations will not contravene the rules and regulations of the Principal Trading Market.

          (y) Registration Rights. Other than each of the Purchasers, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company other than those securities which are currently registered on an effective registration statement on file with the Commission.

          (z) Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and the Company has taken no action designed to terminate the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received written notice from any Trading Market on which the Common Stock is listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance in all material respects with the listing and maintenance requirements for continued trading of the Common Stock on the Principal Trading Market.

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          (aa) Investment Company. Neither the Company nor any of its Subsidiaries is required to be registered as, and immediately following the Closing will not be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

          (bb) Unlawful Payments. Neither the Company nor any of its Subsidiaries, nor to the Company’s Knowledge, any directors, officers, employees, agents or other Persons acting at the direction of or on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company: (a) directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to foreign or domestic political activity; (b) made any direct or indirect unlawful payments to any foreign or domestic governmental officials or employees or to any foreign or domestic political parties or campaigns from corporate funds; (c) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (d) made any other unlawful bribe, rebate, payoff, influence payment, kickback or other material unlawful payment to any foreign or domestic government official or employee.

          (cc) Application of Takeover Protections; Rights Agreements. The Company has not adopted any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Purchaser solely as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Purchaser’s ownership of the Securities.

          (dd) Disclosure. The Company confirms that neither it nor, to the Company’s Knowledge, any of its officers or directors nor any other Person acting on its or their behalf has provided, including the Placement Agent to provide, any Purchaser or its respective agents or counsel with any information that it believes constitutes or could reasonably be expected to constitute material, non-public information except insofar as the existence, provisions and terms of the Transaction Documents and the proposed transactions hereunder may constitute such information, all of which will be disclosed by the Company in the Press Release as contemplated by Section 4.6 hereof. The Company understands and confirms that each of the Purchasers will rely on the representations in this Section 3.1(dd) in effecting transactions in securities of the Company. No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed, except for the announcement of this Agreement and related transactions and as may be disclosed on the Form 8-K filed pursuant to Section 4.6.

          (ee) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company (or any Subsidiary) and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed and would have or reasonably be expected to have a Material Adverse Effect.

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          (ff) Acknowledgment Regarding Purchasers’ Purchase of Preferred Shares. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any of the Purchasers or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Preferred Shares.

          (gg) Absence of Manipulation. The Company has not, and to the Company’s Knowledge no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities.

          (hh) OFAC. Neither the Company nor any Subsidiary nor, to the Company’s Knowledge, any director, officer, agent, employee, Affiliate or Person acting on behalf of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not knowingly use the proceeds of the sale of the Preferred Shares, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.

          (ii) Money Laundering Laws. The operations of each of the Company and any Subsidiary are in compliance in all material respects with the money laundering statutes of applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any applicable governmental agency (collectively, the “Money Laundering Laws”) and to the Company’s Knowledge, no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company and/or any Subsidiary with respect to the Money Laundering Laws is pending or threatened.

          (jj) Reports, Registrations and Statements. Since December 31, 2008, the Company and each Subsidiary have filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with the FRB, the FDIC, the OCFI and any other applicable federal or state securities or banking authorities, except where the failure to file any such report, registration or statement would not have or reasonably be expected to have a Material Adverse Effect. All such reports and statements filed with any such regulatory body or authority are collectively referred to herein as the “Company Reports.” As of their respective dates, the Company Reports complied as to form in all material respects with all the rules and regulations promulgated by the FRB, the FDIC, the OCFI and any other applicable foreign, federal or state securities or banking authorities, as the case may be.

          (kk) Adequate Capitalization. As of December 31, 2009, the Company’s Subsidiary insured depository institutions meet or exceed the standards necessary to be considered

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“adequately capitalized” under the Federal Deposit Insurance Company’s regulatory framework for prompt corrective action.

          (ll) Agreements with Regulatory Agencies; Compliance with Certain Banking Regulations. Neither the Company nor any Subsidiary is subject to any cease-and-desist or other similar order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any capital directive by, or since December 31, 2007, has adopted any board resolutions at the request of, any governmental entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its liquidity and funding policies and practices, its ability to pay dividends, its credit, risk management or compliance policies, its internal controls, its management or its operations or business (each item in this sentence, a “Regulatory Agreement”), nor has the Company or any Subsidiary been advised since December 31, 2008 by any governmental entity that it intends to issue, initiate, order, or request any such Regulatory Agreement.

          The Company has no knowledge of any facts and circumstances, and has no knowledge of any facts or circumstances exist, that would cause its Subsidiary banking institutions: (i) to be operating in violation, in any material respect, of the Bank Secrecy Act, the Patriot Act, any order issued with respect to anti-money laundering by OFAC, or any other anti-money laundering statute, rule or regulation; or (ii) not to be in satisfactory compliance, in any material respect, with all applicable privacy of customer information requirements contained in any applicable federal and state privacy laws and regulations as well as the provisions of all information security programs adopted by the Subsidiary.

          (mm) No General Solicitation or General Advertising. Neither the Company nor, to the Company’s Knowledge, any Person acting on its behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with any offer or sale of the Preferred Shares.

          (nn) Risk Management Instruments. Except as has not had or would not reasonably be expected to have a Material Adverse Effect, since January 1, 2009, all material derivative instruments, including, swaps, caps, floors and option agreements, whether entered into for the Company’s own account, or for the account of one or more of the Company Subsidiaries, were entered into (1) only in the ordinary course of business, (2) in accordance with prudent practices and in all material respects with all applicable laws, rules, regulations and regulatory policies, and (3) with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding obligation of the Company or one of the Subsidiaries, enforceable in accordance with its terms. Neither the Company or the Subsidiaries, nor, to the knowledge of the Company, any other party thereto, is in breach of any of its material obligations under any such agreement or arrangement.

          (oo) ERISA. The Company and each ERISA Affiliate is in compliance in all material respects with all presently applicable provisions of ERISA; no “reportable event” described in Section 4043 of ERISA (other than an event for which the 30-day notice requirement has been waived by applicable regulation) has occurred with respect to any Pension Plan for which the Company would have any liability that would reasonably be expected to have a Material Adverse

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Effect; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any Pension Plan; or (ii) Sections 412 or 4971 of the Code that would reasonably be expected to have a Material Adverse Effect; and each Pension Plan for which the Company would have liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

          (pp) Reservation of Underlying Shares. Assuming the Stockholder Approvals have been obtained, the Company will reserve, free of any preemptive or similar rights of stockholders of the Company, a number of unissued shares of Common Stock, sufficient to issue and deliver the Underlying Shares into which the Preferred Shares are convertible.

          (qq) Shell Company Status. The Company is not, and has never been, an issuer identified in Rule 144(i)(1).

          (rr) Registration Eligibility. The Company is eligible to register the resale of the Securities by the Purchasers using Form S-3 promulgated under the Securities Act.

          (ss) FDIC Policy Statement. The Company and the Bank are not subject to, and do not expect that, as a result of the issuance of Preferred Shares provided herein or otherwise arising in connection with the Bank’s acquisition of the Failed Bank, they will become subject to, the FDIC Statement of Policy on Qualifications for Failed Bank Acquisitions (as in effect and interpreted on the date hereof) (the “FDIC Policy Statement”).

          (tt) No Additional Agreements. The Company has no other agreements or understandings (including, without limitation, side letters) with any Purchaser to purchase Preferred Shares on terms that are different from those set forth herein.

     3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

          (a) Organization; Authority. If such Purchaser is an entity, it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. If such Purchaser is an entity, the execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or, if such Purchaser is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Purchaser. If such Purchaser is an entity, each of this Agreement, the Registration Rights Agreement and the Escrow Agreement has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

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          (b) No Conflicts. The execution, delivery and performance by such Purchaser of this Agreement, the Registration Rights Agreement and the Escrow Agreement and the consummation by such Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Purchaser (if such Purchaser is an entity), (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Purchaser is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Purchaser, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Purchaser to perform its obligations hereunder.

          (c) Investment Intent. Such Purchaser understands that the Preferred Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Preferred Shares as principal for its own account and not with a view to, or for distributing or reselling such Preferred Shares or any part thereof in violation of the Securities Act or any applicable state securities laws, provided, that by making the representations herein, other than as set forth herein, such Purchaser does not agree to hold any of the Preferred Shares for any minimum period of time and reserves the right at all times to sell or otherwise dispose of all or any part of such Preferred Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Such Purchaser is acquiring the Preferred Shares hereunder in the ordinary course of its business. Such Purchaser does not presently have any agreement, plan or understanding, directly or indirectly, with any Person to distribute or effect any distribution of any of the Securities (or any securities which are derivatives thereof) to or through any Person or entity.

          (d) Purchaser Status. At the time such Purchaser was offered the Preferred Shares, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act. Such Purchaser has provided the information in the Accredited Investor Questionnaire attached hereto as Exhibit C-1.

          (e) Reliance. The Company and the Placement Agent (on behalf of its client) will be entitled to rely upon this Agreement and are irrevocably authorized to produce this Agreement or a copy hereof to (A) any regulatory authority having jurisdiction over the Company and its affiliates and (B) any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby, in each case, to the extent required by any court or governmental authority to which the Company is subject, provided that the Company provides the Purchaser with prior written notice of such disclosure.

          (f) General Solicitation. Purchaser: (i) became aware of the offering of the Preferred Shares, and the Preferred Shares were offered to Purchaser, solely by direct contact between Purchaser and the Company or Placement Agent, and not by any other means, including any form of “general solicitation” or “general advertising” (as such terms are used in Regulation D promulgated under the Securities Act and interpreted by the Commission); (ii) reached its decision to invest in the Company independently from any other Purchaser; (iii) has entered into no

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agreements with stockholders of the Company or other subscribers for the purpose of controlling the Company or any of its subsidiaries; and (iv) has entered into no agreements with stockholders of the Company or other subscribers regarding voting or transferring Purchaser’s interest in the Company.

          (g) Direct Purchase. Purchaser is purchasing Preferred Shares directly from the Company and not from the Placement Agent. The Placement Agent did not make any representations, declarations or warranties to Purchaser, express or implied, regarding the Preferred Shares, the Company or the Company’s offering of the Preferred Shares, and the Placement Agent did not offer to sell, or solicit an offer to buy, any of the Preferred Shares that Purchaser proposes to acquire from the Company hereunder.

          (h) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Preferred Shares, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Preferred Shares and, at the present time, is able to afford a complete loss of such investment.

          (i) Access to Information. Such Purchaser acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Preferred Shares and the merits and risks of investing in the Preferred Shares; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment; and (iv) the opportunity to ask questions of management. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and completeness of the Company’s representations and warranties contained in the Transaction Documents. Such Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed decision with respect to its acquisition of the Preferred Shares. Purchaser acknowledges that neither the Company nor the Placement Agent has made any representation, express or implied, with respect to the accuracy, completeness or adequacy of any available information except, with respect to the Company, as expressly set forth in the SEC Reports or to the extent such information is covered by the representations and warranties of the Company contained in Section 3.1.

          (j) Brokers and Finders. Other than the Placement Agent with respect to the Company, no Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company or any Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Purchaser.

          (k) Independent Investment Decision. Such Purchaser has independently evaluated the merits of its decision to purchase Preferred Shares pursuant to the Transaction

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Documents, and such Purchaser confirms that it has not relied on the advice of any other Purchaser’s business and/or legal counsel in making such decision. Such Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Preferred Shares constitutes legal, regulatory, tax or investment advice. Such Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Preferred Shares. Such Purchaser understands that the Placement Agent has acted solely as the agent of the Company in this placement of the Securities and such Purchaser has not relied on any statement, representation or warranty including any business or legal advice of the Placement Agent or any of its agents, counsel or Affiliates in making its investment decision hereunder, and confirms that none of such Persons has made any representations or warranties to such Purchaser in connection with the transactions contemplated by the Transaction Documents.

          (l) Acquisition. The Board of Directors of the Company will control the entry into the P&A Agreement with respect to any acquisition of the Failed Bank or any portion thereof and stockholders of the Company will have no opportunity to affect the investment decision regarding the potential acquisition.

          (m) ERISA. (i) If Purchaser is, or is acting on behalf of, an ERISA Entity (as defined below), Purchaser represents and warrants that on the date hereof;

                    (A) The decision to invest assets of the ERISA Entity in the Preferred Shares was made by fiduciaries independent of the Company or its affiliates, which fiduciaries are duly authorized to make such investment decisions and who have not relied on any advice or recommendations of the Company or its affiliates;

                    (B) Neither the Company nor any of its agents, representatives or affiliates have exercised any discretionary authority or control with respect to the ERISA Entity’s investment in the Preferred Shares;

                    (C) The purchase and holding of the Preferred Shares will not constitute a nonexempt prohibited transaction under ERISA or Section 4975 of the Code or a similar violation under any applicable similar laws; and

                    (D) The terms of the Documents comply with the instruments and applicable laws governing such ERISA Entity.

(ii) For the purpose of this paragraph, the term “ERISA Entity” will mean (A) an “employee benefit plan” within the meaning of Section 3(3) of ERISA subject to Title I of ERISA, (B) a “plan” within the meaning of Section 4975(e)(1) of the Code and (C) any person whose assets are deemed to be “plan assets” within the meaning of ERISA Section 3(42) and 29 C.F.R. § 2510.3-101 or otherwise under ERISA.

          (n) Reliance on Exemptions. Such Purchaser understands that the Securities being offered and sold to it in reliance on specific exemptions from the registration requirements of U.S. federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements,

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acknowledgements and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Preferred Shares.

          (o) No Governmental Review. Such Purchaser understands that no U.S. federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. Purchaser understands that the Securities are not savings accounts, deposits or other obligations of any bank and are not insured by the FDIC, including the FDIC’s Deposit Insurance Fund, or any other governmental agency.

          (p) Antitrust. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental entity or authority or any other person or entity in respect of any law or regulation, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder, is necessary or required, and no lapse of a waiting period under law applicable to such Purchaser is necessary or required, in each case in connection with the execution, delivery or performance by such Purchaser of this Agreement or the purchase of the Preferred Shares contemplated hereby.

          (q) Residency. Such Purchaser’s residence (if an individual) or office in which its investment decision with respect to the Preferred Shares was made (if an entity) are located at the address immediately below such Purchaser’s name on its signature page hereto.

          (r) Regulatory Matters. Purchaser understands and acknowledges that: (i) the Company is a registered bank holding company under the BHCA, and is subject to regulation by the FRB; (ii) acquisitions of interests in bank holding companies are subject to the BHCA and the Change in Bank Control Act (the “CIBCA”) and may be reviewed by the FRB to determine the circumstances under which such acquisitions of interests will result in Purchaser becoming subject to the BHCA or subject to the prior notice requirements of the CIBCA. Assuming the accuracy of the representations and warranties of the Company contained herein, Purchaser represents that neither it nor its Affiliates will, as a result of the transactions contemplated herein, be deemed to (i) own or control 10% or more of any class of voting securities of the Company or (ii) otherwise control the Company for purposes of the BHCA or CIBCA. Purchaser is not participating and has not participated with any other investor in the offering of the Preferred Shares in any joint activity or parallel action towards a common goal between or among such investors of acquiring control of the Company.

          (s) Trading. Purchaser acknowledges that there is no trading market for the Preferred Stock, and no such market is expected to develop.

          (t) OFAC and Anti-Money Laundering. The Purchaser understands, acknowledges, represents and agrees that (i) the Purchaser is not the target of any sanction, regulation, or law promulgated by the Office of Foreign Assets Control, the Financial Crimes Enforcement Network or any other U.S. governmental entity (“U.S. Sanctions Laws”); (ii) the Purchaser is not owned by, controlled by, under common control with, or acting on behalf of any person that is the target of U.S. Sanctions Laws; (iii) the Purchaser is not a “foreign shell bank” and is not acting on behalf of a “foreign shell bank” under applicable anti-money laundering laws and regulations; (iv) the Purchaser’s entry into this Agreement or consummation of the transactions

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contemplated hereby will not contravene U.S. Sanctions Laws or applicable anti-money laundering laws or regulations; (v) the Purchaser will promptly provide to the Company or any regulatory or law enforcement authority such information or documentation as may be required to comply with U.S. Sanctions Laws or applicable anti-money laundering laws or regulations; and (vi) the Company may provide to any regulatory or law enforcement authority information or documentation regarding, or provided by, the Purchaser for the purposes of complying with U.S. Sanctions Laws or applicable anti-money laundering laws or regulations.

          (u) Purchaser has not discussed the Offering with any other party or potential investors (other than the Company, Placement Agent, any other Purchaser and Purchaser’s authorized representatives), except as expressly permitted under the terms of this Agreement.

          (v) Knowledge as to Conditions. Purchaser does not know of any reason why any regulatory approvals and, to the extent necessary, any other approvals, authorizations, filings, registrations, and notices required or otherwise a condition to the consummation by it of the transactions contemplated by this Agreement will not be obtained.

     The Company and each of the Purchasers acknowledge and agree that no party to this Agreement has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Article 3 and the Transaction Documents.

ARTICLE 4:
OTHER AGREEMENTS OF THE PARTIES

     4.1 Transfer Restrictions.

     (a) Compliance with Laws. Notwithstanding any other provision of this Article 4, each Purchaser covenants that the Securities may be disposed of only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state, federal or foreign securities laws. In connection with any transfer of the Securities other than (i) pursuant to an effective registration statement, (ii) to the Company or (iii) pursuant to Rule 144 (provided that the transferor provides the Company with reasonable assurances (in the form of seller and broker representation letters) that such securities may be sold pursuant to such rule), the Company may require the transferor thereof to provide to the Company and the Transfer Agent, at the transferor’s expense, an opinion of counsel selected by the transferor and reasonably acceptable to the Company and the Transfer Agent, the form and substance of which opinion shall be reasonably satisfactory to the Company and the Transfer Agent, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer (other than pursuant to clauses (i), (ii) or (iii) of the preceding sentence), any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement with respect to such transferred Securities.

     (b) Legends. Certificates evidencing the Securities shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and,

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with respect to Securities held in book-entry form, the Transfer Agent will record such a legend on the share register), until such time as they are not required under Section 4.1(c) or applicable law:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT (PROVIDED THAT THE TRANSFEROR PROVIDES THE COMPANY WITH REASONABLE ASSURANCES (IN THE FORM OF SELLER AND BROKER REPRESENTATION LETTERS) THAT THE SECURITIES MAY BE SOLD PURSUANT TO SUCH RULE). NO REPRESENTATION IS MADE BY THE ISSUER AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THESE SECURITIES.

     (c) Removal of Legends. The restrictive legend set forth in Section 4.1(b) above shall be removed and the Company shall issue a certificate without such restrictive legend or any other restrictive legend to the holder of the applicable Securities upon which it is stamped or issue to such holder by electronic delivery at the applicable balance account at DTC, if (i) such Securities are sold or transferred pursuant to Rule 144 (if the transferor is not an Affiliate of the Company), or (ii) such Securities are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) (or Rule 144(i)(2), if applicable) as to such securities and without volume or manner-of-sale restrictions. Following the earlier of (i) the Effective Date (as defined in the Registration Rights Agreement) or (ii) Rule 144 becoming available for the resale of Securities, without the requirement for the Company to be in compliance with the current public information required under 144(c)(1) (or Rule 144(i)(2), if applicable) as to the Securities and without volume or manner-of-sale restrictions, the Company shall instruct the Transfer Agent to remove the legend from the Securities and shall cause its counsel to issue any legend removal opinion required by the Transfer Agent. Any fees (with respect to the Transfer Agent, Company counsel or otherwise) associated with the issuance of such opinion or the removal of such legend shall be borne by the Company. If a legend is no longer required pursuant to the foregoing, the Company will no later than three (3) Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent (with notice to the Company) of a legended certificate or instrument representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer) and a representation letter to the extent required by Section 4.1(a), (such third Trading

26

Day, the “Legend Removal Date”) deliver or cause to be delivered to such Purchaser a certificate or instrument (as the case may be) representing such Securities that is free from all restrictive legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4.1(c). Certificates for Securities free from all restrictive legends may be transmitted by the Transfer Agent to the Purchasers by crediting the account of the Purchaser’s prime broker with DTC as directed by such Purchaser.

     (d) Acknowledgement. Each Purchaser hereunder acknowledges its primary responsibilities under the Securities Act and accordingly will not sell or otherwise transfer the Securities or any interest therein without complying with the requirements of the Securities Act            and the rules and regulations promulgated thereunder. Except as otherwise provided below, while the above-referenced registration statement remains effective, each Purchaser hereunder may sell the Securities in accordance with the plan of distribution contained in the registration statement and if it does so it will comply therewith and with the related prospectus delivery requirements unless an exemption therefrom is available or unless the Securities are sold pursuant to Rule 144. Each Purchaser, severally and not jointly with the other Purchasers, agrees that if it is notified by the Company in writing at any time that the registration statement registering the resale of the Securities is not effective or that the prospectus included in such registration statement no longer complies with the requirements of Section 10 of the Securities Act, such Purchaser will refrain from selling such Securities until such time as such Purchaser is notified by the Company that such registration statement is effective or such prospectus is compliant with Section 10 of the Exchange Act, unless such Purchaser is able to, and does, sell such Securities pursuant to an available exemption from the registration requirements of Section 5 of the Securities Act.

     4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock. The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Securities pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

     4.3 Furnishing of Information. In order to enable the Purchasers to sell the Securities under Rule 144 of the Securities Act, for a period of one year from the Closing, the Company shall maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. During such one year period, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available the information described in Rule 144(c)(2), if the provision of such information will allow resales of the Securities pursuant to Rule 144.

     4.4 Form D and Blue Sky. The Company agrees to timely file a Form D with respect to the Preferred Shares as required under Regulation D. The Company, on or before the Closing Date, shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Preferred Shares for sale to the Purchasers at the Closing pursuant to

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this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification). The Company shall make all filings and reports relating to the offer and sale of the Preferred Shares required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date.

     4.5 No Integration. The Company shall not, and shall use its commercially reasonable efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that will be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers.

     4.6 Securities Laws Disclosure; Publicity. On or before 7:30 p.m., New York City time, on the Closing Date, the Company shall issue one or more press releases (collectively, the “Press Release”) disclosing the material terms of the transactions contemplated hereby, including, without limitation, the issuance of the Preferred Shares and the acquisition of the Failed Bank. On or before 5:30 p.m., New York City time, on the fourth Trading Day immediately following the Closing Date, the Company will file a Current Report on Form 8-K with the Commission describing the terms of the Transaction Documents and the P&A Agreement (and including as exhibits to such Current Report on Form 8-K the material Transaction Documents (including, without limitation, this Agreement, the Registration Rights Agreement and the Certificate of Designations) and the P&A Agreement (unless the FDIC objects)). Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser or any Affiliate or investment adviser of any Purchaser, or include the name of any Purchaser or any Affiliate or investment adviser of any Purchaser in any press release or filing with the Commission (other than the Registration Statement) or Trading Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with (A) any registration statement contemplated by the Registration Rights Agreement and (B) the filing of final Transaction Documents with the Commission, (ii) to the extent such disclosure is required by law, at the request of the Staff of the Commission or Trading Market regulations, in which case the Company shall provide the Purchasers with prior written notice of such disclosure permitted under this subclause (ii). Notwithstanding the foregoing, the Company may disclose the name of any Purchaser or any Affiliate or investment adviser of any Purchaser to the FDIC in connection with its bid for the Failed Bank. From and after the issuance of the Press Release, no Purchaser shall be in possession of any material, non-public information received from the Company, any Subsidiary or any of their respective officers, directors or employees, that is not disclosed in the Press Release. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in this Section 4.6, such Purchaser will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

     4.7 Non-Public Information. Except with the express written consent of such Purchaser and unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information, the Company shall not, and shall cause each Subsidiary and each of their respective officers, directors, employees and agents, not to, and each Purchaser shall not directly solicit the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents to provide any Purchaser with any material, non-public information regarding the Company or any of its Subsidiaries from and after the filing of the Press Release.

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     4.8 Indemnification.

          (a) Indemnification of Purchasers. In addition to the indemnity provided in the Registration Rights Agreement, the Company will indemnify and hold each Purchaser and its directors, officers, stockholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, stockholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of (i) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (ii) any action instituted against a Purchaser Party in any capacity, or any of them or their respective affiliates, by any stockholder of the Company who is not an affiliate of such Purchaser Party, with respect to any of the transactions contemplated by this Agreement. The Company will not be liable to any Purchaser Party under this Agreement to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents or attributable to the gross negligence or willful misconduct on the part of such Purchaser Party.

          (b) Conduct of Indemnification Proceedings. Promptly after receipt by any Person (the "Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 4.8(a), such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided, that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually and materially and adversely prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; (ii) the Company shall have failed promptly to assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Indemnified Person in such proceeding; or (iii) in the reasonable judgment of counsel to such Indemnified Person, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them; provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, delayed or conditioned, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and

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indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

     4.9 Listing of Common Stock. The Company will use its reasonable best efforts to list the Underlying Shares for quotation on the NYSE and maintain the listing of the Common Stock on the NYSE.

     4.10 Use of Proceeds. The Company intends to use the net proceeds from the sale of the Preferred Shares hereunder for the purpose of acquiring certain assets and liabilities of the Failed Bank from the FDIC and related transaction fees and expenses and general corporate purposes.

     4.11 Stockholders Meeting. The Company shall call a special meeting of its stockholders, to be held as promptly as practicable following the Closing, but in no event later than 75 days after the Closing, to vote on proposals (the “Stockholder Proposals”) to (i) approve the conversion of the Preferred Shares into Common Stock for purposes of Rule 312.03 of the NYSE Listed Company Manual, and (ii) if necessary, amend the Certificate of Incorporation to increase the number of authorized shares of Common Stock to at least such number as shall be sufficient to permit the full conversion of the Preferred Shares (such approval of the Stockholder Proposals, "Stockholder Approvals”). The Board of Directors of the Company shall recommend to the Company’s stockholders that such stockholders vote in favor of the Stockholder Proposals. In connection with such meeting, the Company shall promptly prepare and file (but in no event more than 15 Business Days after the Closing Date) with the Commission a preliminary proxy statement, shall use its reasonable best efforts to respond to any comments of the Commission or its staff and to cause a definitive proxy statement related to such stockholders’ meeting to be mailed to the Company’s stockholders not more than 10 Business Days after clearance thereof by the Commission, and shall use its reasonable best efforts to solicit proxies for such Stockholder Approvals. If at any time prior to such stockholders’ meeting there shall occur any event that is required to be set forth in an amendment or supplement to the proxy statement, the Company shall as promptly as practicable prepare and mail to its stockholders such an amendment or supplement. In the event that Stockholder Approvals are not obtained at such special stockholders meeting, the Company shall include a proposal to approve (and the Board of Directors shall recommend approval of) such proposal at a meeting of its stockholders to be held no less than once in each subsequent six-month period beginning on the date of such special stockholders meeting until such approval is obtained.

     4.12 Limitation on Beneficial Ownership. No Purchaser (and its Affiliates or any other Persons with which it is acting in concert) will be entitled to purchase a number of Preferred Shares that would result in such Purchaser becoming, directly or indirectly, the beneficial owner (as determined under Rule 13d-3 under the Exchange Act) of more than 9.9% of the number of shares of Common Stock issued and outstanding.

ARTICLE 5:
CONDITIONS PRECEDENT TO CLOSING

     5.1 Conditions Precedent to the Obligations of the Purchasers to Purchase Preferred Shares. The obligation of each Purchaser to acquire Preferred Shares at the Closing is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by such Purchaser (as to itself only):

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          (a) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date hereof and as of the Closing Date, as though made on and as of such date, except for such representations and warranties that speak as of a specific date.

          (b) Performance. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing.

          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

          (d) Consents. Other than the Required Approvals contemplated in Section 3.1(e)(i), (iii), (v) and (vi) above, the Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Preferred Shares, all of which shall be and remain so long as necessary in full force and effect.

          (e) Company Deliverables. The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a).

          (f) Compliance Certificate. The Company shall have delivered to each Purchaser a certificate, dated as of the Closing Date and signed by its Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1(a) and (b) in the form attached hereto as Exhibit F.

          (g) Certificate of Designations. The Company shall have filed the Certificate of Designations with the Secretary of State.

          (h) Termination. This Agreement shall not have been terminated as to such Purchaser in accordance with Sections 6.16 or 6.17 herein.

          (i) Acquisition. (i) The FDIC shall have accepted the bid from the Bank for the Failed Bank, (ii) the Bank shall have executed the P&A Agreement with the FDIC with respect to the Failed Bank and (iii) the closing under the P&A Agreement shall be imminent.

          (j) Minimum Gross Proceeds. The Company shall simultaneously issue and deliver at the Closing to the Purchasers hereunder in the aggregate at least sufficient Preferred Shares against payment of aggregate Subscription Amounts of at least $175.0 million.

     5.2 Conditions Precedent to the Obligations of the Company to sell Preferred Shares. The Company’s obligation to sell and issue the Preferred Shares at the Closing is subject to the fulfillment, on or prior to the Closing Date, of the following conditions, any of which may be waived by the Company:

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          (a) Representations and Warranties. The representations and warranties made by each Purchaser in Section 3.2 hereof shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date hereof and as of the Closing Date as though made on and as of such date, except for representations and warranties that speak as of a specific date.

          (b) Performance. Such Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date.

          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

          (d) Consents. Other than the Required Approvals contemplated in Section 3.1(e)(i), (iii), (v) and (vi) above, the Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Preferred Shares, all of which shall be and remain so long as necessary in full force and effect.

          (e) Purchasers Deliverables. Such Purchaser shall have delivered its Purchaser Deliverables in accordance with Section 2.2(b).

          (f) Termination. This Agreement shall not have been terminated as to such Purchaser in accordance with Sections 6.16 or 6.17 herein.

ARTICLE 6:
MISCELLANEOUS

     6.1 Fees and Expenses. The parties hereto shall be responsible for the payment of all expenses incurred by them in connection with the preparation and negotiation of the Transaction Documents and the consummation of the transactions contemplated hereby. The Company shall pay all amounts owed to the Placement Agent relating to or arising out of the transactions contemplated hereby. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Securities to the Purchasers.

     6.2 Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company and the Purchasers will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

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     6.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 5:00 p.m., New York City time, on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:00 p.m., New York City time, on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service with next day delivery specified, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	Oriental Financial Group Inc. 997 San Roberto Street San Juan, Puerto Rico 00926 Attention: General Counsel Telephone: (787) 993-4206 Fax: (787) 771-6896
With a copy to:	Skadden, Arps, Slate, Meagher & Flom LLP 300 S. Grand Ave, 34th Floor Los Angeles, CA 90017 Attention: Gregg Noel Telephone: (213) 687-5000 Fax: (213) 687-5600
If to a Purchaser:	To the address set forth under such Purchaser’s name on the signature page hereof;

     or such other address as may be designated in writing hereafter, in the same manner, by such Person.

     6.4 Amendments; Waivers; No Additional Consideration. No amendment or waiver of any provision of this Agreement will be effective with respect to any party unless made in writing and signed by an officer or a duly authorized representative of such party. No consideration shall be offered or paid to any Purchaser to amend or consent to a waiver or modification of any provision of any Transaction Document unless the same consideration is also offered to all Purchasers who then hold Preferred Shares.

     6.5 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

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     6.6 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns. This Agreement, or any rights or obligations hereunder, may not be assigned by the Company without the prior written consent of the Purchasers. Any Purchaser may assign its rights hereunder in whole or in part to any Person to whom such Purchaser assigns or transfers any Securities in compliance with the Transaction Documents and applicable law, provided such transferee shall agree in writing to be bound, with respect to the transferred Securities, by the terms and conditions of this Agreement that apply to the “Purchasers”.

     6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than, solely with respect to the provisions of Section 4.8, the Indemnified Persons.

     6.8 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) may be commenced on a non-exclusive basis in the New York Courts. Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     6.9 Survival. Subject to applicable statute of limitations, the representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Preferred Shares; provided, that the representations and warranties of the Company shall survive the Closing and the delivery of Preferred Shares for a period of one year.

     6.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become

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effective when counterparts have been signed by each party and delivered to the other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

     6.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

     6.12 Replacement of Preferred Shares. If any certificate or instrument evidencing any Preferred Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company and the Transfer Agent of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company and the Transfer Agent for any losses in connection therewith or, if required by the Transfer Agent, a bond in such form and amount as is required by the Transfer Agent. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Preferred Shares. If a replacement certificate or instrument evidencing any Preferred Shares is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

     6.13 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company may be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation (other than in connection with any action for a temporary restraining order) the defense that a remedy at law would be adequate.

     6.14 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived

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and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

     6.15 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. The decision of each Purchaser to purchase Preferred Shares pursuant to the Transaction Documents has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or any Subsidiary which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser and any of its agents or employees shall have any liability to any other Purchaser (or any other Person) relating to or arising from any such information, materials, statement or opinions. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

     6.16 Effectiveness. Sections 6.1 through 6.8, Section 6.10, Section 6.11 and this Section 6.16 shall be effective upon the execution of this Agreement by the parties hereto. All other provisions of this Agreement shall become automatically effective, without further action of the parties, upon the later of the date (such date, the “Effectiveness Date”) (i) that is two business days prior to the date (the “Scheduled Date”) on which the FDIC is scheduled to be appointed receiver for the Failed Bank and will enter into the P&A Agreement with the Bank relating to the Bank’s purchase of certain assets and assumption of deposits (and certain other specified liabilities) of the Failed Bank and (ii) that the Company notifies the Purchasers of the Scheduled Date. The Company will provide notification to each Purchaser of (i) the Scheduled Date upon the notification to the Company by the FDIC that the Bank is the winning bidder for the Failed Bank and (ii) any changes to the Scheduled Date by the FDIC following the initial determination of the Scheduled Date by the FDIC. If (i) the FDIC notifies the Company that the Bank will not be permitted to enter a bid for the Failed Bank, (ii) the FDIC has notified the Company that the scheduled due date for bids with respect to the Failed Bank has been modified, changed or set to a date later than June 1, 2010, or such other date as the parties mutually agree, or that the FDIC intends not to schedule or re-schedule a bid date for the Failed Bank on or before June 1, 2010, or such other date as the parties mutually agree, (iii) the Bank fails to submit a bid for the Failed Bank by the deadline for such submission established by the FDIC, (iv) the FDIC has notified the Company that the Bank is not the winning bidder for the Failed Bank, (v) no bid by the Bank for the Failed Bank has been

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accepted by the FDIC by June 1, 2010 or (vi) if the Bank has been selected as the winning bidder for the Failed Bank, the P&A Closing has not occurred by June 30, 2010, then, in each case, this Agreement shall terminate, other than Sections 6.1 through 6.8, Section 6.10, Section 6.11 and this Section 6.16, which shall survive such termination. The Company shall promptly notify Purchaser upon receipt of any notification described in the two preceding sentences from the FDIC. Prior to such termination, neither party may revoke its acceptance of this Agreement.

     6.17 Termination, Rescission.

          (a) In the event that, following the Effectiveness Date, the Purchase and Assumption Agreement with the FDIC relating to the purchase by Oriental Bank and Trust, a wholly owned Subsidiary of the Company (the “Bank”), of certain assets, and the assumption by the Bank of deposits (and certain other specified liabilities), of Eurobank, San Juan, Puerto Rico (“Failed Bank”) (the “P&A Agreement”), is not entered into on or before June 1, 2010, or is entered into prior to such date but the consummation of the transfer of the assets and liabilities of the Failed Bank to the Bank pursuant to the P&A Agreement (such transfer, the “P&A Closing”) does not occur by June 30, 2010, then either the Company, upon written notice to the Purchasers, or any Purchaser, solely with respect to itself and not with respect to any other Purchaser, upon written notice to the Company, may terminate this Agreement.

          (b) Promptly following the termination of this Agreement pursuant to Section 6.16 or Section 6.17(a), the Company shall provide written notice to the Escrow Agent notifying the Escrow Agent that this Agreement has been terminated. Pursuant to the terms of the Escrow Agreement, the Escrow Agent shall (A) distribute to each Purchaser that is not a Section 2.1(c)(iii) Purchaser such Purchaser’s Subscription Amount and (B) advise the Transfer Agent that the share issuance instructions with respect to such Purchaser shall be null and void.

          (c) In the event that following the Closing, the P&A Agreement is not entered into on or before June 1, 2010 or the P&A Agreement is terminated prior to the P&A Closing, or the P&A Closing does not occur by June 30, 2010, then the Company shall promptly notify Purchaser of such event and either (i) the Company, upon written notice to the Purchasers, may redeem the Securities purchased hereunder or (ii) any Purchaser, solely with respect to itself and not with respect to any other Purchaser, upon written notice to the Company, require the Company to repurchase the Securities purchased hereunder as specified on such Purchaser’s signature page hereto. Promptly following either such notice, (i) the Company and Purchaser shall provide written notice to the Transfer Agent notifying the Transfer Agent that such Securities have been redeemed or repurchased, as the case may be (unless Purchaser is a Certificate Purchaser, in which case Purchaser shall return to the Company for cancellation the certificates for its Preferred Shares concurrently with the Company returning Purchaser’s Subscription Amount pursuant to the following clause (ii)) and (ii) the Company shall promptly return to Purchaser by wire transfer of immediately available funds to a bank account designated by Purchaser, its Subscription Amount.

          (d) Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

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     IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

ORIENTAL FINANCIAL GROUP INC.
By:	/s/ José Rafael Fernández
	Name:	José Rafael Fernández
	Title:	President, Chief Executive Officer and Vice Chairman of the Board

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOR PURCHASERS FOLLOW]

PURCHASER: Bay Pond Partners, L.P.
By:	Wellington Management Company, LLP, as investment adviser
By:	/s/ Robert J. Toner
	Name:	Robert J. Toner
	Title:	Vice President and Counsel

Aggregate Purchase Price (Subscription Amount): $16,640,000.00

Number of Preferred Shares to be Acquired: 16,640

Tax ID No.: 04-3217743

Address for Notice:

c/o Wellington Management Company, LLP

          75 State Street, Boston, MA 02109

Telephone No.:	617.790.7770
Facsimile No.:	617.289.5699
E-mail Address:	seclaw@wellington.com
Attention:	Legal and Compliance
o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o See settlement spreadsheet
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Stock Purchase Agreement]

PURCHASER: Bay Pond Investors (Bermuda), L.P.
By:	Wellington Management Company, LLP, as investment adviser
By:	/s/ Robert J. Toner
	Name:	Robert J. Toner
	Title:	Vice President and Counsel

Aggregate Purchase Price (Subscription Amount): $7,903,000.00

Number of Preferred Shares to be Acquired: 7,903

Tax ID No.: 98-0218500

Address for Notice:

c/o Wellington Management Company, LLP

           75 State Street, Boston, MA 02109

Telephone No.:	617.790.7770
Facsimile No.:	617.289.5699
E-mail Address:	seclaw@wellington.com
Attention:	Legal and Compliance
o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o See settlement spreadsheet
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Stock Purchase Agreement]

PURCHASER: Ithan Creek Master Investment Partnership (Cayman) II, L.P.
By:	Wellington Management Company, LLP, as investment adviser
By:	/s/ Robert J. Toner
	Name:	Robert J. Toner
	Title:	Vice President and Counsel

Aggregate Purchase Price (Subscription Amount): $991,000.00

Number of Preferred Shares to be Acquired: 991

Tax ID No.: 98-0643603

Address for Notice:

c/o Wellington Management Company, LLP

           75 State Street, Boston, MA 02109

Telephone No.:	617.790.7770
Facsimile No.:	617.289.5699
E-mail Address:	seclaw@wellington.com
Attention:	Legal and Compliance
o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o See settlement spreadsheet
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Stock Purchase Agreement]

PURCHASER: Ithan Creek Master Investors (Cayman) L.P.
By:	Wellington Management Company, LLP, as investment adviser
By:	/s/ Robert J. Toner
	Name:	Robert J. Toner
	Title:	Vice President and Counsel

Aggregate Purchase Price (Subscription Amount): $9,670,000.00

Number of Preferred Shares to be Acquired: 9,670

Tax ID No.: 98-0580385

Address for Notice:

c/o Wellington Management Company, LLP

           75 State Street, Boston, MA 02109

Telephone No.:	617.790.7770
Facsimile No.:	617.289.5699
E-mail Address:	seclaw@wellington.com
Attention:	Legal and Compliance
o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o See settlement spreadsheet
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Stock Purchase Agreement]

PURCHASER: Wolf Creek Investors (Bermuda) L.P.
By:	Wellington Management Company, LLP, as investment adviser
By:	/s/ Robert J. Toner
	Name:	Robert J. Toner
	Title:	Vice President and Counsel

Aggregate Purchase Price (Subscription Amount): $2,680,000.00

Number of Preferred Shares to be Acquired: 2,680

Tax ID No.: 98-0346053

Address for Notice:

c/o Wellington Management Company, LLP

75 State Street, Boston, MA 02109

Telephone No.:	617.790.7770
Facsimile No.:	617.289.5699
E-mail Address:	seclaw@wellington.com
Attention:	Legal and Compliance

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o See settlement spreadsheet
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Stock Purchase Agreement]

PURCHASER: Wolf Creek Partners, L.P.
By:	Wellington Management Company, LLP, as investment adviser
By:	/s/ Robert J. Toner
	Name:	Robert J. Toner
	Title:	Vice President and Counsel

Aggregate Purchase Price (Subscription Amount): $1,116,000.00

Number of Preferred Shares to be Acquired: 1,116

Tax ID No.: 04-3539573

Address for Notice:

c/o Wellington Management Company, LLP

75 State Street, Boston, MA 02109

Telephone No.:	617.790.7770
Facsimile No.:	617.289.5699
E-mail Address:	seclaw@wellington.com
Attention:	Legal and Compliance

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o See settlement spreadsheet
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Stock Purchase Agreement]

PURCHASER: Burnham Financial Industries Fund
By:	/s/ Michael E. Barna
	Name:	Michael E. Barna
	Title:	EVP/CFO

Aggregate Purchase Price (Subscription Amount): $2,500,000.00

Number of Preferred Shares to be Acquired: 2,500

Tax ID No.: 57-1199020

Address for Notice:

Mendon Capital Advisors

150 Allens Creek Rd

Rochester, NY 14618

Telephone No.:	1.585.770.1770
Facsimile No.:	1.585.770.1779
E-mail Address:	asullivan@mendoncapital.com
Attention:	Amy Sullivan

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o Brown Brothers Harriman
Street: 140 Broadway

PURCHASER: Burnham Financial Services Fund
By:	/s/ Michael E. Barna
	Name:	Michael E. Barna
	Title:	EVP/CFO

Aggregate Purchase Price (Subscription Amount): $500,000.00

Number of Preferred Shares to be Acquired: 500

Tax ID No.: 134052634

Address for Notice:

Mendon Capital Advisors Corp

150 Allens Creek Road

Rochester, NY 14618

Telephone No.:	585.770.1770
Facsimile No.:	585.770.1779
E-mail Address:	asullivan@mendoncapital.com
Attention:	Amy Sullivan

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

Delivery Instructions:
(if different than above)

c/o Brown Brothers Harriman
Street: 140 Broadway
City/State/Zip: New York, NY 10005

PURCHASER: Moors and Mendon Master Fund LP
By:	/s/ Anton V. Schutz
	Name:	Anton V. Schutz
	Title:	Director, Moors and Mendon Capital LTD, GP to the Moors and Mendon Master Fund LP

Aggregate Purchase Price (Subscription Amount): $1,500,000.00

Number of Preferred Shares to be Acquired: 1,500

Tax ID No.: 98-0401323

Address for Notice:

Mendon Capital Advisors

150 Allens Creek Road

Rochester, NY 14618

Telephone No.:	585.770.1770
Facsimile No.:	585.770.1779
E-mail Address:	asullivan@mendoncapital.com
Attention:	Amy Sullivan

Wire instructions for return of escrowed funds:

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Jake Tisinger/Jefferies and Co.
Street: 520 Madison Avenue, 12^th Floor

PURCHASER: Northaven Offshore, Ltd.
By:	/s/ Paul Burke
	Name:	Paul Burke
	Title:	Director

Aggregate Purchase Price (Subscription Amount): $375,000

Number of Preferred Shares to be Acquired: 375 shares

Tax ID No.: None

Address for Notice:

c/o Northaven Management, Inc.

375 Park Avenue, Suite 2709

New York, NY 10152

Telephone No.:	212.798.0304
Facsimile No.:	212.798.0310
E-mail Address:	paul.burke@northavenmgt.com
Attention:	Paul Burke

Wire instructions for return of escrowed funds:

See Attached

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

Northaven Offshore, Ltd.
Wire Instructions

Please wire to:

UBS AG
ABA #026-007-993

For Credit to:

UBS Securities LLC — HFS
Account # 101WA797414000

For Further Credit to:

Northaven Offshore, Ltd.
Account # 483-80145

PURCHASER: Northaven Partners II, L.P.
By:	/s/ Paul Burke
	Name:	Paul Burke
	Title:	Member of the GP
Aggregate Purchase Price (Subscription Amount): $200,000 Number of Preferred Shares to be Acquired: 200 shares Tax ID No.: 13-3880614 Address for Notice: 375 Park Avenue, Suite 2709 New York, NY 10152

Telephone No.:	212.798.0304
Facsimile No.:	212.798.0310
E-mail Address:	paul.burke@northavenmgt.com
Attention:	Paul Burke
Wire instructions for return of escrowed funds:
See Attached
o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.
o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

Northaven Partners II, L.P.
Wire Instructions

Please wire to:

UBS AG
ABA #026-007-993

For Credit to:

UBS Securities LLC — HFS
Account # 101WA797414000

For Further Credit to:

Northaven Partners II, L.P.
Account # 483-90655

PURCHASER: Northaven Partners, L.P.
By:	/s/ Paul Burke
	Name:	Paul Burke
	Title:	Member of the GP
Aggregate Purchase Price (Subscription Amount): $2,425,000 Number of Preferred Shares to be Acquired: 2,425 Tax ID No.: 13-3818682 Address for Notice: 375 Park Avenue, Suite 2709 New York, NY 10152

Telephone No.:	212.798.0304
Facsimile No.:	212.798.0310
E-mail Address:	paul.burke@northavenmgt.com
Attention:	Paul Burke
Wire instructions for return of escrowed funds:
See Attached
o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.
o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Fidelity Northstar Fund
By:	/s/ Paul Murphy
	Name:	Paul Murphy
	Title:	Assistant Treasurer
Aggregate Purchase Price (Subscription Amount): $1,500,000.00 Number of Preferred Shares to be Acquired: 1,500 Tax ID No.: ______________ Address for Notice: 82 Devonshire Street V13H Boston, MA 02109

Telephone No.:	617.563.5144
Facsimile No.:	617.392.1605
E-mail Address:	andrew.boyd@fmr.com
Attention:	Andrew Boyd
Wire instructions for return of escrowed funds:
þ Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.
o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o See attached
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Fidelity Puritan Trust: Fidelity Low-Priced Stock Fund
By:	/s/ Paul Murphy
	Name:	Paul Murphy
	Title:	Assistant Treasurer
Aggregate Purchase Price (Subscription Amount): $16,885,000.00 Number of Preferred Shares to be Acquired: 16,885 Tax ID No.: 04-3070917 Address for Notice: 82 Devonshire Street V13H Boston, MA 02109

Telephone No.:	617.563.5144
Facsimile No.:	617.392.1605
E-mail Address:	andrew.boyd@fmr.com
Attention:	Andrew Boyd
Wire instructions for return of escrowed funds:
þ Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.
o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o See attached
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Fidelity Select Portfolios: Banking Portfolio
By:	/s/ Paul Murphy
	Name:	Paul Murphy
	Title:	Assistant Treasurer
Aggregate Purchase Price (Subscription Amount): $297,000.00 Number of Preferred Shares to be Acquired: 297 Tax ID No.: 04-2959666 Address for Notice: 82 Devonshire Street V13H Boston, MA 02109

Telephone No.:	617.563.5144
Facsimile No.:	617.392.1605
E-mail Address:	andrew.boyd@fmr.com
Attention:	Andrew Boyd

Wire instructions for return of escrowed funds:

þ Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o See attached
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Fidelity Commonwealth Trust: Fidelity Mid-Cap Stock Fund
By:	/s/ Paul Murphy
	Name:	Paul Murphy
	Title:	Assistant Treasurer
Aggregate Purchase Price (Subscription Amount): $4,597,000.00 Number of Preferred Shares to be Acquired: 4,597 Tax ID No.: 04-3216044 Address for Notice: 82 Devonshire Street V13H Boston, MA 02109

Telephone No.:	617.563.5144
Facsimile No.:	617.392.1605
E-mail Address:	andrew.boyd@fmr.com
Attention:	Andrew Boyd

Wire instructions for return of escrowed funds:

þ Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o See attached
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Fidelity Destiny Portfolios: Fidelity Advisor Capital Development Fund
By:	/s/ Paul Murphy
	Name:	Paul Murphy
	Title:	Assistant Treasurer
Aggregate Purchase Price (Subscription Amount): $1,721,000.00 Number of Preferred Shares to be Acquired: 1,721 Tax ID No.: 04-6538289 Address for Notice: 82 Devonshire Street V13H Boston, MA 02109

Telephone No.:	617.563.5144
Facsimile No.:	617.392.1605
E-mail Address:	andrew.boyd@fmr.com
Attention:	Andrew Boyd

Wire instructions for return of escrowed funds:

þ Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o See attached
Street: _______________________________________________
City/State/Zip: _________________________________________
Attention: _____________________________________________
Telephone No.: _________________________________________

[Signature Page to Securities Purchase Agreement]

PURCHASER: Integrated Core Strategies (US) LLC*
	* By: Integrated Holding Group LP, its Managing Member
	By: Millennium Management LLC, its General Partner
By:	/s/ Larry Statsky
	Name:	Larry Statsky
	Title:	Chief Administrative Officer
Aggregate Purchase Price (Subscription Amount): $10,000,000 (Ten Million) Number of Preferred Shares to be Acquired: 10,000 (Ten Thousand) Tax ID No.: 20-2196675

Address for Notice:
c/o Millennium Management LLC
666 Fifth Avenue, 8th Floor
New York, NY 10103
Telephone No.:	212.841.4100
Facsimile No.:	212.841.4141
E-mail Address:	General.Counsel@mlp.com
Attention:	General Counsel

Wire instructions for return of escrowed funds:

Bank Name: CHASE MANHATTAN BANK, N.A.

City/State: NEW YORK, N.Y.

Bank ABA # 021-000-021

Bnf Account #: 066-024390

Bnf Name: MERRILL LYNCH PROFESSIONAL CLEARING CORP.

Sub-Account #: 359-42315-D5

Sub A/c Name: Millennium Partners

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Marshall Wace North America LP, in its capacity as Discretionary Investment Adviser
By:	/s/ S. Goodman
	Name:	S. Goodman
	Title:	Partner, Marshall Wace LLC for and on behalf of Marshall Wace North America LP
Aggregate Purchase Price (Subscription Amount): $5,000,000 Number of Preferred Shares to be Acquired: 5,000 Tax ID No.: 47-0943020 Address for Notice: Harborside, 3 River Road Greenwich, CT 06807-2717

Telephone No.:	203.625.3200
Facsimile No.:	203.625.3299
E-mail Address:	m.sargent@mwam.com
Attention:	Michael Sargent

Wire instructions for return of escrowed funds:

To Follow

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Front Point Financial Horizons Fund, L.P.
By:	Front Point Financial Horizons Fund GP, LLC
By:	/s/ T.A. McKinney
	Name:	T.A. McKinney
	Title:	Authorized Signatory
Aggregate Purchase Price (Subscription Amount): $2,086,000 Number of Preferred Shares to be Acquired: 2,086 Tax ID No.: 68-0618363 Address for Notice: Front Point Financial Horizons Fund GP, LLC Two Greenwich Plaza, 4th Floor Greenwich, CT 06830

Telephone No.:	203.622.5200
Facsimile No.:	203.622.5230
E-mail Address:	ops@fppartners.com
Attention:	Operations Department

Wire instructions for return of escrowed funds:

ABA: 021000021

Bank: JP Morgan Chase, New York

A/C #: 9301011483

Entity Name: Goldman Sachs & Co., New York

a/c #: 002396224

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Front Point Financial Services Fund, L.P.
By:	Front Point Financial Services Fund GP, LLC
By:	/s/ T.A. McKinney
	Name:	T.A. McKinney
	Title:	Authorized Signatory
Aggregate Purchase Price (Subscription Amount): $7,914,000 Number of Preferred Shares to be Acquired: 7,914 Tax ID No.: 98-0503297 Address for Notice: Front Point Financial Services Fund GP, LLC Two Greenwich Plaza, 4th Floor Greenwich, CT 06830

Telephone No.:	203.622.5200
Facsimile No.:	203.622.5230
E-mail Address:	ops@fppartners.com
Attention:	Operations Department

Wire instructions for return of escrowed funds:

ABA: 021000021

Bank: JP Morgan Chase, New York

A/C #: 9301011483

Entity Name: Goldman Sachs & Co., New York

a/c #: 00236630

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Zweig-DiMenna Partners, L.P.
By:	/s/ Kevin Cannon
	Name:	Kevin Cannon
	Title:	CEO of Managing General Partner
Aggregate Purchase Price (Subscription Amount): $7,158,000 Number of Preferred Shares to be Acquired: 7,158 shares Tax ID No.: 13-3185100 Address for Notice: 900 Third Ave., 31st Floor New York, N.Y. 10022

Telephone No.:	212.451.1100
Facsimile No.:	212.451.1408
E-mail Address:	ops@Zweig-DiMenna.com
Attention:	Jeannine Lanese

Wire instructions for return of escrowed funds:

Citibank / NYC

ABA: 021-000089

Morgan Stanley A/C #: 388-90774

F/F/C: Zweig-DiMenna Partners, LP

A/C #: 038-00056

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Zweig-DiMenna International, Ltd.
By:	/s/ Kevin Cannon
	Name:	Kevin Cannon
	Title:	CEO of Investment Manager
Aggregate Purchase Price (Subscription Amount): $11,758,000 Number of Preferred Shares to be Acquired: 11,758 shares Tax ID No.: N/A Address for Notice: 900 Third Ave., 31st Floor New York, N.Y. 10022

Telephone No.:	212.451.1100
Facsimile No.:	212.451.1408
E-mail Address:	ops@Zweig-DiMenna.com
Attention:	Jeannine Lanese

Wire instructions for return of escrowed funds:

Citibank / NYC

ABA: 021-000089

Morgan Stanley a/c #: 388-90774

F/F/C: Zweig-DiMenna International Ltd.

a/c #: 038-00856

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Zweig-DiMenna Investors, L.P.
By:	/s/ Kevin Cannon
	Name:	Kevin Cannon
	Title:	CEO of Managing General Partner
Aggregate Purchase Price (Subscription Amount): $267,000 Number of Preferred Shares to be Acquired: 267 shares Tax ID No.: 13-3997890 Address for Notice: 900 Third Ave., 31st Floor New York, N.Y. 10022

Telephone No.:	212.451.1100
Facsimile No.:	212.451.1408
E-mail Address:	ops@Zweig-DiMenna.com
Attention:	Jeannine Lanese

Wire instructions for return of escrowed funds:

Citibank / NYC

ABA: 021-000089

Morgan Stanley a/c #: 388-90774

F/F/C: Zweig-DiMenna Investors, LP

a/c #: 038-5601

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Zweig-DiMenna Market Neutral, LP
By:	/s/ Kevin Cannon
	Name:	Kevin Cannon
	Title:	CEO of Managing General Partner
Aggregate Purchase Price (Subscription Amount): $817,000 Number of Preferred Shares to be Acquired: 817 shares Tax ID No.: 13-4197164 Address for Notice: 900 Third Ave., 31st Floor New York, N.Y. 10022

Telephone No.:	212.451.1100
Facsimile No.:	212.451.1408
E-mail Address:	ops@Zweig-DiMenna.com
Attention:	Jeannine Lanese

Wire instructions for return of escrowed funds:

Citibank / NYC

ABA: 021-000089

Morgan Stanley A/C #: 388-90774

F/F/C: Zweig-DiMenna Market Neutral L.P.

a/c #: 038-56071

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Samlyn Onshore Fund, L.P.
By:	/s/ Aaron Foxbruner
	Name:	Aaron Foxbruner
	Title:	Authorized Signatory
Aggregate Purchase Price (Subscription Amount): $6,120,000 Number of Preferred Shares to be Acquired: 6,120 Tax ID No.: 20-8210651 Address for Notice: 500 Park Ave., 2nd Floor New York, NY 10022

Telephone No.:	212.848.0500
Facsimile No.:	212.848.0501
E-mail Address:	afoxbruner@samlyncapital.com
Attention:	Aaron Foxbruner

Wire instructions for return of escrowed funds:

Citibank, N.A.      Subaccount #: 038C79392

ABA: 021000089  Sub acct: Samlyn Onshore Fund, LP

Acct: 38890774

Name: Morgan Stanly & Co.

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o N/A
Street: City/State/Zip: Attention: Book Entry
Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Samlyn Offshore Master Fund, Ltd.
By:	/s/ Aaron Foxbruner
	Name:	Aaron Foxbruner
	Title:	Authorized Signatory

Aggregate Purchase Price (Subscription Amount): $8,880,000

Number of Preferred Shares to be Acquired: 8,880

Tax ID No.: 98-0603351

Address for Notice:

c/o Samlyn Capital, LLC

 500 Park Ave., 2^nd Floor

New York, NY 10022

Telephone No.:       212.848.0500

Facsimile No.:         212.848.0501

E-mail Address:      afoxbruner@samlyncapital.com

Attention:                Aaron Foxbruner

Wire instructions for return of escrowed funds:

Citibank, N.A.                                 Subaccount #: 038C79384

ABA: 021000089                             Subacct name: Samlyn

Acct: 38890774                               Offshore Master Fund, Ltd.

Name: Morgan Stanly & Co.

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o N/A
Street: City/State/Zip: Attention: Book Entry Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: Endeavour Financial Restoration Fund, L.P.
By:	/s/ Mitchell J. Kate
	Name:	Mitchell J. Kate
	Title:	General Partner

Aggregate Purchase Price (Subscription Amount): $8,500,000

Number of Preferred Shares to be Acquired: 8,500

Tax ID No.: 30-0597740

Address for Notice:

Endeavour Capital

 289 Greenwich Ave., 2^nd Floor

Greenwich, CT 06830

Telephone No.:     203.618.0101

Facsimile No.:       203.618.0106

E-mail Address:   gh@endcap.com

Attention:             Glenn Hofsess

Wire instructions for return of escrowed funds:

See Attached

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o BNP Paribas Prime Brokerage
Street: 787 7^th Avenue, 8^th Floor
City/State/Zip: New York, NY 10019
Attention: John O’Neill
Telephone No.: 212.471.6827

[Signature Page to Securities Purchase Agreement]

BNP PARIBAS
Prime Brokerage

WIRE INSTRUCTIONS

•	Beneficiary Bank:	BNP Paribas, NA
		787 7th Avenue, 7th Floor
		New York, NY 10019
•	ABA Number:	026 007 689
•	Beneficiary:	BNP Paribas Prime Brokerage, Inc.
		787 7th Avenue, 8th Floor
		New York, NY 10019
•	Account Number:	61661700177
•	For Further Credit:	Endeavour Financial Restoration Fund LP
•	Account Number	118-03321

PURCHASER: Financial Stocks Capital Partners V L.P.

By: Finstocks Capital Management V, LLC, its: General Partner

By:	/s/ John M. Stein
	Name:	John M. Stein
	Title:	President

Aggregate Purchase Price (Subscription Amount): $11,000,000

Number of Preferred Shares to be Acquired: 11,000

Tax ID No.: 26-0270069

Address for Notice:

 441 Vine Street, Suite 1300

Cincinnati, OH 45202

Telephone No.:      513.746.2200

Facsimile No.:         513.746.2201

E-mail Address:      jstein@fsig.com; sstein@fsig.com

Attention:                John M. Stein

Wire instructions for return of escrowed funds:

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Fifth Third Bank, Attn.: Ms. Arica Ratliff
Street: 5001 Kingsley Drive, Mail Drop 1MOB2J
City/State/Zip: Cincinnati, OH 45227
Attention: Acct. # 010034293486
Telephone No.: 513.358.5972

[Signature Page to Securities Purchase Agreement]

PURCHASER: PM Manager Fund, SPC, on behalf of and for the account of Segregated Portfolio 23

By: Elbrook Holdings LLC, its: Subadviser

By:	/s/ John M. Stein
	Name:	John M. Stein
	Title:	President

Aggregate Purchase Price (Subscription Amount): $4,000,000

Number of Preferred Shares to be Acquired: 4,000

Tax ID No.: _______________

Address for Notice:

c/o Elbrook Holdings, LLC

 441 Vine Street, Suite 1300

Cincinnati, OH 45202

Telephone No.:      513.746.2200

Facsimile No.:         513.746.2201

E-mail Address:      jstein@fsig.com

Attention:                John M. Stein

Wire instructions for return of escrowed funds:

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

o Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Morgan Stanley / ISG Operations
Street: 901 South Bond Street, 6^th Floor
City/State/Zip: Baltimore, MD 21231
Attention: Deborah Mullin
Telephone No.: 410.534.1480

[Signature Page to Securities Purchase Agreement]

PURCHASER: American Funds Insurance Series - Global Small Capitalization Fund
By:	/s/ Michael J. Downer
	Name:	Michael J. Downer
	Title:	Senior Vice President and Secretary

Aggregate Purchase Price (Subscription Amount): $4,470,000

Number of Preferred Shares to be Acquired: 4,470 shares

Tax ID No.: 95-4672504

Address for Notice:

c/o Capital Research and Management Company

 333 South Hope Street, 55^th Floor

Los Angeles, CA 90071

Telephone No.:      213.486.9200

Facsimile No.:         213.615.0431

E-mail Address:      wrb@capgroup.com

Attention:                Walt R. Burkley

Wire instructions for return of escrowed funds:

State Street Bank and Trust Company

P.O. Box 1713

Boston, MA 02105

Attn.: Robert Mendez

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

þ Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: SmallCap World Fund, Inc.
By:	/s/ Michael J. Downer
	Name:	Michael J. Downer
	Title:	Senior Vice President and Secretary

Aggregate Purchase Price (Subscription Amount): $25,530,000

Number of Preferred Shares to be Acquired: 25,530 shares

Tax ID No.: 95-4523845

Address for Notice:

c/o Capital Research and Management Company

 333 South Hope Street, 55^th Floor

Los Angeles, CA 90071

Telephone No.:      213.486.9200

Facsimile No.:         213.615.0431

E-mail Address:      wrb@capgroup.com

Attention:                Walt R. Burkley

Wire instructions for return of escrowed funds:

State Street Bank and Trust Company

P.O. Box 1713

Boston, MA 02105

Attn.: Robert Mendez

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

þ Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

PURCHASER: JAM Partners, L.P.
By:	/s/ Sy Jacobs
	Name:	Sy Jacobs
	Title:	Managing Partner of General Partner

Aggregate Purchase Price (Subscription Amount): $8,000,000

Number of Preferred Shares to be Acquired: 8,000

Tax ID No.: 13-3810784

Address for Notice:

One Fifth Avenue

New York, NY 10003

Telephone No.:	212.271.5526
Facsimile No.:	212.271.5525
E-mail Address:	sy@JamPartners.com
Attention:	Sy Jacobs

Wire instructions for return of escrowed funds:

See attached

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

þ Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o N/A
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

Updated 6/2009

BNP Paribas Prime Brokerage Wire Instructions

Beneficiary Bank:	BNP Paribas, NA
	787 Seventh Avenue, 7th Floor
	New York, NY 10019
ABA Number:	026 007 689
Beneficiary:	BNP Paribas Prime Brokerage Inc.
	787 7th Avenue, 8th Floor
	New York, NY 10019
Account Number:	61661700177
For Further Credit:	JAM Partners, L.P.
Sub AIC Number:	118-11032-25

PURCHASER: JAM Special Opportunities Fund II, L.P.
By:	/s/ Sy Jacobs
	Name:	Sy Jacobs
	Title:	Managing Partner of General Partner

Aggregate Purchase Price (Subscription Amount): $3,150,000

Number of Preferred Shares to be Acquired: 3,150

Tax ID No.: 26-3154903

Address for Notice:

One Fifth Avenue

New York, NY 10003

Telephone No.:	212.271.5526
Facsimile No.:	212.271.5525
E-mail Address:	sy@JamPartners.com
Attention:	Sy Jacobs

Wire instructions for return of escrowed funds:

See attached

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

þ Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o                     N/A
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

Updated 6/2009

BNP Paribas Prime Brokerage Wire Instructions

Beneficiary Bank:	BNP Paribas, NA
	787 Seventh Avenue, 7th Floor
	New York, NY 10019
ABA Number:	026 007 689
Beneficiary:	BNP Paribas Prime Brokerage Inc.
	787 7th Avenue, 8th Floor
	New York, NY 10019
Account Number:	61661700177
For Further Credit:	JAM Special Opportunities Fund II, L.P.
Sub AIC Number:	118-03129-26

PURCHASER: JAM Recovery Fund, L.P.
By:	/s/ Sy Jacobs
	Name:	Sy Jacobs
	Title:	Managing Member of General Partner

Aggregate Purchase Price (Subscription Amount): $3,850,000

Number of Preferred Shares to be Acquired: 3,850

Tax ID No.: 27-1375266

Address for Notice:

One Fifth Avenue

New York, NY 10003

Telephone No.:	212.271.5526
Facsimile No.:	212.271.5525
E-mail Address:	sy@JamPartners.com
Attention:	Sy Jacobs

Wire instructions for return of escrowed funds:

See attached

o Purchaser is prohibited by the terms of its organizational or constituent documents to enter into an escrow agreement and has provided the Company with documented evidence of such prohibition. Purchaser meets the requirements of a Section 2.1(c)(iii) Purchaser.

þ Purchaser has entered into a Custodian Agreement.

Delivery Instructions:
(if different than above)

c/o N/A
Street: City/State/Zip: Attention: Telephone No.:

[Signature Page to Securities Purchase Agreement]

BNP PARIBAS
Prime Brokerage

WIRE INSTRUCTIONS

EFFECTIVE 06/22/2009

•	Beneficiary Bank:	BNP Paribas, NA
		787 7th Avenue, 7th Floor
		New York, NY 10019
•	ABA Number:	026 007 689
•	Beneficiary:	BNP Paribas Prime Brokerage, Inc.
		787 7th Avenue, 8th Floor
		New York, NY 10019
•	Account Number:	61661700177
•	For Further Credit:	Client Account Name JAM RECOVERY FUND, LP
	FFC/AC#:	Client Account # 118-03313-14

				Common Shares upon						Common Stock
Acct Id	LEGAL NM	Preferred Shares		conversion		Price		Registration Name	US Delivery Instructions	Currently held		Tax Id
									Goldman, Sachs & Co.
									200 West Street 3rd Floor
								Ithan Creek Master	New York, NY 10282
3P28	Ithan Creek Master Investment Partnership (Cayman) II L.P.							Investment Partnership	Attn: Jon Scalzo
			991		66,000	$	991,000.00	(Cayman) II L.P.	Ph: 212-934-3941		45,300		98-0643603
									Morgan Stanley
									Custody/Trasnsfer
									901 South Bond Street
									Baltimore, MD 21231
									Attn: Alicia Alvez / Deborah Mullin
									Phone: 410-534-1582
1939	Bay Pond Partners, L.P.		16,640		1,108,225	$	16,640,000.00	Bay Pond Partners, L.P.	FFC: 038-03056		700,134		04-3217743
									Morgan Stanley
									Custody/Trasnsfer
									901 South Bond Street
									Baltimore, MD 21231
									Attn: Alicia Alvez / Deborah Mullin
								Bay Pond Investors	Phone: 410-534-1582
3287	Bay Pond Investors (Bermuda) L.P.		7,903		526,340	$	7,903,000.00	(Bermuda) L.P.	FFC: 038-03056		313,400		98-0218500
									Goldman, Sachs & Co.
									200 West Street 3rd Floor
									New York, NY 10282
								Ithan Creek Master	Attn: Jon Scalzo
38D3	Ithan Creek Master Investors (Cayman) L.P.		9,670		644,022	$	9,670,000.00	Investors (Cayman) L.P.	Ph: 212-934-3941		440,400		98-0580385
									Goldman, Sachs & Co.
									200 West Street 3rd Floor
									New York, NY 10282
									Attn: Jon Scalzo
6153	Wolf Creek Partners, L.P.		1,116		74,325	$	1,116,000.00	Wolf Creek Partners, L.P.	Ph: 212-934-3941		115,226		04-3539573
									Goldman, Sachs & Co.
									200 West Street 3rd Floor
									New York, NY 10282
								Wolf Creek Investors	Attn: Jon Scalzo
6331	Wolf Creek Investors (Bermuda) L.P.		2,680		178,488	$	2,680,000.00	(Bermuda) L.P.	Ph: 212-934-3941		119,200		98-0346053
	Total		39,000		2,597,400	$	39,000,000.00				1,733,660

EXHIBITS

A:	Form of Certificate of Designations
B:	Form of Registration Rights Agreement
C-1:	Accredited Investor Questionnaire
C-2:	Stock Certificate Questionnaire
D:	Form of Opinion of Company Puerto Rican Counsel
E:	Form of Opinion of Company U.S. Counsel
F:	Form of Secretary’s Certificate
G:	Form of Officer’s Certificate
H:	Subsidiaries of the Company
I:	Form of Escrow Agreement

EXHIBIT A

Form of Certificate of Designations

CERTIFICATE OF DESIGNATIONS

OF

MANDATORILY CONVERTIBLE NON-CUMULATIVE NON-VOTING PERPETUAL
PREFERRED STOCK, SERIES C

OF

ORIENTAL FINANCIAL GROUP INC.

Pursuant to Section 5.01 of the
General Corporation Law
of the Commonwealth of Puerto Rico

     Pursuant to Article 5.01 of the General Corporation Law of the Commonwealth of Puerto Rico, the undersigned, Carlos O. Souffront, as Secretary of the Board of Directors of Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Corporation”), HEREBY CERTIFIES that, pursuant to the authority conferred upon the Board of Directors (the “Board of Directors”) by the Corporation’s Certificate of Incorporation, as amended, and resolutions duly adopted by the Board of Directors on April 21, 2010, creating a committee thereof known as the “Preferred Stock Pricing Committee,” the Preferred Stock Pricing Committee on April 23, 2010, duly adopted the following resolutions creating a series of 200,000 shares of Preferred Stock designated as the “Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock, Series C, ” and that such resolutions have not been modified or rescinded and remain in full force and effect:

     RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation and delegated to the Preferred Stock Pricing Committee in accordance with the provisions of the Corporation’s Certificate of Incorporation, as amended, a series of Series C Preferred Stock of the Corporation be and it hereby is created;

     FURTHER RESOLVED, that the Preferred Stock Pricing Committee designated by the Board of Directors has determined that the preferences and relative, participating, optional or other special rights of the shares of such series of Series C Preferred Stock, and the qualifications, limitations or restrictions thereof, as stated and expressed herein, are under the circumstances prevailing on the date hereof fair and equitable to all the existing stockholders of the Corporation; and

     FURTHER RESOLVED, that the designation and amount of such series and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series of Series C Preferred Stock, and the qualifications, limitations or restrictions thereof are as follows:

RIGHTS AND PREFERENCES

          Section 1. Designation. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Mandatorily Convertible Non-Cumulative Non-Voting Perpetual Preferred Stock, Series C” (the “Series C Preferred Stock”). The number of shares constituting such series initially shall be 200,000. The par value of the Series C Preferred Stock shall be $1.00 per share, and the liquidation preference shall be $1,000 per share.

          Section 2. Ranking. The Series C Preferred Stock will, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank (i) on a parity with the Corporation’s 7.125% Non-Cumulative Monthly Income Preferred Stock, Series A, 7.0% Non-Cumulative Monthly Income Preferred Stock, Series B and with each other class or series of equity securities of the Corporation the terms of which do not expressly provide that such class or series will rank senior or junior to the Series C Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as “Parity Securities”), and (ii) senior to the Corporation’s common stock, par value $1.00 per share (the “Common Stock”), and each other class or series of capital stock of the Corporation outstanding or established after the Effective Date by the Corporation the terms of which do not expressly provide that it ranks on a parity with or senior to the Series C Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as “Junior Securities”). The Corporation has the power to authorize and/or issue additional shares or classes or series of Junior Securities or Parity Securities without the consent of the Holders.

          Section 3. Definitions. The following initially capitalized terms shall have the following meanings, whether used in the singular or the plural:

          (a) “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

          (b) “Applicable Conversion Price” means the Conversion Price in effect at any given time.

          (c) “BHC Act” means the Bank Holding Company Act of 1956, as amended.

          (d) “Business Day” means any day that is not Saturday or Sunday and that, in New York City, is not a day on which banking institutions generally are authorized or obligated by law or executive order to be closed.

          (e) “Certificate of Designations” means this Certificate of Designations of the Corporation.

          (f) “Certificate of Incorporation” means the Certificate of Incorporation of the Corporation, as amended.

2

          (g) “Closing Price” of the Common Stock (or other relevant capital stock or equity interest) on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of the Common Stock (or other relevant capital stock or equity interest) on the New York Stock Exchange on such date. If the Common Stock (or other relevant capital stock or equity interest) is not traded on the New York Stock Exchange on any date of determination, the Closing Price of the Common Stock (or other relevant capital stock or equity interest) on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock (or other relevant capital stock or equity interest) is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Common Stock (or other relevant capital stock or equity interest) is so listed or quoted, or if the Common Stock (or other relevant capital stock or equity interest) is not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price for the Common Stock (or other relevant capital stock or equity interest) in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization, or, if that bid price is not available, the market price of the Common Stock (or other relevant capital stock or equity interest) on that date as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

          For purposes of this Certificate of Designations, all references herein to the “Closing Price” and “last reported sale price” of the Common Stock (or other relevant capital stock or equity interest) on the New York Stock Exchange shall be such closing sale price and last reported sale price as reflected on the website of the New York Stock Exchange (http://www.nyse.com) and as reported by Bloomberg Professional Service; provided that in the event that there is a discrepancy between the closing sale price or last reported sale price as reflected on the website of the New York Stock Exchange and as reported by Bloomberg Professional Service, the closing sale price and last reported sale price on the website of the New York Stock Exchange shall govern.

          (h) “Common Stock” has the meaning set forth in Section 2.

          (i) “Corporation” means Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico.

          (j) “Conversion Price” means for each share of Series C Preferred Stock, $15.015 provided that the foregoing shall be subject to adjustment or limitation as set forth herein.

          (k) “Current Market Price” means, on any date, the average of the daily Closing Price per share of the Common Stock or other securities on each of the five consecutive Trading Days preceding the earlier of the day before the date in question and the day before the Ex-Date with respect to the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

          (l) “Effective Date” means the date on which shares of the Series C Preferred Stock are first issued.

          (m) “Exchange Property” has the meaning set forth in Section 11(a).

3

          (n) “Ex-Date”, when used with respect to any issuance or distribution, means the first date on which the Common Stock or other securities trade without the right to receive the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

          (o) “Holder” means the Person in whose name the shares of the Series C Preferred Stock are registered, which may be treated by the Corporation as the absolute owner of the shares of Series C Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes.

          (p) “Junior Securities” has the meaning set forth in Section 2.

          (q) “Liquidation Preference” means, as to the Series C Preferred Stock, $1,000 per share (as adjusted for any split, subdivision, combination, consolidation, recapitalization or similar event with respect to the Series C Preferred Stock).

          (r) “Mandatory Conversion Date” means, with respect to the shares of Series C Preferred Stock of any Holder, the fifth Business Day after which the Corporation has received the Stockholder Approvals (or if a Reorganization Event has theretofore been consummated, the date of consummation of such Reorganization Event), provided, however, that if a Mandatory Conversion Date would otherwise occur on or after an Ex-Date for an issuance or distribution that results in an adjustment of the Conversion Price pursuant to Section 10 and on or before the Record Date for such issuance or distribution, such Mandatory Conversion Date shall instead occur on the first calendar day after the Record Date for such issuance or distribution.

          (s) “Notice of Mandatory Conversion” has the meaning set forth in Section 9(a).

          (t) “Parity Securities” has the meaning set forth in Section 2.

          (u) “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

          (v) “Record Date” has the meaning set forth in Section 4(d).

          (w) “Reorganization Event” has the meaning set forth in Section 11(a).

          (x) “Section 4(c) Dividend Payment Date” has the meaning set forth in Section 4(c).

          (y) “Section 4(c) Dividend Period” has the meaning set forth in Section 4(c).

          (z) “Special Dividend” has the meaning set forth in Section 4(c).

          (aa) “Special Dividend Rate” means, with respect to any Section 4(c) Dividend Period, 14% per annum.

          (bb) “Securities Purchase Agreement” means the Securities Purchase Agreement, effective as provided in Section 6.16 therein, as may be amended from time to time, between the Corporation and a Holder.

          (cc) “Series C Preferred Stock” has the meaning set forth in Section 1.

4

          (dd) “Stockholder Approvals” means the stockholder approvals necessary to (i) approve the conversion of the Series C Preferred Stock into Common Stock for purposes of Rule 312.03 of the NYSE Listed Company Manual, and (ii) if necessary, amend the Certificate of Incorporation to increase the number of authorized shares of Common Stock to at least such number as shall be sufficient to permit the full conversion of the Series C Preferred Stock into Common Stock.

          (ee) “Trading Day” means a day on which the shares of Common Stock:

     (i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business; and

     (ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

          (ff) “Violation” means a violation of the stockholder approval requirements of Rule 312.03 of the NYSE Listed Company Manual.

          (gg) “Voting Stock” has the meaning set forth in BHC Act and any rules or regulations promulgated thereunder.

          Section 4. Dividends. (a) From and after the Effective Date, the Holders shall be entitled to receive, when, as and if declared by the Board of Directors or a duly authorized committee of the Board of Directors, out of funds legally available therefor, non-cumulative dividends of the type and in the amounts determined as set forth in Section 4(b) and Section 4(c), and no more.

          (b) Subject to Section 4(a), if the Board of Directors or a duly authorized committee of the Board of Directors declares and pays a cash dividend in respect of Common Stock, then the Board of Directors or such duly authorized committee of the Board of Directors shall declare and pay to the Holders of the Series C Preferred Stock, on the same dates on which such cash dividend is declared or paid, as applicable, on the Common Stock, a cash dividend in an amount per share of Series C Preferred Stock equal to the product of (i) the per share dividend declared and paid in respect of each share of Common Stock and (ii) the number of shares of Common Stock into which such share of Series C Preferred Stock is then convertible, assuming receipt of the Stockholder Approvals.

          (c) In the event Stockholder Approvals have not been obtained and the Series C Preferred Stock has not been converted into Common Stock in full by September 15, 2010, in addition to dividends payable under Section 4(b), dividends shall be payable semi-annually in arrears, when, as and if declared by the Board of Directors or a duly authorized committee of the Board of Directors, on April 15 and September 15 of each year, or, if any such day is not a Business Day, the next Business Day, commencing April 15, 2011 (each, a “Section 4(c) Dividend Payment Date”) for each outstanding share of Series C Preferred Stock, payable in cash at an annual rate on the Liquidation Preference equal to the Special Dividend Rate (such dividend, the “Special Dividend”). Dividends payable pursuant to this Section 4(c), including for the first Section 4(c) Dividend Period and any Section 4(c) Dividend Period that is shorter than a semi-annually Section 4(c) Dividend Period, will be computed on the basis of a 360-day year of twelve 30-day months. No interest or sum of money in lieu of interest will be paid on any

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dividend payment on a share of Series C Preferred Stock paid later than the scheduled Section 4(c) Dividend Payment Date. The period from September 15, 2010 to but excluding April 15, 2011 and each period from and including a Section 4(c) Dividend Payment Date to but excluding the following Section 4(c) Dividend Payment Date is herein referred to as a “Section 4(c) Dividend Period.” To the extent declared and payable, such dividends will accumulate during each dividend period from and including the immediately preceding dividend payment date (in the case of the initial dividend period, if applicable, September 15, 2010) to but excluding the immediately succeeding dividend payment date.

          (d) Each dividend will be payable to Holders of record as they appear in the records of the Corporation at the close of business on the same record date, which (i) with respect to dividends payable pursuant to Section 4(b), shall be the same day as the record date for the payment of the corresponding dividends to the holders of shares of Common Stock and (ii) with respect to dividends payable pursuant to Section 4(c), shall be on the first Business Day of the month in which the relevant Section 4(c) Dividend Payment Date occurs (each, a “Record Date”).

          (e) Special Dividends are non-cumulative. If the Board of Directors does not declare a Special Dividend on the Series C Preferred Stock in respect of any Section 4(c) Dividend Period, the Holders will have no right to receive any Special Dividend for such Section 4(c) Dividend Period, and the Corporation will have no obligation to pay a Special Dividend for such Section 4(c) Dividend Period, whether or not Special Dividends are declared and paid for any future Section 4(c) Dividend Period.

          (f) If full dividends payable pursuant to Section 4(b) or Section 4(c) on all outstanding shares of the Series C Preferred Stock for the current dividend period have not been declared and paid, or declared and a sum sufficient for the payment of those dividends been set aside, the Corporation may not: (i) declare and pay or set aside for payment or declare and make or set aside for payment any distribution of assets on any Junior Securities (other than a dividend payable solely in Junior Securities); (ii) repurchase, redeem, or otherwise acquire for consideration, directly or indirectly, any Junior Securities (other than as a result of a reclassification of Junior Securities for or into other Junior Securities, or the exchange or conversion of one Junior Security for or into another Junior Security, and other than through the use of the proceeds of a substantially contemporaneous sale of other Junior Securities), nor shall any monies be paid to or made available for a sinking fund for the redemption of any Junior Securities by the Corporation; or (iii) repurchase, redeem, or otherwise acquire for consideration any Parity Securities otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series C Preferred Stock and such Parity Securities except by conversion into or exchange for Junior Securities. The foregoing limitations do not apply to purchases or acquisitions of Junior Securities pursuant to any employee or director incentive or benefit plan or arrangement (including any of the Corporation’s employment, severance, or consulting agreements) of the Corporation or of any of its subsidiaries adopted before or after the Effective Date.

          (g) If full dividends payable pursuant to Section 4(b) or Section 4(c) on all outstanding shares of the Series C Preferred Stock have not been declared and paid, or declared and a sum sufficient for the payment of those dividends been set aside, the Corporation may not declare, pay, or set aside for payment dividends on any Parity Securities for any period;

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provided, however, that to the extent that the Corporation declares dividends on the Series C Preferred Stock and on any Parity Securities but does not make full payment of such declared dividends, the Corporation will allocate the dividend payments on a pro rata basis among the Holders and the holders of any Parity Securities. For purposes of calculating the pro rata allocation of partial dividend payments, the Corporation will allocate dividend payments based on the ratio between the then-current dividend payments due on the shares of Series C Preferred Stock and the aggregate of the current and accrued dividends due on any Parity Securities, which shall not include any accumulation for any prior dividend periods if such Parity Securities does not have a cumulative dividend.

          (h) If the Mandatory Conversion Date with respect to any share of Series C Preferred Stock is prior to any Record Date, the Holder of such share of Series C Preferred Stock will not have the right to receive any dividends on the Series C Preferred Stock with respect to such Record Date. If the Mandatory Conversion Date with respect to any share of Series C Preferred Stock is after the Record Date for any declared dividend and prior to the payment date for that dividend, the Holder thereof shall receive that dividend on the relevant payment date if such Holder was the Holder of record on the Record Date for that dividend.

          Section 5. Liquidation. (a) In the event the Corporation voluntarily or involuntarily liquidates, dissolves or winds up, the Holders at the time shall be entitled to receive liquidating distributions in an amount equal to the greater of (i) the Liquidation Preference per share of Series C Preferred Stock, plus an amount equal to any accrued but unpaid dividends, whether or not declared, thereon to and including the date of such liquidation and (ii) 110% of the payment or distribution to which such Holders would be entitled if the Series C Preferred Stock were converted into Common Stock immediately before such liquidation, dissolution or winding-up, out of assets legally available for distribution to the Corporation’s stockholders, before any distribution of assets is made to the holders of the Common Stock or any other Junior Securities. After payment of the full amount of such liquidation distribution, the Holders shall not be entitled to any further participation in any distribution of assets by the Corporation.

          (b) In the event the assets of the Corporation available for distribution to stockholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series C Preferred Stock and the corresponding amounts payable on any Parity Securities, Holders and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions to which they would otherwise be respectively entitled.

          (c) The Corporation’s consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Corporation, or the sale of all or substantially all of the Corporation’s property or business will not constitute its liquidation, dissolution or winding up.

          Section 6. Maturity. The Series C Preferred Stock shall be perpetual unless converted or redeemed in accordance with this Certificate of Designations.

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          Section 7. Redemptions by the Corporation.

          (a) Optional Redemption. Except as provided in Section 7(f) below, the Series C Preferred Stock may not be redeemed by the Corporation prior to June 30, 2015. After June 30, 2015, the Corporation, at its option, may redeem in whole or in part at any time the shares of Series C Preferred Stock at the time outstanding, upon notice given as provided in Section 7(c) below, at a redemption price per share payable in cash equal to the greater of (i) 125.0% of the sum of (A) the Liquidation Preference, plus (B) all declared and unpaid dividends up to, but excluding, the date fixed for redemption and (ii) 110% of (A) the number of shares of Common Stock into which a share of Series C Preferred Stock would be convertible on the Trading Day immediately prior to the date fixed for redemption (assuming receipt of Stockholder Approvals) multiplied by (B) the Closing Price of Common Stock on such Trading Day; provided that in no event shall such redemption price exceed the amount determined in accordance with clause (i) above when replacing 125.0% with 150.0%. The redemption price for any shares of Series C Preferred Stock shall be payable on the redemption date to the Holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to a Record Date shall not be paid to the Holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Record Date.

          (b) No Sinking Fund. The Series C Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Series C Preferred Stock will have no right to require redemption of any shares of Series C Preferred Stock.

          (c) Notice of Redemption. Notice of every redemption of shares of Series C Preferred Stock shall be given by first class mail, postage prepaid, addressed to the Holders of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption; provided, that failure to give such notice by mail, or any defect in such notice or in the mailing thereof, to any Holder of shares of Series C Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock to be so redeemed except as to the Holder to whom the Corporation has failed to give such notice or except as to the Holder to whom notice was defective. Notwithstanding the foregoing, if the Series C Preferred Stock or any depositary shares representing interests in the Series C Preferred Stock are issued in book-entry form through The Depository Trust Company or any other similar facility, notice of redemption may be given to the Holders of Series C Preferred Stock at such time and in any manner permitted by such facility. Each such notice given to a Holder shall state: (1) the redemption date; (2) the number of shares of Series C Preferred Stock to be redeemed and, if less than all the shares held by such Holder are to be redeemed, the number of such shares to be redeemed from such Holder; (3) the redemption price (or manner of determination of the redemption price); and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

          (d) Partial Redemption. In case of any redemption of only part of the shares of Series C Preferred Stock at the time outstanding, the shares to be redeemed shall be selected on a pro rata basis or such other method as the depositary shall require that approximates a pro rata basis. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the Holder thereof.

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          (e) Effectiveness of Redemption. If notice of redemption has been duly given as provided in Section 7(c) and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the Holders of the shares called for redemption, so as to be and continue to be available therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date unless the Corporation defaults in the payment of the redemption price, in which case such rights shall continue until the redemption price is paid, dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the Holders thereof to receive the amount payable on such redemption, without interest. Any funds unclaimed at the end of two years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the Holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares. Shares of outstanding Series C Preferred Stock that are redeemed, purchased or otherwise acquired by the Corporation, or converted into another series of the Corporation’s preferred stock, shall be cancelled and shall revert to authorized but unissued shares of the Corporation’s preferred stock undesignated as to series.

          (f) Redemption Upon the Failure to Acquire Failed Bank. If the Company fails to consummate the transactions contemplated under that certain Purchase and Assumption Agreement, dated as of April 30, 2010 (the “P&A Agreement”), by and among the Company and the Federal Deposit Insurance Corporation by June 30, 2010 or, if the P&A Agreement shall be terminated for any reason whatsoever, the Company may redeem all outstanding shares of Series C Preferred Stock at a redemption price per share payable in cash equal to the Liquidation Preference.

          Section 8. Mandatory Conversion. Effective as of the close of business on the Mandatory Conversion Date with respect to the shares of Series C Preferred Stock of a Holder, all such Holder’s shares of Series C Preferred Stock shall automatically convert into shares of Common Stock as set forth below. The number of shares of Common Stock into which a share of Series C Preferred Stock shall be convertible shall be determined by dividing (i) the Liquidation Preference, plus all accrued and unpaid dividends, whether or not declared, with respect to any Section 4(c) Dividend Period completed prior to the Mandatory Conversion Date (but not with respect to the Section 4(c) Dividend Period in which the Mandatory Conversion Date occurs), by (ii) the Applicable Conversion Price (subject to the conversion procedures of Section 9 hereof); provided that, notwithstanding anything to the contrary contained in this Certificate of Designations, the number of Common Shares to be issued to any Holder pursuant to this Certificate of Designations shall be issued to the extent (but only to the extent) that issuance of such Common Shares would not (i) cause or result in such Holder and its Affiliates, collectively, being deemed to own, control or have the power to vote securities which (assuming, for this purpose only, full conversion and/or exercise of such securities) would represent 10.0% or more of the Voting Stock of the Corporation outstanding at such time, (ii) otherwise cause such Holder or any of its Affiliates to violate any banking law or regulation or (iii) require such Holder or any of its Affiliates to obtain the prior approval or non-objection of any bank regulator (collectively, the “Ownership Limit”); provided, further, however, that any Common Shares that would otherwise be issued to the Holder upon conversion of shares of Series C Preferred Stock held by

9

such Holder, but cannot be issued to such Holder at the time of conversion as a result of the Ownership Limit, shall thereafter be issued to such Holder on the first date on which such issuance would not cause or result in a violation of the Ownership Limit. Upon conversion, Holders shall receive cash in lieu of fractional shares in accordance with Section 13 hereof.

          Section 9. Conversion Procedures.

          (a) Upon receipt by the Corporation of Stockholder Approvals, within two (2) Business Days thereafter, the Corporation shall provide notice of mandatory conversion to each Holder (such notice a “Notice of Mandatory Conversion”). In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion with respect to such Holder shall state, as appropriate:

     (i) the Mandatory Conversion Date;

     (ii) the number of shares of Common Stock to be issued upon conversion of each share of Series C Preferred Stock held of record by such Holder and subject to such mandatory conversion; and

     (iii) if certificates are to be issued, the place or places where certificates for shares of Series C Preferred Stock held of record by such Holder are to be surrendered for issuance of certificates representing shares of Common Stock.

          (b) Effective immediately prior to the close of business on the Mandatory Conversion Date with respect to any shares of Series C Preferred Stock dividends shall no longer be declared on any such shares of Series C Preferred Stock and such shares of Series C Preferred Stock shall cease to be outstanding, in each case, subject to the right of the Holder to receive (i) shares of Common Stock issuable upon such mandatory conversion, (ii) any declared and unpaid dividends on such share to the extent provided in Section 4(h) and (iii) any other payments to which such Holder is otherwise entitled pursuant to Section 8, Section 11 or Section 13 hereof, as applicable.

          (c) No allowance or adjustment, except pursuant to Section 10, shall be made in respect of dividends payable to holders of the Common Stock of record as of any date prior to the close of business on the Mandatory Conversion Date with respect to any share of Series C Preferred Stock. Prior to the close of business on the Mandatory Conversion Date with respect to any share of Series C Preferred Stock, shares of Common Stock issuable upon conversion thereof, or other securities issuable upon conversion of, such share of Series C Preferred Stock shall not be deemed outstanding for any purpose, and the Holder thereof shall have no rights with respect to the Common Stock or other securities issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock or other securities issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock or other securities issuable upon conversion) by virtue of holding such share of Series C Preferred Stock.

          (d) Shares of Series C Preferred Stock duly converted in accordance with this Certificate of Designations, or otherwise reacquired by the Corporation, will resume the status of authorized and unissued shares of the Corporation’s preferred stock, undesignated as to series and available for future issuance. The Corporation may from time-to-time take such appropriate action as may be necessary to reduce the authorized number of shares of Series C Preferred

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Stock; provided, that the Corporation shall not take any such action if such action would reduce the authorized number of shares of Series C Preferred Stock below the number of shares of Series C Preferred Stock then outstanding.

          (e) The Person or Persons entitled to receive the Common Stock and/or cash, securities or other property issuable upon conversion of Series C Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock and/or securities as of the close of business on the Mandatory Conversion Date with respect thereto. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock and/or cash, securities or other property (including payments of cash in lieu of fractional shares) to be issued or paid upon conversion of shares of Series C Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares, and make such payment, in the name of the Holder and in the manner shown on the records of the Corporation.

          (f) On the Mandatory Conversion Date with respect to any share of Series C Preferred Stock, certificates representing shares of Common Stock shall be issued and delivered to the Holder thereof or such Holder’s designee (or, at the Corporation’s option such shares shall be registered in book-entry form) upon presentation and surrender of the certificate evidencing the Series C Preferred Stock to the Corporation and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes.

          Section 10. Anti-Dilution Adjustments.

          (a) The Conversion Price shall be subject to the following adjustments:

     (i) Stock Dividends and Distributions. If the Corporation pays dividends or other distributions on the Common Stock in shares of Common Stock, then the Conversion Price in effect immediately prior to the Ex-Date for such dividend or distribution will be multiplied by the following fraction:

OS₀

OS¹

Where,

OS0 =	the number of shares of Common Stock outstanding immediately prior to Ex-Date for such dividend or distribution.
OS1 =	the sum of the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus the total number of shares of Common Stock constituting such dividend or distribution.

For the purposes of this clause (i), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. If any dividend or distribution described in this clause (i) is declared but not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces

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its decision not to make such dividend or distribution, to such Conversion Price that would be in effect if such dividend or distribution had not been declared.

     (ii) Subdivisions, Splits and Combination of the Common Stock. If the Corporation subdivides, splits or combines the shares of Common Stock, then the Conversion Price in effect immediately prior to the effective date of such share subdivision, split or combination will be multiplied by the following fraction:

OS₀

OS¹

Where,

OS0 =	the number of shares of Common Stock outstanding immediately prior to the effective date of such share subdivision, split or combination.
OS1 =	the number of shares of Common Stock outstanding immediately after the opening of business on the effective date of such share subdivision, split or combination.

For the purposes of this clause (ii), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. If any subdivision, split or combination described in this clause (ii) is announced but the outstanding shares of Common Stock are not subdivided, split or combined, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to subdivide, split or combine the outstanding shares of Common Stock, to such Conversion Price that would be in effect if such subdivision, split or combination had not been announced.

     (iii) Issuance of Stock Purchase Rights. If the Corporation issues to all holders of the shares of Common Stock rights or warrants (other than rights or warrants issued pursuant to a stockholders’ rights plan, a dividend reinvestment plan or share purchase plan or other similar plans) entitling them, for a period of up to 45 days from the date of issuance of such rights or warrants, to subscribe for or purchase the shares of Common Stock at less than the Current Market Price on the date fixed for the determination of stockholders entitled to receive such rights or warrants, then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

OS₀ + Y

OS₀ + X

Where,

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OS0	=	the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such distribution.
X	=	the total number of shares of Common Stock issuable pursuant to such rights or warrants.
Y	=	the number of shares of Common Stock equal to the aggregate price payable to exercise such rights or warrants divided by the Current Market Price on the date fixed for the determination of stockholders entitled to receive such rights or warrants.

For the purposes of this clause (iii), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. The Corporation shall not issue any such rights or warrants in respect of shares of the Common Stock acquired by the Corporation. In the event that such rights or warrants described in this clause (iii) are not so issued, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to issue such rights or warrants, to the Conversion Price that would then be in effect if such issuance had not been declared. To the extent that such rights or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Price shall be readjusted to such Conversion Price (but giving effect to any other adjustments that may have been made with respect to the Conversion Price pursuant to the terms of this Certificate of Designations) that would then be in effect had the adjustment made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered. In determining the aggregate offering price payable for such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants and the value of such consideration (if other than cash, to be determined in a reasonable manner by the Board of Directors).

     (iv) Debt or Asset Distributions. If the Corporation distributes to all holders of shares of Common Stock evidences of indebtedness, shares of capital stock, securities, cash or other assets (excluding any dividend or distribution referred to in clause (i) above, any rights or warrants referred to in clause (iii) above, any dividend or distribution paid exclusively in cash, any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its applicable subsidiaries, and any dividend of shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit in the case of certain spin-off transactions as described below), then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

SP0 — FMV

SP0

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Where,

SP0	=	the Current Market Price per share of Common Stock on such date.
FMV	=	the fair market value of the portion of the distribution applicable to one share of Common Stock on such date as determined in good faith by the Board of Directors.

In a “spin-off”, where the Corporation makes a distribution to all holders of shares of Common Stock consisting of capital stock of any class or series, or similar equity interests of, or relating to, a subsidiary or other business unit, the Conversion Price will be adjusted on the fifteenth Trading Day after the effective date of the distribution by multiplying such Conversion Price in effect immediately prior to such fifteenth Trading Day by the following fraction:

MP0

MP0 + MPs

Where,

MP0	=	the average of the Closing Prices of the Common Stock over the first ten Trading Days commencing on and including the fifth Trading Day following the effective date of such distribution.
MPs	=	the average of the Closing Prices of the capital stock or equity interests representing the portion of the distribution applicable to one share of Common Stock over the first ten Trading Days commencing on and including the fifth Trading Day following the effective date of such distribution, or, if not traded on a national or regional securities exchange or over-the-counter market, the fair market value of the capital stock or equity interests representing the portion of the distribution applicable to one share of Common Stock on such date as determined in good faith by the Board of Directors.

In the event that such distribution described in this clause (iv) is not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay or make such dividend or distribution, to the Conversion Price that would then be in effect if such dividend or distribution had not been declared.

     (v) Cash Distributions. If the Corporation makes a distribution consisting exclusively of cash to all holders of the Common Stock, excluding, (a) any cash dividend on the Common Stock to the extent a corresponding cash dividend is paid on the Series C Preferred Stock pursuant to Section 4 (b), (b) any cash that is distributed in a

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Reorganization Event or as part of a “spin-off” referred to in clause (iv) above, (c) any dividend or distribution in connection with the Corporation’s liquidation, dissolution or winding up, and (d) any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its subsidiaries, then in each event, the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

SP₀ – DIV

SP₀

Where,

SP0	=	the Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date.
DIV	=	the amount per share of Common Stock of the cash distribution, as determined pursuant to the introduction to this clause (v).

In the event that any distribution described in this clause (v) is not so made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such distribution, to the Conversion Price which would then be in effect if such distribution had not been declared.

     (vi) Self Tender Offers and Exchange Offers. If the Corporation or any of its subsidiaries successfully completes a tender or exchange offer for the Common Stock where the cash and the value of any other consideration included in the payment per share of the Common Stock exceeds the Closing Price per share of the Common Stock on the Trading Day immediately succeeding the expiration of the tender or exchange offer, then the Conversion Price in effect at the close of business on such immediately succeeding Trading Day will be multiplied by the following fraction:

OS₀ × SP₀

AC + (SP₀ × OS¹)

Where,

SP0	=	the Closing Price per share of Common Stock on the Trading Day immediately succeeding the expiration of the tender or exchange offer.
OS0	=	the number of shares of Common Stock outstanding immediately prior to the expiration of the tender or exchange offer, including any shares validly tendered and not withdrawn.

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OS1	=	the number of shares of Common Stock outstanding immediately after the expiration of the tender or exchange offer, giving effect to consummation of the acquisition of all shares validly tendered or exchanged (and not withdrawn) in connection with such tender or exchange.
AC	=	the aggregate cash and fair market value of the other consideration payable in the tender or exchange offer, as determined in good faith by the Board of Directors.

In the event that the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation, or such subsidiary, is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Price shall be readjusted to be such Conversion Price that would then be in effect if such tender offer or exchange offer had not been made.

     (vi) Rights Plans. To the extent that the Corporation has a rights plan in effect with respect to the Common Stock on the Mandatory Conversion Date, upon conversion of any             shares of the Series C Preferred Stock, Holders will receive, in addition to the shares of Common Stock, the rights under the rights plan, unless, prior to the Mandatory Conversion Date, the rights have separated from the shares of Common Stock, in which case the Conversion Price will be adjusted at the time of separation as if the Corporation had made a distribution to all holders of the Common Stock as described in clause (iv) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

          (b) Subject to the limitations set forth in the provisos to the first paragraph of Section 10(a), the Corporation may make such decreases in the Conversion Price, in addition to any other decreases required by this Section 10, if the Board of Directors deems it advisable to avoid or diminish any income tax to holders of the Common Stock resulting from any dividend or distribution of shares of Common Stock (or issuance of rights or warrants to acquire shares of Common Stock) or from any event treated as such for income tax purposes or for any other reason.

          (c) (i) All adjustments to the Conversion Price shall be calculated to the nearest ¹/10 of a cent. No adjustment in the Conversion Price shall be required if such adjustment would be less than $0.01; provided, that any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided further that on the Mandatory Conversion Date adjustments to the Conversion Price will be made with respect to any such adjustment carried forward and which has not been taken into account before such date.

     (ii) No adjustment to the Conversion Price shall be made if Holders may participate in the transaction that would otherwise give rise to an adjustment, as a result of holding the Series C Preferred Stock (including without limitation pursuant to Section 4 hereof), without having to convert the Series C Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Series C Preferred Stock may then be converted.

     (iii) The Applicable Conversion Price shall not be adjusted:

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     (A) upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on the Corporation’s securities and the investment of additional optional amounts in shares of Common Stock under any such plan;

     (B) upon the issuance of any shares of Common Stock or rights or warrants to purchase those shares pursuant to any present or future employee, director or consultant benefit plan or program of or assumed by the Corporation or any of its subsidiaries;

     (C) upon the issuance of any shares of Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date shares of the Series C Preferred Stock were first issued and not substantially amended thereafter;

     (D) for a change in the par value or no par value of Common Stock; or

     (E) for accrued but unpaid dividends on the Series C Preferred Stock.

          (d) Whenever the Conversion Price is to be adjusted in accordance with Section 10(a) or Section 10(b), the Corporation shall: (i) compute the Conversion Price in accordance with Section 10(a) or Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof; (ii) as soon as practicable following the occurrence of an event that requires an adjustment to the Conversion Price pursuant to Section 10(a) or Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof (or if the Corporation is not aware of such occurrence, as soon as practicable after becoming so aware), provide, or cause to be provided, a written notice to the Holders of the occurrence of such event; and (iii) as soon as practicable following the determination of the revised Conversion Price in accordance with Section 10(a) or Section 10(b) hereof, provide, or cause to be provided, a written notice to the Holders setting forth in reasonable detail the method by which the adjustment to the Conversion Price was determined and setting forth the revised Conversion Price.

          Section 11. Reorganization Events. (a) In the event that for so long as any shares of Series C Preferred Stock remains outstanding there occurs:

     (i) any consolidation, merger or other similar business combination of the Corporation with or into another Person, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

     (ii) any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

     (iii) any reclassification of the Common Stock into securities including securities other than the Common Stock; or

     (iv) any statutory exchange of the outstanding shares of Common Stock for securities of another Person (other than in connection with a merger or acquisition);

(any such event specified in this Section 11(a), a “Reorganization Event”); then each share of such Holder’s Series C Preferred Stock outstanding immediately prior to such Reorganization Event shall remain outstanding but shall automatically convert, effective as of the close of

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business on the Mandatory Conversion Date with respect to the shares of Series C Preferred Stock of such Holder, into the type and amount of securities, cash and other property receivable in such Reorganization Event by the holder (excluding the counterparty to the Reorganization Event or an Affiliate of such counterparty) of the number of shares of Common Stock obtained by dividing (x) the Liquidation Preference, plus all accrued but unpaid dividends, whether or not declared, up to, but excluding such date, by (y) the Applicable Conversion Price as of such date (such securities, cash and other property, the “Exchange Property”). In the event that a Reorganization Event referenced in Section 11(a) involves common stock as all or part of the consideration being offered in a fixed exchange ratio transaction, the fair market value per share of such common stock shall be determined by reference to the average of the closing prices of such common stock for the ten Trading Day period ending immediately prior to the consummation of such Reorganization Event.

          (b) In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the consideration that the Holders are entitled to receive shall be deemed to be the types and amounts of consideration received by the majority of the holders of the shares of Common Stock that affirmatively make an election.

          (c) The above provisions of this Section 11 shall similarly apply to successive Reorganization Events and the provisions of Section 10 shall apply to any shares of capital stock of the Corporation (or any successor) received by the holders of the Common Stock in any such Reorganization Event.

          (d) The Corporation (or any successor) shall, within seven days of the consummation of any Reorganization Event, provide written notice to the Holders of such consummation of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 11.

          (e) The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless such agreement provides for or does not interfere with or prevent (as applicable) conversion of the Series C Preferred Stock into the Exchange Property in a manner that is consistent with and gives effect to this Section 11.

          Section 12. Voting Rights. (a) Holders will not have any voting rights, including the right to elect any directors, except (i) voting rights, if any, required by law, and (ii) voting rights, if any, described in this Section 12.

          (b) So long as any shares of Series C Preferred Stock are outstanding, the vote or consent of the Holders of a majority of the shares of Series C Preferred Stock at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, will be necessary for effecting or validating any of the following actions, whether or not such approval is required by Puerto Rico law:

     (i) any amendment, alteration or repeal (including by means of a merger, consolidation or otherwise) of any provision of the Certificate of Incorporation (including this Certificate

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of Designations) or the Corporation’s bylaws that would significantly and adversely affect the rights or preference of the Series C Preferred Stock;

     (ii) any amendment or alteration (including by means of a merger, consolidation or otherwise) of the Corporation’s Certificate of Incorporation to authorize, or create, or increase the authorized amount of, any shares of, or any securities convertible into shares of, any class or series of the Corporation’s capital stock ranking senior to the Series C Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation; or

     (iii) the consummation of a binding share exchange or reclassification involving the Series C Preferred Stock or a merger or consolidation of the Corporation with another entity, except that the Holders will have no right to vote under this provision or under Puerto Rico law if in each case (x) the Series C Preferred Stock remains outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, is converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, that is an entity organized and existing under the laws of the United States of America, any state thereof, the District of Columbia or the Commonwealth of Puerto Rico, and (y) such Series C Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the Holders thereof than the rights, preferences, privileges and voting powers of the Series C Preferred Stock, taken as a whole.

provided, however, that any increase in the amount of the authorized preferred stock of the Corporation or any securities convertible into the preferred stock of the Corporation or the creation and issuance, or an increase in the authorized or issued amount, of any series of preferred stock of the Corporation or any securities convertible into preferred stock of the Corporation ranking equally with and/or junior to the Series C Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon the Corporation’s liquidation, dissolution or winding up will not, in and of itself, be deemed to significantly and adversely affect the rights or preference of the Series C Preferred Stock and, notwithstanding any provision of Puerto Rico law, Holders will have no right to vote solely by reason of such an increase, creation or issuance. For the avoidance of doubt, stockholder approval to amend the Corporation’s Certificate of Incorporation to increase the authorized preferred stock of the Corporation in the amount currently contemplated in the Corporation’s definitive proxy statement will not be deemed to adversely affect the rights of the Series C Preferred Stock, and Holders will have no right to vote solely by reason of such increase.

          (c) Notwithstanding the foregoing, Holders shall not have any voting rights if, at or prior to the effective time of the act with respect to which such vote would otherwise be required, all outstanding shares of Series C Preferred Stock shall have been converted into shares of Common Stock.

          Section 13. Fractional Shares.

          (a) No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series C Preferred Stock.

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          (b) In lieu of any fractional share of Common Stock otherwise issuable in respect of any mandatory conversion pursuant to Section 8 hereof, the Corporation shall pay an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the Mandatory Conversion Date.

          (c) If more than one share of the Series C Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series C Preferred Stock so surrendered.

          Section 14. Reservation of Common Stock.

          (a) Following the receipt of the Stockholder Approvals, the Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock or shares acquired by the Corporation, solely for issuance upon the conversion of shares of Series C Preferred Stock as provided in this Certificate of Designations free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series C Preferred Stock then outstanding. For purposes of this Section 14(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series C Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

          (b) Notwithstanding the foregoing, the Corporation shall be entitled to deliver upon conversion of shares of Series C Preferred Stock, as herein provided, shares of Common Stock acquired by the Corporation (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such acquired shares are free and clear of all liens, charges, security interests or encumbrances.

          (c) All shares of Common Stock delivered upon conversion of the Series C Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances.

          (d) Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series C Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

          (e) The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system, the Corporation will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all the Common Stock issuable upon conversion of the Series C Preferred Stock.

          Section 15. Replacement Certificates.

          (a) The Corporation shall replace any mutilated certificate at the Holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates

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that become destroyed, stolen or lost at the Holder’s expense upon delivery to the Corporation of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Corporation.

          (b) The Corporation shall not be required to issue any certificates representing the Series C Preferred Stock on or after the Mandatory Conversion Date. In place of the delivery of a replacement certificate following the Mandatory Conversion Date, the Corporation, upon delivery of the evidence and indemnity described in clause (a) above, shall deliver the shares of Common Stock pursuant to the terms of the Series C Preferred Stock formerly evidenced by the certificate.

          Section 16. Miscellaneous.

          (a) All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three Business Days after the mailing thereof if sent by registered or certified mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Designations) with postage prepaid, addressed: (i) if to the Corporation, to its office at 997 San Roberto Street, San Juan, Puerto Rico, 00926, Attention: General Counsel, or (ii) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the Corporation, or (iii) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

          (b) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series C Preferred Stock or shares of Common Stock or other securities issued on account of Series C Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax that may be payable in respect of any transfer involved in the issuance or delivery of shares of Series C Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series C Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any Person other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the Person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable.

          (c) All payments on the shares of Series C Preferred Stock shall be subject to withholding and backup withholding of tax to the extent required by applicable law, subject to applicable exemptions, and amounts withheld, if any, shall be treated as received by the holders thereof.

          (d) No share of Series C Preferred Stock shall have any rights of preemption whatsoever under this Certificate of Designations as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated issued or granted.

          (e) The shares of Series C Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications,

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limitations or restrictions thereof, other than as set forth herein or in the Certificate of Incorporation or as provided by applicable law.

          (f) The Corporation covenants (1) not to treat the Series C Preferred Stock as preferred stock for purposes of Section 305 of the Internal Revenue Code of 1986, as amended, except as otherwise required by applicable law.

          RESOLVED, that all actions taken by the officers and directors of the Corporation or any of them in connection with the foregoing resolutions through the date hereof be, and they hereby are, ratified and approved.

          IN WITNESS WHEREOF, Oriental Financial Group Inc. has caused this Certificate of Designations to be signed by Carlos O. Souffront its Secretary of the Board of Directors this 29th day of April, 2010.

ORIENTAL FINANCIAL GROUP INC.
By:
	Name:	Carlos O. Souffront
	Title:	Secretary of the Board of Directors

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EXHIBIT B

Form of Registration Rights Agreement

REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (this “Agreement”) is made and entered into as of April 23, 2010, by and among Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Company”), and the several purchasers signatory hereto (each a “Purchaser” and collectively, the “Purchasers”).

     This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof between the Company and each Purchaser (the “Purchase Agreement”).

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each of the Purchasers agree as follows:

     1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

          “Advice” shall have the meaning set forth in Section 6(d).

          “Affiliate” means, with respect to any person, any other person which directly or indirectly controls, is controlled by, or is under common control with, such person.

          “Agreement” shall have the meaning set forth in the Preamble.

          “Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

          “Closing” has the meaning set forth in the Purchase Agreement.

          “Closing Date” has the meaning set forth in the Purchase Agreement.

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means the common stock of the Company, $1.00 par value per share, and any securities into which such shares of common stock may hereinafter be reclassified.

          “Company” shall have the meaning set forth in the Preamble.

          “Effective Date” means the date that the Registration Statement filed pursuant to Section 2(a) is first declared effective by the Commission.

          “Effectiveness Deadline” means, with respect to the Initial Registration Statement or the New Registration Statement, the earlier of (i) the 120th calendar day following the Closing Date (or the 155th calendar day following the Closing Date in the event that such registration statement is subject to review by the Commission) and (ii) the 5^th Trading Day after the date the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review; provided, that if the Effectiveness Deadline falls on a Saturday, Sunday or other day that the Commission is closed for business, the Effectiveness Deadline shall be extended to the next Business Day on which the Commission is open for business.

     “Effectiveness Period” shall have the meaning set forth in Section 2(b).

     “Event” shall have the meaning set forth in Section 2(c).

     “Event Date” shall have the meaning set forth in Section 2(c).

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Filing Deadline” means, with respect to the Initial Registration Statement required to be filed pursuant to Section 2(a), the 90th calendar day following the Closing Date, provided, that if the Filing Deadline falls on a Saturday, Sunday or other day that the Commission is closed for business, the Filing Deadline shall be extended to the next business day on which the Commission is open for business.

     “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

          “Indemnified Party” shall have the meaning set forth in Section 5(c).

          “Indemnifying Party” shall have the meaning set forth in Section 5(c).

          “Initial Registration Statement” means the initial Registration Statement filed pursuant to Section 2(a) of this Agreement.

          “Liquidated Damages” shall have the meaning set forth in Section 2(c).

          “Losses” shall have the meaning set forth in Section 5(a).

          “New Registration Statement” shall have the meaning set forth in Section 2(a).

          “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

     “Principal Market” means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the Closing Date, shall be the New York Stock Exchange.

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     “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

     “Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

     “Purchase Agreement” shall have the meaning set forth in the Recitals.

     “Purchaser” or “Purchasers” shall have the meaning set forth in the Preamble.

     “Registrable Securities” means all of the Preferred Shares and the Underlying Shares and any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the Preferred Shares and the Underlying Shares, provided, that the Holder has completed and delivered to the Company a Selling Stockholder Questionnaire; and provided, further, that Preferred Shares or Underlying Shares shall cease to be Registrable Securities upon the earliest to occur of the following: (A) a sale pursuant to a Registration Statement or Rule 144 under the Securities Act (in which case, only such security sold shall cease to be a Registrable Security); (B) becoming eligible for sale without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and without volume or manner of sale restrictions by Holders who are not Affiliates of the Company; (C) if such Preferred Shares or Underlying Shares have ceased to be outstanding; or (D) if such Preferred Shares or Underlying Shares have been sold in a private transaction in which the Holder’s rights under this Agreement have not been assigned to the transferee.

     “Registration Statements” means any one or more registration statements of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement (including without limitation the Initial Registration Statement, the New Registration Statement and any Remainder Registration Statements), amendments and supplements to such Registration Statements, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statements.

     “Remainder Registration Statement” shall have the meaning set forth in Section 2(a).

     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

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     “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

     “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

          “SEC Guidance” means (i) any publicly-available written or oral guidance, comments, requirements or requests of the Commission staff and (ii) the Securities Act.

          “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

          “Selling Stockholder Questionnaire” means a questionnaire in the form attached as Annex B hereto, or such other form of questionnaire as may reasonably be adopted by the Company from time to time.

          “Trading Day” means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

          “Trading Market” means whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

     2. Registration.

          (a) On or prior to the Filing Deadline, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 or, if Rule 415 is not available for offers and sales of the Registrable Securities, by such other means of distribution of Registrable Securities as the Company may reasonably determine (the “Initial Registration Statement”). The Initial Registration Statement shall be on Form S-3 (except if the Company is then ineligible to register for resale of the Registrable Securities on Form S-3, in which case such registration shall be on such other form available to the Company to register for resale of the Registrable Securities as a secondary offering) subject to the provisions of Section 2(f) and shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement) the “Plan of Distribution” section substantially in the form attached hereto as Annex A. Notwithstanding the registration obligations set forth in this Section 2, in the event the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a

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secondary offering on a single registration statement, the Company agrees to promptly (i) inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission and/or (ii) withdraw the Initial Registration Statement and file a new registration statement (a “New Registration Statement”), in either case covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to the Company to register for resale the Registrable Securities as a secondary offering; provided, that prior to filing such amendment or New Registration Statement, the Company shall be obligated to use its commercially reasonable efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09. Notwithstanding any other provision of this Agreement and subject to the payment of Liquidated Damages in Section 2(c), if any SEC Guidance sets forth a limitation of the number of Registrable Securities or other shares of Common Stock permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater number of Registrable Securities), the number of Registrable Securities or other shares of Common Stock to be registered on such Registration Statement will be reduced on a pro rata basis. In the event the Company amends the Initial Registration Statement or files a New Registration Statement, as the case may be, under clauses (i) or (ii) above, the Company will use its commercially reasonable efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to the Company to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended, or the New Registration Statement (the “Remainder Registration Statements”). No Holder shall be named as an “underwriter” in any Registration Statement without such Holder’s prior written consent.

          (b) The Company shall use its commercially reasonable efforts to cause each Registration Statement to be declared effective by the Commission as soon as practicable and, with respect to the Initial Registration Statement or the New Registration Statement, as applicable, no later than the Effectiveness Deadline, and shall use its commercially reasonable efforts to keep each Registration Statement continuously effective under the Securities Act until the earlier of (i) such time as all of the Registrable Securities covered by such Registration Statement have been publicly sold by the Holders or (ii) the date that all Registrable Securities covered by such Registration Statement may be sold by non-affiliates without volume or manner of sale restrictions under Rule 144, without the requirement for the Company to be in compliance with the current public information requirements under Rule 144(c)(1) (or Rule 144(i)(2), if applicable), as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and reasonably acceptable to the Company’s transfer agent and the effected Holders (the “Effectiveness Period”). The Company shall request effectiveness of a Registration Statement as of 5:00 p.m. New York City time on a Trading Day. The Company shall promptly notify the Holders via facsimile or electronic mail of a “.pdf” format data file of the effectiveness of a Registration Statement within one (1) Business Day of the Effective Date. The Company shall, by 9:30 a.m. New York City time on the first Trading Day after the Effective Date, file a final Prospectus with the Commission, as required by Rule 424(b).

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          (c) If: (i) the Initial Registration Statement is not filed with the Commission on or prior to the Filing Deadline, (ii) the Initial Registration Statement or the New Registration Statement, as applicable, is not declared effective by the Commission (or otherwise does not become effective) for any reason on or prior to the Effectiveness Deadline, other than as a result of any open issues arising out of any routine Commission review of Exchange Act filings in effect as of the date hereof, or (iii) after its Effective Date, (A) such Registration Statement ceases for any reason (including without limitation by reason of a stop order, or the Company’s failure to update the Registration Statement), to remain continuously effective as to all Registrable Securities for which it is required to be effective or (B) the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities, in the case of (A) and (B) (other than during an Allowable Grace Period (as defined in Section 2(e) of this Agreement)), (iv) a Grace Period (as defined in Section 2(e) of this Agreement) exceeds the length of an Allowable Grace Period, or (v) after the date six months following the Closing Date, and only in the event a Registration Statement is not effective or available to sell all Registrable Securities, the Company fails to file with the SEC any required reports under Section 13 or 15(d) of the 1934 Act such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable), as a result of which the Holders who are not affiliates are unable to sell Registrable Securities without restriction under Rule 144 (or any successor thereto) (any such failure or breach in clauses (i) through (v) above being referred to as an “Event,” and, for purposes of clauses (i), (ii), (iii) or (v), the date on which such Event occurs, or for purposes of clause (iv) the date on which such Allowable Grace Period is exceeded, being referred to as an “Event Date”), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty (“Liquidated Damages”), equal to 0.5% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities held by such Holder on the Event Date. The parties agree that notwithstanding anything to the contrary herein or in the Purchase Agreement, no Liquidated Damages shall be payable (i) if as of the relevant Event Date, the Registrable Securities may be sold by non-affiliates without volume or manner of sale restrictions under Rule 144 and the Company is in compliance with the current public information requirements under Rule 144(c)(1) (or Rule 144(i)(2), if applicable), as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and reasonably acceptable to the Company’s transfer agent and (ii) with respect to any period after the expiration of the Effectiveness Period (it being understood that this sentence shall not relieve the Company of any Liquidated Damages accruing prior to the Effectiveness Period). If the Company fails to pay any Liquidated Damages pursuant to this Section 2(c) in full within five (5) Business Days after the date payable, the Company will pay interest thereon at a rate of 1.0% per month (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such Liquidated Damages are due until such amounts, plus all such interest thereon, are paid in full. The Liquidated Damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event, except in the case of the first Event Date. The Effectiveness Deadline for a Registration Statement shall be extended without default or Liquidated Damages hereunder in the event that the Company’s failure to obtain the effectiveness of the Registration Statement on a timely basis results from the failure of a Purchaser to timely provide the Company with information requested by the Company and

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necessary to complete the Registration Statement in accordance with the requirements of the Securities Act (in which case the Effectiveness Deadline would be extended with respect to Registrable Securities held by such Purchaser).

          (d) Each Holder agrees to furnish to the Company a completed Selling Stockholder Questionnaire not more than ten (10) Trading Days following the date of this Agreement. At least five (5) Trading Days prior to the first anticipated filing date of a Registration Statement for any registration under this Agreement, the Company will notify each Holder of the information the Company requires from that Holder other than the information contained in the Selling Stockholder Questionnaire, if any, which shall be completed and delivered to the Company promptly upon request and, in any event, within two (2) Trading Days prior to the applicable anticipated filing date. Each Holder further agrees that it shall not be entitled to be named as a selling securityholder in the Registration Statement or use the Prospectus for offers and resales of Registrable Securities at any time, unless such Holder has returned to the Company a completed and signed Selling Stockholder Questionnaire and a response to any requests for further information as described in the previous sentence. If a Holder of Registrable Securities returns a Selling Stockholder Questionnaire or a request for further information, in either case, after its respective deadline, the Company shall use its commercially reasonable efforts at the expense of the Holder who failed to return the Selling Stockholder Questionnaire or to respond for further information to take such actions as are required to name such Holder as a selling security holder in the Registration Statement or any pre-effective or post-effective amendment thereto and to include (to the extent not theretofore included) in the Registration Statement the Registrable Securities identified in such late Selling Stockholder Questionnaire or request for further information. Each Holder acknowledges and agrees that the information in the Selling Stockholder Questionnaire or request for further information as described in this Section 2(d) will be used by the Company in the preparation of the Registration Statement and hereby consents to the inclusion of such information in the Registration Statement.

          (e) Notwithstanding anything to the contrary herein, at any time after the Registration Statement has been declared effective by the Commission, the Company may delay the disclosure of material non-public information concerning the Company if the disclosure of such information at the time is not, in the good faith judgment of the Company, in the best interests of the Company (a “Grace Period”); provided, the Company shall promptly (i) notify the Holders in writing of the existence of material non-public information giving rise to a Grace Period (provided that the Company shall not disclose the content of such material non-public information to the Holders) or the need to file a post-effective amendment, as applicable, and the date on which such Grace Period will begin, (ii) use reasonable best efforts to terminate a Grace Period as promptly as practicable and (iii) notify the Holders in writing of the date on which the Grace Period ends; provided, further, that no single Grace Period shall exceed thirty (30) consecutive days, and during any three hundred sixty-five (365) day period, the aggregate of all Grace Periods shall not exceed an aggregate of sixty (60) days (each Grace Period complying with this provision being an “Allowable Grace Period”). For purposes of determining the length of a Grace Period, the Grace Period shall be deemed to begin on and include the date the Holders receive the notice referred to in clause (i) above and shall end on and include the later of the date the Holders receive the notice referred to in clause (iii) above and the date referred to in such notice; provided, that no Grace Period shall be longer than an Allowable Grace Period.

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Notwithstanding anything to the contrary, the Company shall cause the Transfer Agent to deliver unlegended Common Stock to a transferee of a Holder in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which a Holder has entered into a contract for sale prior to the Holder’s receipt of the notice of a Grace Period and for which the Holder has not yet settled.

          (f) In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 promptly after such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.

     3. Registration Procedures

     In connection with the Company’s registration obligations hereunder:

          (a) the Company shall not less than three (3) Trading Days prior to the filing of a Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any similar or successor reports), the Company shall, furnish to the Holder copies of such Registration Statement, Prospectus or amendment or supplement thereto, as proposed to be filed, which documents will be subject to the review of such Holder (it being acknowledged and agreed that if a Holder does not object to or comment on the aforementioned documents within such three (3) Trading Day or one (1) Trading Day period, as the case may be, then the Holder shall be deemed to have consented to and approved the use of such documents). The Company shall not file any Registration Statement or amendment or supplement thereto in a form to which a Holder reasonably objects in good faith, provided that, the Company is notified of such objection in writing within the three (3) Trading Day or one (1) Trading Day period described above, as applicable.

          (b) (i) the Company shall prepare and file with the Commission such amendments (including post-effective amendments) and supplements, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period (except during an Allowable Grace Period); (ii) the Company shall cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424 (except during an Allowable Grace Period); (iii) the Company shall respond as promptly as reasonably practicable to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible, provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that pertains to the Holders as “Selling Stockholders” but not any comments that would result in the disclosure to the Holders of material and non-public information concerning the Company; and (iv) the Company shall

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comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement until such time as all of such Registrable Securities shall have been disposed of (subject to the terms of this Agreement) in accordance with the intended methods of disposition by the Holders thereof as set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; provided, that each Purchaser shall be responsible for the delivery of the Prospectus to the Persons to whom such Purchaser sells any of the Registrable Securities (including in accordance with Rule 172 under the Securities Act), and each Purchaser agrees to dispose of Registrable Securities in compliance with the plan of distribution described in the Registration Statement and otherwise in compliance with applicable federal and state securities laws. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Exchange Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the Commission on the same day on which the Exchange Act report which created the requirement for the Company to amend or supplement such Registration Statement was filed.

          (c) the Company shall notify the Holders (which notice shall, pursuant to clauses (iii) through (v) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably practicable (and, in the case of (i)(A) below, not less than two Trading Days prior to such filing, in the case of (iii) and (iv) below, not more than one Trading Day after such issuance or receipt, and in the case of (v) below, not more than one Trading Day after the occurrence or existence of such development) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on any Registration Statement (in which case the Company shall provide to each of the Holders true and complete copies of all comments that pertain to the Holders as a “Selling Stockholder” or to the “Plan of Distribution” and all written responses thereto, but not information that the Company believes would constitute material and non-public information); and (C) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information that pertains to the Holders as “Selling Stockholders” or the “Plan of Distribution”; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that,

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in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, form of prospectus or supplement thereto, in light of the circumstances under which they were made), not misleading.

          (d) the Company shall use commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as practicable.

          (e) the Company shall, if requested by a Holder, furnish to such Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company shall have no obligation to provide any document pursuant to this clause that is available on the Commission’s EDGAR system.

          (f) the Company shall, prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

          (g) the Company shall, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement and under law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may reasonably request. Certificates for Registrable Securities free from all restrictive legends may be transmitted by the transfer agent to a Holder by crediting the account of such Holder’s prime broker with DTC as directed by such Holder.

          (h) the Company shall following the occurrence of any event contemplated by Section 3(c)(iii)-(v), as promptly as reasonably practicable (taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event), prepare and file a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and

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file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, form of prospectus or supplement thereto, in light of the circumstances under which they were made), not misleading.

          (i) the Company may require each selling Holder to furnish to the Company a certified statement as to (i) the number of shares of Common Stock beneficially owned by such Holder and any Affiliate thereof, (ii) any Financial Industry Regulatory Authority (“FINRA”) affiliations, (iii) any natural persons who have the power to vote or dispose of the Common Stock and (iv) any other information as may be requested by the Commission, FINRA or any state securities commission. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of Registrable Securities because any Holder fails to furnish such information within three Trading Days of the Company’s request, any Liquidated Damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

          (j) the Company shall cooperate with any registered broker through which a Holder proposes to resell its Registrable Securities in effecting a filing with FINRA pursuant to FINRA Rule 5110 as requested by any such Holder and the Company shall pay the filing fee required for the first such filing within two (2) Business Days of the request therefore.

          (k) the Company shall use its commercially reasonable efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

          (l) if requested by a Holder, the Company shall (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.

          (m) the Company shall otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including Rule 172, notify the Holders promptly if the Company no longer satisfies the conditions of Rule 172 and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve (12) months, beginning after the effective date of each Registration Statement, which earning statement shall satisfy the provisions of Section 11(a) of the Securities Act, including Rule 158 promulgated thereunder (for the purpose of this Section 3, “Availability Date” means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year,

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“Availability Date” means the 90th day after the end of such fourth fiscal quarter), in each case subject to extensions permissible under applicable law.

     4. Registration Expenses. All fees and expenses incident to the Company’s performance of or compliance with its obligations under this Agreement (excluding any underwriting discounts and selling commissions and all legal fees and expenses of legal counsel for any Holder) shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (B) with respect to compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders) and (C) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses of the Company, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any underwriting, broker or similar fees or commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

     5. Indemnification.

          (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify, defend and hold harmless each Holder, the officers, directors, agents, general partners, managing members, managers, Affiliates and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, general partners, managing members, managers, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and investigation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as

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incurred, that arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (A) such untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that each Holder has approved Annex A hereto for this purpose), or (B) in the case of an occurrence of an event of the type specified in Section 3(c)(iii)-(v), related to the use by a Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated and defined in Section 6(d) below, but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 5(c)) and shall survive the transfer of the Registrable Securities by the Holders.

          (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, or any form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein or (ii) to the extent, but only to the extent, that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrence of an event of the type specified in Section 3(c)(iii)-(v), to the extent, but only to the extent, related to the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in

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Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.

     An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest exists if the same counsel were to represent such Indemnified Party and the Indemnifying Party; provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

     Subject to the terms of this Agreement, all fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section 5(c)) shall be paid to the Indemnified Party, as incurred, within twenty Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally judicially determined to not be entitled to indemnification hereunder). The failure to deliver written notice to the Indemnifying Party within a reasonable time of the commencement of any such action shall not relieve such Indemnifying Party of any liability to the Indemnified Party under this Section 5, except to the

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extent that the Indemnifying Party is materially and adversely prejudiced in its ability to defend such action.

          (d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section 5(d) was available to such party in accordance with its terms.

     The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

     The indemnity and contribution agreements contained in this Section 5 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties and are not in diminution or limitation of the indemnification provisions under the Purchase Agreement.

     6. Miscellaneous.

          (a) Remedies. In the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for

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specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

          (b) No Piggyback on Registrations; Prohibition on Filing Other Registration Statements. Neither the Company nor any of its security holders may include securities of the Company in a Registration Statement hereunder and the Company shall not prior to the Effective Date enter into any agreement providing any such right to any of its security holders. The Company shall not, from the date hereof until the date that is 30 days after the Effective Date of the Initial Registration Statement, prepare and file with the Commission a registration statement relating to an offering for its own account under the Securities Act of any of its equity securities, other than (i) a registration statement on Form S-8, (ii) in connection with an acquisition, on Form S-4 or (iii) a registration statement to register for resale securities issued by the Company pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities. For the avoidance of doubt, the Company shall not be prohibited from preparing and filing with the Commission a registration statement relating to an offering of Common Stock by existing stockholders of the Company under the Securities Act pursuant to the terms of registration rights held by such stockholder or from filing amendments to registration statements filed prior to the date of this Agreement.

          (c) Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to the Registration Statement and shall sell the Registrable Securities only in accordance with a method of distribution described in the Registration Statement

          (d) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(iii)-(v), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

          (e) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date hereof, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.

          (f) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, or waived unless the same shall be in writing and signed by the Company and Holders holding at least two-

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thirds of the then outstanding Registrable Securities, provided that any party may give a waiver as to itself. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, if any such amendment, modification or waiver would adversely affect in any material respect any Holder or group of Holders who have comparable rights under this Agreement disproportionately to the other Holders having such comparable rights, such amendment, modification, or waiver shall also require the written consent of the Holder(s) so adversely affected.

          (g) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement; provided that the Company may deliver to each Holder the documents required to be delivered to such Holder under Section 3(a) of this Agreement by e-mail to the e-mail addresses provided by such Holder to the Company solely for such specific purpose.

          (h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Company may not assign its rights (except by merger or in connection with another entity acquiring all or substantially all of the Company’s assets) or obligations hereunder without the prior written consent of all the Holders of the then outstanding Registrable Securities. Each Holder may assign its respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

          (i) Execution and Counterparts. This Agreement may be executed in two or more counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature were the original thereof.

          (j) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

          (k) Cumulative Remedies. Except as provided in Section 2(c) with respect to Liquidated Damages, the remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

17

          (l) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their good faith reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

          (m) Headings. The headings in this Agreement are for convenience only and shall not limit or otherwise affect the meaning hereof.

          (n) Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under this Agreement are several and not joint with the obligations of any other Purchaser hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. The decision of each Purchaser to purchase the Preferred Shares pursuant to the Transaction Documents has been made independently of any other Purchaser. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Preferred Shares or enforcing its rights under the Transaction Documents. Each Purchaser shall be entitled to protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. The Company acknowledges that each of the Purchasers has been provided with the same Registration Rights Agreement for the purpose of closing a transaction with multiple Purchasers and not because it was required or requested to do so by any Purchaser.

18

     IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

ORIENTAL FINANCIAL GROUP INC.
By:
	Name:
	Title:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGES OF HOLDERS TO FOLLOW]

          IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

NAME OF INVESTING ENTITY
AUTHORIZED SIGNATORY
By:
	Name:
	Title:
ADDRESS FOR NOTICE

c/o:  

Street:  

City/State/Zip:

Attention:

Tel:  

Fax:  

Email:  

Annex A

PLAN OF DISTRIBUTION

     We are registering the Securities issued to the selling stockholder to permit the resale of these Securities by the holders of the Securities from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the Securities. We will bear all fees and expenses incident to our obligation to register the Securities.

     The selling stockholders may sell all or a portion of the Securities beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the Securities are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The Securities may be sold on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, in the over-the-counter market or in transactions otherwise than on these exchanges or systems or in the over-the-counter market and in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions. The selling stockholders may use any one or more of the following methods when selling Securities:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

• broker-dealers may agree with the selling stockholders to sell a specified number of such securities at a stipulated price per share;

• through the writing or settlement of options or other hedging transactions, whether such options are listed on an options exchange or otherwise;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

     The selling stockholders also may resell all or a portion of the Securities in open market transactions in reliance upon Rule 144 under the Securities Act, as permitted by that rule, or Section 4(1) under the Securities Act, if available, rather than under this prospectus, provided that they meet the criteria and conform to the requirements of those provisions.

     Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. If the selling stockholders effect such transactions by selling Securities to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the Securities for whom they may act as agent or to whom they may sell as principal. Such commissions will be in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction will not be in excess of a customary brokerage commission in compliance with NASD Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASD IM-2440.

     In connection with sales of the Securities or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Securities in the course of hedging in positions they assume. The selling stockholders may also sell Securities short and if such short sale shall take place after the date that this Registration Statement is declared effective by the Commission, the selling stockholders may deliver Securities covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge Securities to broker-dealers that in turn may sell such shares, to the extent permitted by applicable law. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). Notwithstanding the foregoing, the selling stockholders have been advised that they may not use shares registered on this registration statement to cover short sales of our Securities made prior to the date the registration statement, of which this prospectus forms a part, has been declared effective by the SEC.

     The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the Securities owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the Securities from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the Securities in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

     The selling stockholders and any broker-dealer or agents participating in the distribution of the Securities may be deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act in connection with such sales. In such event, any commissions paid, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Selling Stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the applicable prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

     Each selling stockholder has informed the Company that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Securities. Upon the Company being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of Securities through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the Securities were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In no event shall any broker-dealer receive fees, commissions and markups, which, in the aggregate, would exceed eight percent (8%).

     Under the securities laws of some states, the Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

     There can be no assurance that any selling stockholder will sell any or all of the Securities registered pursuant to the shelf registration statement, of which this prospectus forms a part.

     Each selling stockholder and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the Securities by the selling stockholder and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution of the Securities to engage in market-making activities with respect to the Securities. All of the foregoing may affect the marketability of the Securities and the ability of any person or entity to engage in market-making activities with respect to the Securities.

     We will pay all expenses of the registration of the Securities pursuant to the registration rights agreement, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, that each selling stockholder will pay all underwriting discounts and selling commissions, if any and any related legal expenses incurred by it. We will indemnify the selling stockholders against certain liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreement, or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling stockholders specifically for use in this prospectus, in accordance with the related registration rights agreements, or we may be entitled to contribution.

Annex B

ORIENTAL FINANCIAL GROUP INC.

SELLING STOCKHOLDER NOTICE AND QUESTIONNAIRE

     The undersigned holder of securities of Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Company”), issued pursuant to a certain Securities Purchase Agreement by and among the Company and the Purchasers named therein, dated as of April 23, 2010, understands that the Company intends to file with the Securities and Exchange Commission a registration statement on Form S-3 (the “Resale Registration Statement”) for the registration and the resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities in accordance with the terms of a certain Registration Rights Agreement by and among the Company and the Purchasers named therein, dated as of April 23, 2010 (the “Agreement”). All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Agreement.

     In order to sell or otherwise dispose of any Registrable Securities pursuant to the Resale Registration Statement, a holder of Registrable Securities generally will be required to be named as a selling stockholder in the related prospectus or a supplement thereto (as so supplemented, the “Prospectus”), deliver the Prospectus to purchasers of Registrable Securities (including pursuant to Rule 172 under the Securities Act) and be bound by the provisions of the Agreement (including certain indemnification provisions, as described below). Holders must complete and deliver this Notice and Questionnaire in order to be named as selling stockholders in the Prospectus. Holders of Registrable Securities who do not complete, execute and return this Notice and Questionnaire within ten (10) Trading Days following the date of the Agreement (1) will not be named as selling stockholders in the Resale Registration Statement or the Prospectus and (2) may not use the Prospectus for resales of Registrable Securities.

     Certain legal consequences arise from being named as a selling stockholder in the Resale Registration Statement and the Prospectus. Holders of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not named as a selling stockholder in the Resale Registration Statement and the Prospectus.

NOTICE

     The undersigned holder (the “Selling Stockholder”) of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities owned by it and listed below in Item (3), unless otherwise specified in Item (3), pursuant to the Resale Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands and agrees that it will be bound by the terms and conditions of this Notice and Questionnaire and the Agreement.

     The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete:

QUESTIONNAIRE

1. Name.

(a)	Full Legal Name of Selling Stockholder:
(b)	Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:
(c)	Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):

2. Address for Notices to Selling Stockholder:

Telephone: Fax: Contact Person: E-mail address of Contact Person:

3. Beneficial Ownership of Registrable Securities Issuable Pursuant to the Purchase Agreement:

(a)	Type and Number of Registrable Securities beneficially owned and issued pursuant to the Agreement:
(b)	Number of Securities to be registered pursuant to this Notice for resale:

4. Broker-Dealer Status:

(a)	Are you a broker-dealer?
	Yes o           No o
(b)	If “yes” to Section 4(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?
	Yes o           No o

Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(c)	Are you an affiliate of a broker-dealer?
	Yes o          No o
Note:	If yes, provide a narrative explanation below:
(c)	If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?
	Yes o      No o
Note:	If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Stockholder.

Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.

Type and amount of other securities beneficially owned:

             —

             —

6. Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

7. Plan of Distribution:

The undersigned has reviewed the form of Plan of Distribution attached as Annex A to the Registration Rights Agreement, and hereby confirms that, except as set forth below, the information contained therein regarding the undersigned and its plan of distribution is correct and complete.

State any exceptions here:

***********

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items (1) through (7) above and the inclusion of such information in the Resale Registration Statement and the Prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of any such Registration Statement and the Prospectus.

By signing below, the undersigned acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M in connection with any offering of Registrable Securities pursuant to the Resale Registration Statement. The undersigned also acknowledges that it understands that the answers to this Questionnaire are furnished for use in connection with Registration Statements filed pursuant to the Registration Rights Agreement and any amendments or supplements thereto filed with the Commission pursuant to the Securities Act.

I confirm that, to the best of my knowledge and belief, the foregoing statements (including without limitation the answers to this Questionnaire) are correct.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated:	Beneficial Owner:
	By:
		Name:
		Title:

EXHIBIT C-1

ACCREDITED INVESTOR QUESTIONNAIRE

(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)

To: Oriental Financial Group Inc.

This Investor Questionnaire (“Questionnaire”) must be completed by each potential investor in connection with the offer and sale of shares of mandatorily convertible non-cumulative non-voting perpetual preferred stock, $1,000 liquidation preference per share (the “Preferred Shares”), of Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Corporation”). The Preferred Shares are being offered and sold by the Corporation without registration under the Securities Act of 1933, as amended (the “Securities Act”), and the securities laws of certain states, in reliance on the exemptions contained in Section 4(2) of the Securities Act and on Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. The Corporation must determine that a potential investor meets certain suitability requirements before offering or selling Preferred Shares to such investor. The purpose of this Questionnaire is to assure the Corporation that each investor will meet the applicable suitability requirements. The information supplied by you will be used in determining whether you meet such criteria, and reliance upon the private offering exemptions from registration is based in part on the information herein supplied.

This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy any security. Your answers will be kept strictly confidential. However, by signing this Questionnaire, you will be authorizing the Corporation to provide a completed copy of this Questionnaire to such parties as the Corporation deems appropriate in order to ensure that the offer and sale of the Preferred Shares will not result in a violation of the Securities Act or the securities laws of any state and that you otherwise satisfy the suitability standards applicable to purchasers of the Preferred Shares. All potential investors must answer all applicable questions and complete, date and sign this Questionnaire. Please print or type your responses and attach additional sheets of paper if necessary to complete your answers to any item.

PART A. BACKGROUND INFORMATION

Name of Beneficial Owner of the Preferred Shares:

Business Address:

(Number and Street)

(City) (State) (Zip Code)

Telephone Number: (        )

If a corporation, partnership, limited liability company, trust or other entity:

Type of entity:

Were you formed for the purpose of investing in the securities being offered?

     Yes o                 No o          

If an individual:

Residence Address:

(Number and Street)

(City) (State) (Zip Code)

Telephone Number: (        )

Age: Citizenship: Where registered to vote:

Set forth in the space provided below the state(s), if any, in the United States in which you maintained your residence during the past two years and the dates during which you resided in each state:

Are you a director or executive officer of the Corporation?

     Yes o                No o          

Social Security or Taxpayer Identification No.

PART B. ACCREDITED INVESTOR QUESTIONNAIRE

     In order for the Company to offer and sell the Preferred Shares in conformance with state and federal securities laws, the following information must be obtained regarding your investor status. Please initial each category applicable to you as a Purchaser of Preferred Shares.

(1)	A bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity;
(2)	A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;
(3)	An insurance company as defined in Section 2(13) of the Securities Act;

(4)	An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that act;
(5)	A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958;
(6)	A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000;
(7)	An employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
(8)	A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(9)	An organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Preferred Shares, with total assets in excess of $5,000,000;
(10)	A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Preferred Shares, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of investing in the Company;
(11)	A natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;
(12)	A natural person who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person’s spouse in excess of $300,000, in each of those years, and has a reasonable expectation of reaching the same income level in the current year;
(13)	An executive officer or director of the Corporation;

     (14) An entity in which all of the equity owners qualify under any of the above subparagraphs. If the undersigned belongs to this investor category only, list the equity owners of the undersigned, and the investor category which each such equity owner satisfies.

A.	FOR EXECUTION BY AN INDIVIDUAL:
		By
	Date
		Print Name:

B.	FOR EXECUTION BY AN ENTITY:
		Entity Name:
			By
	Date
			Print Name:
			Title:

C.	ADDITIONAL SIGNATURES (if required by partnership, corporation or trust document):
		Entity Name:
			By
	Date
			Print Name:
			Title:

	Entity Name:
		By
Date
		Print Name:
		Title:

EXHIBIT C-2

Stock Certificate Questionnaire

Pursuant to Section 2.2(b) of the Agreement, please provide us with the following information:

1.	The exact name that the Preferred Shares are to be registered in (this is the name that will appear on the stock certificate(s) and warrant(s)). You may use a nominee name if appropriate:
2.	The relationship between the Purchaser of the Preferred Shares and the Registered Holder listed in response to Item 1 above:
3.	The mailing address, telephone and telecopy number of the Registered Holder listed in response to Item 1 above:
4.	The Tax Identification Number (or, if an individual, the Social Security Number) of the Registered Holder listed in response to Item 1 above:

EXHIBIT D

Form of Opinion of Company Puerto Rican Counsel*

1. The Company is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and a financial holding company under the Gramm-Leach-Bliley Act of 1999, as amended, and has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Puerto Rico.

2. The Company has the corporate power and authority to execute and deliver and to perform its obligations under the Transaction Documents, including, without limitation, to issue the Preferred Shares and, upon obtaining the Stockholder Approvals, the Underlying Shares.

3. Each of the Transaction Documents has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Purchasers (to the extent they are a party), each of the Transaction Documents constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

4. The execution and delivery by the Company of each of the Transaction Documents and the performance by the Company of its obligations under such agreements, including its issuance and sale of the Preferred Shares and, upon obtaining the Stockholder Approvals, the Underlying Shares, do not and will not: (a) result in any violation of the Certificate of Incorporation or Bylaws of the Company, (b) require any consent, approval, license or exemption by, order or authorization of, or filing, recording or registration by the Company with any Puerto Rican governmental authority, except for the filing of the Certificate of Designations with the Puerto Rico Department of State, (c) violate any court order, judgment or decree, if any, or (d) result in a breach of, or constitute a default under, any Material Contract.

5. The Preferred Shares being delivered to the Purchasers pursuant to the Securities Purchase Agreement have been duly and validly authorized and, when issued, delivered and paid for as contemplated in the Securities Purchase Agreement, will be duly and validly issued, fully paid and non-assessable, and free of any preemptive right or similar rights contained in the Company’s Certificate of Incorporation or Bylaws. The Underlying Shares, when issued in accordance with the Certificate of Designations, will be duly and validly issued, fully paid and non-assessable, and free of any preemptive right or similar rights contained in the Company’s Certificate of Incorporation or Bylaws.

* The opinion letter of Company Counsel will be subject to customary limitations and carveouts.

EXHIBIT E

Form of Opinion of Company U.S. Counsel*

1. Each of the Transaction Documents has been duly executed and delivered to the extent such execution and delivery are governed by the laws of the State of New York by the Company, and assuming due authorization, execution and delivery by the Purchasers, each of the Transaction Documents constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

2. The execution and delivery by the Company of each of the Transaction Documents and the consummation by the Company of the transaction contemplated thereby, including the issuance and sale of the Preferred Shares and the Underlying Shares, will not (i) constitute a violation of, or breach or default under, the terms of any Applicable Contract or (ii) violate or conflict with, or result in any contravention of, any Applicable Law or Applicable Orders. We do not express any opinion, however, as to whether the execution, delivery or performance by the Company of the Transaction Documents will constitute a violation of, or default under, any covenant, restriction or provision with respect to financial ratios or tests or any aspect of the financial condition or results of operations of the Company or any of its subsidiaries.

3. No Governmental Approval, which has not been obtained or taken and is not in full force and effect, is required to authorize, or is required for, the execution or delivery of the Transaction Documents by the Company or the consummation by the Company of the transactions contemplated thereby.

4. Assuming (i) the accuracy of the representations and warranties of the Company set forth in Section 3.1 of the Securities Purchase Agreement and of you in Section 3.2 of the Securities Purchase Agreement, and (ii) the accuracy of the representations and warranties made in the Accredited Investor Questionnaire, the offer, sale and delivery of the Preferred Shares to you in the manner contemplated by the Securities Purchase Agreement, do not require registration under the Securities Act, and the Underlying Shares issuable to the holders of the Preferred Shares in accordance with the Certificate of Designations may be delivered to such holders without registration under the Securities Act provided that no commission or other remuneration is paid or given directly or indirectly for soliciting such conversion.

* The opinion letter of Company Counsel will be subject to customary limitations and carveouts.

EXHIBIT F

Form of Secretary’s Certificate

The undersigned hereby certifies that he is the duly elected, qualified and acting Secretary of Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Company”), and that as such he is authorized to execute and deliver this certificate in the name and on behalf of the Company and in connection with the Securities Purchase Agreement, dated as of April 23, 2010, by and among the Company and the investors party thereto (the “Securities Purchase Agreement”), and further certifies in his official capacity, in the name and on behalf of the Company, the items set forth below. Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Securities Purchase Agreement.

1. Attached hereto as Exhibit A is a true, correct and complete copy of the resolutions duly adopted by the Board of Directors of the Company at a meeting held on [_______], 2010. Such resolutions have not in any way been amended, modified, revoked or rescinded, have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect.

2. The Company’s Certificate of Incorporation, as amended, were filed as an Exhibit to the Form S-3 on April 2, 1999; its Bylaws were filed as an exhibit to the 8-K filed with the SEC on June 23, 2008. Such Certificate of Incorporation, as amended, and Bylaws, constitute true, correct and complete copies of the Certificate of Incorporation, as amended, and Bylaws as in effect on the date hereof.

3. Each person listed below has been duly elected or appointed to the position(s) indicated opposite his name and is duly authorized to sign the Securities Purchase Agreement and each of the Transaction Documents on behalf of the Company, and the signature appearing opposite such person’s name below is such person’s genuine signature.

Name Position Signature

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day of [____], 2010.

                                                            
[_____________]
Secretary

I, [_____________], [Chief Financial Officer], hereby certify that [_____________] is the duly elected, qualified and acting Secretary of the Company and that the signature set forth above is his true signature.

                                                            
[______________]
[Chief Financial Officer]

EXHIBIT A

Resolutions

ORIENTAL FINANCIAL GROUP INC.

Authorization of Preferred Stock Private Placement and
Creation of Preferred Stock Pricing Committee

     WHEREAS, Oriental Financial Group Inc. (hereinafter referred to as the “Corporation”) wants to authorize the issuance and private sale of up to $200,000,000 in aggregate initial offering price of one or more series of the Corporation’s preferred stock, $1.00 par value per share (hereinafter referred to as the “Preferred Stock”).

     NOW, THEREFORE, BE IT RESOLVED, that the Corporation is hereby authorized to issue and sell the Preferred Stock in one or more private transactions exempt from registration under applicable laws; provided, however, that the Preferred Stock shall have an aggregate initial offering price not exceeding the sum of Two Hundred Million United States Dollars (US$200,000,000) or, if applicable, the equivalent thereof in any other currency or currencies.

Authorized Officers; Registration Exemptions

     FURTHER RESOLVED, that José Rafael Fernández, President, Chief Executive Officer and Vice Chairman of the Board, Julio Micheo, Senior Executive Vice President, Treasurer and Chief Investment Officer, and Norberto González, Executive Vice President and Chief Financial Officer (hereinafter collectively referred to as the “Authorized Officers”), each acting singly be, and hereby are, authorized, empowered and directed, in the name and on behalf of the Corporation, to take any and all actions which they may deem necessary or desirable in order to effect the registration exemptions of the Preferred Stock for offering and sale under the United States federal securities laws, and the Blue Sky or securities laws of the Commonwealth of Puerto Rico and any of the States of the United States of America and, in connection therewith, to execute, acknowledge, verify, deliver, file or cause to be established, in any case on behalf of the Corporation, any applications, reports, consents to service of process, appointments of attorneys to receive service of process, and other papers, documents and instruments as may be required under such laws and to take any and all further action as they deem necessary or advisable in order to maintain any such registration exemption for as long as they deem necessary or advisable or as may be required by law.

Transfer Agent

     FURTHER RESOLVED, that American Stock Transfer and Trust Company, be and hereby is appointed as Transfer Agent and Registrar of the Preferred Stock and said Transfer Agent and Registrar shall be vested with all powers and duties with respect to the Preferred Stock as are presently vested or charged in its capacities as Transfer Agent and Registrar with respect to the currently outstanding shares of common stock and serial preferred stock of the Corporation.

Net Proceeds

     FURTHER RESOLVED, that the net proceeds from the sale of the Preferred Stock be used for the purpose of acquiring certain assets and liabilities of a failed bank from the Federal Deposit Insurance Corporation and related transaction fees and expenses.

Indemnification

     FURTHER RESOLVED, that to the extent permitted by applicable law and not prohibited by the Corporation’s Certificate of Incorporation, as amended, the Corporation (i) shall indemnify and hold harmless each and every past and present director and officer of the Corporation, and each attorney-in-fact of such director or officer, against any and all losses, claims, damages or liabilities to which such person may become subject under the Securities Act of 1933, as amended (hereinafter referred to as the “Securities Act”), the Securities Exchange Act of 1934, as amended, any insurance, Blue Sky or securities laws of the Commonwealth of Puerto Rico or of any State of the United States of America or any comparable or similar laws of any other jurisdiction, or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise in connection with the offering and sale of the Preferred Stock as contemplated herein or in connection with any filing under such laws, or any amendments thereto; and (ii) shall reimburse each such person for any legal or other expenses reasonably incurred by him or her in connection with investigating or defending any such action or claim.

Form and Execution of Preferred Stock

     FURTHER RESOLVED, that the Authorized Officers be, and each of them acting singly hereby is, authorized, empowered and directed, in the name and on behalf of the Corporation, to execute, seal (or cause the Treasurer or Secretary, or any Assistant Treasurer or Assistant Secretary, of the Corporation to seal) with the seal of the Corporation (or facsimile thereof), and deliver, or cause to be delivered, any certificates representing the shares of Preferred Stock as authorized herein in such form as may be approved by any of the Authorized Officers, which approval shall be conclusively evidenced by the execution by any such Authorized Officer of an Officer’s Certificate with such form or forms of Preferred Stock set forth therein or annexed thereto; and that the signatures of any of the foregoing officers on the shares of Preferred Stock may be manual or facsimile.

Restrictive Legends

     FURTHER RESOLVED, that any such certificates representing the shares of Preferred Stock as authorized herein shall contain any and all required legends evidencing that the Preferred Stock has not been registered under the Securities Act and the Blue Sky or securities laws of the Commonwealth of Puerto Rico or of any State of the United States of America, or any comparable or similar laws of any other jurisdiction, and setting forth or referring to the restrictions on transferability and sale of the Preferred Stock.

General Enabling

     FURTHER RESOLVED, that the Authorized Officers be, and each of them acting singly hereby is, authorized, empowered and directed, in the name and on behalf of the Corporation to take, or cause to be taken, any and all action which each such officer may deem necessary or desirable in order to carry out the purpose and intent of the foregoing resolutions or in order to perform, or cause to be performed, the obligations of the Corporation under any agreement referred to herein, and, in connection therewith, to make, execute and deliver, or cause to be made, executed and delivered, all agreements, undertakings, documents, certificates, orders, requests or instruments in the name and on behalf of the Corporation as each such officer may deem necessary or desirable and any such action which they may have taken is hereby authorized and ratified.

Preferred Stock Pricing Committee

     FURTHER RESOLVED, that the Preferred Stock Pricing Committee be and hereby is authorized and empowered, in the name and on behalf of the Corporation, to determine the number of shares to be offered and sold hereunder, the offering price or prices thereof, the fees to be paid to any placement agent or agents, and the designations, preferences, rights, qualifications, limitations, restrictions and other terms of the Preferred Stock in accordance herewith.

     FURTHER RESOLVED, that for the sale of the Preferred Stock, the Preferred Stock Pricing Committee be and hereby is authorized, empowered and directed, in the name and on behalf of the Corporation, to approve and cause to be executed one or more private placement agreements, registration rights agreements, and any other agreement or agreements that the Preferred Stock Pricing Committee may deem necessary or appropriate in connection with the arrangements for the sale and purchase of the Preferred Stock, and that the Authorized Officers be, and each of them acting singly hereby is, authorized to execute and deliver in the name and on behalf of the Corporation any such agreement or agreements in substantially the form approved by the Preferred Stock Pricing Committee with such changes therein, additions thereto, and deletions therefrom as the Authorized Officer executing the same may approve, as conclusively evidenced by the execution and delivery thereof.

     FURTHER RESOLVED, that José Rafael Fernández, Vice Chairman of the Board, be and hereby is appointed as the sole member of the Preferred Stock Pricing Committee, and shall be authorized to exercise such corporate power and authority with respect to the issuance of the Preferred Stock as was delegated to the Preferred Stock Pricing Committee in the foregoing resolutions.

     FURTHER RESOLVED, that José J. Gil Lamadrid, Chairman of the Board, be and hereby is appointed as the alternate member of the Preferred Stock Pricing Committee, who may act in place of Mr. Fernández but only if Mr. Fernández is absent or otherwise not able to discharge the powers delegated to the Preferred Stock Pricing Committee with respect to the issuance of the Preferred Stock.

     IN WITNESS WHEREOF, the members of the Board of Directors of the Corporation hereby approve, execute and deliver this Resolution by unanimous consent in lieu of meeting as of April 21, 2010.

SIGNATURE	TITLE
/s/ José J. Gil de Lamadrid José J. Gil de Lamadrid	Chairman
/s/ José Rafael Fernández José Rafael Fernández	President, Chief Executive Officer and Vice Chairman
/s/ Juan Carlos Aguayo Juan Carlos Aguayo	Director
/s/ Pablo I. Altieri Pablo I. Altieri	Director
/s/ Maricarmen Aponte Maricarmen Aponte	Director
/s/ Francisco Arriví Francisco Arriví	Director
/s/ Nelson García Nelson García	Director
/s/ Julian S. Inclán Julian S. Inclán	Director
/s/ Rafael Machargo-Chardón Rafael Machargo-Chardón	Director

SIGNATURE	TITLE
/s/ Pedro Morazzani Pedro Morazzani	Director
/s/ Josen Rossi Josen Rossi	Director

EXHIBIT B

Certificate of Incorporation

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ORIENTAL FINANCIAL GROUP INC

     FIRST: The name of the corporation (hereinafter called the Corporation) is “Oriental Financial Group Inc.”

     SECOND: The principal office of the Corporation in the Commonwealth of Puerto Rico is located at Hato Rey Tower, 268 Muñoz Rivera Avenue, Suite 501, Hato Rey, Puerto Rico in the Municipality of San Juan, Puerto Rico. The name of the resident agent of the Corporation is CT Corporation System and its address is 361 San Francisco Street, 4th Floor, San Juan, Puerto Rico 00901.

     THIRD: The purpose of the Corporation is to engage, for profit, in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the Commonwealth of Puerto Rico.

     FOURTH: The authorized capital of the Corporation shall be FORTY FIVE MILLION DOLLARS ($45,000,000) represented by FORTY MILLION (40,000,000) shares of common stock, $1.00 par value per share, and FIVE MILLION (5,000,000) shares of preferred stock, $1.00 par value per share. The shares may be issued by the Corporation from time to time as authorized by the Board of Directors without the further approval of shareholders, except to the extent that such approval is required by governing law, rule or regulation.

     The Board of Directors is expressly authorized to provide, when it deems necessary, for the issuance of shares of preferred stock in one or more series, with such voting powers, full or limited, but not to exceed one vote per share, or without voting powers; and with such designations, preferences, rights, qualifications, limitations or restrictions thereof, as shall be expressed in the resolution or resolutions of the Board of Directors, authorizing such issuance, including (but without limiting the generality of the foregoing) the following:

     (a) the designation of such series, the number of shares to constitute such series and the stated value thereof if different from the par value thereof;

     (b) the dividend rate of such series, the conditions and dates upon which the dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes of capital stock of the Corporation, and whether such dividends shall be cumulative or non-cumulative;

     (c) whether the shares of such series shall be subject to redemption by Corporation, and if made subject to such redemption, the terms and conditions of such redemption;

     (d) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series;

     (e) whether the shares of such series shall be convertible and if provision be made for conversion, the terms of such conversion;

     (f) the extent, if any, to which the holders of such shares shall be entitled to vote; provided, however, that in no event, shall any holder of any series of preferred stock be entitled to more than one vote for each such share;

     (g) the restrictions and conditions, if any, upon the issue or re-issue of any additional preferred stock ranking on a parity with or prior to such shares as to dividends or upon dissolution;

     (h) the rights of the holders of such shares upon dissolution of, or upon distribution of assets of the Corporation, which rights may be different in the case of a voluntary dissolution; and

     (i) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof.

     The powers, preferences and relative, participating, optional and other special rights, of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of preferred stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall accrue and/or be cumulative.

     FIFTH: No holder of the capital stock of the Corporation shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever of the Corporation, or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized, or whether issued for cash or other consideration or by way of a dividend.

     SIXTH: The name, place of residence and postal address of the sole incorporator are as follows:

Name	Place of Residence and Postal Address
Pedro Maldonado		Carretera 971
		Kilómetro 12.2
		Barrio Sonadora
		Naguabo, Puerto Rico
		P.O. Box 364225
		San Juan, Puerto Rico 00936-4225

     SEVENTH: The Corporation is to have perpetual existence.

     EIGHTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further creation, definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders, it is further provided:

     1. Directors and Number of Directors. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. The number of directors of the Corporation shall be fixed by, or in the manner provided in, the by-laws. The directors of the Corporation need not be stockholders.

     2. Classification and Term. The Board of Directors, other than those who may be elected by the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, shall be divided into three classes as nearly equal in number as possible, with one class to be elected annually. The term of office of the initial directors shall be as follows: the term of directors of the first class shall expire at the first annual meeting of stockholders after the effective date of this Certificate of Incorporation; the term of office of the directors of the second class shall expire at the second annual meeting of stockholders after the effective date of this Certificate of Incorporation; and the term of office of the third class shall expire at the third annual meeting of stockholders after the effective date of this Certificate of Incorporation; and, as to directors of each class, when their respective successors are elected and qualified. At each annual meeting of stockholders, directors elected to succeed those whose terms are expiring shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders and when their respective successors are elected and qualified.

     3. Cumulative Voting. At each annual meeting of stockholders in which more than one director is being elected, every stockholder entitled to vote at such election shall have 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 cumulate 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 shall equal, or by distributing such votes on the same principle among any number of candidates.

     4. Vacancies. Except as otherwise fixed pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors, any vacancy occurring in the Board of Directors, including any vacancy created by reason of an increase in the number of directors, may be filled by a majority vote of the directors then in office, whether or not a quorum is present, or by a sole remaining director, and any director so chosen shall hold office for the remainder of the term to which the director has been selected and until such director’s successor shall have been elected and qualified. When the number of directors is changed, the Board of Directors shall determine the class or classes to which the increased or decreased number of directors shall be apportioned; provided that no decrease in the number of directors shall shorten the term of any incumbent director.

     5. Removal. Subject to the rights of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect directors, any director (including persons elected by directors to fill vacancies in the Board of Directors) may be removed from office only with cause by an affirmative vote of not less than a majority of the votes eligible to be cast by stockholders at a duly constituted meeting of stockholders called expressly for such purpose.

     6. By-Laws. The Board of Directors is expressly authorized and empowered to make, alter and repeal the by-laws of the Corporation, subject to the power of the stockholders to alter or repeal the by-laws made by the Board of Directors. Such action by the Board of Directors shall require the affirmative vote of a majority of the directors then in office at any regular or special meeting of the Board of Directors. Such action by the stockholders shall require the affirmative vote of the holders of a majority of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the preferred stock as may be required by the provisions of any series thereof.

     NINTH: The personal liability of the directors and officers of the Corporation for monetary damages shall be eliminated to the fullest extent permitted by the General Corporation Law of the Commonwealth of Puerto Rico as it exists on the effective date of this Certificate of Incorporation or as such law may be thereafter in effect. No amendment, modification or repeal of this Article NINTH shall adversely affect the rights provided hereby with respect to any claim, issue or matter in any proceeding that is based in any respect on any alleged action or failure to act prior to such amendment, modification or repeal.

     TENTH: The affirmative vote of the holders of not less than seventy-five percent (75%) of the total number of outstanding shares of the Corporation shall be required to amend this Article TENTH to the extent that such amendment is not approved by eighty percent (80%) of the Corporation’s Board of Directors then in office; to approve any Business Combination for which stockholder approval is required by applicable law to the extent that such Business Combination is not approved by eighty percent (80%) of the Corporation’s Board of Directors then in office; or to approve the voluntary dissolution of the Corporation to the extent that such dissolution is not approved by eighty percent (80%) of the Corporation’s Board of Directors then in office, notwithstanding that applicable law would otherwise permit any of the above with the approval of fewer shares or without the approval of any shares.

     For purposes of this Article TENTH, the term “Business Combination” shall mean:

     (a) a merger, reorganization, or consolidation in which the Corporation is a constituent corporation; or

     (b) the sale, lease, or hypothecation of substantially all the assets of the Corporation.

EXHIBIT C

Bylaws

BY-LAWS OF
ORIENTAL FINANCIAL GROUP INC.

ARTICLE I.

STOCKHOLDERS

     SECTION 1. Place of Meetings. All annual and special meetings of stockholders shall be held at the principal office of the Corporation or at such other place as the Board of Directors may determine.

     SECTION 2. Annual Meeting. A meeting of the stockholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually after the end of the Corporation’s fiscal year at such date and time as the Board of Directors may determine in accordance with applicable laws and regulations.

     SECTION 3. Special Meeting. Special meetings of stockholders, for any purpose(s), may be called at any time by the Chairman, the Vice Chairman, the President or by the Board of Directors, and shall be called by the Chairman or the Vice Chairman of the Board, the President or the Secretary upon the written request of the holders of not less than twenty percent (20%) of the paid-in capital of the Corporation entitled to vote at the meeting. The written request specified above shall state the purpose(s) of the meeting and shall be delivered at the principal office of the Corporation addressed to the Chairman or the Vice Chairman of the Board, the President or the Secretary.

     SECTION 4. Conduct of Meetings. The Board of Directors shall designate, when present, the Chairman of the Board or, if he or she is not present, the Vice Chairman of the Board, to preside at any and all stockholders’ meetings.

     SECTION 5. Notice of Meetings. Notice of all meetings of stockholders shall be mailed to each stockholder of the Corporation at least ten (10) days, but not more than sixty (60) days, prior to the date for each such meeting.

     SECTION 6. Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors shall fix in advance a date as the record date for any such determination of stockholders. Such date in any case shall be not more than sixty (60) days nor less than ten (10) days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. When a determination of

stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section 6, such determination shall apply to any adjournment thereof.

     SECTION 7. Voting Lists. At least ten (10) days before each meeting of the stockholders, the officer or agent having charge of the stock transfer books for shares of the Corporation shall make a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. This list of stockholders shall be kept on file at the principal office of the Corporation and shall be subject to inspection by any stockholder at any time during normal business hours for a period of ten (10) days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders.

     SECTION 8. Quorum; Manner of Acting. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice; provided that the date of the adjourned meeting shall not be more than thirty (30) days after the date for which the first meeting was called. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

     Except as otherwise provided in the Corporation’s Certificate of Incorporation or under applicable law, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors (which number shall take into account the cumulation as votes as provided in the Corporation s Certificate of Incorporation and Article I, Section 11 of these By-laws). If, at any meeting of the stockholders, due to a vacancy or vacancies or otherwise, directors of more than one class of the Board of Directors are to be elected, each class of directors to be elected at the meeting shall be elected in a separate election by a plurality vote.

     SECTION 9. Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his or her duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the Board of Directors. Proxies must be filed with the Secretary of the Corporation.

     SECTION 10. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such

corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

          A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

     SECTION 11. Cumulative Voting. At each annual meeting of stockholders in which more than one director is being elected, every stockholder entitled to vote at such election shall have 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 cumulate the votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of his or her shares shall equal, or by distributing such votes on the same principle among any number of candidates.

     SECTION 12. Inspector of Election. In advance of any meeting of stockholders, the Chairman of the Board of Directors may appoint any person(s) other than nominees for office as inspectors of election to act at such meeting or any adjournment thereof. Any such appointment shall not be altered at the meeting. If the inspector(s) of election is (are) not so appointed, the Chairman of the Board or, if he or she is not present at the meeting, the Vice Chairman of the Board, may, and at the request of not fewer than ten percent (10%) of the votes represented at the meeting shall, make such appointment at the meeting. In case any person(s) appointed as inspector(s) fail(s) to appear or fail(s) or refuse(s) to act, the vacancy may be filled by appointment by the Chairman of the Board in advance of the meeting or at the meeting, or, if he or she is not present at the meeting, by the Vice Chairman of the Board.

          The duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders.

     SECTION 13. Nominations for Directors. The Corporate Governance and Nominating Committee (the “Nominating Committee”) of the Board of Directors shall recommend to the Board of Directors the selection of management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the Board of Directors, upon the recommendation of the Nominating Committee, shall deliver written nominations to the Secretary of the Corporation at least twenty (20) days prior to the date of the annual meeting. No nominations for directors, except those made by the Board of

Directors upon the recommendation of the Nominating Committee, shall be voted upon at the annual meeting unless other nominations by stockholders are made in writing, together with the nominee’s qualifications for service and evidence of his or her willingness to serve on the Board of Directors, and delivered to the Secretary of the Corporation at least one hundred and twenty (120) days prior to the anniversary date of the mailing of proxy materials by the Corporation in connection with the immediately preceding annual meeting. Ballots bearing the names of all the persons nominated by the Board of Directors and by stockholders shall be provided for use at the annual meeting. However, if the Board of Directors or the Nominating Committee shall fail or refuse to act at least twenty (20) days prior to the annual meeting, nominations for directors may be made at the annual meeting by any stockholder entitled to vote and shall be voted upon.

     SECTION 14. Proposals. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, or (b) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not later than one hundred twenty days (120) prior to the anniversary date of the mailing of proxy materials by the Corporation in connection with the immediately preceding annual meeting of stockholders of the Corporation. A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article I, Section 14, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. This provision is not a limitation on any other applicable laws and regulations.

ARTICLE II.

BOARD OF DIRECTORS

     SECTION 1. General Powers. The business and affairs of the Corporation shall be under the direction of the Board of Directors which shall annually elect a Chairman and a Vice Chairman from among its members and shall designate, when present, the Chairman or, if he or she is not present, the Vice Chairman to preside at its meetings. The Chairman of the Board shall have such other duties as set forth in these By-laws or as may from time to time be assigned by the Board of Directors. The Vice Chairman of the Board shall assist the Chairman of the Board in the performance of his or her duties and shall have such other duties as set forth in these By-laws or as may from time to time be assigned by the Board of Directors or the Chairman of the Board.

     SECTION 2. Classification and Term. The Board of Directors shall be divided into three classes as nearly equal in number as possible. The term of office of the initial directors shall be as follows: the term of directors of the first class shall expire at the first annual meeting of stockholders after the effective date of the Corporation’s Certificate of Incorporation; the term of office of the directors of the second class shall expire at the second annual meeting of stockholders after the effective date of the Corporation’s Certificate of Incorporation; and the term of office of the third class shall expire at the third annual meeting of stockholders after the effective date of the Corporation’s Certificate of Incorporation; and as to directors of each class, when their respective successors are elected and qualified. At each annual meeting of stockholders, directors elected to succeed those whose terms are expiring shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders and when their respective successors are elected and qualified. No director shall be elected, re-elected or nominated for election or re-election, as the case may be, after attaining the age of seventy-one (71). Also, the term of a director shall end upon attaining the age of seventy-one (71). In such case, the Board of Directors shall elect a replacement to serve the remainder of his or her term as director.

     SECTION 3. Number of Directors. 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.

     SECTION 4. Meetings. All meetings of the Board of Directors may be held in or outside Puerto Rico.

     SECTION 5. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman or the Vice Chairman of the Board, the President, or one-third of the members of the Board. Such meetings shall be held at such place as the person(s) calling the meeting shall designate.

     SECTION 6. Notice. Written notice of any special meeting shall be given to each director at least two (2) days previous thereto if delivered personally or by fax or electronic mail, or at least five (5) days previous thereto if delivered by postal mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the U.S. postal mail so addressed, with postage thereon prepaid if mailed or when delivered if sent by fax or electronic mail. Any director may waive notice of any meeting by a writing filed with the Secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

     SECTION 7. Quorum. A majority of the directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to

time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article II.

     SECTION 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a greater number is prescribed by applicable laws or regulations or by these By-laws.

     SECTION 9. Resignation. Any director may resign at any time by sending a written notice of such resignation to the principal office of the Corporation addressed to the Chairman or the Vice Chairman of the Board. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Chairman or the Vice Chairman of the Board.

     SECTION 10. Vacancies. All vacancies in the Board of Directors shall be filled in the manner provided in the Corporation’s Certificate of Incorporation.

     SECTION 11. Removal of Directors. Directors may be removed in the manner provided in the Corporation’s Certificate of Incorporation.

     SECTION 12. Action by Directors Without a Meeting. Any action required or which may be taken at a meeting of the directors, or of a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken or to be taken, shall be signed by all of the directors, or all of the members of the committee, as the case may be, and such consents are filed with the minutes of proceedings of the Board of Directors or committee, as the case may be. Such consent shall have the same effect as a unanimous vote.

     SECTION 13. Action by Directors by Communications Equipment. Any action required or which may be taken at a meeting of directors, or of a committee thereof, may be taken by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time.

     SECTION 14. Compensation. The Board of Directors may fix, from time to time, a reasonable fee to be paid to each director for his or her services in attending meetings of the Board of Directors or of any authorized committee. The Board of Directors may also provide that such compensation as it deems reasonable shall be paid to any or all of its members for services rendered to the Corporation other than attendance at meetings of the Board of Directors or its committees.

ARTICLE III.

EXECUTIVE AND OTHER COMMITTEES

     SECTION 1. Appointment. The Board of Directors, by resolution adopted by a majority of the full Board, may, from time to time appoint, any number of committees, composed of one (1) or more directors as the Board may determine.

     SECTION 2. Authority. These committees shall and may exercise those powers that the Board of Directors may so delegate and shall have the name or names that from time to time the Board of Directors may determine by resolution.

     SECTION 3. Minutes, Reports. Minutes shall be kept of all meetings of the committees. The minutes of each meeting, together with such reports in writing as may be required to fully explain any business or transactions, shall be submitted for information purposes to the Board of Directors at the next regular meeting of the Board of Directors. The Board of Directors shall record such action in the minutes of such meeting.

     SECTION 4. Appointment, Term of Office. Members of the committees shall be appointed by the Board for such term as the Board may determine, and all members of the committees shall serve at the pleasure of the Board.

     SECTION 5. Quorum. A majority of the members of any committee shall constitute a quorum. A majority of the votes cast shall decide every question or matter submitted to a committee.

ARTICLE IV.

OFFICERS

     SECTION 1. Positions. The officers of the Corporation shall be a President, one or more Vice Presidents, a Secretary, an Assistant Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may designate one or more Vice Presidents as Executive Vice President or Senior Vice President. The Board of Directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the Board of Directors may from time to time authorize or determine. In the absence of action by the Board of Directors, the officers shall have such powers and duties as generally pertain to their respective offices.

     SECTION 2. Election and Term of Office. The officers of the Corporation shall be elected annually at the first meeting of the Board of Directors held after the annual meeting of the stockholders.

          If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer’s death, resignation or removal in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contractual rights. The Board of Directors may authorize the Corporation to enter into an employment contract with any officer in accordance with regulations of the Board, but no such contract shall impair the right of the Board of Directors to remove any officer at any time in accordance with Section 3 of this Article IV.

     SECTION 3. Removal. Any officer may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed.

     SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

     SECTION 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the Board of Directors.

ARTICLE V.

CONTRACTS, LOANS, CHECKS AND DEPOSITS

     SECTION 1. Contracts. To the extent permitted by applicable laws and regulations, and except as otherwise prescribed by these By-laws with respect to certificates for shares, the Board of Directors may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Such authority may be general or confined to specific instances.

     SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.

     SECTION 3. Checks, Drafts. All checks, drafts or other orders for the payment of money, notes and other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by the Board of Directors.

     SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any one of its authorized depositories as the Board of Directors select.

ARTICLE VI.

STOCK AND STOCK CERTIFICATES

     SECTION 1. Transfer. Shares of stock shall be transferable on the books of the Corporation, and a transfer book shall be kept in which all transfer of stock shall be recorded. Every person becoming a stockholder by such transfer shall, in proportion to his or her shares, succeed to all rights and liabilities of the prior holder of such shares.

     SECTION 2. Stock Certificates. Certificates of stock shall bear the signature of the Chairman or the Vice Chairman of the Board, the President or any Vice President (which may be

engraved, printed or impressed), and shall be signed manually or by facsimile process by the Secretary or an Assistant Secretary, or any other officer appointed by the Board of Directors for that purpose, to be known as an Authorized Officer, and the seal of the Corporation shall be engraved thereon.

     SECTION 3. Owner of Record, Attachment, Pledge. Shares of stock are transferable by all means recognized by law, if there is no attachment levied against them under competent authority, but as long as the transfer is not signed and recorded in the transfer books the Corporation shall be entitled to consider as owner thereof the party who appears as such in said books.

     SECTION 4. Lost or Destroyed Stock Certificates. In the event any certificate of stock shall be lost or destroyed the Board may order a new certificate to be issued in its place upon receiving such proof of loss and such bond of indemnity therefore as may be satisfactory to the Board of Directors. New certificates may be issued without requiring any bond when in the judgment of the Board it is proper to do so.

     SECTION 5. Transfer Agent. The Board of Directors may designate any person, whether or not an officer of the Corporation, as stock transfer agent or registrar of the Corporation with respect to Stock Certificates or other securities issued by the Corporation.

ARTICLE VII.

INDEMNIFICATION, ETC., OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS

     SECTION 1. Indemnification.

          (a) The Corporation shall indemnify, to the fullest extent authorized by the General Corporation Law of the Commonwealth of Puerto Rico, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the written request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a matter he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, provided that the Corporation shall not be liable for any amounts which may be due to any person in connection with a settlement of any action, suit or proceeding effected without its prior written consent or any action, suit or proceeding initiated by any person seeking indemnification hereunder without its prior written consent. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act

in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

          (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the written request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expense which such court shall deem proper.

          (c) To the extent that a director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Article VII, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith.

          (d) Any indemnification under Section 1(a) or Section 1(b) of this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth therein. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders.

          (e) The Corporation shall not be liable for any amounts which may be due to any person in connection with a settlement of any action, suit or proceeding initiated by any person seeking indemnification under this Article VII without its prior written consent.

     SECTION 2. Advancement of Expenses. Reasonable expenses (including attorneys’ fees) incurred in defending a civil or criminal action, suit or proceeding described in Section 1 of this Article VII may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the Corporation as authorized in this Article VII.

     SECTION 3. Other Rights and Remedies. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

     SECTION 4. Insurance. By action of its Board of Directors, notwithstanding any interest of the directors in the action, the Corporation may purchase and maintain insurance, in such amounts as the Board of Directors deems appropriate, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the written request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power or would be required to indemnify him or her against such liability under the provisions of this Article VII or of the General Corporation Law of the Commonwealth of Puerto Rico, or of the laws of any other State or political dependency of the United States or foreign country as may be applicable.

     SECTION 5. Modification. The duties of the Corporation to indemnify and to advance expenses to a director, officer, employee or agent provided in this Article VII shall be in the nature of a contract between the Corporation and each such person, and no amendment or repeal of any provision of this Article VII shall alter, to the detriment of such person, the right of such person to the advance of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment or repeal.

ARTICLE VIII.

CORPORATE SEAL

     The corporate seal of the Corporation shall be in such form and bear such inscription as may be adopted by resolution of the Board of Directors, or by usage of the officers on behalf of the Corporation.

ARTICLE IX.

MISCELLANEOUS PROVISIONS

     SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be from January 1 to December 31 of each year.

     SECTION 2. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay dividends in cash or in shares of the capital stock of the Corporation, in the manner and upon the terms and conditions provided by applicable laws and regulations.

     SECTION 3. Conflict with New Laws. The provisions of these By-laws in conflict with any and all new statutes shall become revoked without affecting the validity of the remaining provisions hereof.

     SECTION 4. Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes and proceedings of its stockholders and Board of Directors (including committees thereof). Any books, records and minutes may be in written form or any other form capable of being converted to written form within a reasonable time.

EXHIBIT G

Form of Officer’s Certificate

The undersigned, the [Chief Financial Officer] [Chief Executive Officer] of Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Company”), pursuant to Section 5.1(g) of the Securities Purchase Agreement, dated as of April 23, 2010 by and among the Company and the investors signatory thereto (the “Securities Purchase Agreement”), hereby represents, warrants and certifies as follows (capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Securities Purchase Agreement):

1. The representations and warranties of the Company contained in the Securities Purchase Agreement are true and correct as of the date when made and as of the Closing Date, as though made on and as of such date, except for such representations and warranties that speak as of a specific date.

2. The Company has performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing.

          IN WITNESS WHEREOF, the undersigned has executed this certificate this ___ day of [_______], 2010.

[__________] 

[Chief Financial Officer] [Chief Executive Officer] 

EXHIBIT H

Subsidiaries

Oriental Bank and Trust

Oriental International Bank Inc.

Oriental Mortgage Corporation

Oriental Financial Services Corp.

Oriental Insurance, Inc.

Caribbean Pension Consultants, Inc.

Oriental Financial (PR) Statutory Trust II

EXHIBIT I

Form of Escrow Agreement

ESCROW AGREEMENT

by and among

ORIENTAL FINANCIAL GROUP INC.

and

AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC

Dated as of

April 23, 2010

ESCROW AGREEMENT

     This ESCROW AGREEMENT, dated as of this 23rd day of April 2010 (this “Agreement”), is by and between Oriental Financial Group Inc., a financial holding company and corporation organized in the Commonwealth of Puerto Rico (the “Company”), and American Stock Transfer & Trust Company, LLC, a New York banking association organized under the laws of the State of New York, as escrow agent (the “Agent”).

W I T N E S S E T H:

     WHEREAS, the Company is conducting a private placement (the “Private Placement”) of its mandatorily convertible non-cumulative non-voting perpetual preferred stock, Series C, $1,000 liquidation preference per share (the “Preferred Shares”), to certain investors (individually and not including any Excluded Purchasers (as defined below), an “Investor,” and collectively and not including any Excluded Purchasers, the “Investors”) pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506 of Regulation D, as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the 1933 Act;

     WHEREAS, the Company proposes to engage the Agent for the purpose of receiving, depositing and holding in a segregated interest-bearing account all funds (the “Proceeds”) received from the Investors in connection with the sale of the Preferred Shares by the Company until such time as such funds are to be released to the Company or returned to the Investors in accordance with the terms of this Agreement; and

     WHEREAS, the Agent has agreed to serve as the escrow agent in connection with the proposed purchase and sale of the Preferred Shares.

     NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be legally bound, the parties hereby agree as follows:

     Appointment of Agent.

     1. The Company hereby appoints the Agent as the escrow agent in accordance with the terms and conditions set forth herein, and the Agent hereby accepts such appointment.

     Establishment of Escrow Account; Deposits.

          (a) The Agent shall promptly cause to be opened a fully segregated interest-bearing escrow account, which escrow account shall be entitled Oriental Financial Group Inc. Escrow Account (the “Escrow Account”), for the purpose of holding in trust all Proceeds from Investors in the Private Placement. The Proceeds will be segregated, and account balances kept, on an individual Investor basis. In accordance with, and subject to the terms and conditions of the Securities Purchase Agreement entered into by and between the Company and each Investor (the “Securities Purchase Agreement”), each Investor shall remit the amount to be deposited by such Investor to the Escrow Account, as provided in the applicable signature page of such

Investor to the Securities Purchase Agreement (each, a “Signature Page” and collectively, the “Signature Pages”), in the form of wire transfers to the Agent. All such wire transfers forwarded to the Agent shall be accompanied by a copy of such Investor’s Signature Page, which will contain written information identifying such Investor, the Investor’s full legal name, social security or tax identification number, and current street address and will also include wire transfer instructions pursuant to which the Agent may return escrowed funds, if applicable. All Signature Pages shall be mailed by the Company directly to the Agent, or transmitted by facsimile at (718) 765-8758, Attention: Alan Finn. Wire transfers to the Escrow Account shall be made in federal funds transferred as follows:

JP Morgan Chase
2. New York, NY
3. Account Name: American Stock Transfer & Trust Company, LLC
4. For further credit to Oriental Financial Group Inc. Escrow Account
ABA: 021000021
A/C: 323-890121

     5. All Proceeds received by the Agent are subject to clearance time, and the funds represented thereby cannot be drawn until such time as the same constitutes good and collected funds. The Agent will provide an executed receipt, in substantially the form attached hereto as Exhibit A, upon the request of any Investor. If requested by an Investor, the Agent will deliver such receipt on the same day the Proceeds are received by the Agent from such Investor.

          (a) All Proceeds received by the Agent pursuant to the terms of this Agreement shall be invested by the Agent in the Evergreen Institutional Treasury Money Market Fund # 397, unless otherwise directed in writing by the Company; provided, however, that the Proceeds attributable to any Investor shall not be invested other than in money market mutual funds investing in treasuries or government-backed securities unless the Company presents to the Agent such Investor’s consent in writing to such alternative investment.

     Procedure for Disbursement from the Escrow Account.

          (b) The Proceeds held in the Escrow Account, plus all earnings, interest and income thereon (the “Escrow Earnings”), shall be subject to, and distributed in accordance with, the provisions below. Until such time as the Proceeds and Escrow Earnings are distributed to the Company in accordance with Section 3.3 below, the Company shall not be entitled to, nor shall the Company have any rights, interest or claims to, any of the Proceeds or Escrow Earnings held in the Escrow Account.

          (c) The Company may accept the Proceeds attributable to the Investors in a closing (with respect to such Investor, the “Closing”) in accordance with Section 3.3 and the Securities Purchase Agreement. The time of the Closing shall be 10:00 a.m., Eastern Time (or such later time agreed to by the Company and such Investor), on the date determined in accordance with Section 2.1(c)(i) of the Securities Purchase Agreement (the “Closing Date”).

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          (d) On the Closing Date, the Company shall provide written instructions to the Agent, with, upon the request of an Investor, a copy to such Investor: (i) confirming that the conditions to the Closing set forth in the Securities Purchase Agreement have been satisfied or waived; and (ii) instructing the Agent to remit to the Company in immediately available funds the Proceeds related to the Closing (as determined in accordance with the Securities Purchase Agreement), after the payment of fees and expenses due and payable to certain third parties as designated and approved by the Company, including the Agent’s compensation as set forth in Exhibit B hereto. Upon receipt of such written instruction from the Company, the Agent shall remit to the Company in immediately available funds such Proceeds and Escrow Earnings related to the Closing, after the payment of the fees and expenses due and payable to the third parties referenced in the preceding sentence; such written instructions from the Company shall include wire instructions for, and the amount of the fees and expenses payable to, such third parties. The Agent will make the deliveries on the Closing Date. The Agent will notify the Company and Keefe, Bruyette & Woods, Inc., the Company’s placement agent (the “Placement Agent”), in writing, of any problems with such delivery.

          (e) Upon the receipt by the Company of the written demand of any Investor, pursuant to Section 6.17(a) of the Securities Purchase Agreement, that the Company return all or any portion of such Investor’s Proceeds and the Escrow Earnings thereon, the Company shall, if required pursuant to Section 6.17(b) of the Securities Purchase Agreement, instruct in writing (with, upon the written request of an Investor, a copy to such Investor) the Agent to return by wire transfer to such Investor such Proceeds and Escrow Earnings. The instructions provided by the Company to the Agent pursuant to the preceding sentence shall state the amount of Escrow Earnings to be received by the Investor, as calculated by the Company. The Agent shall notify the Company and the Placement Agent in writing of the distribution of such funds to such Investor. Provided that the information has been provided to the Agent pursuant to Section 3.9 hereto, the Agent shall return to such Investor the Proceeds and the Escrow Earnings thereon as set forth in the Company’s instructions no later than the second business day after receipt of such instructions. No Investor shall demand the return of any Proceeds unless entitled to a return of such Proceeds pursuant to the terms of the Securities Purchase Agreement.

          (f) As soon as practicable after the date upon which the Company gives notice to the Agent that the Securities Purchase Agreement has been terminated (the “Termination Date”), the Agent shall return by wire transfer to each Investor the amount of the Proceeds that were received by the Agent from such Investor, plus all Escrow Earnings thereon. The Agent shall notify the Company and the Placement Agent in writing of the distribution of such funds to the Investors. Provided that the information has been provided to the Agent pursuant to Section 3.9 hereto, the Agent shall return the Proceeds to the Investor no later than the second business day after the Termination Date.

          (g) Any payments by the Agent to the Investors, or to persons (other than the Company) pursuant to the terms of this Agreement shall be made by wire transfer in accordance with the wire instructions in the Signature Pages.

          (h) Any payments by the Agent to the Company pursuant to the terms of this Agreement shall be made by wire transfer in accordance with wire instructions delivered by the Company to the Agent.

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          (i) All amounts referred to herein are expressed in United States dollars and all payments by the Agent shall be made in United States dollars.

          (j) Any payments of income from the Escrow Account shall be subject to withholding regulations then in force with respect to United States taxes. The Company or the Placement Agent will provide the Agent with appropriate W-9 forms for the Investors or W-8 forms for nonresident alien certifications. It is understood that the Agent shall be responsible for income reporting only with respect to income earned on investment of funds that are a part of the Escrow Account balance and is not responsible for any other reporting.

     Exculpation and Indemnification of Agent.

          (k) The Agent does not have any interest in the Proceeds deposited hereunder, but is serving as escrow holder only and having only possession of the Proceeds, plus all Escrow Earnings thereon, in its capacity as such. The Agent shall have no duties or responsibilities other than those expressly set forth herein. The Agent shall have no duty to enforce any obligation of any person to make any payment or delivery, or to direct or cause any payment or delivery to be made, or to enforce any obligation of any person to perform any other act. The Agent shall be under no liability to the Company or any other party by reason of any failure on the part of any party hereto or any maker, guarantor, endorser or other signatory of any document or any other person to perform such person’s obligations under any such document.

          (l) The Agent shall not be liable to the Company or to any other party for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith and in the exercise of its own best judgment except where it has been grossly negligent or has engaged in bad faith or willful misconduct. The Agent shall be entitled to rely conclusively and shall be protected in acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained), which is reasonably believed by the Agent to be genuine and to be signed or presented by the proper person or persons. The Agent shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement or any of the terms thereof, unless evidenced by a writing delivered to the Agent signed by the proper party or parties and, if the duties or rights of the Agent are affected, unless it shall give its prior written consent thereto. If the Agent is unsure as to any course of action to be taken hereunder, it may request instructions from the Company; the Agent shall not be liable to any person and shall be held harmless and indemnified by the Company in relying on such instructions; in the event the Agent receives conflicting instructions, or no instructions after a request therefor, the Agent shall be fully protected in refraining from acting until such conflict is resolved or instructions provided to the satisfaction of the Agent.

          (m) The Agent shall not be responsible for the sufficiency or accuracy of the form of, or the execution, validity, value or genuineness of, any document or property received, held or delivered by it hereunder, or of any signature or endorsement thereon, or for any lack of endorsement thereon, or for any description therein; nor shall the Agent be responsible or liable to the Company or to anyone else in any respect on account of the identity, authority or rights of

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the persons executing or delivering or purporting to execute or deliver any document or property pursuant to this Agreement. Provided that the Agent complies with Section 2.2 hereof, the Agent shall have no responsibility with respect to the use or application of any Proceeds or other property paid or delivered by the Agent pursuant to the provisions hereof.

          (n) In the event of any dispute with respect to the Proceeds held in escrow by the Agent, the Agent shall be entitled to refuse to act until such conflicting or adverse claims or demands shall have been determined by a final order, judgment or decree of a court of competent jurisdiction, which order, judgment or decree is not subject to appeal, or settled by agreement between the conflicting parties as evidenced in a writing satisfactory to the Agent.

          (o) The Agent shall be entitled to consult with legal counsel at the expense of the Company in the event that a question or dispute arises with regard to the construction of any of the provisions hereof, and shall incur no liability and shall be fully protected in acting in accordance with the advice or opinion of such counsel. The Agent shall not be required to take any action which, in the Agent’s sole and absolute judgment, could involve it in expense or liability in excess of its fees and reimbursable expenses hereunder unless furnished with security and indemnity that it deems, in its sole and absolute discretion, to be satisfactory.

          (p) The Agent shall, if applicable, withhold from any payment of monies held by it hereunder such amount as the Agent estimates to be sufficient to provide for the payment of any applicable taxes not yet paid, and may use the sum withheld for that purpose. The Agent shall be indemnified and held harmless against any liability for taxes, and for any penalties or interest in respect of taxes, on such investment income or payments in the manner provided in Section 4.7.

          (q) The Company shall indemnify and hold the Agent harmless from and against Expenses (as defined in Section 4.8), including reasonable counsel fees and disbursements, of any kind and nature whatsoever suffered by the Agent in connection with any action, suit or other proceeding involving any claim, or in connection with any claim or demand, which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Agent hereunder or the monies or other property held by it hereunder; provided, however, that such indemnification shall not extend to acts of gross negligence, willful misconduct or bad faith by the Agent. Promptly after the receipt by the Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Agent shall, if a claim in respect thereof is to be made against the Company, notify the Company thereof in writing, but the failure by the Agent to give such notice shall not relieve the Company from any liability which the Company may have to the Agent hereunder. The terms of this Section 4.7 shall survive the termination of this Agreement and the resignation or removal of the Agent.

          (r) For the purposes hereof, the term “Expenses” shall include any and all amounts assessed, paid or payable to satisfy any claim, action, suit, cost, loss, demand or liability, or in settlement of any claim, demand, action, suit or proceeding settled with the express written consent of the Agent, and all costs and expenses, including, but not limited to, reasonable counsel fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding.

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          (s) The Agent shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of Agent (including but not limited to any act or provision of any present or future law or regulation or governmental authority, any act of God or war, or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility).

     Termination of Agreement and Resignation or Removal of Agent.

          (t) This Agreement shall terminate on the release of all Proceeds, including the Escrow Earnings, held in escrow hereunder, provided that the rights of the Agent and the obligations of the other parties hereto under Sections 3.9, 4 and 6 shall survive the termination hereof.

          (u) The Agent may resign at any time by giving the Company at least 30 days’ notice thereof, and upon the effectiveness of such resignation the Agent shall be discharged from its duties as Agent hereunder. The Company may remove the Agent at any time by giving the Agent at least 30 days’ notice thereof, and upon the effectiveness of such removal the Agent shall be discharged from its duties as Agent hereunder. As soon as practicable after its resignation or removal, the Agent shall turn over to a successor escrow agent appointed by the Company all monies and property held hereunder (less such amount as the Agent is entitled to retain pursuant to Section 6) upon presentation of the document appointing the new escrow agent and its acceptance thereof. If no new Agent is so appointed within the 30-day period following such notice of resignation or removal, the Agent may deposit the aforesaid monies and property with any court it deems appropriate. Section 3.9 shall survive the resignation or removal of the Agent.

     Compensation of Agent.

     6. For services rendered, the Agent shall receive the compensation set forth in Exhibit B hereto. The Agent shall also be entitled to reimbursement from the Company for all reasonable Expenses paid or incurred by it in the administration of its duties hereunder, including, but not limited to, all reasonable counsel and advisors’ fees and disbursements and all reasonable taxes or other governmental charges. Such compensation and reimbursement to the Agent by the Company shall be paid only from funds properly drawn by the Company pursuant to Section 3.3, or by funds otherwise available to the Company.

     Notices.

     7. All notices, requests, demands and other communications provided for herein shall be in writing, shall be delivered by overnight courier providing a receipt of delivery or by facsimile, certified or registered mail, shall be deemed given when received and shall be addressed to the parties hereto at their respective addresses listed below or to such other persons or addresses as the relevant party shall designate as to itself from time to time in writing delivered in like manner.

6

     If to the Company:

Oriental Financial Group Inc.
997 San Roberto Street
San Juan, Puerto Rico 00926
Telephone: (787) 993-4206
Facsimile: (787) 771-6896
Attention: General Counsel

     with copies (for informational purposes only) to:

Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Telephone: (213) 687-5000
Facsimile: (213) 687-5600
Attention: Gregg A. Noel, Esq.

     If to the Agent:

American Stock Transfer & Trust Company, LLC
6201 15^th Avenue
New York, New York 11219
Telephone: (718) 765-8758
Facsimile: afinn@amstock.com
Attention: Alan G. Finn

     Further Assurances.

     8. From time to time on and after the date hereof, the Company shall deliver or cause to be delivered to the Agent such further documents and instruments and shall do and cause to be done such further acts as the Agent shall reasonably request (it being understood that the Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.

     Governing Law and Consent to Service of Process.

     9. This Agreement shall be interpreted, construed, enforced and administered in accordance with the laws of the State of New York. Each of the Company and the Agent hereby irrevocably consents to the jurisdiction of the courts of the State of New York and of any federal court located in such State in connection with any action, suit or other proceeding arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to each of the parties at its address for purposes of notices hereunder, and such service shall be deemed completed ten (10) calendar days after the same is so mailed.

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     Miscellaneous.

          (a) This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing such instrument to be drafted. The terms “hereby,” “hereof,” “hereto,” “hereunder” and any similar terms, as used in this Agreement, refer to the Agreement in its entirety and not only to the particular portion of this Agreement where the term is used. The word “person” shall mean any natural person, partnership, company, government and any other form of business or legal entity. All words or terms used in this Agreement, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. This Agreement shall not be admissible in evidence to construe the provisions of any prior agreement. The rule of ejusdem generis shall not be applicable herein to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned.

          (b) This Agreement and the rights and obligations hereunder of the Company may be assigned by the Company only to a successor to the Company’s entire business. This Agreement and the rights and obligations hereunder of the Agent may be assigned by the Agent only to a successor to its entire business. This Agreement shall be binding upon and inure to the benefit of each party’s respective successors and permitted assigns. This Agreement is intended to be for the sole benefit of the parties hereto, and no other person shall acquire or have any rights under or by virtue of this Agreement; provided, however, that the Investors shall be third party beneficiaries of the parties’ obligations hereunder. This Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by the Agent or the Company, and, to the extent such change, modification, amendment or supplement would adversely affect any Investor’s Proceeds or any Escrow Earnings thereon, the consent of such Investor, which consent will not be unreasonably withheld.

          (c) The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof.

          (d) “Excluded Purchasers” means any Section 2.1(c)(iii) Purchasers (as defined in the Securities Purchase Agreement) and any Purchasers (as defined in the Securities Purchase Agreement) that have entered into Custodian Agreements (as defined in the Securities Purchase Agreement).

     Execution in Counterparts.

     10. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signature of all of the parties reflected hereon as the signatures.

     11.

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     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the day and year first above written.

ORIENTAL FINANCIAL GROUP INC.
By:
	Name:
	Title:

AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
By:
	Name:
	Title:

[Escrow Agreement]

Exhibit A

RECEIPT

     American Stock Transfer & Trust Company, LLC, as Escrow Agent (the “Agent”), for Oriental Financial Group Inc. (the “Company”), hereby acknowledges receipt by wire transfer of U.S. $__________________, in immediately available funds, from _________________, representing the escrow deposit to be held in escrow by the Agent, pursuant to the Escrow Agreement (the “Escrow Agreement”), dated April 23, 2010, by and between the Company and the Agent. All capitalized terms used herein and not otherwise defined shall have the same respective meanings as set forth in the Escrow Agreement.

_________ __, 2010

American Stock Transfer & Trust Company, LLC, as the Agent
By:
	Name:
	Title:

A-1

Exhibit B

American Stock Transfer & Trust Company, LLC

ESCROW AGENT SERVICES
FEE PROPOSAL

ORIENTAL FINANCIAL GROUP INC.

Acceptance fee: $2,500.00
Annual administration fee: $7,500.00

B-1

EX-31.1

EXHIBIT 31.1

MANAGEMENT CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, José Rafael Fernández, President and Chief Executive Officer of Oriental Financial Group Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Oriental Financial Group Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f ) and 15d-15(f )) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2010

By:	/s/ José Rafael Fernández
	José Rafael Fernández
	President and Chief Executive Officer

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EX-31.2

EXHIBIT 31.2

MANAGEMENT CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Norberto González, Executive Vice President and Chief Financial Officer of Oriental Financial Group Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Oriental Financial Group Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f ) and 15d-15(f )) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2010

By:	/s/ Norberto González
	Norberto González
	Executive Vice President and Chief Financial Officer

89

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. §1350)

     In connection with Oriental Financial Group Inc.’s (“Oriental”) quarterly report on Form 10-Q for the period ended September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, José Rafael Fernández, President and Chief Executive Officer of Oriental, hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Oriental.
	In witness whereof, I execute this certification in San Juan, Puerto Rico, this 4th day of November, 2010.

By:	/s/ José Rafael Fernández
	José Rafael Fernández
	President and Chief Executive Officer

90

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. §1350)

     In connection with Oriental Financial Group Inc.’s (“Oriental”) quarterly report on Form 10-Q for the period ended September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Norberto González, Executive Vice President and Chief Financial Officer of Oriental, hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Oriental.
	In witness whereof, I execute this certification in San Juan, Puerto Rico, this 4th day of November, 2010.

By:	/s/ Norberto González
	Norberto González
	Executive Vice President and Chief Financial Officer

91