Good morning. My name is Lynn, and I will be your conference operator today. Thank you for joining us for this conference call for Oriental Financial Group. Our participants are José Rafael Fernández, President, Chief Executive Officer and Vice Chairman; Ganesh Kumar, Executive Vice President and Chief Financial Officer; Norberto González, Executive Vice President and Chief Risk Officer; and Ramón Rosado, Senior VP, Treasurer. José Ramón González, Senior Executive VP, Banking & Corporate Development is out of the office this week on a scheduled vacation. Please note that this call may feature certain forward-looking statements about managements’ goals, plans and expectations, which are subject to various risks and uncertainties outlined in the Risk Factors section of Oriental’s Securities and Exchange Commission filings. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments, which occur afterwards. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. During the question-and-answer session, we ask questioners to not use cell phones or Blackberries as they might cause loud static on the lines. I would now like to turn the call over to Mr. Fernández. José Fernández: Thank you for listening in today. We have a presentation that accompanies our remarks. It can be found in the webcast presentations and other files page on our Investor Relations website. I’ll review our results, and Ganesh will go over the income statement and balance sheet. I’ll come back and give you our thoughts regarding our outlook, and then we’ll go into the question-and-answer session. Starting on Page 4 of the presentation, you can see that results for the second quarter were generally in line with expectations. Income per common share…

Thank you, José Rafael. First, let’s look at the income statement. All the comparisons will be to the first quarter of 2012 unless otherwise noted. Turning to Page 8, interest income from non-covered loans declined about $900,000, primarily due to lower residential mortgage loan balances. In line with our emphasis on banking activity, we have been building our commercial and consumer loan and auto leasing portfolio, which generated increased interest income during the quarter. Based on our origination targets, we believe that over the course of the second half of the year, we should begin to see interest income from commercial and consumer loans and auto leasing offsetting the decline from residential mortgages. Looking at the interest income from covered loans, it declined $1.2 million due to lower balances resulting from nominal pay-downs as expected. Interest income from securities declined $7 million, approximately $4.4 million of that was attributable to lower yield and lower balances reflecting the reduction in the size of portfolio and approximately $2.6 million was due to higher premium amortization on the Oriental mortgage-backed securities portfolio. This quarter we sold approximately $343 million of MBS at a net gain of $11.9 million, reflecting the ongoing Oriental strategy to sell mortgage-backed securities subject to higher prepayment speeds. In all, the interest income from loans as a percentage of total interest income equaled 62%, which is up 35% in the year ago quarter, underscoring our emphasis on increased banking activity Now, turning to Page 9, the cost of deposits fell $1.3 million, reflecting lower cost of funds, primarily due to continuing progress in re-pricing our core retail deposits. And total interest expense on borrowings fell more than $2 million. Provision for non-covered loan and lease losses increased $800,000 while the loss provision for covered assets, the former Eurobank loan…

[Operator Instructions] Your first question comes from the line of Michael Sarcone with Sandler O’Neill.

So, can you just talk a bit about loan demand on the island, I know you guided to a step up in commercial loan production in the second half of 2012, but what are you seeing across other loan buckets in terms of demand? José Fernández: Well, as we mentioned and you pointed out here also on the commercial, we do see an opportunity for us to continue to gain and kind of gain market share from the competitors and we don’t see necessarily a loan demand or high loan demand in Puerto Rico in general. There is no growth in the loan demand that’s what I am referring to from the commercial side. We do see a higher level of consumer loans from what we have done in the past and we are probably looking closer to the $8 million to $9 million quarter rate from the consumer loan. Leasing - auto leasing issue remained relatively stable with this quarter so - and then on residential mortgage, we also see a range there between $45 million to $55 million per quarter. That’s kind of how we are viewing it. To us, the most important aspect of our strategy is the commercial side, the commercial banking side and we are seeing even though this quarter’s numbers don’t necessarily reflect a smooth kind of trending upwards on our production, it really has a lot to do with the timing of when these relationships eventually close and - but we are very encouraged that we’ll finish the year with $200 million in new commercial loan originations.

Okay. And what kind of rates are you seeing on new commercial loan production? José Fernández: It really depends, but when you are looking at the small business or mid-market, we are seeing - on the fixed side, we are seeing 5%, 5.25%, 5.5%. On the variable, you are seeing a prime rate type of lending based with a floor and that floor is going to be between I would say 4.75% to 5%. So, it will be LIBOR plus with a floor as I just mentioned.

Okay. And then just switching to credit net charge-off spiked in 2Q mostly in the resi mortgage book, can you walk us through what you are seeing there? José Fernández: Yes, sure. I’ll let Norberto go and dive into those numbers. Norberto González: I think that in general terms, the credit quality is stable. When I look at the charge-offs, it’s better to see them on a year-to-date basis and the residential mortgage is actually down on a year-to-date basis compared to last year. It all depends on, let’s say, the appraisals that you get some - there are some quarters and you get more information than in others. And you are able to do some write-downs of non-performing loans in one quarter more than the others. But as you see year-to-date, it is actually $2.9 million compares to $3 million in 2011. The increase in charge-offs is mainly commercial loans and it’s mainly due to 2 specific cases that are 2 longstanding participations with our institutions in which we took charge-off this year, which account for a significant portions of the charge-offs in commercial loans. The consumer is actually significantly down compared to last year. And in terms of the delinquency and non-performing, if we look at the numbers as of June 30, 2012, the level of non-performing loans is actually lower than as of June 30, ‘11, March 31, 2012, and December 31, 2011 and that applies also to early delinquency. And meanwhile, our allowance at $37.4 million is higher than as of March 31 and December 31 and so on. That’s more or less my analysis. I don’t know if you have any follow-up question with that.

Yes. So, just on the resi mortgage, charge-offs in 2Q, that’s - we can say that’s primarily related to new appraisals? Norberto González: Yes. We do the analysis every quarter of loans that are non-performing and it’s the matter of determining the timing when we do receive the appraisals, but - and last quarter, it was only in the 122,000, but if you see on a year-to-date basis, it’s basically similar to last year. So, we more or less expect that the charge-off for residential mortgages for 2012 will be in line on the annual basis, that’s 2011 as it has been so far.

Your next question comes from the line of Joe Gladue with B. Riley.

Let me start off with the yields, it looks like there was a fairly significant decline in non-covered loan yields, I think they were down about 29 basis points from first quarter to second quarter recognizing that the new loans are going on at lower yields, but that seem like a fairly significant drop. Was there anything unusual going on there or what caused that? José Fernández: Primarily, Joe, it’s related to a lower balance on the residential mortgage portfolio, where it continues to trend down as we sell our originations to Fannie and Freddie, so that’s the main driver of the reduction in the interest income from residential loans. You pointed out also on the commercial, there is a - the origination are coming at a lower rate than the aggregate rate of our own portfolio. So, that also has to do with it. But in general, it has to do - the main part of it has to do with the volume, the balances on residential mortgage portfolio.

Moving a little over to the expense side, just you did mention in prepared remarks about the tax settlement, could you just give a couple of more details on that, what was that tax settlement?

Joe, this is Ganesh. We had a tax settlement close to about $1 million from San Juan municipality following the Eurobank transaction. We had accrued for some fast payments that Eurobank had owed and we were contending that, that is the FDIC’s liability and not necessarily our liability and which San Juan municipality finally came and settled with us and agreed. These are that reversals for the provisions for tax that we had - we have taken. That continued from 2010 to 2011 about a figure of 12 months and then we stopped provisioning for such taxes. Now, we are reversing that.

Okay. And on the marketing expenses, they were up substantially in the quarter and you mentioned you expect higher marketing, is this the second quarter level of something that we should expect to continue or will it go up still further? José Fernández: I think you should expect the level of the second quarter and bear in mind that given the announced acquisition, we are going to invest in the second half at the same rate of the second quarter, just to make sure that we continue to build on our grant.

And I guess the anticipated sale of the $1.4 billion in securities do you have a good estimate of which securities those are and what impact that those sales will have on the average asset yields going forward? José Fernández: Just to reiterate, the sale of those $1.4 billion would be at the end of the year and we have hedged them. So, we protect the gain. I’ll let Ramón Rosado, our Treasurer, give you some color on the question that you posted in terms of the specificity of the securities. Ramón Rosado: Yes, we have looked at the portfolio and obviously we are targeting those securities that are susceptible to prepayment risk. So, we more or less have an idea what securities we're looking at right now as José Rafael mentioned, we entered into 2 hedging transactions that will help us counteract any rising rate environments. So, this is a transaction that will probably be secured very close to execution date of the purchase. So, we obviously will look at the effectiveness of these hedges down the road and we’ll make any adjustments that are needed to certify that the gains are protected.

Now, Joe with regards going forward and in terms of what our assumptions are in terms of the yields on our investment portfolio - remaining investment portfolio, I can say that it's closer to the 2.25% to 2.5% assumption that we are making. So, when we go into 2013 and beyond the remaining portion that’s the assumption that we’re making.

All right, I’ll ask one more and step back, just wondering if you’ve had much chance to look at the proposed Basel III capital rules and figured out what impact that might have on your capital levels and any change in your strategy going forward?

We certainly have looked at it and we are in the process of finalizing the evaluation… Ramón Rosado: I can say it’s more work for the banks in terms of all these calculations that we have to make and all these things in terms of the capital buffer and all the different ratios, but we are obviously well-capitalized, well above the requirements. And we will continue to be after the BBVA acquisition with our profitability and the capital that we have raised. So, we don’t see the, let’s say that this will affect us that much in terms of not complying with any of the new ratios or the new calculations.

Joe, so I think the Basel III would most affect in the residential mortgage portfolio, which is we are continuously monitoring as part of the capital requirements for the second transaction, because if you put 2 companies together we would have close to $1.8 billion in residential. And given that and as well as the first implementation I think we’ve got some breathing room to kind of accumulate the retained earnings and meet their requirements if there is anything. Ramón Rosado: This basically starts to apply in 2014 most of the thing. So, there is no rush in that terms.

[Operator Instructions] Your next question comes from the line of Todd Hagerman with Sterne Agee.

Ganesh, I got a couple of questions for you. Just in terms of the margin, you mentioned the negative mark on the swaps this quarter. Couple of things, one, can you just give us the impact on the margin this quarter, that the swaps had and with that how you see kind of the second half of the year as it relates to kind of your outlook for the margin as we go into the BBVA transaction?

Let me ask Ramon to answer the question, he has got the… Ramón Rosado: Basically, you need to understand that the swaps are not necessarily hurting the margin on the country what they raise, they’re basically fixing the cost of our funding at a lower rate than what we had previously. We had to fix repos that matured at 4.25%, 4.30%. And when they mature we renewed those repo short-term and then fixed the rate with a longer term swap at around 1.90% in some cases, 2% in others and that’s the way it impacts positively the results of your premise as early…

Margins. José Fernández: Correct from a margin perspective, it’s a positive effect.

Okay and then just as it relates to the accretable yield from Eurobank, how should we think about a, where did that stand in the quarter? I think it was $175 million in the first quarter, where did that in the second quarter? And how should we think about that run off relative to the purchase accounting marks with BBVA at the end of the year? José Fernández: Accretable yield stands around $145 million, asset close to $174 million. And we would still think that we are looking for a total period of 5 years from April 2010. So, we are looking at April 2015 as the run down period that is our target at this point in time. Keep in mind, the cash flow projections and the timing would be adjusted primarily because of the movement in the non-performing higher amount of non-performing that’s sitting out there and we’re trying to kind of liquidate that at the earliest time possible.

And so do you have a sense though yet with the purchase accounting how that may affect the benefit when the deal closes? José Fernández: Sure. What do you mean by the deal closes, which deal are you talking about?

BBVA. Any accounting marks and how that’s going to affect kind of that 5 year average life and the run-off in the yield? José Fernández: Well, first of all the accretable yield that I referred to is Eurobank portfolio, right. So, that part of the book is not going to be touched when the BBVA transaction happens. So, we don’t comingle because it’s clearly distinct pools with number loans in it and they won’t be touched at all. And having said that when BBVA happens, we would have another SOP 03 purchase accounting on those pools of loans and that they would just be separately measured and projected.

I appreciate that. I’m just wondering if you have a sense for how that mark is going to look, they have got that lower cost of funding… José Fernández: Oh, you mean BBVA in the investor presentation, yes sorry about that I didn’t understand your question. In the investor presentation during the capital raise we showed a 7.5% mark as of the confirmatory due diligence that we did earlier before the capital raise. So, that 7.5% mark is made up of roughly 80 basis points to 100 basis points in the interest mark and remaining is the credit mark that we took on the aggregate level.

Okay and then just finally can I just in terms of DTA came down a little bit last quarter how much did it come down, I am assuming it came down again this quarter, can you quantify that for us? José Fernández: We are still calculating the tax schedules for the 10-Q, so I’ll be able to update that in maybe couple of days if you can give me some time.

[Operator Instruction] Your next question comes from the line of Derek Hewett with KBW.

Quick question regarding the BBVA acquisition, do you guys have any, are you guys seeing any sort of material update to your expectations for 2014 of $2.17, I think per share on a core basis X the, excuse me, X the one-time charges that you guys are expecting, or is that pretty much still kind of what you guys are thinking about right now? José Fernández: Derek, remember that’s when we did the capital raise we used the IBES median…

Median estimate. José Fernández: Estimates and the numbers that you are referring to are basically based on the IBES median estimates going forward. So, we have not made any guidance - specific guidance regarding the earnings per share of the combined company going forward as we need to continue to work with the integration process and the mark-to-market on the loans, et cetera. We have not made any changes to that analysis since the capital raise.

Your next question comes from the line of Michael Sarcone with Sandler O’Neill.

Just one follow-up from me. Do you have any color on the timing of the additional preferred and common equity issuances? José Fernández: Later in the second half of the year it’ll probably be closer to the end of the third quarter maybe beginning of the first quarter. It depends on how we approach all this. We need to get up to speed all the financial information from the BBVA Puerto Rico, which is a private company we need to make a SEC kind of compliance. So, we are in that process right now. And it looks like it’s going to be late during the third quarter or beginning of the fourth quarter.

At this time, there are no further questions. I will now turn the call back over to José Rafael Fernandez for closing remarks. José Fernández: Thank you everyone for listening today. We look forward to talking to you again when we report our third quarter results. I wish you a great day. Thank you.

This concludes today’s conference. You may now disconnect.