SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
t | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 |
OR
à | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO . |
Commission file number: 000-21137
R&G FINANCIAL
CORPORATION
Puerto Rico |
66-0532217 |
|
(State of incorporation | (I.R.S. Employer | |
or organization) | Identification No. ) |
280 Jesús T. Piñero Avenue | ||
Hato Rey, San Juan, Puerto
Rico |
00918 |
|
(Address of principal executive offices) | (Zip Code) |
(787) 758-2424
(Registrants telephone number, including area code)
Indicate by checkmark whether Registrant (a) 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 report (s) and (b) has been subject to such filing requirements for at least 90 days.
YES x NO o
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of
1934).
x Yes
o NO
Number of shares of Class B Common Stock outstanding as of March 31, 2004: 29,539,464 (Does not include 21,559,584 Class A Shares of Common Stock which are exchangeable into Class B Shares of Common Stock at the option of the holder.)
1
R&G FINANCIAL CORPORATION
INDEX
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EX-10.3.1 AMENDMENT NO.3 TO THE MASTER PRODUCTION | ||||||||
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO | ||||||||
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO | ||||||||
EX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO |
2
PART 1-FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004 |
December 31, 2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 86,222 | $ | 114,916 | ||||
Money market investments: |
||||||||
Securities purchased under agreements to resell |
119,428 | 85,053 | ||||||
Time deposits with other banks |
98,919 | 34,349 | ||||||
Mortgage loans held for sale, at lower of cost or market |
271,378 | 315,691 | ||||||
Mortgage-backed and investment securities held for trading, at fair value |
14,806 | 31,797 | ||||||
Trading securities pledged on repurchase agreements, at fair value |
16,134 | 6,558 | ||||||
Mortgage-backed and investment securities available for sale, at fair value |
1,930,429 | 1,805,360 | ||||||
Available for sale securities pledged on repurchase agreements, at fair
value |
1,283,163 | 1,215,287 | ||||||
Mortgage-backed and investment securities held to maturity, at amortized cost
(estimated market value: 2004 - $15,415; 2003 - $14,940) |
15,345 | 14,883 | ||||||
Held to maturity securities pledged on repurchase agreements, at amortized cost
(estimated market value: 2004 - $61,502; 2003 - $65,248) |
59,554 | 63,317 | ||||||
Federal Home Loan Bank stock, at cost |
104,479 | 100,461 | ||||||
Loans receivable, net |
4,196,730 | 4,048,507 | ||||||
Accounts receivable, including advances to investors, net |
49,374 | 38,195 | ||||||
Accrued interest receivable |
44,528 | 42,527 | ||||||
Servicing
asset, net |
112,467 | 119,610 | ||||||
Premises and equipment, net |
44,772 | 42,782 | ||||||
Other assets |
136,450 | 119,587 | ||||||
$ | 8,584,178 | $ | 8,198,880 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Liabilities: |
||||||||
Deposits |
$ | 3,709,892 | $ | 3,555,764 | ||||
Federal funds purchased |
| 21,000 | ||||||
Securities sold under agreements to repurchase |
2,339,910 | 2,220,795 | ||||||
Notes payable |
166,394 | 192,259 | ||||||
Advances from FHLB |
1,098,600 | 1,129,600 | ||||||
Other borrowings |
265,339 | 157,670 | ||||||
Accounts payable and accrued liabilities |
206,554 | 158,006 | ||||||
Other liabilities |
14,958 | 13,433 | ||||||
7,801,647 | 7,448,527 | |||||||
Commitments and contingencies (see Note 7) |
||||||||
Stockholdersequity: |
||||||||
Preferred stock, $.01 par value, 20,000,000 shares authorized: |
||||||||
Non-cumulative perpetual Monthly Income Preferred Stock, $25 liquidation value: |
||||||||
7.40% Series A, 2,000,000 shares authorized, issued and outstanding |
50,000 | 50,000 | ||||||
7.75% Series B, 1,000,000 shares authorized, issued and outstanding |
25,000 | 25,000 | ||||||
7.60% Series C, 2,760,000 shares authorized, issued and outstanding |
69,000 | 69,000 | ||||||
7.25% Series D, 2,760,000 shares authorized, issued and outstanding |
69,000 | 69,000 | ||||||
Common stock: |
||||||||
Class A - $.01 par value, 40,000,000 shares authorized, 21,559,584
issued and outstanding |
216 | 216 | ||||||
Class B - $.01 par value, 60,000,000 shares authorized, 29,539,464
issued and outstanding (2003 - 29,506,715) |
295 | 295 | ||||||
Additional paid-in capital |
115,368 | 115,017 | ||||||
Retained earnings |
417,121 | 387,036 | ||||||
Capital reserves |
25,103 | 25,103 | ||||||
Accumulated other comprehensive income, net of tax |
11,428 | 9,686 | ||||||
782,531 | 750,353 | |||||||
$ | 8,584,178 | $ | 8,198,880 | |||||
The accompanying notes are an integral part of these statements.
3
R&G FINANCIAL CORPORATION
Three month | ||||||||
period ended | ||||||||
March 31, |
||||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands except for per share data) | ||||||||
Interest income: |
||||||||
Loans |
$ | 68,169 | $ | 51,955 | ||||
Money market and other investments |
7,094 | 8,618 | ||||||
Mortgage-backed securities |
32,368 | 27,683 | ||||||
Total interest income |
107,631 | 88,256 | ||||||
Interest expense: |
||||||||
Deposits |
23,703 | 21,693 | ||||||
Securities sold under agreements to repurchase |
13,513 | 12,771 | ||||||
Notes payable |
1,469 | 1,870 | ||||||
Other |
13,232 | 9,701 | ||||||
Total interest expense |
51,917 | 46,035 | ||||||
Net interest income |
55,714 | 42,221 | ||||||
Provision for loan losses |
(6,470 | ) | (4,220 | ) | ||||
Net interest income after provision for loan losses |
49,244 | 38,001 | ||||||
Non-interest income: |
||||||||
Net gain on origination and sale of loans |
39,893 | 33,017 | ||||||
Loan administration and servicing fees |
9,317 | 13,201 | ||||||
Service charges, fees and other |
8,912 | 5,721 | ||||||
58,122 | 51,939 | |||||||
Total revenues |
107,366 | 89,940 | ||||||
Non-interest expenses: |
||||||||
Employee compensation and benefits |
16,700 | 15,147 | ||||||
Office occupancy and equipment |
6,380 | 5,702 | ||||||
Other administrative and general |
31,243 | 30,543 | ||||||
54,323 | 51,392 | |||||||
Income before income taxes |
53,043 | 38,548 | ||||||
Income tax expense: |
||||||||
Current |
13,505 | 5,940 | ||||||
Deferred |
998 | 3,467 | ||||||
14,503 | 9,407 | |||||||
Net income |
$ | 38,540 | $ | 29,141 | ||||
Earnings per common share - Basic |
$ | 0.68 | $ | 0.49 | ||||
- Diluted |
$ | 0.67 | $ | 0.49 | ||||
Weighted average number of shares outstanding - Basic |
51,089,482 | 51,034,079 | ||||||
- Diluted |
51,326,343 | 51,271,139 |
The accompanying notes are an integral part of these statements.
4
R&G FINANCIAL CORPORATION
Three month | ||||||||
period ended | ||||||||
March 31, |
||||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Net income |
$ | 38,540 | $ | 29,141 | ||||
Other comprehensive income,
before tax: |
||||||||
Unrealized (losses) gains : |
||||||||
Cash flow hedges |
(2,696 | ) | 340 | |||||
Investment securities: |
||||||||
Arising during period |
5,486 | (4,728 | ) | |||||
Less: Reclassification
adjustments for losses (gains) included in
net income |
13 | (106 | ) | |||||
5,499 | (4,834 | ) | ||||||
Other comprehensive gain (loss)
before
income taxes |
2,803 | (4,494 | ) | |||||
Income tax (expense) benefit
related to items of
other comprehensive income |
(1,062 | ) | 1,757 | |||||
Other comprehensive income
(loss), net of tax |
1,741 | (2,737 | ) | |||||
Comprehensive income, net of tax |
$ | 40,281 | $ | 26,404 | ||||
The accompanying notes are an integral part of these statements.
5
R&G FINANCIAL CORPORATION
Three month period ended March 31, |
||||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 38,540 | $ | 29,141 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
3,138 | 2,134 | ||||||
Amortization of premium on investments and mortgage-backed securities, net |
1,791 | 2,506 | ||||||
Scheduled amortization of servicing asset |
5,479 | 5,597 | ||||||
Impairment charges on servicing asset |
9,300 | 10,829 | ||||||
Provision for loan losses |
6,470 | 4,220 | ||||||
Loss (gain) on sales of mortgage-backed and investment securities available for sale |
13 | (106 | ) | |||||
Unrealized loss on trading securities and derivative instruments, net |
2,206 | 803 | ||||||
Decrease (increase) in mortgage loans held for sale |
57,648 | (27,741 | ) | |||||
Net decrease in securities held for trading |
7,364 | 28,243 | ||||||
Increase in receivables |
(13,181 | ) | (4,792 | ) | ||||
Increase in other assets |
(9,420 | ) | (8,940 | ) | ||||
(Decrease) increase in notes payable and other borrowings |
(25,928 | ) | 21,274 | |||||
Increase in accounts payable and accrued liabilities |
42,635 | 13,218 | ||||||
Increase in other liabilities |
1,525 | 1,919 | ||||||
Total adjustments |
89,040 | 49,164 | ||||||
Net cash provided by operating activities |
127,580 | 78,305 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of investment securities available for sale and held to maturity |
(570,929 | ) | (770,127 | ) | ||||
Proceeds from sales and redemption of securities available for sale |
228,495 | 144,806 | ||||||
Principal repayments on mortgage-backed securities |
164,030 | 242,240 | ||||||
Proceeds from sales of loans |
206,293 | 24,488 | ||||||
Net originations of loans |
(381,863 | ) | (274,910 | ) | ||||
Purchases of FHLB stock, net |
(4,018 | ) | (14,619 | ) | ||||
Acquisition of premises and equipment |
(4,839 | ) | (3,815 | ) | ||||
Acquisition of servicing rights |
(7,636 | ) | (7,921 | ) | ||||
Net cash used in investing activities |
(370,467 | ) | (659,858 | ) | ||||
Cash flows from financing activities: |
||||||||
Increase in deposits - net |
154,128 | 199,610 | ||||||
Decrease in federal funds purchased |
(21,000 | ) | | |||||
Increase in securities sold under agreements to repurchase - net |
119,115 | 341,577 | ||||||
(Repayments) advances from FHLB, net |
(31,000 | ) | 18,000 | |||||
Proceeds from issuance of long-term debt |
100,000 | | ||||||
Proceeds from issuance of common stock |
351 | 194 | ||||||
Cash dividends: |
||||||||
Common stock |
(4,484 | ) | (3,353 | ) | ||||
Preferred stock |
(3,971 | ) | (3,971 | ) | ||||
Cash paid in lieu of fractional shares on stock split |
(1 | ) | | |||||
Net cash provided by financing activities |
313,138 | 552,057 | ||||||
Net increase (decrease) in cash and cash equivalents |
70,251 | (29,496 | ) | |||||
Cash and cash equivalents at beginning of period |
234,318 | 197,643 | ||||||
Cash and cash equivalents at end of period |
$ | 304,569 | $ | 168,147 | ||||
Cash and cash equivalents include: |
||||||||
Cash and due from banks |
$ | 86,222 | $ | 101,132 | ||||
Short-term investments |
| 17,415 | ||||||
Securities purchased under agreements to resell |
119,428 | 12,297 | ||||||
Time deposits with other banks |
98,919 | 37,303 | ||||||
$ | 304,569 | $ | 168,147 | |||||
The accompanying notes are an integral part of these statements.
6
R&G FINANCIAL CORPORATION
NOTE 1 - REPORTING ENTITY AND BASIS OF PRESENTATION
Reporting entity
The accompanying unaudited consolidated financial statements include the accounts of R&G Financial Corporation (the Company), a diversified financial services company, and its wholly-owned subsidiaries, R-G Premier Bank of Puerto Rico (Premier Bank), a Puerto Rico commercial bank, R-G Crown Bank (Crown Bank), a Florida-based federal savings bank, R&G Mortgage Corp. (R&G Mortgage), Puerto Ricos second largest mortgage banker, R-G Investments Corporation, a Puerto Rico licensed securities broker-dealer, and Home & Property Insurance Corp., a Puerto Rico insurance agency. The Company, currently in its 32nd year of operations, operates as a financial holding company, pursuant to the provisions of the Gramm-Leach-Bliley Act of 1999, and is engaged in banking, mortgage banking, and securities and insurance brokerage through its subsidiaries.
Premier Bank and Crown Bank provide a full range of banking services, including residential, commercial and personal loans and a variety of deposit products. Premier Bank operates through thirty-one branches located mainly in the northeastern part of the Commonwealth of Puerto Rico. Crown Bank operates in the Orlando and Tampa/St. Petersburg metropolitan areas through fifteen full service branches and seven commercial lending offices. Premier Bank also provides private banking and trust and other financial services to its customers. Premier Bank and Crown Bank are subject to the regulations of certain federal and Puerto Rico agencies, and undergo periodic examinations by those regulatory agencies.
Crown Bank is also engaged in the origination of FHA-insured, VA-guaranteed and privately insured first and second mortgage loans on residential real estate (1 to 4 families) in the States of New York, New Jersey, Connecticut, North Carolina and Florida, through its wholly-owned subsidiary, Continental Capital Corporation (Continental Capital).
R&G Mortgage is engaged primarily in the business of originating FHA-insured, VA- guaranteed, and privately insured first and second mortgage loans on residential real estate (1 to 4 families), directly and through its wholly-owned subsidiary, Mortgage Store of Puerto Rico, Inc. R&G Mortgage pools FHA and VA loans into GNMA mortgage-backed securities and collateralized mortgage obligation certificates for sale to investors. After selling the loans, it retains the servicing on the loans. R&G Mortgage is also a FNMA and FHLMC seller-servicer of conventional loans.
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. However, in the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (principally consisting of normal recurring accruals) necessary for a fair presentation of the Companys financial condition as of March 31, 2004 and the results of operations and changes in its cash flows for the three months ended March 31, 2004 and 2003.
The results of operations for the three month periods ended March 31, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2003.
Basis of consolidation
All significant intercompany balances and transactions have been eliminated in the accompanying unaudited financial statements.
7
Recent accounting pronouncements
Accounting for Derivative Instruments and Hedging Activities
On July 1, 2003, the Company adopted SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivatives instruments embedded in other contracts, and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The adoption of this Statement on July 1, 2003 had no significant effect on the consolidated financial condition or results of operations of the Company.
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity
On July 1, 2003 the Company adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 covers a limited number of instruments that are to be classified as liabilities and specifies that such instruments embody obligations of the issuer and that, therefore, the issuer must classify them as liabilities.
Among the instruments specified by SFAS No. 150, mandatorily redeemable financial instruments had to be classified as liabilities. The Company had $35 million of guaranteed preferred beneficial interest in company junior subordinated deferrable interest debentures (trust preferred securities) that had already been classified as other borrowings in its consolidated statements of financial condition as of June 30, 2003 and accordingly, the adoption of this Statement on July 1, 2003 did not have any effect on the Companys consolidated financial statements.
Accounting for Consolidation of Variable Interest Entities
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, and Interpretation of ARB No. 51 (FIN 46). Under FIN 46, entities that would be assessed for consolidation are typically referred to as Special-Purposed Entities (SPEs), although non-SPE-type entities may also be subject to the guidance. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys
8
activities or entitled to receive a majority of the entities residual returns, or both. FIN 46 was effective immediately for variable interest entities created after January 31, 2003. For variable interest entities created prior to February 1, 2003, the provisions of FIN 46 became effective October 1, 2003.
Under the provisions of FIN 46, effective July 1, 2003, the Company deconsolidated R&G Capital Trust I and II which had issued trust preferred securities prior to February 1, 2003. As discussed above, the Company had classified its $35 million trust preferred securities as borrowings in its consolidated statements of financial condition prior to such deconsolidation. The primary effect of deconsolidating these trusts was to change the balance sheet classification of the liabilities from guaranteed preferred beneficial interest in company junior subordinated deferrable interest debentures to long-term debt.
The Company did not consolidate R&G Capital Trust IV created by the Company in August 2003, which issued $15 million in trust preferred securities in a private placement, and R&G Capital Trust III which in October 2003 issued $100 million of trust preferred securities in a public offering.
On March 31, 2004 the Company created R&G Capital Trust V which also issued $100 million of trust preferred securities in a public offering. The requirements of FIN 46 were also applied to R&G Capital Trust V.
Based on interim guidance issued by the Federal Reserve Board, the deconsolidation of these vehicles pursuant to FIN 46 would not impact the Tier I capital treatment of the liabilities to the extent permitted under current regulations until notice is given to the contrary.
Accounting for Certain Loans and/or Debt Securities Acquired in a Transfer
In November 2003, the Accounting Standards Executive Committee issued Statement of Position (SOP) No. 03-3, Accounting for Certain Loans and/or Debt Securities Acquired in a Transfer. This statement addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans or debt securities acquired in a transfer if those differences are attributable to credit quality. This SOP does not apply to loans originated by the entity and it prohibits both the creating and carry over of valuation allowances in the initial accounting of all loans acquired in a transfer within the scope of this SOP. The prohibition of the carry over applies to purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. Based on presently available information, management believes that adoption of this SOP will not have a significant effect on its consolidated financial statements.
Application of Accounting Principles to Loan Commitments
On March 9, 2004, the SEC issued Staff Accounting Bulletin 105, Application of Accounting Principles to Loan Commitments, (SAB 105) to inform registrants of the Staffs view that the fair value of the recorded loan commitments should not consider the expected future cash flows related to the associated servicing of the future loan. The provisions of SAB 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. The Staff will not object to the application of existing accounting practices to loan commitments accounted for as derivatives that are entered into on or before March 31, 2004, with appropriate disclosures. On April 1, 2004, R&G Financial adopted the provisions of SAB 105. R&G Financial records the value of its mortgage loan commitments at fair market value for mortgages it intends to sell. R&G Financial does not currently include, and was not including, the value of mortgage servicing or any other internally-developed intangible assets in the valuation of its mortgage loan commitments. Therefore, the adoption of SAB 105 did not have an impact on the Companys financial condition or results of operations.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income (less preferred stock dividends) by the weighted average number of shares of common stock outstanding. The weighted average number of outstanding stock options granted in connection with the Companys Stock Option Plan (236,861 and 237,060 during the three months ended March 31, 2004 and 2003, respectively, after giving effect to stock split), is included in the weighted average number of shares for purposes of the diluted earnings per share computation. No other adjustments are made to the computation of basic earnings per share to arrive at diluted earnings per share.
Dividends per share on common stock declared and paid by the Company were as follows:
Three month | ||||
period ended | ||||
March 31, | ||||
2004 |
2003 |
|||
$0.0878 |
$ | 0.0653 |
9
NOTE 3 - INVESTMENT AND MORTGAGE-BACKED SECURITIES
The carrying value and estimated fair value of investment and mortgage-backed securities by category are shown below. The fair value of investment securities is based on quoted market prices and dealer quotes.
March 31, | December 31, | |||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Mortgage-backed securities held for
trading: |
||||||||
FHLMC certificates |
$ | 30,885 | $ | 33,245 | ||||
Investment securities held for trading: |
||||||||
Municipal securities |
| 446 | ||||||
Bank issued trust preferred securities |
| 4,650 | ||||||
Other |
55 | 14 | ||||||
55 | 5,110 | |||||||
$ | 30,940 | $ | 38,355 | |||||
10
March 31, 2004 | December 31, 2003 | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
cost |
value |
cost |
value |
|||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Mortgage-backed Securities Available for Sale: |
||||||||||||||||
Collateralized mortgage obligations (CMO): |
||||||||||||||||
Due from one to five years |
$ | 5,014 | $ | 5,082 | $ | 5,939 | $ | 6,019 | ||||||||
Due from five to ten years |
42,522 | 42,571 | 20,889 | 20,873 | ||||||||||||
Due over ten years |
1,024,892 | 1,030,500 | 941,970 | 939,757 | ||||||||||||
1,072,428 | 1,078,153 | 968,798 | 966,649 | |||||||||||||
CMO residuals (interest only), and interest only
strips (IOs) |
131,575 | 132,845 | 107,058 | 107,957 | ||||||||||||
FNMA certificates: |
||||||||||||||||
Due from one to five years |
222 | 308 | 71 | 72 | ||||||||||||
Due from five to ten years |
94,016 | 94,077 | 87,989 | 87,101 | ||||||||||||
Due over ten years |
417,881 | 427,918 | 388,687 | 405,193 | ||||||||||||
512,119 | 522,303 | 476,747 | 492,366 | |||||||||||||
FHLMC certificates: |
||||||||||||||||
Due from one to five years |
202 | 214 | 3 | 3 | ||||||||||||
Due from five to ten years |
44,870 | 44,531 | 20,308 | 19,955 | ||||||||||||
Due over ten years |
419,113 | 426,954 | 439,876 | 448,161 | ||||||||||||
464,185 | 471,699 | 460,187 | 468,119 | |||||||||||||
GNMA certificates: |
||||||||||||||||
Due from one to five years |
1,055 | 1,089 | 50 | 52 | ||||||||||||
Due from five to ten years |
11,935 | 12,316 | 12,563 | 12,918 | ||||||||||||
Due over ten years |
332,446 | 335,357 | 346,568 | 350,217 | ||||||||||||
345,436 | 348,762 | 359,181 | 363,187 | |||||||||||||
2,525,743 | 2,553,762 | 2,371,971 | 2,398,278 | |||||||||||||
Investment Securities Available for Sale: |
||||||||||||||||
U.S. Government and Agencies securities: |
||||||||||||||||
Due within one year |
37,482 | 37,836 | 62,519 | 63,113 | ||||||||||||
Due from one to five years |
499,399 | 502,100 | 399,275 | 398,028 | ||||||||||||
Due from five to ten years |
47,562 | 49,067 | 79,388 | 81,042 | ||||||||||||
584,443 | 589,003 | 541,182 | 542,183 | |||||||||||||
Corporate debt obligations: |
||||||||||||||||
Due within one year |
5,009 | 5,064 | 14,247 | 14,362 | ||||||||||||
Due from one to five years |
48,568 | 51,439 | 48,578 | 51,376 | ||||||||||||
Due from five to ten years |
1,784 | 1,892 | 2,123 | 2,109 | ||||||||||||
55,361 | 58,395 | 64,948 | 67,847 | |||||||||||||
US Municipal debt obligations-
|
||||||||||||||||
Due over ten years |
12,206 | 12,432 | 12,209 | 12,339 | ||||||||||||
652,010 | 659,830 | 618,339 | 622,369 | |||||||||||||
$ | 3,177,753 | $ | 3,213,592 | $ | 2,990,310 | $ | 3,020,647 | |||||||||
11
March 31, 2004 |
December 31, 2003 |
|||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
cost |
value |
cost |
value |
|||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Mortgage-backed securities held
to maturity: |
||||||||||||||||
GNMA certificates: |
||||||||||||||||
Due from one to five years |
$ | 3,215 | $ | 3,321 | $ | 3,497 | $ | 3,581 | ||||||||
Due from five to ten years |
408 | 414 | 463 | 469 | ||||||||||||
Due over ten years |
22,304 | 22,804 | 25,475 | 26,079 | ||||||||||||
25,927 | 26,539 | 29,435 | 30,129 | |||||||||||||
FNMA certificates-
|
||||||||||||||||
Due over ten years |
4,494 | 4,692 | 4,785 | 4,999 | ||||||||||||
FHLMC certificates-
|
||||||||||||||||
Due over ten years |
76 | 74 | 81 | 79 | ||||||||||||
30,497 | 31,305 | 34,301 | 35,207 | |||||||||||||
Investment securities held to
maturity: |
||||||||||||||||
United States Government and
Agencies obligations-
|
||||||||||||||||
Due from one to five years |
2,499 | 2,499 | 1,997 | 1,997 | ||||||||||||
Puerto Rico Government and
Agencies obligations: |
||||||||||||||||
Due within one year |
558 | 566 | 558 | 567 | ||||||||||||
Due from one to five years |
31,846 | 33,175 | 31,846 | 33,088 | ||||||||||||
Due from five to ten years |
9,399 | 9,272 | 9,398 | 9,230 | ||||||||||||
41,803 | 43,013 | 41,802 | 42,885 | |||||||||||||
Other - Due from one to five years |
100 | 100 | 100 | 100 | ||||||||||||
44,402 | 45,612 | 43,899 | 44,982 | |||||||||||||
$ | 74,899 | $ | 76,917 | $ | 78,200 | $ | 80,189 | |||||||||
In addition to the investment and mortgage-backed securities pledged on repurchase agreements and reported as pledged assets in the statement of financial condition, at March 31, 2004 the Company had investment and mortgage-backed securities pledged as collateral on repurchase agreements where the counterparties do not have the right to sell or repledge the assets as follows:
Carrying Amount |
||||
(Unaudited) | ||||
(Dollars in thousands) | ||||
Mortgage-backed and investment securities available for sale, at fair value |
$ | 1,058,156 | ||
Mortgage-backed securities held to maturity, at amortized
cost |
264 | |||
$ | 1,058,420 | |||
12
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans consist of the following:
March 31, | December 31, | |||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Real estate loans: |
||||||||
Residential - first mortgage |
$ | 2,433,339 | $ | 2,384,279 | ||||
Residential - second mortgage |
36,647 | 34,999 | ||||||
Land |
109,235 | 96,796 | ||||||
Construction |
635,211 | 603,867 | ||||||
Commercial |
814,527 | 792,950 | ||||||
4,028,959 | 3,912,891 | |||||||
Undisbursed portion of loans in process |
(228,496 | ) | (224,960 | ) | ||||
Net deferred loan costs |
1,106 | 1,369 | ||||||
3,801,569 | 3,689,300 | |||||||
Other loans: |
||||||||
Commercial |
223,786 | 188,690 | ||||||
Consumer: |
||||||||
Secured by deposits |
23,534 | 24,713 | ||||||
Secured by real estate |
51,149 | 53,709 | ||||||
Other |
140,341 | 131,711 | ||||||
Unearned interest |
(1 | ) | (1 | ) | ||||
438,809 | 398,822 | |||||||
Total loans |
4,240,378 | 4,088,122 | ||||||
Allowance for loan losses |
(43,648 | ) | (39,615 | ) | ||||
$ | 4,196,730 | $ | 4,048,507 | |||||
The changes in the allowance for loan losses follow:
Three months ended | ||||||||
March 31, |
||||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Balance, beginning of period |
$ | 39,615 | $ | 32,675 | ||||
Provision for loan losses |
6,470 | 4,220 | ||||||
Loans charged-off |
(3,081 | ) | (3,672 | ) | ||||
Recoveries |
583 | 312 | ||||||
Transfers |
61 | (193 | ) | |||||
Balance, end of period |
$ | 43,648 | $ | 33,342 | ||||
13
The following table sets forth the amounts and categories of R&G Financials non-performing assets at the dates indicated.
March 31, | December 31, | |||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Non-accruing loans: |
||||||||
Residential real estate (1) |
$ | 67,864 | $ | 57,031 | ||||
Residential construction |
2,855 | 2,424 | ||||||
Commercial real estate |
22,863 | 22,589 | ||||||
Commercial business |
2,311 | 1,733 | ||||||
Consumer unsecured |
908 | 833 | ||||||
Total |
96,801 | 84,610 | ||||||
Accruing loans greater than 90 days
delinquent: |
||||||||
Residential real estate (1) |
| | ||||||
Residential construction |
| | ||||||
Commercial real estate |
881 | | ||||||
Commercial business |
499 | 382 | ||||||
Consumer |
350 | 422 | ||||||
Total accruing loans greater than
90 days delinquent |
1,730 | 804 | ||||||
Total non-performing loans |
98,531 | 85,414 | ||||||
Real estate owned (2) |
19,894 | 19,954 | ||||||
Other repossessed assets |
242 | 220 | ||||||
20,136 | 20,174 | |||||||
Total non-performing assets |
$ | 118,667 | $ | 105,588 | ||||
Total non-performing loans as a
percentage of total loans |
2.21 | % | 1.98 | % | ||||
Total non-performing assets as a
percentage of total assets |
1.38 | % | 1.29 | % | ||||
Allowance for loan losses as a percentage
of total non-performing loans |
44.30 | % | 46.38 | % | ||||
Allowance for loan losses as a percentage
of total loans outstanding |
0.98 | % | 0.92 | % | ||||
Net charge-offs to average loans
outstanding |
0.22 | % | 0.32 | % | ||||
(1) | R&G Financials historical charge-offs with respect to residential real estate loans have been low. As a result, R&G Financials aggregate charge-offs as a percentage of total average loans outstanding amounted to 0.22% during the three months ended March 31, 2004 and 0.32% during the year ended December 31, 2003. |
(2) | Consist primarily of residential real estate foreclosed by the Company. |
14
NOTE 5 - SERVICING ASSET
The changes in the servicing asset of the Company follows:
Three months | ||||||||
period ended | ||||||||
March 31, |
||||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Balance at beginning of period |
$ | 119,610 | $ | 142,334 | ||||
Rights originated |
7,414 | 6,492 | ||||||
Rights purchased |
222 | 1,429 | ||||||
Scheduled amortization |
(5,479 | ) | (5,597 | ) | ||||
Impairment charges: |
||||||||
Unscheduled amortization |
(5,765 | ) | (6,708 | ) | ||||
Provision of valuation reserves |
(3,535 | ) | (4,120 | ) | ||||
Balance at end of period |
$ | 112,467 | $ | 133,830 | ||||
NOTE 6 - DEPOSITS
Deposits are summarized as follows:
March 31, | December 31, | |||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Passbook savings |
$ | 350,613 | $ | 337,463 | ||||
NOW accounts |
143,378 | 133,201 | ||||||
Super NOW accounts |
437,639 | 426,144 | ||||||
Regular checking accounts
(non-interest bearing) |
153,037 | 134,659 | ||||||
Commercial checking accounts
(non-interest bearing) |
288,473 | 259,614 | ||||||
1,022,527 | 953,618 | |||||||
Certificates of deposit: |
||||||||
Under $100,000 |
714,314 | 731,655 | ||||||
$100,000 and over |
1,615,576 | 1,527,581 | ||||||
2,329,890 | 2,259,236 | |||||||
Accrued interest payable |
6,862 | 5,447 | ||||||
$ | 3,709,892 | $ | 3,555,764 | |||||
15
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Commitments to buy and sell GNMA certificates and mortgage loans
As of March 31, 2004, the Company had open commitments to issue GNMA certificates of approximately $109.4 million. In addition, the Company had commitments to sell mortgage loans to third party investors amounting to approximately $251.8 million.
Unrealized gains and losses are recorded in trading activities in the accompanying consolidated statements of income related to these forward sales commitments, for the difference between committed prices and market prices at the balance sheet date. Unrealized trading gains or losses were not significant during the three months ended March 31, 2004.
Lease commitments
The Company is obligated under several noncancelable leases for office space and equipment rentals, all of which are accounted for as operating leases. The leases expire at various dates with options for renewals.
Other
At March 31, 2004, the Company is liable under limited recourse provisions resulting from the sale of loans to several investors, principally FHLMC. The principal balance of these loans, which are serviced by the Company, amounts to approximately $1.2 billion at March 31, 2004. At March 31, 2004, the Company has an allowance for recourse provisions of $4.1 million. Historical losses on recourse obligations have not been significant.
In April 2002, R&G Acquisition Holdings Corporation (a wholly-owned subsidiary of R&G Financial) (RAC), a Florida corporation and the holding company of Crown Bank, formed R&G Capital Trust I. R&G Capital Trust I issued $25 million of trust preferred securities in a private placement. In addition, in August 2003, RAC also formed R&G Capital Trust IV which issued $15 million of trust preferred securities in a private placement, and in October 2003 and March 2004, the Company formed R&G Capital Trust III and R&G Capital Trust V, respectively, each of which issued $100 million of trust preferred securities in public offerings (see Note 1). The Company has guaranteed certain obligations of RAC to R&G Capital Trust I and IV, and has guaranteed certain obligations of R&G Capital Trust III and V.
During the second quarter of 2003, the US Internal Revenue Service (IRS) began an income tax examination of the income tax returns for the year 2001 for the predecessor thrift holding company of Crown Bank prior to its acquisition by the Company in June 2002. Management believes that this examination should not result in any significant adverse effect on the Companys financial condition or results of operations.
During the first quarter of 2004, the Puerto Rico Treasury Department (PRTD) began an income tax examination of the income tax returns for the year 2001 of R&G Financial (parent only) and R-G Mortgage. Management believes that this examination should not result in any significant adverse effect on the Companys financial condition or results of operations.
16
NOTE 8 - SUPPLEMENTAL INCOME STATEMENT INFORMATION
Employee costs and other administrative and general expenses are shown in the Consolidated Statements of Income net of direct loan origination costs. Direct loan origination costs are capitalized as part of the carrying cost of mortgage loans and are offset against mortgage loan sales and fees when the loans are sold, or amortized as a yield adjustment to interest income on loans held for investment. Total employee costs and other expenses before capitalization follows:
Three month period ended | ||||||||
March 31, | ||||||||
2004 |
2003 |
|||||||
(Unaudited) (Dollars in thousands) |
||||||||
Employee costs |
$ | 25,847 | $ | 23,102 | ||||
Other administrative and general expenses |
$ | 32,938 | $ | 32,092 | ||||
NOTE 9 - INDUSTRY SEGMENTS
The following summarized information presents the results of the Companys operations for its traditional banking and mortgage banking activities:
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Three month period ended March 31, |
||||||||||||||||||||||||||||||||
2004 |
2003 |
|||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
Mortgage | Segments | Mortgage | Segments | |||||||||||||||||||||||||||||
Banking |
Banking |
Other (1) |
Totals |
Banking |
Banking |
Other (1) |
Totals |
|||||||||||||||||||||||||
Revenues |
$ | 73,441 | $ | 31,812 | $ | 5,278 | $ | 110,531 | $ | 41,425 | $ | 45,663 | $ | 3,269 | $ | 90,357 | ||||||||||||||||
Non-interest expenses |
25,935 | 27,729 | 1,895 | 55,559 | 23,375 | 27,607 | 1,198 | 52,180 | ||||||||||||||||||||||||
Income before income taxes |
$ | 47,506 | $ | 4,083 | $ | 3,383 | $ | 54,972 | $ | 18,050 | $ | 18,056 | $ | 2,071 | $ | 38,177 |
(1) | Comprised of broker-dealer and insurance agency operations. |
17
The following is a reconciliation of reportable segment revenues and income before income taxes to the Companys consolidated amounts (unaudited):
Three month period ended | ||||||||
March 31, | ||||||||
2004 |
2003 |
|||||||
(Dollars in thousands) | ||||||||
Revenues: |
||||||||
Total revenues for reportable segments |
$ | 110,531 | $ | 90,357 | ||||
Elimination of intersegment revenues |
(1,729 | ) | (904 | ) | ||||
Corporate revenues |
(1,436 | ) | 487 | |||||
Total consolidated revenues |
$ | 107,366 | $ | 89,940 | ||||
Income before income taxes: |
||||||||
Total income before income taxes for reportable
segments |
$ | 54,972 | $ | 38,177 | ||||
Elimination of intersegment profits |
(30 | ) | 102 | |||||
Unallocated corporate income |
(1,899 | ) | 269 | |||||
Income before income taxes, consolidated |
$ | 53,043 | $ | 38,548 | ||||
Total assets of the Company among its industry segments and a reconciliation of reportable segment assets to the Companys consolidated total assets as of March 31, 2004 and December 31, 2003 follows:
March 31, | December 31, | |||||||
2004 |
2003 |
|||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Assets: |
||||||||
Banking |
$ | 7,806,171 | $ | 7,387,475 | ||||
Mortgage Banking |
863,819 | 890,023 | ||||||
Other |
161,026 | 168,294 | ||||||
Total assets for reportable segments |
8,831,016 | 8,445,792 | ||||||
Parent company assets |
171,450 | 66,920 | ||||||
Elimination of intersegment balances |
(418,288 | ) | (313,832 | ) | ||||
Consolidated total assets |
$ | 8,584,178 | $ | 8,198,880 | ||||
18
Item 2: Managements Discussion and Analysis
Cautionary Statement Regarding Forward-Looking Statements
A number of the presentations and disclosures in this Form 10-Q, including, without limitation, statements regarding the level of allowance for loan losses, the rate of delinquencies and amounts of charge-offs, and the rates of loan growth, and any statements preceded by, followed by or which include the words may, could, should, will, would, hope, might, believe, expect, anticipate, estimate, intend, plan, assume or similar expressions constitute forward-looking statements. These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business, including our expectations and estimates with respect to our revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors (some of which are beyond our control). The following factors, among others, could cause our financial performance to differ materially from our goals, plans, objectives, intentions, expectations and other forward-looking statements:
| the strength of the United States economy in general and the strength of the regional and local economies within our markets; | |||
| adverse changes in the local real estate market, as most of the Companys loans are concentrated in Puerto Rico and Florida and a substantial portion of these loans have real estate as collateral; | |||
| the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; | |||
| inflation, interest rate, market and monetary fluctuations; | |||
| adverse changes in asset quality and the resulting credit risk-related losses and expenses; | |||
| our timely development of new products and services in a changing environment, including the features, pricing and quality of our products and services compared to the products and services of our competitors; | |||
| the willingness of users to substitute competitors products and services for our products and services; | |||
| the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies; | |||
| technological changes; | |||
| changes in consumer spending and savings habits; and | |||
| regulatory or judicial proceedings. |
If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements.
We do not intend to update our forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
19
General
R&G Financial Corporation (the Company) is a Puerto Rico chartered diversified financial holding company that, through its wholly-owned subsidiaries, is engaged in banking, mortgage banking, securities and insurance brokerage activities. The Company, currently in its 32nd year of operations, operates 31 bank branches mainly located in the northeastern section of Puerto Rico, 15 bank branches in the Orlando and Tampa/St. Petersburg Florida markets, 5 mortgage and 7 commercial lending offices in the continental United States, and 52 mortgage offices in Puerto Rico, including 25 facilities located within Premier Banks branches.
The Company is engaged in providing a full range of banking services through R-G Premier Bank of Puerto Rico (Premier Bank), its Puerto Rico commercial bank, and R-G Crown Bank (Crown Bank), its Florida-based federal savings bank acquired in June 2002. Banking activities include commercial banking services, corporate and construction lending, consumer lending and credit cards, offering a variety of deposit products and, to a lesser extent, trust and investment services through private banking.
The Company is also engaged in mortgage banking activities. Mortgage banking activities are conducted through R&G Mortgage Corp., Puerto Ricos second largest mortgage banker, The Mortgage Store of Puerto Rico, Inc., also a Puerto Rico mortgage company, and Continental Capital Corporation, a New York mortgage banking subsidiary of Crown Bank with offices in New York, North Carolina and Florida. Mortgage banking activities include the origination, purchase, sale and servicing of mortgage loans on single-family residences, the issuance and sale of various types of mortgage-backed securities, the holding of mortgage loans, mortgage-backed securities and other investment securities for sale or investment, and the purchase and sale of servicing rights associated with such mortgage loans and, to a lesser extent, the origination of construction loans and mortgage loans secured by income producing real estate and land (the mortgage banking business).
The Company is also engaged in insurance brokerage through Home & Property Insurance Corp., a Puerto Rico insurance agency, and securities brokerage through R-G Investments Corporation, a Puerto Rico licensed broker-dealer.
The Company is the second largest mortgage loan originator and servicer of mortgage loans on single family residences in Puerto Rico. R&G Financials mortgage servicing portfolio amounted to approximately $10.9 billion as of March 31, 2004, or essentially the same amount as of the same date a year ago. While R&G Financials servicing portfolio continues to be affected by a high level of prepayments due to lower interest rates, R&G Financial continues to emphasize increasing the size of its mortgage servicing portfolio by relying principally on internal loan originations.
As part of its strategy to maximize net interest income, R&G Financial maintains a substantial portfolio of mortgage-backed and investment securities. At March 31, 2004, the Company held securities available for sale with a fair market value of $3.2 billion, which included $2.6 billion of mortgage-backed securities, of which $337.1 million consisted of Puerto Rico GNMA securities, the interest on which is tax-exempt to the Company. These securities are generally held by the Company for longer periods prior to sale in order to maximize the tax-exempt interest received thereon. R&G Financials lower effective tax rate compared to the maximum statutory rate reflects the exemption under Puerto Rico law of the net interest income derived from such securities. In addition, the Company invests in certain U.S. agency securities that are exempt from Puerto Rico taxation and are not subject to federal income taxation. Finally, through its international banking subsidiaries, the Company may invest in various U.S. securities, the income on which is exempt from Puerto Rico income taxation and is also not subject to federal income taxation.
A substantial portion of R&G Financials total mortgage loan originations has been comprised of refinance loans. R&G Financials future results could be adversely affected by a significant increase in mortgage interest rates that reduces refinancing activity. However, the Company believes that
20
refinancing activity is less sensitive to interest rate changes in Puerto Rico than in the mainland United States because a significant amount of refinance loans are made for debt consolidation purposes.
R&G Financial customarily sells or securitizes into mortgage-backed securities substantially all the loans it originates, except for certain non-conforming conventional mortgage loans and certain consumer, construction, land, and commercial loans which are held for investment and classified as loans receivable.
Financial Condition
At March 31, 2004, total assets amounted to $8.6 billion, as compared to $8.2 billion at December 31, 2003. The $385.3 million or 4.7% increase in total assets since the beginning of the year was primarily the result of a $192.9 million or 6.4% increase in mortgage-backed and investment securities available for sale, and a $148.2 million or 3.7% increase in loans receivable, net, due to continued strong loan production during the three months period ended March 31, 2004 of $929.8 million, although a 9% decrease when compared to the corresponding period in 2003. The Companys loan production during the quarter ended March 31, 2004 was principally affected by decreased refinancings in the U.S. at Crown Bank. The Companys loan production continues to be driven principally by the Companys ongoing expansion in commercial and residential lending in Central Florida and Puerto Rico, as well as refinancings in Puerto Rico, which continue to be consistent with R&G Financials historical experience.
At March 31, 2004, R&G Financial had $3.9 billion of borrowings (consisting of securities sold under agreements to repurchase, notes payable, FHLB advances and other borrowings), compared to $3.7 billion at December 31, 2003. R&G Financial utilized repurchase agreements and deposits to fund its growth during the period; total deposits grew 4.3% from $3.6 billion at December 31, 2003 to $3.7 billion at March 31, 2004, whereas repurchase agreements increased by $119.1 million or 5.4%.
At March 31, 2004, R&G Financials allowance for loan losses totaled $43.6 million, which represented a $4.0 million or 10.2% increase from the level maintained at December 31, 2003. At March 31, 2004, R&G Financials allowance represented approximately 0.98% of the total loan portfolio and 44.30% of total non-performing loans. However, excluding R&G Financials residential loan portfolio, which has minimal charge-off experience, the allowance for loan losses to total loans and to total non-performing loans would have been 2.18% and 142.33%, respectively, at March 31, 2004, compared to 2.09% and 139.57% at December 31, 2003.
Non-performing loans amounted to $98.5 million at March 31, 2004, an increase of $13.1 million when compared to $85.4 million at December 31, 2003. The increase is primarily related to a $10.8 million increase in delinquent residential real estate loans over 90 days past due, as the Company re-acquired loans pursuant to recourse provisions in existing sale contracts made prior to 2001. On certain of these contracts, the Company is required to re-acquire any loans sold that become delinquent over 120 days.
At March 31, 2004, $67.9 million or 68.9% of non-performing loans consisted of residential mortgage loans in which R&G Financial has historically experienced a low level of loan charge-offs. R&G Financials aggregate net charge-offs as a percentage of total average loans outstanding amounted to 0.22% during the three months ended March 31, 2004 and 0.32% during the year ended December 31, 2003. Although loan delinquencies have historically been higher in Puerto Rico than in the United States, actual foreclosures and the resulting loan charge-offs have historically been lower than in the United States.
Stockholders equity increased from $750.4 million at December 31, 2003 to $782.5 million at March 31, 2004. The $32.2 million or 4.3% increase was due primarily to the net income recognized during the period, net of dividends paid.
21
Results of Operations
During the three months ended March 31, 2004, R&G Financial reported net income of $38.5 million or $0.67 of earnings per diluted share compared to net income of $29.1 million or $0.49 of earnings per diluted share for the comparative period in 2003. These results reflect an increase in earnings per diluted share of 36.7% for the three months period ending March 31, 2004 over the comparable periods in 2003.
Net interest income increased by $13.5 million or 32.0% during the three months period ended March 31, 2004 to $55.7 million, due to a $1.7 billion increase in the average balance of interest-earning assets, together with a 7 basis point increase in the Companys net interest margin from 2.81% to 2.88%.
The provision for loan losses amounted to $6.5 million during the three months ended March 31, 2004, a 53.3% increase over the prior comparable period, reflecting the continuing increase in the Companys commercial real estate and construction loan portfolios, which have higher credit risk compared to residential loans.
R&G Financial also experienced an increase in non-interest income during the three months ended March 31, 2004 over the comparable period. Net gain on sale of loans increased by $6.9 million or 20.8% over the prior comparable period, as a result of strong loan production within the Companys Puerto Rico mortgage operations, and an increase in the volume of loans sold during the period. Total loan production during the three months ended March 31, 2004 amounted to $929.8 million compared to $1.0 billion during the prior comparable period. Loan administration and servicing fees decreased by $3.9 million or 29.4% over the comparable period, due to a decrease in the Companys weighted average servicing fee during the period. Other fee income increased by $3.2 million or 55.8%. Such increase reflects the added contributions made by the Companys insurance agency and broker-dealer subsidiaries, as well as the fee income generated through the operations of Crown Bank.
Total expenses increased by $2.9 million or 5.7% during the three months ended March 31, 2004 over the comparable 2003 period, partially due to a $1.6 million or 10.3% increase in employee compensation and benefits associated with general growth in Company operations in Puerto Rico and Florida. The increase in total expenses was also due to a $678,000 or 11.9% increase in office occupancy and equipment expenses and a $700,000 or 2.3% increase in other administrative and general expenses, which is net of a $1.5 million reduction in expenses associated with impairment charges of the Companys servicing asset.
During the first quarter of 2004, the Company reported $5.8 million of impairment charges on its servicing asset related to unscheduled amortization amounts, compared to $6.7 million during the first quarter of 2003. The decrease in unscheduled amortization amounts during the first quarter of 2004 compared to the first quarter of 2003 is due to lower prepayment speeds in the Companys servicing portfolio. The decrease in prepayments reflect the increase in interest rates for mortgage loans during the period. Notwithstanding the reduction of prepayment speeds of the portfolio, the Company recorded during the first quarter of 2004 a $3.5 impairment charge on its servicing asset related to valuation reserves for a temporary decline in the fair value of its servicing portfolio. The decline was caused by a decrease during March 2004 in the interest rate for refinancings of mortgage loans. Given that the decrease in the rate for mortgage loans was only for a short period of time during the quarter, such decrease did not have a significant effect on actual prepayment of the portfolio nor unscheduled amortization amounts during the quarter. Based on the level of interest rates since, management estimates a complete reversal during the second quarter of 2004 of the $3.5 million valuation impairment charge recorded during the first quarter. The value of the Companys servicing portfolio is expected to increase given the more recent levels of higher interest rates, which are expected to result in lower prepayment speeds. Unscheduled amortization amounts are expected to decline also in future periods due to the lower prepayment speeds.
22
Interest Rate Risk Management
The following table summarizes the anticipated maturities or repricing or R&G Financials interest-earning assets and interest-bearing liabilities as of March 31, 2004, based on the information and assumptions set forth in the notes below. For purposes of this presentation, the interest earning components of loans held for sale and mortgage-backed securities held in connection with the Companys mortgage banking business as well as all securities held for trading, are assumed to mature within one year. In addition, investments held by the Company which have call features are presented according to their contractual maturity date.
Within | Four to | More Than | More Than | |||||||||||||||||||||
Three | Twelve | One Year to | Three Years | Over Five | ||||||||||||||||||||
(Dollars in Thousands) |
Months |
Months |
Three Years |
to Five Years |
Years |
Total |
||||||||||||||||||
Interest-earning assets(1): |
||||||||||||||||||||||||
Loans receivable |
$ | 1,417,423 | $ | 472,215 | $ | 665,205 | $ | 410,507 | $ | 1,273,920 | $ | 4,239,270 | ||||||||||||
Mortgage loans held for sale |
57,527 | 29,652 | 68,876 | 55,912 | 59,411 | 271,378 | ||||||||||||||||||
Mortgage-backed securities(2)(3) |
154,562 | 432,077 | 453,031 | 321,877 | 1,253,599 | 2,615,146 | ||||||||||||||||||
Investment Securities(3) |
238,948 | 159,391 | 293,548 | 109,896 | 6,983 | 808,766 | ||||||||||||||||||
Other interest-earning assets(4) |
218,347 | | | | | 218,347 | ||||||||||||||||||
Total |
$ | 2,086,807 | $ | 1,093,335 | $ | 1,480,660 | $ | 898,192 | $ | 2,593,913 | $ | 8,152,907 | ||||||||||||
Interest bearing liabilities: |
||||||||||||||||||||||||
Deposits (5)
|
||||||||||||||||||||||||
NOW and Super NOW accounts |
$ | 29,781 | $ | 81,237 | $ | 89,300 | $ | 72,333 | $ | 308,366 | $ | 581,017 | ||||||||||||
Passbook savings accounts |
8,766 | 25,422 | 63,286 | 50,628 | 202,510 | 350,612 | ||||||||||||||||||
Regular and commercial checking |
22,074 | 61,812 | 67,949 | 55,038 | 234,637 | 441,510 | ||||||||||||||||||
Certificates of deposit |
422,333 | 809,110 | 688,043 | 408,466 | 1,938 | 2,329,890 | ||||||||||||||||||
FHLB advances |
138,000 | 5,000 | 530,600 | 235,000 | 190,000 | 1,098,600 | ||||||||||||||||||
Securities sold under agreements to
repurchase (6) |
1,039,195 | 167,223 | 945,292 | 50,000 | 138,200 | 2,339,910 | ||||||||||||||||||
Other borrowings(7) |
99,407 | 132,326 | | | 200,000 | 431,733 | ||||||||||||||||||
Total |
1,759,556 | 1,282,130 | 2,384,470 | 871,465 | 1,275,651 | 7,573,272 | ||||||||||||||||||
Effect of hedging instruments |
170,000 | | (65,000 | ) | (25,000 | ) | (80,000 | ) | | |||||||||||||||
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities |
$ | 497,251 | ($ | 188,795 | ) | ($ | 968,810 | ) | $ | 1,727 | $ | 1,238,262 | $ | 579,635 | ||||||||||
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities |
$ | 497,251 | $ | 308,456 | ($ | 660,354 | ) | ($ | 658,627 | ) | $ | 579,635 | ||||||||||||
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a percent
of total assets |
5.79 | % | 3.59 | % | -7.69 | % | -7.67 | % | 6.75 | % | ||||||||||||||
(footnotes on following page)
23
(1) | Adjustable-rate loans are included in the period in which interest rates are next scheduled to adjust rather that in the period in which they are due, and fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization, in each case as adjusted to take into account estimated prepayments. | |
(2) | Reflects estimated prepayments in the current interest rate environment. | |
(3) | Includes securities held for trading, available for sale and held to maturity. | |
(4) | Includes securities purchased under agreement to resell, time deposits with other banks and federal funds sold. | |
(5) | Does not include non-interest-bearing deposit accounts. | |
(6) | Includes federal funds purchased, if any, | |
(7) | Comprised of warehousing lines, notes payable and other borrowings. |
As of March 31, 2004, the Company had a one year positive gap of approximately $308.5 million, which constituted 3.6% of total assets at such date, compared to a negative gap of approximately $116.2 million or 1.4% of total assets at December 31, 2003. R&G Financial had a positive gap within one year as of March 31, 2004 compared to a negative gap as of December 31, 2003, due primarily to the Companys emphasis on commercial and construction lending, which results in a greater amount of adjustable rate loans in the Companys loan portfolio, as well as to the continued extension during the first quarter of 2004 of the maturity dates of certain borrowings of the Company into longer-term maturities, taking advantage of the continued low interest rate environment. The Company estimates that as of March 31, 2004, close to 61.9% of all borrowings of the Company had maturity dates longer than one year.
While the Company presents its fixed-rate residential mortgage loans receivable portfolio held for investment purposes according to its maturity date, from time to time the Company may negotiate special transactions with FHLMC and/or FNMA or other third party investors for the sale of such loans. There can be no assurance, however, that the Company will be successful in consummating any such transactions.
The following table presents for the periods indicated R&G Financials total dollar amount of interest from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes. All average balances are based on the average of month-end balances for non-banking subsidiaries and average daily balances for banking subsidiaries in each case during the periods presented.
24
For the three months period ended March 31, | ||||||||||||||||||||||||
2004 |
2003 |
|||||||||||||||||||||||
Average | Yield / | Average | Yield / | |||||||||||||||||||||
(Dollars in thousands) |
Balance |
Interest |
Rate |
Balance |
Interest |
Rate |
||||||||||||||||||
Interest-Earning Assets: |
||||||||||||||||||||||||
Cash and cash equivalents(1) |
$ | 170,377 | $ | 615 | 1.44 | % | $ | 77,931 | $ | 265 | 1.36 | % | ||||||||||||
Investment securities held for trading |
1,298 | 9 | 2.77 | | | | ||||||||||||||||||
Investment securities available for sale |
573,979 | 5,543 | 3.86 | 588,445 | 6,892 | 4.68 | ||||||||||||||||||
Investment securities held to maturity |
44,256 | 495 | 4.47 | 30,466 | 399 | 5.24 | ||||||||||||||||||
Mortgage-backed securities held for trading |
42,826 | 662 | 6.18 | 112,665 | 974 | 3.46 | ||||||||||||||||||
Mortgage-backed securities available for sale |
2,332,165 | 31,245 | 5.36 | 1,961,327 | 26,055 | 5.31 | ||||||||||||||||||
Mortgage-backed securities held to maturity |
32,361 | 461 | 5.70 | 45,129 | 654 | 5.80 | ||||||||||||||||||
Loans receivable, net (2) |
4,450,354 | 68,169 | 6.13 | 3,107,633 | 51,955 | 6.69 | ||||||||||||||||||
FHLB Stock |
100,547 | 432 | 1.72 | 92,117 | 1,062 | 4.61 | ||||||||||||||||||
Total interest-earning assets |
7,748,163 | $ | 107,631 | 5.56 | % | 6,015,713 | $ | 88,256 | 5.87 | % | ||||||||||||||
Non-interest-earning assets |
643,366 | 567,977 | ||||||||||||||||||||||
Total assets |
$ | 8,391,529 | $ | 6,583,690 | ||||||||||||||||||||
Interest-Bearing Liabilities: |
||||||||||||||||||||||||
Deposits |
$ | 3,596,302 | $ | 23,703 | 2.64 | % | $ | 2,844,890 | $ | 21,693 | 3.05 | % | ||||||||||||
Securities sold under agreements to
repurchase (3) |
2,218,083 | 13,513 | 2.44 | 1,721,065 | 12,771 | 2.97 | ||||||||||||||||||
Notes payable |
177,092 | 1,469 | 3.32 | 230,702 | 1,870 | 3.24 | ||||||||||||||||||
Other borrowings(4) |
1,263,945 | 13,232 | 4.19 | 987,288 | 9,701 | 3.93 | ||||||||||||||||||
Total interest-bearing liabilities |
7,255,422 | $ | 51,917 | 2.86 | % | 5,783,945 | $ | 46,035 | 3.18 | % | ||||||||||||||
Non-interest-bearing liabilities |
369,665 | 127,890 | ||||||||||||||||||||||
Total
liabilities |
7,625,087 | 5,911,835 | ||||||||||||||||||||||
Stockholders equity |
766,442 | 671,855 | ||||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 8,391,529 | $ | 6,583,690 | ||||||||||||||||||||
Net interest income; interest rate spread (5) |
$ | 55,714 | 2.70 | % | $ | 42,221 | 2.69 | % | ||||||||||||||||
Net interest margin |
2.88 | % | 2.81 | % | ||||||||||||||||||||
Average interest-earning assets to average
interest-bearing liabilities |
106.79 | % | 104.01 | % | ||||||||||||||||||||
(footnotes on following page)
25
(1) | Comprised of cash and due from banks, securities purchased under agreements to resell, time deposits with other banks and other short term investments. | |
(2) | Includes mortgage loans held for sale and non-accrual loans. | |
(3) | Includes federal funds purchased, if any. | |
(4) | Comprised of long-term debt, advances from the FHLB and other borrowings. | |
(5) | Interest rate spread represents the difference between R&G Financials weighted average yield on interest-earning assets and the weighted average rate on interest-bearing liabilities. Net interest margin represents net interest income as a percent of average interest-earning assets. |
Mortgage Loan Servicing
The following table sets forth certain information regarding the mortgage loan servicing portfolio of R&G Financial for the periods indicated.
At or for the three months period ended | ||||||||
March 31, |
||||||||
2004 |
2003 |
|||||||
(Dollars in thousands) | ||||||||
Composition of Servicing Portfolio at period end: |
||||||||
GNMA |
$ | 2,243,093 | $ | 2,559,133 | ||||
FNMA/FHLMC |
4,747,562 | 5,425,414 | ||||||
Other mortgage loans (3) |
3,902,822 | 2,892,433 | ||||||
Total servicing portfolio (3) |
$ | 10,893,477 | $ | 10,876,980 | ||||
Activity in the Servicing Portfolio: |
||||||||
Beginning servicing portfolio |
$ | 10,942,821 | $ | 10,991,945 | ||||
Add: Loan originations and purchases |
628,281 | 676,109 | ||||||
Servicing of portfolio loans acquired |
834 | 165,851 | ||||||
Less: Sale of servicing rights(1) |
(66,628 | ) | (71,531 | ) | ||||
Run-offs(2) |
(611,831 | ) | (885,394 | ) | ||||
Ending servicing portfolio(3) |
$ | 10,893,477 | $ | 10,876,980 | ||||
Number of loans serviced |
146,331 | 155,824 | ||||||
Average loan size |
$ | 74 | $ | 70 | ||||
Average servicing fee rate |
0.40 | % | 0.48 | % |
(1) | Corresponds to loans sold, servicing released, by Continental Capital. | |
(2) | Run-off refers to regular amortization of loans, prepayments and foreclosures. |
26
(3) | At the dates shown, included $2.0 billion and $1.3 billion, respectively, serviced for Premier Bank, which constituted 18.3% and 12.4% of the total servicing portfolio, and $262.0 million and $86.5 million, respectively, serviced for Crown Bank, which constituted 2.40% and 0.79%, respectively, of the total servicing portfolio at such dates. |
Substantially all of the mortgage loans in R&G Financials servicing portfolio are secured by single (one-to-four) family residences secured by real estate located in Puerto Rico. At March 31, 2004, approximately 26.2% of the Companys mortgage servicing portfolio was related to mortgages secured by real property located outside Puerto Rico.
The Company reduces the sensitivity of its servicing income to increases in prepayment rates through a strong retail origination network that has increased or maintained the size of R&G Financials servicing portfolio even during periods of high prepayments. In addition, a substantial portion of the Companys servicing portfolio consists of tax-exempt FHA/VA mortgage loans which carry lower interest rates than those on conventional loans, which tends to reduce risks related to R&G Financials servicing portfolio. During the three month periods ended March 31, 2004 and 2003, the Company recognized $5.8 million and $6.7 million, respectively, of unscheduled amortization on mortgage servicing rights.
Liquidity and Capital Resources
Liquidity - Liquidity refers to the Companys ability to generate sufficient cash to meet the funding needs of current loan demand, savings deposit withdrawals, principal and interest payments with respect to outstanding borrowings and to pay operating expenses. It is managements policy to maintain greater liquidity than required in order to be in a position to fund loan purchases and originations, to meet withdrawals from deposit accounts, to make principal and interest payments with respect to outstanding borrowings and to make investments that take advantage of interest rate spreads. The Company monitors its liquidity in accordance with guidelines established by the Company and applicable regulatory requirements. The Companys need for liquidity is affected by loan demand, net changes in deposit levels and the scheduled maturities of its borrowings. The Company can minimize the cash required during the times of heavy loan demand by modifying its credit policies or reducing its marketing efforts. Liquidity demand caused by net reductions in deposits are usually caused by factors over which the Company has limited control. The Company derives its liquidity from both its assets and liabilities. Liquidity is derived from assets by receipt of interest and principal payments and prepayments, by the ability to sell assets at market prices and by utilizing unpledged assets as collateral for borrowings. Liquidity is derived from liabilities by maintaining a variety of funding sources, including deposits, advances from the FHLB of New York and Atlanta (the FHLB) and other short and long-term borrowings.
The Companys liquidity management is both a daily and long-term function of funds management. Liquid assets are generally invested in short-term investments such as securities purchased under agreements to resell, federal funds sold and certificates of deposit in other financial institutions. If the Company requires funds beyond its ability to generate them internally, various forms of both short and long-term borrowings provide an additional source of funds. At March 31, 2004, the Company had $160.4 million in borrowing capacity under unused warehousing and other lines of credit and $1.2 billion in borrowing capacity under unused lines of credit with the FHLB.
At March 31, 2004, the Company had outstanding commitments to originate and/or purchase mortgage and non-mortgage loans of $550.8 million (including unused lines of credit). Certificates of deposit which are scheduled to mature within one year totaled $1.2 billion at March 31, 2004, and borrowings that are scheduled to mature within the same period amounted to $1.5 billion. The Company anticipates that it will have sufficient funds available to meet its current loan commitments.
27
Capital Resources - The FDICs capital regulations establish a minimum 3.0 % Tier I leverage capital requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier 1 leverage ratio for such other banks from 4.0% to 5.0% or more. Under the FDICs regulations, the highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization and are rated composite 1 under the Uniform Financial Institutions Rating System. Leverage or core capital is defined as the sum of common stockholders equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill and certain purchased mortgage servicing rights.
The FDIC also requires that banks meet a risk-based capital standard. The risk-based capital standard for banks requires the maintenance of total capital (which is defined as Tier I capital and supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier 1 capital are equivalent to those discussed above under the 3% leverage capital standard. The components of supplementary capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan and lease losses. Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At March 31, 2004, Premier Bank met each of its capital requirements, with Tier 1 leverage capital, Tier 1 risk-based capital and total risk-based capital ratios of 7.17%, 12.30% and 13.30%, respectively. At March 31, 2004 Crown Bank also met each of its capital requirements, with Tier 1 leverage capital, Tier 1 risk-based capital and total risk-based capital ratios of 8.09%, 12.09% and 12.92%, respectively. Thus, at March 31, 2004 both Premier Bank and Crown Bank were well capitalized institutions under the capital adequacy regulatory guidelines.
In addition, the Federal Reserve Board has promulgated capital adequacy guidelines for bank holding companies which are substantially similar to those adopted by FDIC regarding state-chartered banks, as described above. R&G Financial is currently in compliance with such regulatory capital requirements.
Inflation and Changing Prices
The unaudited consolidated financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars (except with respect to securities which are carried at market value), without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Companys performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services.
28
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures about market risks at December 31, 2003 are presented in Item 7A of the Companys Annual report on Form 10-K. Information at March 31, 2004 is presented on page 21 of this Report. Management believes there have been no material changes in the Companys market risk since December 31, 2003.
Item 4: Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer along with the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (Exchange Act) Rule 13a-15(b). Based upon that evaluation, the Companys Chief Executive Officer along with the Companys Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic Securities and Exchange Commission (SEC) filings. There has not been any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Disclosure controls and procedures are Company controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
29
Item 1: Legal Proceedings
The Registrant is involved in routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed by management to be immaterial to the financial condition and results of operations of the Registrant.
Item 2: Changes in Securities
Not applicable
Item 3: Defaults Upon Senior Securities
Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
Not applicable
Item 5: Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 6: Exhibits and Reports on Form 8-K.
(a) Item 601 Exhibits.
No. |
Description |
|
2.1
|
Amended and Restated Agreement and Plan of Merger by and between R&G Financial Corporation, R-G Premier Bank of Puerto Rico and R-G Interim Premier Bank, dated as of September 27, 1996 (1) | |
2.2.0
|
Agreement and Plan of Reorganization among R&G Financial Corporation, R&G Acquisition Holdings Corporation, The Crown Group, Inc. and Crown Bank, a Federal Savings Bank dated as of December 19, 2001 (2) | |
2.2.1
|
Amendment No. 2 to Agreement and Plan of Reorganization among R&G Financial Corporation, R&G Acquisition Holdings Corporation, The Crown Group, Inc. and Crown Bank, a Federal Savings Bank dated as of February 27, 2002 (3) | |
3.1.0
|
Certificate of Incorporation of R&G Financial Corporation (4) | |
3.1.1
|
Certificate of Amendment to Certificate of Incorporation of R&G Financial Corporation (4) | |
3.1.2
|
Amended and Restated Certificate of Incorporation of R&G Financial Corporation (5) | |
3.1.3
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation of R&G Financial Corporation (6) | |
3.1.4
|
Second Certificate of Amendment to Amended and Restated Certificate of Incorporation of R&G Financial Corporation (15) | |
3.1.5
|
Certificate of Resolution designating the terms of the Series A Preferred Stock (7) | |
3.1.6
|
Certificate of Resolution designating the terms of the Series B Preferred Stock (8) | |
3.1.7
|
Certificate of Designation for Series C Preferred Stock (12) | |
3.1.8
|
Certificate of Designation for Series D Preferred Stock (13) | |
3.2
|
Bylaws of R&G Financial Corporation (4) | |
4.0
|
Form of Stock Certificate of R&G Financial Corporation (4) | |
4.1
|
Form of Series A Preferred Stock Certificate of R&G Financial Corporation (9) | |
4.2
|
Form of Series B Preferred Stock Certificate of R&G Financial Corporation (10) | |
4.3
|
Form of Series C Preferred Stock Certificate of R&G Financial Corporation (11) | |
4.4
|
Form of Series D Preferred Stock Certificate of R&G Financial Corporation (14) | |
4.5
|
Form of Indenture dated as of October 6, 2003, between R&G Financial Corporation and Wilmington Trust Company (18) | |
4.6
|
Form of Indenture dated as of March 31, 2004, between R&G Financial Corporation and Wilmington Trust Company (20) | |
10.1
|
Master Purchase, Servicing and Collection Agreement between R&G Mortgage Corporation and R-G Premier Bank of Puerto Rico dated February 16, 1990, as amended on April 1, 1991, December 1, 1991, February 1, 1994 and July 1, 1994 (4) |
30
No. |
Description |
|
10.2
|
Master Custodian Agreement between R&G Mortgage Corporation and R-G Premier Bank of Puerto Rico dated February 16, 1990, as amended on June 27, 1996 (4) | |
10.3
|
Master Production Agreement between R&G Mortgage and R-G Premier Bank of Puerto Rico dated February 16, 1990, as amended on August 30, 1991 and March 31, 1995 (4) | |
10.3.1
|
Amendment No. 3 to the Master Production Agreement, dated as of January 1, 2004 | |
10.4
|
Data Processing Computer Service Agreement between R&G Mortgage and R-G Premier Bank of Puerto Rico dated December 1, 1994 (4) | |
10.5
|
Securitization Agreement by and between R&G Mortgage and R-G Premier Bank of Puerto Rico, dated as of July 1, 1995 (4) | |
10.6
|
R&G Financial Corporation Stock Option Plan (4)(*) | |
10.6.1
|
R&G Financial Corporation 2004 Stock Option Plan (19)(*) | |
10.7
|
Guarantee Agreement between R&G Financial Corporation, R&G Acquisition Holdings Corporation and Wilmington Trust as Guarantee Trustee with respect to the Capital Securities issued by R&G Capital Trust I, dated as of April 10, 2002 (16) | |
10.8
|
Guarantee Agreement between R&G Financial Corporation and U.S. Bank National Association as Guarantee Trustee with respect to the Capital Securities issued by R&G Capital Trust IV, LLT, dated as of August 8, 2003 (17) | |
10.9
|
Form of Preferred Securities Agreement, dated as of October 6, 2003, by and between R&G Financial Corporation and Wilmington Trust Company(18) | |
10.10
|
Form of Amended and Restated Declaration of Trust, dated as of October 6, 2003, among R&G Financial Corporation, Wilmington Trust Company and the Administrative Trustees named therein (18) | |
10.11
|
Form of Guarantee Agreement between R&G Financial Corporation and Wilmington Trust as Guarantee Trustee with respect to the Capital Securities issued by R&G Capital Trust dated as of March 31, 2004 (20) | |
10.12
|
Form of Amended and Restated Declaration of Trust dated as of March 31, 2004, among R&G Financial Corporation, Wilmington Trust Company and the Administrative Trustees named therein (20) | |
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | |
32
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act |
(1) | Incorporated by reference from the Registration Statement on Form S-4 (Registration No. 333-13199) filed by the Registrant with the Securities and Exchange Commission (SEC) on October 1, 1996. | |
(2) | Incorporated by reference from the Registrants Current Report on Form 8-K filed with the SEC on December 20, 2001. | |
(3) | Incorporated by reference from the Registrants Current Report on Form 8-K filed with the SEC on February 28, 2002. | |
(4) | Incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-06245) filed by the Registrant with the SEC on September 18, 1996, as amended. | |
(5) | Incorporated by reference from the Registrants Current Report on Form 8-K filed with the SEC on November 19, 1999. | |
(6) | Incorporated by reference from the Registrants Current Report on Form 8-K filed with the SEC on June 12, 2001. | |
(7) | Incorporated by reference from the Registrants Current Report on Form 8-K filed with the SEC on August 31, 1998. | |
(8) | Incorporated by reference from the Registrants Form 10-K filed with the SEC on April 13, 2000. | |
(9) | Incorporated by reference from the Registrants Registration Statement on Form S-3 (Registration No. 333-60923) filed with the SEC on August 7, 1998. | |
(10) | Incorporated by reference from the Registrants Registration Statement on Form S-3 (Registration No. 333-90463) filed with the SEC on November 5, 1999. | |
(11) | Incorporated by reference from the Registrants Registration Statement on Form S-3 (File No. 333-55834) filed with the SEC on February 16, 2001. | |
(12) | Incorporated by reference from the Registrants Form 10-K filed with the SEC on April 2, 2001. | |
(13) | Incorporated by reference from the Registrants Current Report on Form 8-K filed with the SEC on March 7, 2002. | |
(14) | Incorporated by reference from the Registrants Registration Statement on Form S-3 (File No. 333-81214) filed with the SEC on January 22, 2002. | |
(15) | Incorporated by reference from the Registrants Current Report on Form 8-K filed with the SEC on June 18, 2002. | |
(16) | Incorporated by reference from the Registrants Form 10-Q filed with the SEC on November 14, 2002. | |
(17) | Incorporated by reference from the Registrants Form 10-Q filed with the SEC on November 14, 2003. | |
(18) | Incorporated by reference from the Registrants Registration Statement on Form S-3 (Registration No. 333-107365) filed with the SEC on July 25, 2003. | |
(19) | Incorporated by reference from the Registrants Definitive Proxy Statement for its 2004 Annual Meeting filed with the SEC on April 5, 2004. | |
(20) | Incorporated by reference from the Registrants Registration Statement on Form S-3 (Registration No. 333-113321) filed with the SEC on March 15, 2004. | |
(*) | Management contract or compensatory plan or arrangement. | |
(b) Reports on Form 8-K
The Registrant filed the following Reports on Form 8-K during the quarter ended March 31, 2004.
(1) Form 8-K filed on January 20, 2004 with an attached press release announcing the Registrants earnings for the year ended December 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
R&G FINANCIAL CORPORATION | ||||
Date: May 10, 2004
|
By: | /S/ VICTOR J. GALAN | ||
Víctor J. Galán, Chairman and Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
By: | /S/ JOSEPH R. SANDOVAL | |||
Joseph R. Sandoval | ||||
Executive Vice President and Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) |
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