OFG Bancorp 10Q 2001 Q4 Quarterly report

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Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Quarter Ended December 31, 2001

Commission File No. 001-12647

Oriental Financial Group Inc.

Incorporated in the Commonwealth of Puerto Rico

IRS Employer Identification No. 66-0538893

Principal Executive Offices:

1000 San Roberto Street
Professional Office Park, S.E.
Río Piedras, Puerto Rico 00926
Telephone Number: (787) 771-6800

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

12,406,889 common shares ($1.00 par value per share)
outstanding as of December 31, 2001

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 /x/ No / /

TABLE OF CONTENTS

			Page
PART—1		FINANCIAL INFORMATION:
Item—1		Financial Statements
		Unaudited consolidated statements of financial condition at December 31, 2001and June 30, 2001.	1
		Unaudited consolidated statements of income for the quarter and six-month periods ended December 31, 2001 and 2000.	2
		Unaudited consolidated statements of changes in stockholders' equity and of comprehensive income (loss) for the six-month periods ended December 31, 2001 and 2000.	3
		Unaudited consolidated statements of cash flows for the six-month periods ended December 31, 2001 and 2000.	4
		Notes to unaudited consolidated financial statements	5 - 12
Item—2		Management's Discussion and Analysis of Financial Condition and Results of Operations	13 - 30
Item—3		Quantitative and Qualitative Disclosures about Market Risk	30 - 31
PART—2		OTHER INFORMATION:
	Item—1	Legal Proceedings	31
	Item—2	Change in Securities and Use of Proceeds	31
	Item—3	Defaults upon Senior Securities	31
	Item—4	Submissions of Matters to a Vote of Security Holders	31
	Item—5	Other Information	32
	Item—6	Exhibits and Reports on Form 8-K	32
		Signatures	33

PART 1—FINANCIAL INFORMATION
Item 1—Financial Statements

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2001 AND JUNE 30, 2001
(In thousands, except shares information)

				December 31, 2001			June 30, 2001
				(Unaudited)
ASSETS
Cash and due from banks				$	6,226		$	8,220
Investments:
	Money market investments				832			21,667
	Time deposits with other banks				14,851			42,124

			Total money market investments and time deposits with other banks		15,683			63,791

	Trading securities that cannot be repledged, at fair value				32,282			76,760

	Investment securities available-for-sale, at fair value:
		Securities pledged that can be repledged			1,569,920			920,320
		Other investment securities			37,298			396,565

			Total investment securities available-for-sale		1,607,218			1,316,885

	Federal Home Loan Bank (FHLB) stock, at cost				17,208			15,272

	Total investments				1,672,391			1,472,708

Loans:
	Loans held-for-sale, at lower of cost or market				36,558			23,570
	Loans receivable, net of allowance for loan losses of $3,037, December 31, 2001 and $2,856, June 30, 2001				525,324			442,912

	Total loans, net				561,882			466,482

Investments in equity options					21,314			26,973
Accrued interest receivable					16,827			16,646
Foreclosed real estate, net					727			847
Premises and equipment, net					22,179			20,936
Other assets, net					26,823			24,773

Total assets				$	2,328,369		$	2,037,585

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
	Savings and demand			$	192,696		$	151,553
	Time and IRA accounts				680,578			661,701

					873,274			813,254
	Accrued interest				2,132			2,284

	Total deposits				875,406			815,538

Borrowings:
	Securities sold under agreements to repurchase				1,077,683			915,471
	Advances from FHLB				155,000			105,000
	Subordinated capital notes				35,000			—
	Term notes				15,000			60,000

	Total borrowings				1,282,683			1,080,471

Accrued expenses and other liabilities					38,562			28,086

Total liabilities					2,196,651			1,924,095

Commitments and contingencies					—			—

Stockholders' equity:
	Preferred stock, $1 par value; 5,000,000 shares authorized; $25 liquidation value; 1,340,000 shares issued and outstanding				33,500			33,500
	Common stock, $1 par value; 20,000,000 shares authorized; 13,911,080 shares issued (June 30, 2001—13,885,468)				13,911			13,885
	Additional paid-in capital				27,303			26,004
	Legal surplus				13,764			12,118
	Retained earnings				87,230			76,818
	Treasury stock, at cost, 1,504,191 shares (June 30, 2001—1,378,699)				(33,040	)		(30,651	)
	Accumulated other comprehensive loss, net of tax benefit of $1.6 million June 30, 2001—$280 tax benefit				(10,950	)		(18,184	)

	Total stockholders' equity				131,718			113,490

Total liabilities and stockholders' equity				$	2,328,369		$	2,037,585

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THE QUARTER AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(In thousands, except per share information)

		Quarter						Six-Month Period
		2001			2000			2001			2000
Interest income:
Loans and leases		$	11,674		$	9,400		$	21,968		$	18,547
Mortgage-backed securities			22,445			15,375			43,888			30,481
Investment securities			478			3,181			1,231			6,821
Short term investments			232			605			687			3,080

	Total interest income		34,829			28,561			67,774			58,929

Interest expense:
Deposits			8,831			9,155			18,072			18,765
Securities sold under agreements to repurchase			9,799			11,489			20,273			23,714
Subordinated capital notes			65			—			65			—
Other borrowed funds			1,891			1,830			4,116			3,879

	Total interest expense		20,586			22,474			42,526			46,358

Net interest income			14,243			6,087			25,248			12,571
Provision for loan losses			525			500			1,167			1,900

Net interest income after provision for loan losses			13,718			5,587			24,081			10,671

Non-interest income (losses):
Trust, money management, brokerage and insurance fees			2,868			2,676			5,989			5,503
Mortgage banking activities			1,717			2,353			3,088			3,904
Investment banking			1,146			—			1,201			—
Gain on sale of loans			104			—			104			5
Banking service revenues			985			1,051			1,932			2,112
Net gain (loss) on sale of securities available-for-sale			2,401			510			2,731			(3,195	)
Derivatives activities, net			(766	)		(721	)		(930	)		(2,341	)
Trading activity, net			(278	)		105			828			92

	Total non-interest income		8,177			5,974			14,943			6,080

Non-interest expenses:
Compensation and benefits			3,782			3,423			8,254			6,798
Occupancy and equipment, net			2,024			1,778			3,987			3,496
Advertising and business promotion			1,765			1,003			2,853			1,784
Professional and service fees			1,153			1,083			2,442			1,641
Communications			340			407			734			827
Taxes other than on income			432			488			866			976
Insurance, including deposit insurance			154			132			278			227
Printing, postage, stationery and supplies			184			141			392			304
Other			1,156			657			1,666			1,245

	Total non-interest expense		10,990			9,112			21,472			17,298

Income (loss) before income taxes			10,905			2,449			17,552			(547	)
	Income tax (expense) benefit		(532	)		269			(571	)		1,549

Income before cumulative effect of change in accounting principles, net of tax			10,373			2,718			16,981			1,002
	Cumulative effect of change in accounting principle, net of tax		—			—			—			(164	)

Net income			10,373			2,718			16,981			838
	Less: Dividends on preferred stock		(597	)		(597	)		(1,193	)		(1,193	)

Net income (loss) available to common shareholders		$	9,776		$	2,121		$	15,788		$	(355	)

Income (loss) per common share:
Basic before cumulative effect of change in accounting principle		$	0.79		$	0.17		$	1.27		$	(0.02	)

Basic after cumulative effect of change in accounting principle		$	0.79		$	0.17		$	1.27		$	(0.03	)

Diluted before cumulative effect of change in accounting principle		$	0.75		$	0.17		$	1.21		$	(0.02	)

Diluted after cumulative effect of change in accounting principle		$	0.75		$	0.17		$	1.21		$	(0.03	)

Average common shares outstanding			12,435			12,551			12,451			12,600
Average potential common share options			569			148			570			153

			13,004			12,699			13,021			12,753

Dividends per share of common stock		$	0.15		$	0.15		$	0.30		$	0.30

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(In thousands)

		Six-Month Period
		2001			2000
CHANGES IN STOCKHOLDERS' EQUITY:
Preferred stock:
Balance at beginning of period		$	33,500		$	33,500

	Balance at end of period		33,500			33,500

Common stock:
Balance at beginning of period			13,885			13,805
Stock options exercised			26			3

	Balance at end of period		13,911			13,808

Additional paid-in capital:
Balance at beginning of period			26,004			23,786
Stock options exercised			245			16
Stock options cancelled			1,054			—

	Balance at end of period		27,303			23,802

Legal surplus:
Balance at beginning of period			12,118			10,578
Transfer from retained earnings			1,646			106

	Balance at end of period		13,764			10,684

Retained earnings:
Balance at beginning of period			76,818			79,809
Net income			16,981			838
Dividends declared on common stock			(3,730	)		(3,785	)
Dividends declared on preferred stock			(1,193	)		(1,193	)
Transfer to legal surplus			(1,646	)		(106	)

	Balance at end of period		87,230			75,563

Treasury stock:
Balance at beginning of period			(30,651	)		(27,116	)
Stock purchased			(2,389	)		(2,064	)

	Balance at end of period		(33,040	)		(29,180	)

Accumulated other comprehensive loss, net of deferred tax:
Balance at beginning of period			(18,184	)		(16,493	)
Other comprehensive income (loss), net of taxes			7,234			(1,579	)

	Balance at end of period		(10,950	)		(18,072	)

Total stockholders' equity		$	131,718		$	110,105

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE QUARTER AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(In thousands)

		Quarter						Six-Month Period
		2001			2000			2001			2000
COMPREHENSIVE INCOME (LOSS):									—
Net income:		$	10,373		$	2,718		$	16,981		$	838

Other comprehensive income (loss), net of tax:
	Unrealized gain (loss) on securities arising during the period		(24,475	)		18,045			12,157			40,196
	Realized gain (loss) on securities included in net income		2,401			510			2,731			(3,195	)
	Unrealized gain (loss) on derivatives designated as cash flows hedges arising during the period		8,893			(10,190	)		(7,229	)		(10,190	)
	Amount reclassified into earnings during the period related to transition adjustment		90			94			571			188
	Income tax credit (expense) related to items of other comprehensive income (loss)		854			(2,442	)		(996	)		(1,411	)

			(12,237	)		6,017			7,234			25,588
	Cumulative effect of change in accounting principle, net of tax		—			—			—			(27,167	)

Other comprehensive income (loss) for the period			(12,237	)		6,017			7,234			(1,579	)

Comprehensive income (loss)		$	(1,864	)	$	8,735		$	24,215		$	(741	)

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(In thousands)

					2001			2000
Cash flows from operating activities:
	Net income				$	16,981		$	838

		Adjustments to reconcile net income to net cash provided by (used in) operating activities:
			Amortization of deferred loan origination fees and costs			(640	)		(283	)
			Amortization of premiums and accretion of discounts on investment securities			(60	)		266
			Depreciation and amortization of premises and equipment			2,218			2,160
			Deferred tax credit			(1,068	)		(298	)
			Provision for loan losses			1,167			1,900
			Loss (gain) on sale of securities available-for-sale			(2,731	)		3,195
			Gain on sale of loans			(104	)		(5	)
			Derivatives activities			930			2,505
			Mortgage banking activities			(3,088	)		(3,904	)
			Originations of loans held-for-sale			(87,572	)		(59,780	)
			Proceeds from sale of loans held-for-sale			5,373			46,077
			Cancellation of stock options			1,054			—
		Net decrease (increase) in:
			Trading securities			44,467			36,955
			Accrued interest receivable			(181	)		(2,510	)
			Other assets			(1,191	)		1,960
		Net increase (decrease) in:
			Accrued interest on deposits and borrowings			(152	)		(2,186	)
			Other liabilities			3,108			(22,522	)

				Total adjustments		(38,470	)		3,530

	Net cash provided by (used in) operating activities					(21,489	)		4,368

Cash flows from investing activities:
	Net decrease in time deposits with other banks					27,273			—
	Purchases of investment securities available-for-sale					(545,814	)		(255,108	)
	Purchases of FHLB stock					(2,892	)		—
	Net purchases of equity options					(1,719	)		(35,767	)
	Maturities and redemptions of investment securities available-for-sale					158,420			17,564
	Maturities and redemptions of investment securities held-to-maturity					—			30,303
	Redemption of FHLB stock					956			—
	Proceeds from sales of investment securities available-for-sale					185,274			249,759
	Proceeds from sales of consumer loans and leases portfolio					—			167,900
	Loan production:
		Origination and purchase of loans				(148,942	)		(91,526	)
		Principal repayment of loans				65,309			43,648
		Other decrease (increase)				798			(5,045	)
	Capital expenditures					(3,461	)		(1,890	)

	Net cash (used in) provided by investing activities					(264,798	)		119,838

Cash flows from financing activities:
	Net increase (decrease) in:
		Demand, saving and time (including IRA accounts) deposits				69,338			(44,396	)
		Securities sold under agreements to repurchase				162,212			9,806
		Advances and borrowings from FHLB				50,000			(50,000	)
	Repayments of term notes					(45,000	)		(6,500	)
	Net proceeds from issuance of subordinated capital notes					33,949			—
	Proceeds from exercise of stock options					271			19
	Stock purchased					(2,389	)		(2,064	)
	Dividends paid					(4,923	)		(5,002	)

	Net cash provided by (used in) financing activities					263,458			(98,137	)

Net increase (decrease) in cash and cash equivalents						(22,829	)		26,069
	Cash and cash equivalents at beginning of period					29,887			33,833

Cash and cash equivalents at end of period					$	7,058		$	59,902

Cash and cash equivalents include:
	Cash and due from banks				$	6,226		$	5,422
	Money market investments					832			54,480

					$	7,058		$	59,902

Supplemental Cash Flow Disclosure and Schedule of Noncash Activities:
	Interest paid				$	43,319		$	49,150

	Income taxes paid				$	—		$	—

	Real estate loans securitized into mortgage-backed securities				$	72,299		$	59,780

	Investment securities held-to-maturity transferred to available-for-sale				$	—		$	766,848

	Other comprehensive income (loss) for the period				$	7,234		$	(1,579	)

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ORIENTAL FINANCIAL GROUP INC.

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accounting and reporting policies of Oriental Financial Group Inc. (the "Group" or "Oriental") conform with accounting principles generally accepted in the United States of America ("GAAP") and to financial services industry practices.

The unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, these financial statements include all adjustments (which consist of normal recurring accruals) necessary, to present fairly the consolidated financial condition as of December 31, 2001 and June 30, 2001, and the results of operations and cash flows for the quarter and six-month periods ended December 31, 2001 and 2000. All significant intercompany balances and transactions have been eliminated in the accompanying unaudited condensed financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Financial information as of June 30, 2001 has been derived from the Group's audited Consolidated Financial Statements. The results of operations and cash flows for the six-month periods ended December 31, 2001 and 2000 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 June 30, 2001, included in the Group's Annual Report on Form 10-K.

Certain reclassifications have been made to prior periods financial statements to conform to the current period presentation.

The following is a description of the Group's most significant accounting policies:

Nature of Operations

Oriental is a bank holding company incorporated under the laws of the Commonwealth of Puerto Rico. It has four subsidiaries, Oriental Bank and Trust (the "Bank"), Oriental Financial Services Corp. ("Oriental Financial Services"), FISA Insurance Agency, Inc., and Oriental Financial Group, Inc. Statutory Trust I (the "Trust") (See Note 5). Through these subsidiaries, the Group provides a wide range of financial services such as mortgage, commercial and consumer lending, financial planning, insurance sales, money management and investment brokerage services, as well as corporate and individual trust services. Note 7 to the consolidated financial statements presents further information about the operations of the Group's business segments.

Main offices for the Group and its subsidiaries are located in San Juan, Puerto Rico. The Bank operates through twenty branches located throughout the island and is subject to the supervision, examination and regulation of the Federal Reserve Bank, Office of the Commissioner of Financial Institutions of Puerto Rico and the Federal Deposit Insurance Corporation (FDIC), which insures its deposits through the Savings Association Insurance Fund (SAIF). Oriental Financial Services is subject to the supervision, examination and regulation of the National Association of Securities Dealers, the Securities and Exchange Commission, and the Office of the Commissioner of Financial Institutions of Puerto Rico.

NOTE 2—INVESTMENTS AND SECURITIES:

The Group's securities are classified as held-to-maturity, available-for-sale or trading. Securities for which the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity

and are carried at amortized cost. There were no held-to-maturity securities as of December 31, 2001 and June 30, 2001. Securities that might be sold prior to maturity because of interest rate changes, to meet liquidity needs, or to better match the reprising characteristics of funding sources are classified as available-for-sale. These securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of deferred taxes, in other comprehensive income.

The Group classifies as trading those securities that are acquired and held principally for the purpose of selling them in the near term. These securities are carried at fair value with realized and unrealized changes in fair value included in earnings in the period in which the changes occur. Interest revenue arising from trading instruments is included in the statements of income as part of net interest income rather than in the trading profit or loss account. The Group's investment in the Federal Home Loan Bank (FHLB) of New York has no readily determinable fair value and can only be sold to the FHLB at par value. Therefore, this investment is carried at cost and its redemption value represents its fair value.

Premiums and discounts are amortized to interest income over the life of the related securities using the interest method. Net realized gains or losses on sales of investment securities and unrealized loss valuation adjustments considered other than temporary, if any, on securities classified as either available-for-sale or held-to-maturity are reported separately in the statement of income. The cost of securities is determined using the specific identification method.

Trading Securities

A summary of trading securities owned by the Group at December 31, 2001 and June 30, 2001 is as follows:

	December 31,		June 30,
	(In thousands)
U.S. Treasury securities	$	2,610	$	2,579
P.R. Government securities		270		339
Mortgage-backed securities		29,320		73,791
CMO residuals, interest only		93		51

	$	32,293	$	76,760

At December 31, 2001, the Group's trading portfolio weighted average yield was 6.88% (June 30, 2001—7.92%).

Investment securities available-for-sale

The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the investment securities available- for-sale owned by the Group at December 31, 2001 and June 30, 2001, were as follows:

	December 31, 2001
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Average Weighted Yield
	(In thousands)
US Treasury securities	$	3,313	$	181	$	—	$	3,494	7.5	%
US Government agencies securities		40,648		173		1		40,820	2.68	%
Other debt securities		9,429		175		267		9,337	7.73	%
PR Government securities		38,731		899		49		39,581	5.91	%
CMOs		266,340		2,657		1,488		267,509	6.69	%
FNMA and FHLMC certificates		1,045,873		8,188		2,716		1,051,345	6.24	%
GNMA certificates		191,399		3,907		185		195,121	7.05	%

	$	1,595,733	$	16,180	$	4,706	$	1,607,207	6.33	%

	June 30, 2001
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Average Weighted Yield
	(In thousands)
US Treasury securities	$	3,623	$	103	$	—	$	3,726	7.56	%
US Government agencies securities		30,159		193		—		30,352	7.16	%
Other debt securities		9,288		—		—		9,288	7.73	%
PR Government securities		8,189		11		58		8,142	6.33	%
CMOs		218,833		935		1,912		217,856	6.72	%
FNMA and FHLMC certificates		811,892		3,097		6,620		808,368	6.59	%
GNMA certificates		237,528		2,478		854		239,153	7.13	%

	$	1,319,512	$	6,817	$	9,444	$	1,316,885	6.73	%

The amortized cost and fair value of the Group's investment securities available-for-sale at December 31, 2001, by contractual maturity, are shown in the next table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
	(In thousands)
Within 1 year	$	28,944	$	28,943
After 1 to 5 years		8,338		8,594
After 5 to 10 years		43,646		44,107
After 10 years		1,514,805		1,525,563

	$	1,595,733	$	1,607,207

Proceeds from the sale of investment securities available-for-sale during the first six months of fiscal 2002 totaled $185,274,000 (Fiscal 2001—$249,759,000). Gross realized gains and losses on those sales during the first six months of fiscal 2002 were $5,157,000 and $2,426,000, respectively, (Fiscal 2001—547,000 and $3,742,000 respectively).

NOTE 3—LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES:

Loans Receivable

The Group's business activity is with consumers located in Puerto Rico. Oriental's loan transactions are encompassed within three main categories: mortgage, commercial, and consumer. Oriental's loan portfolio has a higher concentration of loans to consumers such as residential mortgage loans and personal loans. The composition of the Group's loan portfolio at December 31, 2001 and June 30, 2001 was as follows:

		December 31,			June 30,
		(In thousands)
Loans secured by real estate:
	Residential	$	381,084		$	321,689
	Non-residential real estate loans		3,792			3,827
	Home equity loans and secured personal loans		93,621			74,759

			478,497			400,275
	Less: deferred loan fees, net		(5,595	)		(3,880	)

			472,902			396,395

Other loans:
	Commercial		33,175			25,828
	Personal consumer loans and credit lines		21,692			22,718
	Financing leases, net of unearned interest		592			827

			55,459			49,373

Loans receivable			528,361			445,768
Allowance for loan losses			(3,037	)		(2,856	)

Loans receivable, net			525,324			442,912
Loans held-for-sale			36,558			23,570

Total loans, net		$	561,882		$	466,482

Allowance for Loan Losses

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

While management uses available information in estimating probable loan losses, future additions to the allowance may be necessary based on factors beyond Oriental's control, such as factors affecting Puerto Rico economic conditions. Refer to Table 5 of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the changes in the allowance for loan losses for the quarter and six-month periods ended December 31, 2001 and 2000.

The Group evaluates all loans, some individually and other as homogeneous groups, for purposes of determining impairment. At December 31, 2001 and June 30, 2001, the Group determined that no impairment allowance was necessary.

NOTE 4—PLEDGED ASSETS:

At December 31, 2001, residential mortgage loans and investment securities available for sale amounting to $299,050,000 and $1,569,920,000, respectively, were pledged to secure public fund deposits, investment securities sold under agreements to repurchase, letters of credit, advances and borrowings from the Federal Home Loan Bank of New York, term notes and interest rate swap agreements.

NOTE 5—SUBORDINATED CAPITAL NOTES

In October 2001, Oriental Financial Group, Inc. Statutory Trust I, a wholly-owned special purpose subsidiary of Oriental, was formed for the purpose of issuing company-obligated securities. On December 18, 2001, $35 million of trust redeemable preferred securities were issued by the Trust as part of a pooled underwriting transaction. Pooled underwriting involves participating with other bank-holding companies in issuing the securities through a special purpose pooling vehicle created by the underwriters. The securities have a par value of $35 million, bear interest based on 3 months LIBOR plus 360 basis points (5.60% at December 31, 2001) (provided, however, that prior to December 18, 2006, this interest rate shall not exceed 12.5%), payable quarterly, and mature on December 23, 2031. The securities may be called at par after five years. The proceeds from this issuance were used to purchase a like amount of floating rate junior subordinated deferrable interest debentures issued by Oriental, which have the same maturity and call provisions as the redeemable capital securities.

These company-obligated securities of the subsidiary grantor trust (trust preferred securities) are accounted for as a liability on the consolidated statements of financial condition. Dividends on the trust preferred securities are accounted for as an interest expense on an accrual basis. These debts are treated as Tier-1 capital for regulatory purposes.

NOTE 6—DERIVATIVES AND HEDGING ACTIVITIES

The Group uses interest rate swaps and caps as an interest rate risk hedging mechanism. Under the swaps, the Group pays a fixed annual cost and receives a floating ninety-day payment based on LIBOR. Floating rate payments received from the swap counterparty correspond to the floating rate payments made on the borrowings thus resulting in a net fixed rate cost to the Group (Cash flows hedging instruments). Under the caps, Oriental pays an up front premium or fee for the right to receive cash flow payments in excess of the predetermined cap rate; thus, effectively capping its interest rate cost for the duration of the agreement. The Group's swaps and caps outstanding and their terms at December 31, 2001 and June 30, 2001 are set forth in the table below:

	December 31,			June 30,
	(Dollars in thousands)
Swaps:
Pay fixed swaps notional amount	$	550,000		$	300,000
Weighted average pay rate—fixed		5.31	%		6.65	%
Weighted average receive rate—floating		1.96	%		3.95	%
Maturity in months		6 to 106			12 to 112
Floating rate as a percent of LIBOR		100	%		100	%
Caps:
Cap agreements notional amount	$	250,000		$	250,000
Cap rate		7.00	%		7.00	%
Current 90 day LIBOR		1.90	%		3.84	%
Maturity in months		4			10

The agreements were signed to convert short-term borrowings into fixed rate liabilities for longer periods of time and provide protection against increases in interest rates. The amounts potentially subject to credit loss are the net streams of payments under the agreements and not the notional principal amounts used to express the volume of the swaps. The Group controls the credit risk of its interest rate swap agreements through approvals, limits, monitoring procedures and collateral, where considered necessary. The Group does not anticipate nonperformance by the counterparties.

The Bank offers its customers certificates of deposit tied to the performance of one of the following stock market indexes, Standard & Poor's 500 Composite Stock Index, Dow Jones Industrial Average and Russell 2000 Small Stock Index. At the end of five years, the depositor will receive a specified percent of the average increase of the month-end value of the corresponding stock index. If such index decreases, the depositor receives the principal without any interest. The Group uses option agreements with major money center banks to manage its exposure to the stock market. Under the terms of the agreements, the Group will receive the average increase in the month-end value of the corresponding index in exchange for a fixed premium. At December 31, 2001, the notional amount of these agreements totaled $203,265,000 (June 30, 2001—$180,950,000). Changes in fair value of options purchased and options embedded in certificates of deposit are recorded in earnings.

At December 31, and June 30, 2001, the fair value of derivatives was recognized as either assets or liabilities in the Consolidated Statements of Financial Condition as follows: the fair value of the equity indexed options represented as investment of $21.3 million ($27.0 million, June 2001) and the options sold to customers embedded in the certificates of deposits represented a liability of $26.3 million ($34.2 million, June 2001) recorded in deposits. The interest rate swaps represented a liability of $17.9 million ($10.3 million, June 2001) presented in "Accrued Expenses and Other Liabilities". The Caps did not have a carrying value as of December 31, and June 30, 2001.

NOTE 7—SEGMENT REPORTING:

The Group operates three major reportable segments: Financial Services, Mortgage Banking, and Retail Banking. Management determined 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 organizational chart, nature of products, distribution channels and economic characteristics of the products were also considered in the determination of the reportable segments. The Group measures the performance of these reportable segments, based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated.

The Group's largest business segment is retail banking. The Bank's branches and treasury functions are its main components, with traditional banking products such as deposit, and electronic banking.

Oriental's second largest business segment is the financial services, which is comprised of the Bank's trust division (Oriental Trust), the brokerage subsidiary (Oriental Financial Services) and the insurance subsidiary (FISA Insurance Agency, Inc.). The core operations of this segment are financial planning, money management and investment brokerage services, investment banking, insurance sales activity, as well as corporate and individual trust services.

The Group's last business segment is mortgage banking. It consists of Oriental Mortgage, whose principal activity is to originate and purchase mortgage loans for the Group's own portfolio, as well as sale of loans in the secondary market.

The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" included in the Group Annual Report on Form 10-K. Following are

the results of operations and the selected financial information by operating segment for each of the second quarter and six-month period ended December 31:

	Unaudited-Six-month period ended December 31
	Retail Banking			Financial Services			Mortgage Banking			Eliminations			Total
	(Dollars in thousands)
Fiscal 2002
Net interest income	$	24,248		$	169		$	831		$	—		$	25,248
Non-interest income		8,405			6,411			2,257			(2,130	)		14,943
Non-interest expenses		(16,001	)		(4,810	)		(2,791	)		2,130			(21,472	)
Provision for loan losses		(1,167	)		—			—			—			(1,167	)

Income before income taxes	$	15,485		$	1,770		$	297		$	—		$	17,552

Total assets	$	2,355,995		$	6,324		$	2,000		$	(35,950	)	$	2,328,369

Fiscal 2001
Net interest income	$	12,037		$	195		$	339		$	—		$	12,571
Non-interest income (charges)		(1,127	)		5,059			3,565			(1,417	)		6,080
Non-interest expenses		(12,594	)		(3,305	)		(2,816	)		1,417			(17,298	)
Provision for loan losses		(1,900	)		—			—			—			(1,900	)

Income before income taxes	$	(3,584	)	$	1,949		$	1,088		$	—		$	(547	)

Total assets	$	1,751,945		$	5,458		$	2,000		$	(3,168	)	$	1,756,235

	Unaudited-Second quarter ended December 31
	Retail Banking			Financial Services			Mortgage Banking			Eliminations			Total
	(Dollars in thousands)
Fiscal 2002
Net interest income	$	13,749		$	40		$	454		$	—		$	14,243
Non-interest income		4,271			3,694			1,263			(1,051	)		8,177
Non-interest expenses		(8,164	)		(2,332	)		(1,545	)		1,051			(10,990	)
Provision for loan losses		(525	)		—			—						(525	)

Income before taxes	$	9,331		$	1,402		$	172		$	—		$	10,905

Total assets	$	2,355,995		$	6,324		$	2,000		$	(35,950	)	$	2,328,369

Fiscal 2001
Net interest income	$	5,766		$	134		$	187		$	—		$	6,087
Non-interest income		2,036			2,505			2,166			(733	)		5,974
Non-interest expenses		(6,616	)		(1,740	)		(1,489	)		733			(9,112	)
Provision for loan losses		(500	)		—			—			—			(500	)

Income before taxes	$	686		$	899		$	864		$	—		$	2,449

Total assets	$	1,751,945		$	5,458		$	2,000		$	(3,168	)	$	1,756,235

NOTE 8—RECENT ACCOUNTING DEVELOPMENTS

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS 144 became effective on December 15, 2001, and had not a material effect on the Oriental's consolidated financial statements.

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

Table of Contents

Description			Page No.
Selected Financial Data:
	Earnings, Per Share, and Dividends Data		14
	Period End Balances		14
	Selected Financial Ratios and Other Information		14
Table 1		Fiscal Year-To-Date Analysis of Interest Income and Changes due to Volume / Rate	15
Table 1A		Quarterly Analysis of Interest Income and Changes due to Volume / Rate	16
Table 2		Non-Interest Income Summary	17
Table 3		Non-Interest Expenses Summary	17
Table 4		Allowance for Loan Losses Summary	18
Table 5		Net Credit Losses Statistics	18
Table 6		Loan Loss Reserve Breakdowns	19
Table 7		Non-Performing Assets	19
Table 8		Non-Performing Loans	19
Table 9		Bank Assets Summary and Composition	20
Table 10		Liabilities Summary and Composition	20
Table 11		Capital, Dividends and Stock Data	21
Table 12		Financial Assets Summary	21
Overview of Financial Performance			22

SELECTED FINANCIAL DATA
FOR THE QUARTER AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(In thousands, except for per share information)

		Quarter								Six-Month Period
EARNINGS, PER SHARE AND DIVIDENDS DATA:		2001			2000			Variance %		2001			2000			Variance %
Interest income		$	34,829		$	28,561		21.9	%	$	67,774		$	58,929		15.0	%
Interest expense			20,586			22,474		-8.4	%		42,526			46,358		-8.3	%

	Net interest income		14,243			6,087		134.0	%		25,248			12,571		100.8	%
	Provision for loan losses		525			500		5.0	%		1,167			1,900		-38.6	%

	Net interest income after provision for loan losses		13,718			5,587		145.5	%		24,081			10,671		125.7	%
Non-interest income			8,177			5,974		36.9	%		14,943			6,080		145.8	%
Non-interest expenses			(10,990	)		(9,112	)	20.6	%		(21,472	)		(17,298	)	24.1	%

	Income (loss) before taxes		10,905			2,449		345.3	%		17,552			(547	)	3308.8	%
Income tax (expense) benefit			(532	)		269		-297.8	%		(571	)		1,549		-136.9	%

	Income before cumulative effect of change in accounting principle, net of tax		10,373			2,718		281.6	%		16,981			1,002		1594.7	%
Cumulative effect of change in accounting principle, net of tax			—			—		—			—			(164	)	100.0	%

	Net income		10,373			2,718		281.6	%		16,981			838		1926.4	%
Less: dividends on preferred stock			(597	)		(597	)	—			(1,193	)		(1,193	)	—

	Net income (loss) available to common shareholders	$	9,776		$	2,121		360.9	%	$	15,788		$	(355	)	4547.3	%

Basic EPS before cumulative effect of change in accounting principle		$	0.79		$	0.17		364.7	%	$	1.27		$	(0.02	)	6450.0	%

Basic EPS after cumulative effect of change in accounting principle		$	0.79		$	0.17		364.7	%	$	1.27		$	(0.03	)	4333.3	%

Diluted EPS before cumulative effect of change in accounting principle		$	0.75		$	0.17		341.2	%	$	1.21		$	(0.02	)	6150.0	%

Diluted EPS after cumulative effect of change in accounting principle		$	0.75		$	0.17		341.2	%	$	1.21		$	(0.03	)	4133.3	%

Average shares and potential shares			13,004			12,699		2.4	%		13,021			12,753		2.1	%

Book value per common share		$	7.92		$	6.11		29.5	%	$	7.92		$	6.11		29.5	%

Market price at end of period		$	18.60		$	13.31		39.7	%	$	18.60		$	13.31		39.7	%

Dividends declared per share		$	0.15		$	0.15		—		$	0.30		$	0.30		—

Dividends declared		$	3,728		$	3,785		-1.5	%	$	3,728		$	3,785		-1.5	%

PERIOD END BALANCES ( as of December 31, ) AND FINANCIAL RATIOS:
Total financial assets
Trust assets managed										$	1,455,466		$	1,405,775		3.5	%
Broker-dealer assets gathered											1,043,254			925,377		12.7	%

	Assets managed										2,498,720			2,331,152		7.2	%
Group total assets											2,328,369			1,756,235		32.6	%

										$	4,827,089		$	4,087,387		18.1	%

Interest-earning assets
Investments and securities										$	1,672,391		$	1,232,418		35.7	%
Loans and leases (including loans held-for-sale), net											561,882			450,631		24.7	%

										$	2,234,273		$	1,683,049		32.7	%

Interest-bearing liabilities
Deposits										$	873,274		$	687,310		27.1	%
Repurchase agreements											1,077,683			826,299		30.4	%
Other borrowings											205,000			100,000		105.0	%

										$	2,155,957		$	1,613,609		33.6	%

Stockholders' equity
Preferred equity										$	33,500		$	33,500		—
Common equity											98,218			76,605		28.2	%

										$	131,718		$	110,105		19.6	%

Capital Ratios:
Leverage capital											7.92	%		7.56	%

Total risk-based capital											22.72	%		25.27	%

Tier 1 risk-based capital											22.34	%		24.69	%

SELECTED FINANCIAL RATIOS AND OTHER INFORMATION:
Return on average assets (ROA)			1.85	%		0.64	%				1.57	%		0.10	%

Return on average common equity (ROE)			38.77	%		11.80	%				33.82	%		-0.89	%

Efficiency ratio			52.44	%		74.89	%				57.32	%		71.81	%

Expense ratio			0.85	%		0.78	%				0.89	%		0.71	%

Interest rate margin			2.73	%		1.60	%				2.51	%		1.58	%

Number of financial centers			21			19					20			19

SELECTED FINANCIAL DATA
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000*
(Dollars in thousands)

TABLE 1—FISCAL YEAR-TO-DATE ANALYSIS OF NET INTEREST INCOME AND
CHANGES DUE TO VOLUME/RATE:

		Interest									Averate Rate						Average Balance
		2001			2000*			Variance in %			2001			2000*		Variance in BP	2001			2000*			Variance in %
A—TAX EQUIVALENT SPREAD
Interest-earning assets		$	67,774		$	58,929			15.01	%		6.73	%	7.20	%	- -47	$	2,014,300		$	1,632,598		23.38	%
	Tax equivalent adjustment		13,661			17,000			-19.64	%		1.36	%	2.08	%	-72		—			—		—

Interest-earning assets—tax equivalent			81,435			75,929			7.25	%		8.09	%	9.28	%	-119		2,014,300			1,632,598		23.38	%
	Interest-bearing liabilities		42,526			46,358			-8.27	%		4.29	%	6.00	%	-171		1,982,001			1,544,317		28.34	%

Net interest income/spread		$	38,909		$	29,571			31.58	%		3.80	%	3.28	%	52	$	32,299		$	88,281		-63.41	%

B—NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities		$	44,152		$	36,081			22.37	%		6.25	%	6.86	%	-61	$	1,412,504		$	1,052,259		34.24	%
Investment management fees			(668	)		—			-100.00	%		-0.09	%	0.00	%	-9		—			—		—

Total investment securities			43,484			36,081			20.52	%		6.16	%	6.85	%	-69		1,412,504			1,052,259		34.24	%
Trading securities			1,635			1,221			33.91	%		6.85	%	7.93	%	-108		47,768			30,793		55.13	%
Money market investments			687			3,080			-77.69	%		3.78	%	6.08	%	-230		36,367			101,303		-64.10	%

			45,806			40,382			13.43	%		6.12	%	6.82	%	-70		1,496,639			1,184,355		26.37	%

Loans:
Real estate (1)			18,906			15,642			20.87	%		8.11	%	7.78	%	33		466,297			402,153		15.95	%
Consumer			1,608			1,411			13.96	%		14.70	%	16.72	%	-202		21,873			16,882		29.56	%
Financing leases (2)			8			301			-97.34	%		2.21	%	8.34	%	-613		725			7,218		-89.96	%
Commercial			1,446			1,193			21.21	%		10.05	%	10.85	%	-80		28,766			21,990		30.81	%

			21,968			18,547			18.45	%		8.49	%	8.28	%	21		517,661			448,243		15.49	%

			67,774			58,929			15.01	%		6.73	%	7.20	%	- -47		2,014,300			1,632,598		23.38	%

Interest-bearing liabilities:
Deposits:
Savings and demand (3)			1,826			1,551			17.73	%		2.37	%	2.36	%	1		154,095			131,390		17.28	%
Time and IRA accounts			16,246			17,214			-5.62	%		4.70	%	6.18	%	-148		690,867			557,280		23.97	%

			18,072			18,765			-3.69	%		4.28	%	5.45	%	-117		844,962			688,670		22.69	%

Borrowings:
Repurchase agreements			14,083			24,589			-42.73	%		2.99	%	6.70	%	-371		942,927			734,247		28.42	%
Interest rate risk management			6,078			(875	)		794.63	%		1.29	%	-0.24	%	153		—					—
Financing fees			112			—			100.00	%		0.02	%	0.00	%	2		—					—

Total repurchase agreements			20,273			23,714			-14.51	%		4.30	%	6.46	%	-216		942,927			734,247		28.42	%
FHLB funds and term notes			4,116			3,879			6.11	%		4.30	%	6.39	%	-209		191,447			121,400		57.70	%
Subordinated capital notes			65			—			100.00	%		4.88	%	0.00	%	488		2,665			—		100.00	%

			24,454			27,593			-11.38	%		4.30	%	6.45	%	-215		1,137,039			855,647		32.89	%

			42,526			46,358			- -8.27	%		4.29	%	6.00	%	- -171		1,982,001			1,544,317		28.34	%

Net interest income/spread		$	25,248		$	12,571			100.84	%		2.44	%	1.20	%	124

Interest rate margin												2.51	%	1.52	%	99

Excess of interest-earning assets over interest-bearing liabilities																	$	32,299		$	88,281		- -63.41	%

Interest-earning assets over interest-bearing liabilities ratio																		101.63	%		105.72	%

C. CHANGES IN NET INTEREST INCOME DUE TO:					Volume			Rate			Total
Interest Income:
	Loans (1)				$	2,874		$	547		$	3,421
	Investments					10,649			(5,225	)		5,424

						13,523			(4,678	)		8,845

Interest Expense:
	Deposits				$	4,259			(4,952	)		(693	)
	Borrowings					9,075			(12,214	)		(3,139	)

						13,334			(17,166	)		(3,832	)

Net Interest Income					$	189		$	12,488		$	12,677

*: Certain adjustments were made to conform figures to current quarter presentation.
(1): —Real estate averages include loans held-for-sale.
(2): —Discontinued on June 2000
(3): —Excluding Managers Checks

SELECTED FINANCIAL DATA
QUARTERS ENDED DECEMBER 31, 2001 AND 2000*
(Dollars in thousands)

TABLE 1A—QUARTERLY ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE:

			Interest									Average rate						Average balance
			2001			2000*			Variance in %			2001			2000*		Variance in BP	2001			2001*			Variance in %
A—TAX EQUIVALENT SPREAD
Interest-earning assets			$	34,829		$	28,561			21.95	%		6.69	%	7.31	%	62	$	2,081,000		$	1,563,313		33.11	%
Tax equivalent adjustment				7,124			8,289			14.05	%		1.37	%	2.12	%	-75		—			—		—

Interest-earning assets—tax equivalent				41,953			36,850			13.85	%		8.06	%	9.43	%	-137		2,081,000			1,563,313		33.11	%
Interest-bearing liabilities				20,586			22,474			-8.40	%		4.01	%	6.03	%	-202		2,051,979			1,489,728		37.74	%

	Net interest income/spread		$	21,367		$	14,376			48.63	%		4.05	%	3.40	%	65	$	29,021		$	73,585		-60.56	%

B—NORMAL SPREAD
Interest-earning assets:
	Investments:
	Investment securities		$	22,933		$	17,867			28.35%			6.17	%	6.90	%	-73	$	1,485,697		$	1,036,250		43.37	%
		Investment management fees		(354	)		—			-100.00	%		-0.10	%	-0.00	%	-10		—			—		—

		Total investment securities		22,579			17,867			26.37	%		6.08	%	6.90	%	-82		1,485,697			1,036,250		43.37	%
		Trading securities		344			689			-50.07	%		6.59	%	8.03	%	-144		20,895			34,331		-39.14	%
		Money market investments		232			605			-61.65	%		3.19	%	6.40	%	-321		29,094			37,784		-23.00	%

				23,155			19,161			20.84	%		6.03	%	6.92	%	-89		1,535,686			1,108,365		38.55	%

	Loans:
		Real estate (1)		9,998			7,972			25.41	%		8.14	%	7.81	%	33		491,338			408,226		20.36	%
		Consumer		802			740			8.38	%		14.68	%	13.63	%	105		21,848			21,714		0.62	%
		Financing leases (2)		4			125			-96.80	%		2.38	%	9.10	%	-672		673			5,492		-87.75	%
		Commercial		870			563			54.53	%		11.06	%	11.54	%	-48		31,455			19,516		61.18	%

				11,674			9,400			24.19	%		8.56	%	8.26	%	30		545,314			454,948		19.86	%

				34,829			28,561			21.95	%		6.69	%	7.31	%	-62		2,081,000			1,563,313		33.11	%

Interest-bearing Liabilities:
	Deposits:
		Savings and demand (3)		958			765			25.23%			2.31	%	2.34	%	-3		166,243			130,838		27.06	%
		Time and IRA accounts		7,873			8,390			-6.16	%		4.43	%	6.22	%	179		710,677			539,662		31.69	%

				8,831			9,155			-3.54	%		4.03	%	5.46	%	-143		876,920			670,500		30.79	%

	Borrowings:
		Repurchase agreements		5,903			11,793			-49.94	%		2.38	%	6.70	%	-432		993,126			704,214		41.03	%
		Interest rate risk management		3,840			(304	)		1363.16	%		1.55	%	-0.17	%	172							—
		Financing fees		56			—			100.00	%		0.02	%	0.00	%	2							—

		Total repurchase agreements		9,799			11,489			-14.71	%		3.95	%	6.53	%	258		993,126			704,214		41.03	%
		FHLB funds and term notes		1,891			1,830			3.33	%		4.28	%	6.36	%	-208		176,602			115,014		53.55	%
		Subordinated Capital Notes		65			—			100.00	%		4.88	%	0.00	%	488		5,331			—		100.00	%

				11,755			13,319			-11.74	%		4.00	%	6.50	%	-250		1,175,059			819,228		43.43	%

				20,586			22,474			-8.40	%		4.01	%	6.03	%	-202		2,051,979			1,489,728		37.74	%

Net Interest income/spread			$	14,243		$	6,087			133.99	%		2.68	%	1.28	%	140

Interest rate margin													2.73	%	1.56	%	117

Excess of interest-earning assets over interest-bearing liabilities																		$	29,021		$	73,585		-60.56	%

Interest-earning assets over interest-bearing liabilities ratio																			101.41	%		104.94	%

Changes in net interest income due to:							Volume			Rate			Total

Interest income:
	Loans					$	1,866		$	408		$	2,274
	Investments						7,393			(3,399	)		3,994

							9,259			(2,991	)		6,268

Interest expense:
	Deposits					$	2,818			(3,142	)		(324	)
	Borrowings						5,782			(7,346	)		(1,564	)

							8,600			(10,488	)		(1,888	)

Net Interest Income						$	659		$	7,497		$	8,156

* Certain adjustments were made to conform figures to current quarter presentation.
(1)—Real estate averages include loans held-for-sale.
(2)—Discontinued on June 2000
(3)—Excluding Managers Checks

SELECTED FINANCIAL DATA
FOR THE QUARTER AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands)

		Quarter								Six-Month Period
		2001			2000			Variance %		2001			2000			Variance %
TABLE 2—NON-INTEREST INCOME SUMMARY
Trust, money management, brokerage and insurance fees		$	2,868		$	2,676		7.2	%	$	5,989		$	5,503		8.8	%
Mortgage banking activities			1,717			2,353		-27.0	%		3,088			3,904		-20.9	%
Investment banking			1,146					100.0	%		1,201			—		100.0	%

Non-banking service revenues			5,731			5,029		14.0	%		10,278			9,407		9.3	%

Fees on deposit accounts			533			561		-5.0	%		1,066			1,109		-3.9	%
Bank service charges and commissions			441			409		7.8	%		849			843		0.7	%
Other operating revenues			11			68		-83.8	%		17			102		-83.3	%

Bank service revenues			985			1,038		-5.1	%		1,932			2,054		-5.9	%

	Recurrent non-interest income		6,716			6,067		10.7	%		12,210			11,461		6.5	%

Securities net activity			2,401			510		-370.8	%		2,731			(3,195	)	185.5	%
Trading net activity			(278	)		105		-364.8	%		828			92		800.0	%
Derivatives activity			(766	)		(721	)	6.2	%		(930	)		(2,341	)	-60.3	%

Securities, derivatives and trading activities			1,357			(106	)	1380.2	%		2,629			(5,444	)	148.3	%

Leasing revenues (discontinued June 2000)			—			13		-100.0	%					58		-100.0	%
Gain on sale of loans			104			—		100.0	%		104			5		1980.0	%

Other non-recurrent non-interest income			104			13		702.4	%		104			63		65.1	%

	Non-recurrent non-interest income		1,461			(93	)	1671.3	%		2,733			(5,381	)	150.8	%

Total non-interest income		$	8,177		$	5,974		36.9	%	$	14,943		$	6,080		145.8	%

TABLE 3—NON-INTEREST EXPENSES SUMMARY
Fixed compensation		$	2,550		$	2,669		-4.5	%	$	4,993		$	5,364		-6.9	%
Variable compensation			1,232			754		63.4	%		2,461			1,434		71.6	%

	Compensation and benefits (1)		3,782			3,423		10.5	%		7,454			6,798		9.6	%

Occupancy and equipment			2,024			1,778		13.8	%		3,987			3,496		14.0	%
Advertising and business promotion			1,765			1,003		76.0	%		2,853			1,784		59.9	%
Professional and service fees			975			660		47.7	%		2,007			1,165		72.3	%
Communications			340			407		-16.5	%		734			827		-11.2	%
Municipal and other general taxes			432			488		-11.5	%		866			976		-11.3	%
Insurance, including deposits insurance			154			132		16.7	%		278			227		22.5	%
Printing, postage, stationery and supplies			184			141		30.5	%		392			304		28.9	%
Other operating expenses (1)			903			656		37.7	%		1,391			1,245		11.7	%

	Other non-interest expenses		6,777			5,265		28.7	%		12,508			10,024		24.8	%

	Recurrent non-interest expenses		10,559			8,688		21.5	%		19,962			16,822		18.7	%

Other non-recurrent expenses			431			424		1.7	%		710			476		49.2	%
Stock option cancellation			—			—		—			800			—		100.0	%

	Non-recurrent non-interest expenses		431			424		1.7	%		1,510			476		217.2	%

Total non-interest expenses		$	10,990		$	9,112		20.6	%	$	21,472		$	17,298		24.1	%

Recurrent non-interest income to recurrent expenses ratio			63.60	%		69.83	%	-8.92	%		61.17	%		68.13	%	-10.22	%

Relevant ratios and data (1):
	Efficiency ratio		52.44	%		74.89	%				57.32	%		71.81	%

	Expense ratio		0.85	%		0.78	%				0.89	%		0.71	%

	Compensation to recurrent non-interest expenses		35.8	%		39.4	%				37.3	%		40.4	%

	Variable compensation to total compensation		32.6	%		22.0	%				33.0	%		21.1	%

	Compensation to total assets		0.65	%		0.81	%				0.64	%		0.79	%

	Average compensation per employee	$	35.0		$	40.4				$	35.1		$	40.0

	Average number of full time employees		432			339					425			340

	Bank assets per average number of employees	$	5,390		$	6,103				$	5,479		$	6,103

Total work force:
	Banking operations										352			288
	Trust operations										26			27
	Brokerage operations										14			14
	Insurance operations										45			—

											437			329

(1): Excludes non-recurring charges

SELECTED FINANCIAL DATA
FOR THE QUARTER AND SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands)

											Six-Month Period
			Quarter								Six-Month Period
			Quarter						Change in %								Change in %
			2001			2000			Change in %		2001			2000			Change in %
TABLE 4—ALLOWANCE FOR LOAN LOSSES SUMMARY
Beginning balance			$	2,920		$	6,972		-58.1	%	$	2,856		$	6,837		-58.2	%
	Provision for loan losses			525			500		5.0	%		1,167			1,900		-38.6	%
	Net credit losses—see table 6			(408	)		(4,474	)	-90.9	%		(986	)		(5,739	)	-82.8	%

		Ending balance	$	3,037		$	2,998		1.3	%	$	3,037		$	2,998		1.3	%

				—								—
Selected Data and Ratios:
	Outstanding loans at December 31,		$	564,919		$	453,629		24.5	%	$	564,919		$	453,629		24.5	%

	Recoveries to net charge-off's			35.8	%		11.7	%	206.3	%		30.4	%		16.6	%	83.5	%

	Allowance coverage ratio
		Total loans										0.54	%		0.66	%	-18.7	%

		Non-performing loans										16.26	%		20.07	%	-19.0	%

		Non-real estate non-performing loans										195.05	%		99.11	%	96.8	%

TABLE 5—NET CREDIT LOSSES STATISTICS
Real estate
	Charge-offs		$	—		$	(35	)	-100.0	%	$	(14	)	$	(35	)	-60.0	%
	Recoveries			—			—		—			—			—		0.0	%

				—			(35	)	-100.0	%		(14	)		(35	)	-60.0	%

Consumer
	Charge-offs			(433	)		(416	)	4.1	%		(818	)		(1,490	)	-45.1	%
	Recoveries			89			364		-75.5	%		180			671		-73.2	%

				(344	)		(52	)	561.5	%		(638	)		(819	)	-22.1	%

Leasing
	Charge-offs			(127	)		(3,684	)	-96.6	%		(236	)		(4,171	)	-94.3	%
	Recoveries			68			170		-60.0	%		159			370		-57.0	%

				(59	)		(3,514	)	-98.3	%		(77	)		(3,801	)	-98.0	%

Commercial
	Charge-offs			(24	)		(211	)	-88.6	%		(257	)		(222	)	15.8	%
	Recoveries			49			25		96.0	%		83			37		124.3	%

				25			(186	)	-113.4	%		(174	)		(185	)	-5.9	%

Other
	Charge-offs			(52	)		(721	)	-92.8	%		(92	)		(961	)	-90.4	%
	Recoveries			22			34		-35.3	%		9			62		-85.5	%

				(30	)		(687	)	-95.6	%		(83	)		(899	)	-90.8	%

Net credit losses
	Total charge-offs			(636	)		(5,067	)	-87.4	%		(1,417	)		(6,879	)	-79.4	%
	>Total recoveries			228			593		-61.6	%		431			1,140		-62.2	%

			$	(408	)	$	(4,474	)	-90.9	%	$	(986	)	$	(5,739	)	-82.8	%

Net credit losses to average:
	Real estate			0.00	%		0.03	%				0.01	%		0.02	%

	Consumer			6.30	%		0.96	%				5.83	%		9.70	%

	Leasing			35.07	%		255.94	%				21.24	%		105.32	%

	Commercial			-0.32	%		3.81	%				1.21	%		1.68	%

	Other (1)			0.02	%		0.60	%				0.03	%		0.40	%

		Total		0.30	%		3.93	%				0.38	%		2.56	%

Average loans:
	Real estate		$	491,338		$	408,226		20.4	%	$	466,297		$	402,153		16.0	%
	Consumer			21,848			21,714		0.6	%		21,873			16,882		29.6	%
	Leasing			673			5,492		-87.7	%		725			7,218		-90.0	%
	Commercial			31,455			19,516		61.2	%		28,766			21,990		30.8	%

		Total	$	545,314		$	454,948		19.9	%	$	517,661		$	448,243		15.5	%

(1): other credit losses to total average loans

SELECTED FINANCIAL DATA
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands)

			Six-Month Period
			Six-Month Period						Change in %
			2001			2000			Change in %
TABLE 6—LOAN LOSS RESERVE BREAKDOWN:
Consumer			$	1,203		$	1,337		-10.0	%
Financing leases				197			731		-73.1	%
Commercial				427			215		98.6	%
Other				46			—		100.0	%

	Non-real estate			1,873			2,283		-18.0	%
Real estate				1,164			715		62.8	%

			$	3,037		$	2,998		1.3	%

TABLE 7—NON-PERFORMING ASSETS:
Non-performing assets
Non-performing loans			$	18,674		$	14,936		25.0	%
Foreclosed real estate				727			1,079		-32.6	%
Repossessed autos				—			50		-100.0	%

			$	19,401		$	16,065		20.8	%

Non-performing loans to
Total loans				3.31	%		3.29	%	0.6	%

Total assets				0.80	%		0.85	%	-5.7	%

Total capital				14.18	%		13.57	%	4.5	%

TABLE 8—NON-PERFORMING LOANS:
Non-performing loans
Consumer			$	571		$	723		-21.0	%
Financing leases				367			1,269		-71.1	%
Commercial				564			1,033		-45.4	%
Other				55			—		100.0	%

	Non-real estate			1,557			3,025		-48.5	%
Real estate				17,117			11,911		43.7	%

		Total	$	18,674		$	14,936		25.0	%

Non-performing loans composition
Consumer				3.1	%		4.8	%	-36.8	%
Financing leases				2.0	%		8.5	%	-76.9	%
Commercial				3.0	%		6.9	%	-56.3	%
Other				0.3	%		0.0	%	100.0	%

	Non-real estate			8.3	%		20.3	%	-58.8	%
Real estate				91.7	%		79.7	%	14.9	%

		Total		100.0	%		100.0	%	0.0	%

SELECTED FINANCIAL DATA
AS OF DECEMBER 31, 2001, 2000 and JUNE 30, 2001
(Dollars in thousands)

		December 31, 2001			December 31, 2000			Variance %		June 30, 2001
TABLE 9—BANK ASSETS SUMMARY AND COMPOSITION
Investments:
Mortgage-backed securities and CMOs		$	1,540,978		$	994,117		55.0	%	$	1,337,200
U.S. and P.R. Government securities			98,522			172,675		-42.9	%		54,344
FHLB stock and other investments			32,891			65,626		-49.9	%		81,164

			1,672,391			1,232,418		35.7	%		1,472,708

Loans (1):
	Real estate		509,460			410,119		24.2	%		419,966
	Consumer		21,692			22,909		-5.3	%		22,717
	Financing leases		592			3,866		-84.7	%		827
	Commercial		33,175			16,735		98.2	%		25,828

			564,919			453,629		24.5	%		469,338
	Allowance for loan losses		(3,037	)		(2,998	)	1.3	%		(2,856	)

			561,882			450,631		24.7	%		466,482

Total interest-earning assets			2,234,273			1,683,049		32.7	%		1,939,190
	Non-interest earning assets		94,096			73,186		28.6	%		98,395

Total assets		$	2,328,369		$	1,756,235		32.6	%	$	2,037,585

Investments portfolio composition:
	Mortgage-backed securities and CMOs		92.1	%		80.7	%				90.8	%
	U.S. and P.R. Government securities		5.9	%		14.0	%				3.7	%
	FHLB stock and other investments		2.0	%		5.3	%				5.5	%

			100.0	%		100.0	%				100.0	%

Loan portfolio composition:
	Real Estate		90.2	%		90.4	%				89.5	%
	Consumer		3.8	%		5.1	%				4.8	%
	Financing leases		0.1	%		0.9	%				0.2	%
	Commercial		5.9	%		3.7	%				5.5	%

			100.0	%		100.0	%				100.0	%

(1): Includes loans held for sale.

TABLE 10—LIABILITIES SUMMARY AND COMPOSITION
Deposits:
	Savings and demand deposits	$	192,696		$	137,256		40.4	%	$	151,553
	Time deposits and IRA accounts		680,578			550,054		23.7	%		661,701

			873,274			687,310		27.1	%		813,254
	Accrued interest		2,132			2,644		-19.4	%		2,284

			875,406			689,954		26.9	%		815,538

Borrowings:
	Repurchase agreements		1,077,683			826,299		30.4	%		915,471
	FHLB funds		155,000			20,000		675.0	%		105,000
	Subordinated Capital Notes		35,000			—		100.0	%		—
	Term notes and other sources of funds		15,000			80,000		-81.3	%		60,000

			1,282,683			926,299		38.5	%		1,080,471

Total interest-bearing liabilities			2,158,089			1,616,253		33.5	%		1,896,009
	Non interest-bearing liabilities		38,562			29,877		29.1	%		28,086

Total liabilities		$	2,196,651		$	1,646,130		33.4	%	$	1,924,095

Deposits portfolio composition:
	Savings and demand deposits		22.0	%		19.9	%				18.6	%
	Time deposits and IRA accounts		77.7	%		79.7	%				81.1	%
	Accrued Interest		0.3	%		0.4	%				0.3	%

			100.0	%		100.0	%				100.0	%

Borrowings portfolio composition:
	Repurchase agreements		84.0	%		89.2	%				84.7	%
	FHLB funds		12.1	%		2.2	%				9.7	%
	Subordinated Capital Notes		2.7	%		0.0	%				0.0	%
	Term notes and other sources of funds		1.2	%		8.6	%				5.6	%

			100.0	%		100.0	%				100.0	%

SELECTED FINANCIAL DATA
AS OF DECEMBER 31, 2001, 2000 and JUNE 30, 2001
(Dollars in thousands)

		December 31, 2001			December 31, 2000			Variance %		June 30, 2001
TABLE 11—CAPITAL, DIVIDENDS AND STOCK DATA
Capital data:
	Stockholders' equity	$	131,718		$	110,105		19.6	%	$	113,490

	Leverage Capital (minimum required—4.00%)		7.92	%		7.56	%	4.8	%		6.68	%

	Total Risk-Based Capital (minimum required—8.00%)		22.72	%		25.27	%	-10.1	%		19.96	%

	Tier 1 Risk-Based capital (minimum required—4.00%)		22.34	%		24.69	%	-9.5	%		19.53	%

Stock data:
	Outstanding common shares, net of treasury		12,407			12,536		-1.0	%		12,506

	Book value	$	7.92		$	6.11		29.5	%	$	6.40

	Market Price at end of period	$	18.60		$	13.31		39.7	%	$	19.00

	Market capitalization	$	230,767		$	166,894		38.3	%	$	237,620

Common dividend data:
	Dividends declared	$	3,728		$	3,785		-1.5	%	$	7,534

	Dividends declared per share	$	0.30		$	0.30		0.0	%	$	0.60

	Payout ratio		23.61	%		-1066.20	%	102.2	%		123.87	%

	Dividend yield		3.14	%		4.75	%	-33.9	%		5.92	%

The following provides the high and low prices and dividend per share of the Group's stock for each quarter of the last three fiscal periods. Common stock prices were adjusted to give retroactive effect to the stock splits declared on the Group's common stock.

		Price
		Price				Dividend Per share
		High		Low		Dividend Per share
Fiscal 2002:
	December 31, 2001	$	20.80	$	17.90	$	0.150

	September 30, 2001	$	21.85	$	16.80	$	0.150

Fiscal 2001:
	June 30, 2001	$	19.00	$	12.85	$	0.150

	March 31, 2001	$	14.81	$	12.75	$	0.150

	December 31, 2000	$	15.06	$	11.00	$	0.150

	September 30, 2000	$	15.50	$	11.68	$	0.150

Fiscal 2000:
	June 30, 2000	$	19.31	$	13.18	$	0.150

	March 31, 2000	$	26.00	$	17.75	$	0.150

	December 30, 1999	$	23.87	$	19.69	$	0.150

	September 30, 1999	$	28.00	$	21.50	$	0.150

TABLE 12—FINANCIAL ASSETS SUMMARY

			December 31, 2001		December 31, 2000		Variance %		June 30, 2001
Financial assets:
	Trust assets managed		$	1,455,466	$	1,405,775	3.5	%	$	1,444,534
	Assets gathered by broker-dealer			1,043,254		925,377	12.7	%		1,002,253

		Managed assets		2,498,720		2,331,152	7.2	%		2,446,787
Group assets				2,328,369		1,756,235	32.6	%		2,037,585

			$	4,827,089	$	4,087,387	18.1	%	$	4,484,372

OVERVIEW OF FINANCIAL PERFORMANCE

Net income for the quarter ended December 31, 2001, was $10.4 million ($0.75 diluted per share), an increase of 282% compared with net income of $2.7 million ($0.17 diluted per share) reported in the quarter ended December 31, 2000. For the first six months of fiscal 2002 ended December 31, 2001, net income was $17 million, an increase of 1,926% compared with the $838,000 reported for the same period of previous fiscal year 2001.

Return on common equity (ROE) was 38.8% for the quarter ended December 31, 2001 a significant increase from the 11.8% reported in the second quarter of fiscal 2001 ended December 31, 2000. Return on assets (ROA) was 1.85% for second quarter of fiscal 2002 versus a 0.64% reported for the second quarter of previous fiscal 2001.

Interest rate cuts made by the Federal Reserve during calendar year 2001 combined with management's emphasis on secured lending facilitated improvements in the Group's performance. For the quarter ended December 31, 2001 net interest income increased 134.0%, to $14.2 million, compared with $6.1 million registered in the quarter ended December 31, 2000.

Interest income increased 21.9%, from $28.6 million in the quarter ended December 31, 2000, to $34.8 million in the quarter ended December 31, 2001. On the other hand, interest expense declined 8.4%, from $22.5 million for the quarter ended December 31, 2000, to $20.6 million for the quarter ended December 31, 2001, as a result of interest rate reductions. The quarterly provision for loan losses increased slightly, from $500,000 for the December 2000 quarter to $525,000 for the December 2001 quarter, reflecting the benefits of management's strategy to focus on secured lending.

Management's emphasis on operations that generate fees continued to strengthen the Group's earnings outlook, as brokerage, investment banking, trust and insurance revenues grew 50.0%, from $2.7 million in the December 2000 quarter to $4.0 million this past December quarter.

Revenues from mortgage-banking activities decreased 27%, from $2.4 million for the December 2000 quarter to $1.7 million for the December 2001 quarter. Although mortgage production increased 61 percent, from $69.6 million for the quarter ended December 31, 2000, to $112 million for the quarter ended December 31, 2001, revenues decreased because of management's current strategy to maintain a larger portion of its production in portfolio instead of selling it on the secondary market, consequently deferring the recognition of the amount of fees derived from the sale of loans.

Non-interest expenses (excluding non-operating charges) increased 21.5% from $8.7 million for the quarter ended December 31, 2000, to $10.6 million for the quarter ended December 31, 2001. The increase is attributable to the Group's new strategic positioning during the past year, which has included the opening of new and the remodeling of financial centers, aggressive advertising, investments in technology, professional fees for consulting engagements related to new services, and increased variable compensation for increased insurance and mortgage services.

During the quarter ended September 30, 2001, the Group recognized a non-cash, non-operating expense of $799,000, with a corresponding offsetting charge against additional paid-in capital, related to the cancellation by the Board of Directors of approximately 211,500 non-vested stock options granted to its directors, officers and employees during calendar years 1999 and 1998.

Total financial assets (including assets managed by the trust department and broker-dealer subsidiary) increased 18.1% to a record $4.827 billion as of December 31, 2001, compared to $4.087 billion as of December 31, 2000. Assets managed by the Group's trust department and broker-dealer subsidiary increased 7.2% year-to-year to $2.499 billion from $2.331 billion. The Group's bank assets increased a robust 32.6%, reaching $2.328 billion as of December 31, 2001 versus $1.756 billion as of December 31, 2000.

On the liability side, deposits increased 26.9% from $690 million at December 31, 2000, to $875 million at December 31, 2001, as the Group aggressively continues to expand its banking business within its ongoing strategy to position itself as a financial planning service provider.

Finally, the Group continued its program for repurchasing its common stock, reacquiring 125,492 shares during the six month period ended December 31, 2001 for an approximated cost of $2.4 million. Stockholders' equity as of December 31, 2001 was $131.7 million, increasing 19.6 percent from $110.1 million as of December 31, 2000. This increase mainly reflects the impacts of net income, net of dividend declared and of the mark-to-market valuation required by Statement of Financial Accounting Standards No. 115 related to investments available-for-sale.

Net Interest Income

Net interest income is affected by 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). As further discussed in the Risk Management section of this report, the Group constantly monitors the composition and repricing of its assets and liabilities to maintain its net interest income at adequate levels.

For the second quarter of fiscal 2002, the Group's net interest income amounted to $14.2 million, up 134% from $6.1 million in the same period of fiscal 2001. This increase was mainly due to a positive rate variance of $7.5 million caused by a significantly lower cost of funds, particularly of repurchase agreements (2.38% for the quarter ended on December 31, 2001 compared to 6.70% for the same period of fiscal 2001) that stems from the impact of the Federal Reserve interest rate drop. For the six-month period ended December 31, 2001, net interest income amounted to $25.2 million, up 101% from $12.6 million for the six-month period ended December 31, 2000. This increase was primarily due to a positive rate variance of $12.5 million that also resulted from the impact of the Federal Reserve interest rate drop resulting in a lower average cost of funds (4.29% for the six-month periods ended on December 31, 2001 versus 6.00% in the same period of fiscal 2001), combined with a positive growth of the investment and loan portfolios.

Interest rate spread increased 140 basis points during the second quarter of fiscal 2002, to 2.68% from 1.28% in the second quarter of fiscal 2001. For the six-month period ended December 31, 2001, the interest rate spread rose 124 basis points (to 2.44%) when compared with the same period of fiscal 2001 (1.20%). These increase were mainly due to: (1) a decrease in the average cost of funds; and (2) a higher yield on secured mortgage loans. Tables 1 and 1A analyze the major categories of interest-earning assets and interest-bearing liabilities, their respective interest income, expenses, yields and costs, and their impact on net interest income due to changes in volume and rates.

The Group's interest income for the second quarter of fiscal 2002 totaled $34.8 million, up 21.9% from $28.6 million posted in the same period of fiscal 2001. This increase is attributable to a larger volume of average interest—earnings assets ($2.081 billion in fiscal 2002 versus $1.563 billion in fiscal 2001). For the six-month periods ended December 31, interest income increased 15.0% from $58.9 million reported in fiscal 2001 to $67.8 million reported in fiscal 2002. The increase in interest income results from a larger volume of average interest-earning assets ($2.014 billion in fiscal 2002 versus $1.633 billion in fiscal 2001) tempered by a decline in their yield performance (6.73% in fiscal 2002 versus 7.20% in fiscal 2001).

Most of the increase in interest-earning assets was mainly on the investment portfolio and real estate loans. For the second quarter of fiscal 2002, the average volume of total investments grew by 38.55% ($1.536 billion in fiscal 2002 versus $1.108 million in fiscal 2001) when compared to the same period a year earlier. The average volume of real estate loans grew by 20.36% from $408.2 million to $491.3 million in fiscal 2002 and 2001, respectively. Likewise, the average volume of total investments

grew by 26.4% in fiscal 2002 when compared with the same period in fiscal 2001 ($1.496 billion in fiscal 2002 versus $1.184 billion in fiscal 2001). This increase was concentrated in mortgage-backed securities as Oriental continued converting residential real estate loans sold in the secondary market into tax-advantaged mortgage-backed securities.

For the second quarter of fiscal 2002, the average yield on interest-earning assets was 6.69%, 62 basis points lower than the 7.31% reported in the same period of fiscal 2001. Likewise, the average yield on interest-earning assets was 6.73%, 47 basis points lower than the 7.20% in fiscal 2001 when comparing both six-month periods ended in December. The quarterly and six-month period yield dilution experienced was mainly related to: (i) the strong expansion of Group's investment portfolio, which carries a lower yield than the loan portfolio but provides less risk and generates a significant amount of tax-exempt interest; and (ii) partially offset by an increase on the yield of the loan portfolio (8.56% and 8.49% for the quarter and six-month periods ended December 31, 2001, versus 8.26% and 8.28% respectively for the same periods in fiscal 2001).

Interest expense for the second quarter and six-month periods of fiscal 2002 narrowed 8.4% and 8.3% respectively (to $20.6 million and $42.5 million in fiscal 2002, from $22.5 million and $46.4 million in fiscal 2001). A lower average cost of funds (4.01% and 4.29% for the second quarter and six-month periods ended December 31, 2001 versus 6.03% and 6.00% for the same periods in fiscal 2001, respectively), drove the decreases. Larger volumes of repurchase agreements and deposits, which were necessary to fund the growth of the Group's investment portfolio, drove an increase in average interest-bearing liabilities. See Tables 1 and 1A for the impact in interest expense due to changes in volume and rates.

The cost of short-term financing has substantially decreased since lately fiscal 2001. For the second quarter ended December 31, 2001, the cost of borrowings decreased 250 basis points (4.0% in fiscal 2002 from 6.50% in fiscal 2001). This funding category experience its larger cost reduction of 258 basis point in repurchases agreements, 3.95% for quarter ended December 2001 versus 6.53% for the same quarter of fiscal 2001. Equally, the year to date cost decrease is mainly due to a lower average cost of repurchases agreements, that drop 216 basis points, from 6.46% for the six-month period of fiscal 2001 to 4.30% for the same period of fiscal 2002.

Non-Interest Income

As a diversified financial services provider (see Table 2), the Group's earnings depend not only on the net interest income generated from its banking activity, but also from fees and other non-interest income generated from the wide array of financial services offered. Non-interest income, the second largest source of earnings, is affected by the level of trust assets under management, transactions generated by gathering of financial assets and investment banking activities by the broker-dealer subsidiary, the level of mortgage banking activities, fees generated from loans and deposit accounts and insurance (See Table 2).

Recurrent non-interest income rose 10.7% to $6.7 million in the second quarter of fiscal 2002, compared to $6.1 million in the second quarter of fiscal 2001. For the six-month period, the increase was 6.5% (to $12.2 million in fiscal 2002 from $11.5 million in fiscal 2001) when compared to the same period in fiscal 2001.

Trust, money management, brokerage, investment banking, and insurance fees, the principal components of recurrent non-interest income, continued an excellent growth pattern during the second quarter of fiscal 2002, rising 48.1% to $4.0 million from $2.7 million in the second quarter of fiscal 2001. The larger volume of accounts and assets managed by both the Group's trust department and the broker-dealer subsidiary triggered this growth along with the results of the new investment banking division's earnings of $1.1 million for this quarter (See table 2). For the six-month period ended December 31, 2001 and 2000, these revenues were $7.2 million and $5.5 million, respectively.

The second largest component of non-interest revenues is mortgage-banking activities, which decreased 27%, to $1.7 million in the quarter ended December 31, 2001 from $2.4 million reported for the same period of fiscal 2001. When comparing six-month periods ended in December 2001 and 2000, mortgage-banking activities decreased 21% from $3.9 million, to $3.1 million. This decrease reflects a lower volume of loans sold. Although mortgage production increase 61%, from $69.6 million for the quarter ended December 31, 2000, to $112 million for the quarter ended December 31, 2001, mortgage banking revenues decreased because of management's current strategy to retain a larger portion of its production in the loan portfolio instead of selling it on the secondary market, consequently deferring the recognition of the amount of fees derived from the sale.

Bank service revenues consist primarily of fees generated by deposit accounts, electronic banking and customer services. These revenues totaled $985,000 in the second quarter of fiscal 2002, a 5.1% decrease versus $1.0 million reported in the same period of fiscal 2001. This decrease is mainly due to fewer revenues from deposits fees, $533,000 for current quarter versus $561,000 for same period of fiscal 2001. When comparing both six-month periods, these revenues dropped 5.9% to $1.9 million in fiscal 2002 against $2.1 million reported in fiscal 2001.

As shown in Table 2, the second quarter of fiscal 2002, reflect a gain of $2.4 million on sale of securities available for sale compared to the $510,000 posted in the second quarter of fiscal 2001.

The six-month period of fiscal 2002, reflect a gain of $2.7 million on sale of securities compared to a loss of $3.2 million in the fiscal 2001 period. Securities gain and losses are dependable on market changing conditions.

Derivative activities unrealized losses amounted to $766,000 and $930,000 for the quarter and six-month periods ended December 31, 2001, respectively; and $721,000 and $2.3 million for the quarter and six-month periods ended December 31, 2000, respectively, relate to the mark-to-market of certain derivatives activities (See Note 6 to the unaudited Consolidated Financial Statements).

Non-Interest Expenses

As shown in Table 3, recurrent non-interest expenses for the second quarter of fiscal 2002 increased 21.5%, to $10.6 million from $8.7 million in the comparable period of fiscal 2001. For the six-month period, the increase was 18.7%, to $20.0 million compared to $16.8 million in the same period in fiscal 2001. The increase on non-interest expenses reflects the impact of the Group's restructuring strategy in advertising and business promotion which includes the opening of new and the remodeling of financial centers, and the cost of outsourcing of certain internal procedures to provide new and better services to our customers. In addition, professional expenses have doubled normal trends due to additional charges relating to an evaluation of the Group's operations.

Employee compensation and benefits is the Group's largest non-interest expense category. For the quarter ended December 31, 2001, it increased 10.5%, to $3.8 million versus $3.4 million reported in the same period of fiscal 2001 reflecting an expansion of the work force (see Table 3) and increasing variable compensation (Commissions) due to higher volume of business and related incentives. Refer to Table 3 for more selected data regarding employee compensation and benefits.

Other non-recurrent expenses are mainly related to litigation and settlement of legal cases, primarily litigation against fidelity bond carrier (See Part-2, item 1. Legal Proceedings).

Provision for Loan Losses

The provision for loan losses in the second quarter of fiscal 2002 totaled $525,000, in line with the $500,000 reported in the same period of fiscal 2001. For the six-month period ended December 31, 2001, the provision for loan losses declined 38.6% from $1.9 million in the same period for fiscal 2001, to $1.2 million in fiscal 2002. The decline was in response to the lower level of net credit losses. The

reduction in credit losses reflects the sale of the unsecured personal loans and lease portfolios on June 30, 2000, as previously reported. Please refer to the allowance for loan losses and non-performing assets section on Table 4 to Table 8 for a more detailed analysis of the allowances for loan losses, net credit losses and credit quality statistics.

Provision (Credit) for Income Taxes

The Group recognized a provision for income tax of $532,000 and $571,000 in the second quarter and six-month periods ended December 31, 2001 compared to a credit of $269,000 and $1.5 million for the same periods of fiscal 2001. The current income tax provision is lower than the provision based on the statutory tax rate for the Group, which is 39%, due to the high level of tax-advantage interest income earned on certain investments and loans, net of the disallowance of related expenses attributable to the exempt income. The tax benefit recognized in the fiscal 2001 quarter and six-month periods mainly resulted from non-operating activities.

FINANCIAL CONDITION

Group's Assets

At December 31, 2001, the Group's total assets amounted to $2.328 billion, an increase of 32.6% when compared to $1.756 billion a year ago. At the same date, interest-earning assets reached $2.234 billion, up 32.7% versus $1.683 billion a year earlier.

As detailed in Table 9, investments are Oriental's largest interest-earning assets component. It mainly consists of money market investments, U.S. Treasury notes, U.S. Government agencies bonds, mortgage-backed securities, CMO's and P. R. Government municipal bonds. At December 31, 2001, the Group's investment portfolio was of high quality. Approximately 98% was rated AAA and it generated a significant amount of tax-exempt interest, which substantially lowered the Group's effective tax rate. See Note 2 to the Consolidated Financial Statements for further explanation of the Group's investments.

A strong growth in mortgage-backed securities and CMO's drove the investment portfolio expansion. They increased 55% to $1.541 billion (92.1% of the total investment portfolio) from $994.1 million (80.7% of the total investment portfolio) the year before, as Oriental continued its strategy of pooling residential real estate loans into mortgage-backed securities.

At December 31, 2001, Oriental's loan portfolio, the second largest category of the Group's interest-earning assets, amounted to $561.9 million, 24.7% higher than the $450.6 million a year ago. Late in the second quarter of fiscal 2001, the Group's loan originations changed toward collateralized loans, primarily mortgage loans and personal loans with mortgage collateral, while de-emphasizing unsecured personal loans. In addition, on June 30, 2000, Oriental sold over $160 million of leases and unsecured personal loans. These strategies significantly reduced credit losses and enhanced the portfolio quality. Table 9 and Note 3 to the unaudited Consolidated Financial Statements presents the Group's loan portfolio composition and mix at the end of the periods analyzed.

The Group's real estate loans portfolio is mainly comprised of residential loans, home equity loans and personal loans collateralized by real estate. As shown in Table 9, the real estate loans portfolio amounted to $509.4 million or 90.2% of the loan portfolio as of December 31, 2001, compared with a 90.4% share at December 31, 2000, in line with the Group's lending strategy of concentrate on collateralized originations, primarily mortgage loans and personal loans with mortgage collateral, as mentioned before.

The second largest component of the Group's loan portfolio is commercial loans, most of which collateralized by real estate. At December 31, 2001, the commercial loan portfolio totaled $33.2 million (5.9% of the Group's loan portfolio). The consumer loan portfolio totaled $21.7 million (3.8% of the

loan portfolio). The Group discontinued lease originations on June 30, 2000 and sold it portfolio as previously reported.

Liabilities and Funding Sources

As shown in Table 10, at December 31, 2001, Oriental's total liabilities reached $2.197 billion, 33.4% higher than the $1.646 billion reported a year earlier. Interest-bearing liabilities, the Group's funding sources, amounted to $2.158 billion at the end of the second quarter of fiscal 2002 versus $1.616 billion the year before, a 33.5% increase. The rise in repurchase agreements and FHLB funds to fund the expansion of the investment portfolio drove this growth along with an increase in saving, demand, time and IRA accounts.

Borrowings are Oriental's largest interest-bearing liability component. It consists mainly of diversified funding sources through the use of Federal Home Loan Bank of New York (FHLB) advances and borrowings, repurchase agreements, term notes, subordinated capital note, and lines of credit. At December 31, 2001, they amounted to $1.283 billion, 38.5% higher than the $926.3 million a year ago, mainly in repurchase agreements, FHLB funds and the assumption of a subordinated capital note (see Note 5 to the unaudited Consolidated Financial Statements). This increase reflects the funding required to maintain the Group's investment portfolio growth as previously mentioned.

The FHLB system functions as a source of credit to financial institutions that are members of a regional Federal Home Loan Bank. 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 mortgages and investment securities. Table 10 presents the composition of the Group's other borrowings at the end of the periods analyzed.

At December 31, 2001, deposits, the second largest category of the Group's interest-bearing liabilities and a cost-effective source of funding, reached $875.4 million, up 26.9% versus the $690.0 million a year ago. A $130.5 million or 23.7% increase in time deposits and IRA accounts realized most of the growth. In addition, a $55.4 million or 40.4% increase in demand and savings deposits contributed to this growth. Table 10 presents the composition of the Group's deposits at the end of the periods analyzed.

Stockholders' Equity

At December 31, 2001, Oriental's total stockholders' equity was $131.7 million, a 19.6% increase from $110.1 million a year ago. In addition to earnings from operations (See "Overview of Financial Performance"), this rise reflects an increase on the unrealized gain of investment securities available for sale partially offset for the impact of FAS 133 derivatives activities. For more of the Group's stockholders' equity activity, refer to the Unaudited Consolidated Statement of Changes in Stockholders' Equity and of Comprehensive Income (loss) included in Table 11 and as part of the unaudited Consolidated Financial Statements.

During the six-month period ended December 31, 2001, the Group repurchased 125,492 common shares bringing to 1,504,191 shares (with a cost of $2.4 million) the number of shares held by the Group's treasury. The Group's common stock is traded in the New York Stock Exchange (NYSE) under the symbol OFG. At December 31, 2001, the Group's market value for its outstanding stock was $230.8 million ($18.60 per share).

During the six-month period ended December 31, 2001, the Group declared dividends, on its common stock amounting to $3.7 million ($0.30 per share). Dividend yield was 3.14% and 4.75%, for fiscal 2002 and 2001 respectively.

Financial holding companies are considered well capitalized under the regulatory framework for prompt corrective action if they meet or exceed a Tier I risk-based capital ratio of 6 percent, a total

risk-based capital ratio of 10 percent and a leverage capital ratio of 5 percent. As shown in Table 12, the Group comfortably exceeds these benchmarks due to the high level of capital and subordinated capital notes and the quality and conservative nature of its assets.

Group's Financial Assets

Table 12 shows, the Group's total financial assets include the Group's assets and assets managed by the trust and brokerage business. At December 31, 2001, they reached $4.827 billion—up 18.1% from $4.087 billion a year ago. The Group's financial assets main component is the assets owned by the Group, of which about 99% are owned by the Group's banking subsidiary. For more on this financial asset component, refer to Group's Assets under Financial Condition.

Oriental's second largest financial assets component is assets managed by the trust. The Group's trust offers various different types of IRA products and manages 401(K) and Keogh retirement plans, custodian and corporate trust accounts. At December 31, 2001, total assets managed by the Group's trust amounted to $1.455 billion, 3.5% higher than the $1.406 billion a year ago. This increase was mainly fueled by the market value recovery after September 11, 2001 market disruption caused by the terrorist attack.

The other financial asset component is assets gathered by the broker-dealer. The Group's broker-dealer subsidiary offers a wide array of investment alternatives to its client's base such as fixed and variable annuities, tax-advantaged fixed income securities, mutual funds, stocks and bonds. At December 31, 2001, total assets gathered by the broker-dealer from its customer investment accounts reached $1.043 billion, up 12.7% from $925.4 million a year ago.

ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS:

At December 31, 2001, the Group's allowance for loan losses amounted to $3.0 million (.54% of total loans) versus $2.9 million (0.66% of total loans) a year earlier. The Group maintains an allowance for loan losses at a level that management considers adequate to provide for potential losses based upon an evaluation of known and inherent risks. Oriental's allowance for loan losses policy provides for a detailed quarterly analysis of possible losses.

The principal factors that the Group uses to determine the level of allowance for loan losses are the Group's historical and current credit loss experience. These factors are combined with qualitative factors such as: the growth of the loan portfolio, concentrations of credit (e.g., local industries, etc.) that might affect loss experience across one or more components of the portfolio, delinquencies, effects of any changes in lending policies and procedures (including underwriting standards), collections and general economic conditions.

The methodology that the Group uses follows a loan credit risk rating process that involves dividing loans into risk categories. The following are the credit risk categories (established by the FDIC Interagency Policy Statement of 1993) used:

1.: Pass—loans considered highly collectible due to their repayment history or current status (to be in this category a loan cannot be more than 90 days past due).
2.: Special Mention—loans with potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan.
3.: Substandard—loans inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

4.: Doubtful—loans that have all the weaknesses inherent in substandard, with the added characteristic that collection or liquidation in full is highly questionable and improbable.
5.: Loss—loans considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

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

1.: overall historical loss trends (one year and three years); and
2.: other information including underwriting standards, economic trends and unusual events such as hurricanes

Loan loss ratios and credit risk categories, are updated quarterly and are applied in the context of accounting principles generally accepted in the United States ("GAAP") and the Joint Interagency Guidance 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 possible loan losses, future changes to the allowance may be necessary based on factors beyond the Group's control, such as factors affecting general economic conditions.

Net credit losses for the second quarter of fiscal 2002, totaled $408,000 (.30% of average loans), a 91% significant decrease when compared to $4.5 million (3.93% of average loans) reported in the same period of fiscal 2001. The lower level of net credit losses experienced was primarily associated to a reduction in consumer loans and financing leases net credit losses as a result of the sale of both unsecured and leasing loan portfolios, as previously discussed. Tables 5 through 7 set forth an analysis of activity in the allowance for loan losses and presents selected loan loss statistics.

The Group's non-performing assets include non-performing loans, foreclosed real estate owned and other repossessed assets (see Table 8). At December 31 2001, the Group's non-performing assets totaled $19.4 million (.83% of total assets) versus $16.1 million (0.91% of total assets) at the same date of previous fiscal year 2001. The increase was principally due to a higher level of non-performing loans; mainly to non-performing secured mortgage loans.

At December 31, 2001, the allowance for loan losses to non-performing loans coverage ratio was 16.3%. Excluding the lesser-risk real estate loans, the ratio is much higher, 195%. Detailed information concerning each of the items that comprise non-performing assets follows:

•: Real estate loans—are placed on a non-accrual basis when they become 90 days or more past due, except for well-secured residential loans, and are charged-off based on the specific evaluation of the collateral underlying the loan. At December 31, 2001, the Group's non-performing real estate loans totaled $17.1 million (91.7% of the Group's non-performing loans). Non-performing loans in this category are primarily residential mortgage loans. Based on the value of the underlying collateral and the loan-to-value ratios, management considers that no significant losses will be incurred on this portfolio.
•: Commercial business loans—are placed on non-accrual basis when they become 90 days or more past due and are charged-off based on the specific evaluation of the underlying collateral. At December 31, 2001, the Group's non-performing commercial business loans amounted to $564,000 (3.0% of the Group's non-performing loans). Most of this portfolio is also collateralized by real estate and no significant losses are expected.

•: Finance leases—are placed on non-accrual status when they become 90 days past due. At December 31, 2001, the Group's non-performing financing leases portfolio amounted to $367,000 (2.0% of the Group's total non-performing loans). The underlying collateral secures these financing leases. As reported, the Group discontinued leasing operations on June 30, 2000.
•: Consumer loans—are placed on non-accrual status when they become 90 days past due and charged-off when payments are delinquent 120 days. At December 31, 2001, the Group's non-performing consumer loans amounted to $571,000 (3.1% of the Group's total non-performing loans).
•: Foreclosed real estate—is initially recorded at the lower of the related loan balance or fair value at the date of foreclosure, any excess of the loan balance over the fair market value of the property is charged against the allowance for loan losses. Subsequently, any excess of the carrying value over the estimated fair market value less disposition cost is charged to operations. Management is actively seeking prospective buyers for these foreclosed real estate properties. At December 31, 2001, foreclosed real estate balance was $727,000.
•: Other repossessed assets—are initially recorded at estimated net realizable value. At the time of disposition, any additional losses incurred are charged against the allowance for loan losses. At December 31, 2001, there are no other repossessed properties on hand.

Item—3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk and Asset/Liability Management

The Group's interest rate risk and asset/liability management is the responsibility of the Asset and Liability Management Committee ("ALCO"), which reports to the Board of Directors and is composed of members of the Group's senior management. The principal objective of ALCO is to enhance profitability while maintaining an appropriate level of interest rate and liquidity risks. ALCO is also involved in formulating economic projections and strategies used by the Group in its planning and budgeting process; and oversees the Group's sources, uses and pricing of funds.

Interest rate risk can be defined as the exposure of the Group's operating results or financial position to adverse movements in market interest rates which mainly occurs when assets and liabilities reprice at different times and at different rates. This difference is commonly referred to as a "maturity mismatch" or "gap". The Group employs various techniques to assess the degree of interest rate risk.

The Group is liability sensitive due to its fixed rate and medium to long-term asset composition being funded with shorter-term reprising liabilities. As a result, the Group uses interest rate swaps and caps as a hedging mechanism to offset said mismatch and control exposures of interest rate risk. Under the swaps, the Group pays a fixed annual cost and receives a floating ninety-day payment based on LIBOR. Floating rate payments received from the swap counterparty correspond to the floating rate payments made on the borrowings or notes thus resulting in a net fixed rate cost to the Group. Interest rate caps provide protection against increases in interest rates above cap rates.

The Group is exposed to a reduction in the level of Net Interest Income ("NII") in a rising interest rate environment. NII will fluctuate with changes in the levels of interest rate affecting interest-sensitive assets and liabilities. If (1) the rates in effect at December 31, 2001 remained constant, or increase or decrease on an instantaneous and sustained change of plus or minus 200 basis points, and

(2) all scheduled reprising, reinvestments and estimated prepayments, and reissuances are constant, or increase or decrease accordingly; NII will fluctuate as shown on the following table:

Change in Interest rate		Expected NII (1)		Amount Change			Percent Change
		(In thousands)
Base Scenario
	Flat	$	69,448	$	—		—	%
	+ 200 Basis points		62,571		(6,877	)	(9.90	%)
	-200 Basis points		73,091		3,643		5.25	%

Note:

1.: The NII figures exclude the effect of the amortization of loan fees.

Liquidity Risk Management

Liquidity refers to the level of cash, eligible investments easily converted into cash and lines of credit available to meet unanticipated requirements. The objective of the Group's liquidity management is to meet operating expenses and ensure sufficient cash flow to fund the origination and acquisition of assets, the repayment of deposit withdrawals and the maturities of borrowings. Other objectives pursued in the Group's liquidity management are the diversification of funding sources and the control of interest rate risk. Management tries to diversify the sources of financing used by the Group to avoid undue reliance on any particular source.

At December 31, 2001, the Group's liquidity was deemed appropriate. At such date the Group's liquid assets amounted to $1.463 billion, this includes $24.4 million available from unused lines of credit with other financial institutions and $37.2 million of borrowing potential with the FHLB. The Group's liquidity position is reviewed and monitored by the ALCO Committee on a regular basis. Management believes that the Group will continue to maintain adequate liquidity levels in the future.

The Group's principal sources of funds are net deposit inflows, loan repayments, mortgage-backed and investment securities principal and interest payments, reverse repurchase agreements, FHLB advances and other borrowings. The Group has obtained long-term funding through the issuance of notes and long-term reverse repurchase agreements. The Group's principal uses of funds are the origination and purchase of loans, the purchase of mortgage-backed and investment securities, the repayment of maturing deposits and borrowings.

PART—2 OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Group and its subsidiaries are defendants in a number of legal claims under various theories of damages arising out of, and incidental to their business. The Group is vigorously contesting those claims. Based upon a review with 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 position or results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS—NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES—NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Group's Annual Meeting of Stockholders was held on October 23, 2001. A quorum was obtained with 10,893,408 votes represented in person or by proxy, which represented approximately

87% of all votes eligible to be cast at the meeting. Two directors of the Group, Emilio Rodriguez, Jr. and Alberto Richa Angelini, were reelected for additional three-year terms. The results of the voting are as follows:

Nominees for Three-Year Terms		Votes For		Votes Withheld
Emilio Rodríguez, Jr.		10,868,298		25,110
Alberto Richa Angelini		10,868,298		25,110

ITEM 5. OTHER INFORMATION—NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A—EXHIBITS

None

B—REPORTS ON FORM 8-K

The Group filed a report on Form 8-K related to the issuance of trust-preferred securities by a wholly owned business trust subsidiary of the Group:

(1): Date of report: December 19, 2001; filed on January 4, 2002, disclosing the issuance of trust-preferred securities.

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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/ JOSE E. FERNANDEZ José E. Fernández Chairman of the Board, President and Chief Executive Officer		Dated: February 14, 2002
By:		/s/ RAFAEL VALLADARES Rafael Valladares Senior Vice President—Principal Financial Officer		Dated: February 14, 2002

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TABLE OF CONTENTS
PART 1—FINANCIAL INFORMATION Item 1—Financial Statements
ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Table of Contents

Item—3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PART—2 OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS—NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES—NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5. OTHER INFORMATION—NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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OFG Bancorp (OFG) 10-Q2001 Q4 Quarterly report

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