VIA FACSIMILE AND U.S. MAIL
December 9, 2005
Mail Stop 4561
Mr. Jose Rafael Fernandez
President and Chief Executive Officer
Oriental Financial Group Inc.
998 San Roberto Street
Professional Offices Park SE 4th Floor
San Juan, Puerto Rico 00926
Re: Oriental Financial Group Inc.
Form 10-K for Fiscal Year Ended June 30, 2005
Form 10-Q for Fiscal Quarter Ended September 30, 2005
File No. 001-12647
Dear Mr. Fernandez:
We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do not intend to expand our review to
other
portions of your documents. In some of our comments, we may ask
you
to provide us with supplemental information so we may better
understand your disclosure. Please be as detailed as necessary in
your explanation. After reviewing this information, we may or may
not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for Fiscal Year Ended June 30, 2005
Item 1. Business, page 2
1. A significant portion of your business appears to revolve
around
securities brokerage / investment banking activities. In future
filings please include an enhanced business discussion focusing on
these activities.
2. In future filings please provide a more robust discussion of
your
banking activities including your underwriting procedures and
criteria as well as your process for determining whether transfers
of
financial assets qualify for true sale accounting pursuant to
paragraph 9 of SFAS 140.
Audited Financial Statements
Attestation Report of Independent Registered Public Accounting
Firm
on Section 404
3. We note inclusion of the opinion of your Independent Registered
Accounting Firm dated September 9, 2005 in your filing. Please
amend
the filing to have your independent Registered Accounting Firm
include their signature in the opinion. Refer to paragraph 167
(n)
of PCAOB AS#2.
Consolidated Statements of Financial Condition, page F-4
4. Please tell us how you determined you had the intent and
ability
to hold your held-to-maturity securities to maturity in view of
funding that appears to be concentrated in securities sold under
agreements to repurchase that primarily mature in less than 30
days.
Consolidated Statements of Cash Flows, page F-6
5. We note your disclosure of origination and purchase of loans,
excluding loans held for sale. Please tell us, and in future
filings
disclose:
* the amount of loans purchased for each of the three years
presented;
* your basis for determining that loan purchases should be
accounted
for as purchases and not financings; and
* how you evaluated purchased loans in your determination of the
allowance for loan losses.
Note 3 - Investments, page F-20
6. We note your disclosure of large amounts of investment
securities
available-for-sale transferred to held-to-maturity in each of the
last two years. Please tell us, and in future filings disclose
the
reasons for these transfers. Also tell us how you
determined your intent and ability to hold these securities to
maturity both at the time of the transfer and now.
Note 5 - Loans Receivable And Allowance For Loan Losses, page F-25
7. Please tell us the following as it relates to your agreements
to
purchase the $114.9 million of fixed rate mortgage loans:
* the name of the financial institution from whom you purchased
the
loans;
* your basis for determining that they should be accounted for as
purchases and not financings;
* how the agreements to purchase the loans affected your
determination of the allowance;
* if you had to make any payments for the guarantee;
* if payments were made, how you accounted for such payments;
* whether the swaps are embedded;
* if embedded, how you determined whether to bifurcate, including
the
specific guidance relied upon in making this determination; and
* the specific guidance you relied upon in making your assumption
of
no ineffectiveness.
Note 10 - Derivative Activities, page F-30
8. Please tell us the following related to your derivative hedges
that you use the short-cut method of assessing hedge
ineffectiveness:
* the types of hedged items clearly explaining the terms of such
hedged items;
* the specific terms of the derivatives used to hedge each type of
hedged item explaining how you determined that those terms match
the
terms of the hedged items; and
* for each type of hedged item, how you considered and met each of
the specific requirements of paragraph 68 of SFAS 133.
Management`s Discussion and Analysis
Overview of Financial Performance, page F-43
9. We note that you adjusted your previously reported diluted
earnings per share figures for additional incentive stock options
issued pursuant to anti-dilution provisions. Please address the
following as it relates to your disclosure and treatment of
incentive
stock options:
* Provide a comprehensive discussion detailing how you determined
the
number of additional incentive stock options issued, separately
addressing those related to exercised stock options and those
related
to unexercised stock options;
* Explain how you accounted for additional incentive stock options
related to each group of exercised and unexercised stock options
citing the authoritative accounting literature you relied upon. To
facilitate our understanding please provide us with journal
entries;
and
* Tell us how each of the events of dilution, for example,
quarterly
cash dividends declared, impacted your determination of the number
of
additional incentive stock options to be issued.
10. In the fifth paragraph on page F-43 you state that the excess
price paid was adjusted as a debit to additional paid-in capital,
and
the additional stock options granted were accounted for as usual
according to GAAP. Please clarify your accounting for these
options
and cite the authoritative accounting literature you relied upon.
* * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Detailed
letters
greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Benjamin Phippen, Staff Accountant, at (202)
551-3697 or me at (202) 551-3490 if you have any questions.
Sincerely,
Donald A. Walker
Senior Assistant Chief Accountant
Mr. Jose Rafael Fernandez
Oriental Financial Group Inc.
December 6, 2005
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