SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] 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
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Puerto Rico 66-0532217
----------------------- ----------------
(State of incorporation (I.R.S. Employer
or organization) Identification No. )
280 Jesus T. Pinero Avenue
Hato Rey, San Juan, Puerto Rico 00918
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(787) 758-2424
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark 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 [ ]
Number of shares of Class B Common Stock outstanding as of June 30, 2000:
10,219,663 (Does not include 18,440,556 Class A Shares of Common Stock which are
exchangeable into Class B Shares of Common Stock at the option of the holder.)
1
<PAGE>
R&G FINANCIAL CORPORATION
INDEX
Part I - Financial Information
--------------------------------
Page
Item 1. Consolidated Financial Statements ................................ 3
Consolidated Statements of Financial Condition as of
June 30, 2000 (Unaudited) and December 31,
1999............................................ 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 2000 and 1999
(Unaudited)..................................... 4
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 2000 and
1999
(Unaudited)..................................... 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999
(Unaudited) .................................... 6
Notes to (Unaudited) Consolidated Financial Statements .. 7
Item 2. Management's Discussion and Analysis ............................. 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 24
Part II - Other Information
----------------------------
Item 1. Legal Proceedings ................................................ 24
Item 2. Changes in Securities ............................................ 24
Item 3. Defaults upon Senior Securities .................................. 24
Item 4. Submission of Matters ............................................ 25
Item 5. Other Information ................................................ 25
Item 6. Exhibits and Reports on Form 8-K ................................. 25
Signatures ................................................... 26
2
<PAGE>
PART 1-FINANCIAL INFORMATION
----------------------------
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
------- ---------------------------------
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 28,511,272 $ 42,251,508
Money market investments:
Securities purchased under agreements to resell 6,061,727 --
Time deposits with other banks 18,418,722 23,744,037
Federal funds sold 10,000,000 --
Mortgage loans held for sale, at lower of cost or market 97,042,803 77,277,133
Mortgage-backed securities held for trading, at fair value 13,722,890 43,563,817
Mortgage-backed securities available for sale, at fair value 725,918,406 712,705,165
Mortgage-backed securities held to maturity, at amortized cost
(estimated market value: 2000 - $21,296,563; 1999 - $23,305,029) 21,349,627 23,249,247
Investment securities available for sale, at fair value 342,436,814 258,163,657
Investment securities held to maturity, at amortized cost
(estimated market value: 2000- $ 5,379,810; 1999- $5,403,755) 5,434,009 5,437,630
Loans receivable, net 1,827,732,330 1,563,006,802
Accounts receivable, including advances to investors, net 15,566,553 16,230,457
Accrued interest receivable 26,204,223 22,386,746
Servicing asset 87,860,641 84,252,506
Premises and equipment 18,887,596 19,459,353
Other assets 25,730,943 20,264,778
--------------- ---------------
$ 3,270,878,556 $ 2,911,992,836
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 1,523,602,232 $ 1,330,506,368
Fed funds purchased 15,000,000 15,000,000
Securities sold under agreements to repurchase 787,052,038 731,341,340
Notes payable 154,786,235 132,707,001
Advances from FHLB 451,000,000 384,000,000
Other borrowings 9,221,666 9,842,894
Accounts payable and accrued liabilities 41,003,905 33,917,329
Other liabilities 6,336,041 5,142,627
--------------- ---------------
2,988,002,117 2,642,457,559
--------------- ---------------
Stockholders'equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized:
7.40% Monthly Income Preferred Stock, Series A, $25 liquidation value,
2,000,000 shares authorized, issued and outstanding 50,000,000 50,000,000
7.75% Monthly Income Preferred Stock, Series B, $25 liquidation value,
1,000,000 shares authorized, issued and outstanding 25,000,000 25,000,000
Common stock:
Class A - $.01 par value, 40,000,000 shares authorized, 18,440,556
issued and outstanding 184,406 184,406
Class B - $.01 par value, 30,000,000 shares authorized, 10,219,633
issued and outstanding in 2000 (1999-10,217,731) 102,197 102,177
Additional paid-in capital 40,766,803 40,753,856
Retained earnings 170,882,443 156,193,131
Capital reserves of the Bank 5,095,658 5,095,658
Accumulated other comprehensive loss (9,155,068) (7,793,951)
--------------- ---------------
282,876,439 269,535,277
--------------- ---------------
$ 3,270,878,556 $ 2,911,992,836
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three month Six month
period ended period ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
(Dollars in thousands except for per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 40,049 $ 27,152 $ 76,778 $ 53,206
Money market and other investments 11,599 1,677 11,270 2,973
Mortgage-backed securities 6,063 7,608 22,946 15,643
------------ ------------ ------------ ------------
Total interest income 57,711 36,437 110,994 71,822
------------ ------------ ------------ ------------
Interest expense:
Deposits 19,031 12,699 36,057 24,159
Securities sold under agreements to repurchase 11,714 5,598 22,249 10,972
Notes payable 2,899 3,254 6,264 6,983
Other 7,334 2,358 12,931 3,946
------------ ------------ ------------ ------------
Total interest expense 40,978 23,909 77,501 46,060
------------ ------------ ------------ ------------
Net interest income 16,733 12,528 33,493 25,762
Provision for loan losses (1,500) (1,100) (2,850) (2,400)
------------ ------------ ------------ ------------
Net interest income after provision for loan losses . 15,233 11,428 30,643 23,362
------------ ------------ ------------ ------------
Other income:
Net gain on origination and sale of loans
and sales of securities available for sale 9,489 9,304 16,813 19,801
Loan administration and servicing fees 7,379 6,618 14,990 12,379
Service charges, fees and other 1,937 2,090 3,425 3,575
------------ ------------ ------------ ------------
18,805 18,012 35,228 35,755
------------ ------------ ------------ ------------
Total revenues 34,038 29,440 65,871 59,117
------------ ------------ ------------ ------------
Operating expenses:
Employee compensation and benefits 5,977 5,462 13,204 10,232
Office occupancy and equipment 3,325 2,717 6,577 5,107
Other administrative and general 10,528 7,379 20,121 15,057
------------ ------------ ------------ ------------
19,830 15,558 39,902 30,396
------------ ------------ ------------ ------------
Income before income taxes 14,207 13,882 25,969 28,721
------------ ------------ ------------ ------------
Income tax expense:
Current 4,913 1,473 7,345 3,397
Deferred (1,414) 599 (1,571) 2,364
------------ ------------ ------------ ------------
3,499 2,072 5,774 5,761
------------ ------------ ------------ ------------
Net income $ 10,708 $ 11,810 $ 20,195 $ 22,960
============ ============ ============ ============
Earnings per common share - Basic $ 0.32 $ 0.38 $ 0.60 $ 0.74
------------ ------------ ------------ ------------
- Diluted $ 0.32 $ 0.37 $ 0.59 $ 0.72
------------ ------------ ------------ ------------
Weighted average number of shares outstanding - Basic 28,659,775 28,631,073 28,659,441 28,615,943
- Diluted 29,314,283 29,364,185 29,315,314 29,353,476
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Unaudited) (Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 10,708 $ 11,810 $ 20,195 $ 22,960
-------- -------- -------- --------
Other comprehensive income, before tax:Unrealized losses on securities:
Arising during period (498) (3,573) (2,384) (4,773)
Less: Reclassification adjustments for losses included
in net income 73 445 153 581
-------- -------- -------- --------
(425) (3,128) (2,231) (4,192)
Income tax benefit related to items of other comprehensive income 166 1,220 870 1,635
-------- -------- -------- --------
Other comprehensive loss, net of tax (259) (1,908) (1,361) (2,557)
-------- -------- -------- --------
Comprehensive income, net of tax $ 10,449 $ 9,902 $ 18,834 $ 20,403
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six month period ended
June 30,
-------------------------
2000 1999
--------- ---------
(Unaudited)
Cash flows from operating activities: (Dollars in thousands)
<S> <C> <C>
Net income $ 20,195 $ 22,960
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,516 1,824
Amortization of premium on investments and mortgage-backed securities, net .. 119 121
Amortization of servicing rights 4,740 3,381
Provision for loan losses 2,850 2,400
Provision for bad debts in accounts receivable 220 150
Gain on sales of loans (207) (5,183)
Loss on sales of mortgage-backed and investment securities available for sale 153 581
Unrealized (profit) loss on trading securities (155) 746
(Increase) decrease in mortgage loans held for sale (73,547) 41,920
Net decrease (increase) in mortgage-backed securities held for trading 29,996 (22,066)
Increase in receivables (3,374) (6,740)
Increase in other assets (5,907) (5,407)
Increase (decrease) in notes payable 21,458 (59,738)
Increase in accounts payable and accrued liabilities 7,957 4,789
Increase in other liabilities 1,193 2,681
--------- ---------
Total adjustments (11,988) (40,541)
--------- ---------
Net cash provided by (used in) operating activities 8,207 (17,581)
--------- ---------
Cash flows from investing activities:
Purchases of investment securities (78,080) (84,606)
Proceeds from sales and maturities of securities available for sale 40,441 111,236
Proceeds from maturities of securities held to maturity -- 209
Proceeds from sales of loans 30,993 99,809
Net originations of loans (298,361) (436,234)
Purchases of FHLB stock, net (6,667) (4,096)
Acquisition of premises and equipment (1,503) (3,676)
Acquisition of servicing rights (8,348) (11,332)
--------- ---------
Net cash used by investing activities (321,525) (328,690)
--------- ---------
Cash flows from financing activities:
Increase in deposits - net 193,096 152,979
Increase in securities sold under agreements to repurchase - net 55,711 50,814
Advances from FHLB, net 67,000 98,000
Proceeds from issuance of common stock 13 189
Cash dividends:
Common stock (2,687) (1,967)
Preferred stock (2,819) (1,850)
--------- ---------
Net cash provided by financing activities 310,314 298,165
--------- ---------
Net decrease in cash and cash equivalents (3,004) (48,106)
Cash and cash equivalents at beginning of period 65,996 103,728
--------- ---------
Cash and cash equivalents at end of period $ 62,992 $ 55,622
========= =========
Cash and cash equivalents include:
Cash and due from banks $ 28,511 $ 32,928
Securities purchased under agreements to resell 6,062 10,003
Time deposits with other banks 18,419 12,691
Federal funds sold 10,000 --
--------- ---------
$ 62,992 $ 55,622
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
R&G FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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) and its wholly-owned
subsidiaries, R&G Mortgage Corp. ("R&G Mortgage"), a Puerto Rico corporation,
and R-G Premier Bank of Puerto Rico (the "Bank"), a commercial bank chartered
under the laws of the Commonwealth of Puerto Rico.
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. R&G Mortgage pools loans into mortgage-backed
securities and collateralized mortgage obligation certificates for sale to
investors. After selling the loans, it retains the servicing function. R&G
Mortgage is also a seller-servicer of conventional loans. R&G Mortgage is
licensed by the Secretary of the Treasury of Puerto Rico as a mortgage company
and is duly authorized to do business in the Commonwealth of Puerto Rico.
R&G Mortgage is also engaged in the business of originating
non-conforming conventional first mortgage loans on residential real estate (1
to 4 families), including B and C credit quality loans, through its wholly-owned
subsidiary, Champion Mortgage Corporation.
The Bank provides a full range of banking services, including
residential, commercial and personal loans and a diversified range of deposit
products through twenty-three branches located mainly in the northern part of
the Commonwealth of Puerto Rico. The Bank also provides private banking and
trust and other financial services to its customers. The Bank is subject to the
regulations of certain federal and local agencies, and undergoes periodic
examinations by those regulatory agencies.
The Bank also is engaged 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) in the State of New York through its wholly-owned
subsidiary, Continental Capital Corporation ("Continental Capital").
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 contain all adjustments (principally
consisting of normal recurring accruals) necessary for a fair presentation of
the Company's financial condition as of June 30, 2000 and the results of
operations and changes in its cash flows for the three and six months ended June
30, 2000 and 1999.
The results of operations for the three and six month periods ended
June 30, 2000 are not necessarily indicative of the results to be expected for
the year ending December 31, 2000. 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, 1999.
7
<PAGE>
Basis of consolidation
All significant intercompany balances and transactions have been
eliminated in the accompanying unaudited financial statements.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133- "Accounting for Derivative
Instruments and Hedging Activities" and in June 2000 issued SFAS No. 138-
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
These Statements establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statements require that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically accounted as a
hedge. The accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation.
The FASB delayed the effective date of these statements to all fiscal
quarters of fiscal years beginning after June 15, 2000. Initial application of
the statements should be as of the beginning of an entity's fiscal quarter.
Management is evaluating its hedging strategy in light of these new
pronouncements to establish the initial designation of its hedging activities
and determine the effect and timing of adoption. However, due to the relatively
limited extent to which the Company is using derivative instruments and the
simple nature of the instruments used, management does not expect the impact of
adoption to be significant.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per common share for the three and six month periods
ended June 30, 2000 and 1999 are computed by dividing net income for such
periods by the weighted average number of shares of common stock outstanding
during such periods. Outstanding stock options granted in connection with the
Company's Stock Option Plan are included in the weighted average number of
shares for purposes of the diluted earnings per share computation.
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, except
for the investment in Federal Home Loan Bank (FHLB) stock which is valued at its
redemption value.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Mortgage-backed securities held for trading:
GNMA certificates $13,722,890 $43,563,817
=========== ===========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------------------------
Amortized Fair Amortized Fair
cost value cost value
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Mortgage-backed securities available for sale:
CMO residuals and other mortgage-backed securities $ 22,922,625 $ 24,656,288 $ 20,709,050 $ 22,772,039
------------ ------------ ------------ ------------
FNMA certificates:
Due from five to ten years 685,380 660,107 740,977 718,979
Due over ten years 104,635,759 102,839,982 110,854,889 109,705,450
------------ ------------ ------------ ------------
105,321,139 103,500,089 111,595,866 110,424,429
------------ ------------ ------------ ------------
FHLMC certificates:
Due from one to five years 171,273 169,239 98,693 98,882
Due from five to ten years 1,105,288 1,067,814 1,891,072 1,840,979
Due over ten years 14,046,468 13,495,539 14,586,274 14,036,216
------------ ------------ ------------ ------------
15,323,029 14,732,592 16,576,039 15,976,077
------------ ------------ ------------ ------------
GNMA certificates:
Due from one to five years 25,584 25,432 -- --
Due from five to ten years 11,263,006 11,196,055 -- --
Due over ten years 579,716,220 571,807,950 570,748,830 563,532,620
------------ ------------ ------------ ------------
591,004,810 583,029,437 570,748,830 563,532,620
------------ ------------ ------------ ------------
$734,571,603 $725,918,406 $719,629,785 $712,705,165
============ ============ ============ ============
Investment securities available for sale:
U.S. Treasury securities:
Due within one year $ 4,999,502 $ 4,979,691 $ 4,998,011 $ 4,944,500
------------ ------------ ------------ ------------
U.S. Government and Agencies securities:
Due within one year 6,000,000 5,804,800 -- --
Due from one to five years 176,468,813 173,347,789 133,955,940 130,950,440
Due from five to ten years 121,831,843 118,812,767 92,236,888 89,443,550
------------ ------------ ------------ ------------
304,300,656 297,965,356 226,192,828 220,393,990
------------ ------------ ------------ ------------
FHLB stock 39,491,767 39,491,767 32,825,167 32,825,167
------------ ------------ ------------ ------------
$348,791,925 $342,436,814 $264,016,006 $258,163,657
============ ============ ============ ============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------------------------------------
Amortized Fair Amortized Fair
cost value cost value
---------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Mortgage-backed securities held to maturity:
GNMA certificates:
Due within one year $ 9,127 $ 9,789 $ -- $ --
Due from one to five years -- -- 15,478 16,601
Due from five to ten years 9,630,608 9,354,799 10,659,910 10,390,712
Due over ten years 1,984,681 1,909,344 2,132,629 2,074,108
----------- ----------- --------- ---------
11,624,416 11,273,932 12,808,017 12,481,421
----------- ----------- --------- ---------
FNMA certificates:
Due over ten years 9,550,191 9,857,456 10,252,615 10,643,767
----------- ----------- --------- ---------
FHLMC certificates:
Due over ten years 175,020 165,175 188,615 179,841
----------- ----------- --------- ---------
$21,349,627 $21,296,563 $23,249,247 $23,305,029
=========== =========== =========== ===========
Investment securities held to maturity:
Puerto Rico Government and Agencies obligations:
Due from one to five years $ 1,800,000 $ 1,782,000 $ 1,280,000 $ 1,272,000
Due from five to ten years 3,634,009 3,597,810 4,157,630 4,131,755
----------- ----------- --------- ---------
$ 5,434,009 $ 5,379,810 $ 5,437,630 $ 5,403,755
=========== =========== =========== ===========
</TABLE>
10
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Real estate loans:
Residential - first mortgage $ 1,263,227,915 $ 1,097,891,436
Residential - second mortgage 19,451,505 13,028,816
Land 3,707,818 1,952,043
Construction 159,564,712 95,201,185
Commercial 271,190,460 226,036,358
--------------- ---------------
1,717,142,410 1,434,109,838
Undisbursed portion of loans in process (93,552,423) (50,622,579)
Net deferred loan costs (fees) 966,304 (436,852)
--------------- ---------------
1,624,556,291 1,383,050,407
--------------- ---------------
Other loans:
Commercial 54,156,801 54,230,506
Consumer:
Secured by deposits 23,771,351 20,538,734
Secured by real estate 93,393,673 76,944,484
Other 42,727,720 37,653,140
Unamortized discount (387,111) (356,142)
Unearned interest (55,037) (83,722)
--------------- ---------------
213,607,397 188,927,000
--------------- ---------------
Total loans 1,838,163,688 1,571,977,407
Allowance for loan losses (10,431,358) (8,970,605)
--------------- ---------------
$ 1,827,732,330 $ 1,563,006,802
=============== ===============
</TABLE>
The changes in the allowance for loan losses follow:
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
2000 1999
-------- --------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Balance, beginning of period $ 8,971 $ 8,055
Provision for loan losses 2,850 2,400
Loans charged-off (1,814) (1,997)
Recoveries 424 331
-------- --------
Balance, end of period $ 10,431 $ 8,789
======== ========
</TABLE>
11
<PAGE>
The following table sets forth the amounts and categories of R&G
Financial's non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
------- -------
(Dollars in thousands)
<S> <C> <C>
Non-accruing loans:
Residential real estate $57,832 $47,413
Residential construction 432 478
Commercial real estate 10,448 9,005
Commercial business 1,362 1,255
Consumer unsecured 609 802
Other 60 61
------- -------
Total 70,743 59,014
------- -------
Accruing loans greater than 90 days
delinquent:
Residential real estate -- --
Residential construction -- --
Commercial real estate -- --
Commercial business 147 63
Consumer 377 274
------- -------
Total accruing loans greater than
90 days delinquent 524 337
------- -------
Total non-performing loans 71,267 59,351
------- -------
Real estate owned, net of reserves 6,991 5,852
Other repossessed assets 501 466
------- -------
7,492 6,318
------- -------
Total non-performing assets $78,759 $65,669
------- -------
Total non-performing loans as a
percentage of total loans 3.69% 3.66%
------- -------
Total non-performing assets as a
percentage of total assets 2.41% 2.26%
------- -------
Allowance for loan losses as a percentage
of total non-performing loans 14.64% 15.11%
------- -------
Allowance for loan losses as a percentage
of total loans outstanding 0.54% 0.55%
------- -------
Net charge-offs to average loans
outstanding 0.16% 0.25%
------- -------
</TABLE>
12
<PAGE>
NOTE 5 - MORTGAGE LOAN SERVICING
The changes in the servicing asset of the Company follows:
<TABLE>
<CAPTION>
For the six month period ended June 30,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Balance at beginning of period $ 84,252,506 $ 58,221,052
Rights originated 3,982,151 7,175,670
Rights purchased 4,366,308 4,157,063
Scheduled amortization (4,740,324) (3,380,532)
------------ ------------
Balance at end of period $ 87,860,641 $ 66,173,253
============ ============
</TABLE>
NOTE 6 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Passbook savings $ 113,564 $ 113,576
---------- ----------
NOW accounts 38,809 38,765
Super NOW accounts 95,880 93,913
Regular checking accounts
(non-interest bearing) 56,755 54,020
Commercial checking accounts
(non-interest bearing) 82,513 103,575
---------- ----------
273,957 290,273
---------- ----------
Certificates of deposit:
Under $100,000 440,642 390,315
$100,000 and over 689,093 531,714
---------- ----------
1,129,735 922,029
---------- ----------
Accrued interest payable 6,346 4,628
---------- ----------
$1,523,602 $1,330,506
========== ==========
</TABLE>
13
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Commitments to buy and sell GNMA certificates
As of June 30, 2000, the Company had open commitments to issue GNMA
certificates of approximately $108.6 million.
Commitments to sell mortgage loans
As of June 30, 2000 the Company had commitments to sell mortgage loans
to third party investors amounting to approximately $24.6 million.
Lease commitments
The Company is obligated under several noncancellable 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 June 30, 2000, 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 $651.5 million at June 30, 2000. Liability, if any,
under the recourse provisions at June 30, 2000 is estimated by management to be
insignificant.
NOTE 8 - SUPLEMENTAL 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:
<TABLE>
<CAPTION>
(Unaudited)
Three month period ended Six month period ended
June 30, June 30,
2000 1999 2000 1999
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Employee costs $ 9,825,783 $9,502,574 $21,160,486 $17,835,778
----------- ---------- ----------- -----------
Other administrative and general expenses $11,455,002 $8,351,721 $21,952,471 $16,859,608
----------- ---------- ----------- -----------
</TABLE>
14
<PAGE>
Set forth below are the direct loan origination costs that were
capitalized as part of the carrying cost of mortgage loan inventory or offset
against mortgage loan sales and fees and interest income.
<TABLE>
<CAPTION>
(Unaudited)
Three month period ended Six month period ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Offset against mortgage loan sales and fees $1,172,966 $3,304,678 $ 672,950 $1,749,327
---------- ---------- ---------- ----------
Offset against interest income on loans $ 786,443 $ 830,914 $1,583,981 $1,606,289
---------- ---------- ---------- ----------
Capitalized as part of loans held for sale and
loans held for investment $2,816,463 $877,219 $7,530,553 $6,050,467
---------- ---------- ---------- ----------
</TABLE>
15
<PAGE>
Item 2: Management's Discussion and Analysis
------- ------------------------------------
Financial Condition
At June 30, 2000, the Company's total assets amounted to $3.3 billion,
as compared to $2.9 billion at December 31, 1999. The $358.9 million or 12.3%
increase in total assets during the six month period ended June 30, 2000 was
attributable to a $264.7 million or 16.9% increase in loans receivable, net,
which reflects net originations following repayments and sales, and a $84.3
million or 32.6% increase in investment securities available for sale, which is
the result of the purchase of $78.1 million of such securities during the
period.
The increase in the Company's assets were primarily funded by increased
deposits of $193.1 million or 14.5%, increased repurchased agreements of $55.7
million or 7.6% and by a $67.0 million or 17.4% increase in FHLB advances during
the six month period ended June 30, 2000.
At June 30, 2000, the Company's stockholders' equity amounted to $282.9
million, which is an increase of $13.3 million or 4.9% from the amount reported
at December 31, 1999. The primary reason for the increase was the net income
earned for the period, which was partially offset by a $1.4 million increase in
unrealized losses on securities available for sale, net of income tax benefits,
and $5.5 million in dividends paid during the period. At June 30, 2000, the
Bank's leverage and Tier 1 risk-based capital amounted to 6.16% and 10.82% of
adjusted total assets, respectively, compared to a 4.0% minimum requirement, and
its total risk-based capital amounted to 11.53%, compared to an 8.0% minimum
requirement.
Results of Operations
The Company reported net income of $10.7 million and $ 20.2 million
during the three and six months period ended June 30, 2000, as compared to $11.8
million and $23.0 million during the prior comparable periods.
Total revenues for the six month period ended June 30, 2000 amounted to
$65.9 million compared to $59.1 million for the prior comparable period. The
11.4% increase was due to an increase in net interest income of $7.7 million or
30.0% during the six months ended June 30, 2000 over the prior comparable
period, primarily due to a $23.6 million or 44.3% increase in interest income on
loans, primarily associated with an increase in the average balance of the
outstanding loan portfolio.
16
<PAGE>
The following table summarizes the anticipated maturities or repricing
or R&G Financial's interest-earning assets and interest-bearing liabilities as
of June 30, 2000, based on the information and assumptions set forth in the
notes below.
<TABLE>
<CAPTION>
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
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Loans receivable:
Residential real estate loans $ 43,028 $ 121,256 $ 273,302 $ 213,165 $ 635,636 $ 1,286,387
Construction loans 37,054 -- 28,958 -- -- 66,012
Commercial real estate loans 267,071 690 1,308 856 1,265 271,190
Consumer loans 35,696 35,911 51,308 24,328 12,650 159,893
Commercial business loans 22,092 16,975 12,553 2,474 63 54,157
Mortgage loans held for sale 33,404 63,639 -- -- -- 97,043
Mortgage-backed securities(2)(3) 81,570 231,432 272,776 45,586 129,627 760,991
Investment Securities(3) 85,630 42,083 147,030 44,457 28,671 347,871
Other interest-earning assets(4) 34,480 -- -- -- -- 34,480
----------- ----------- ----------- ----------- ----------- -----------
Total $ 640,025 $ 511,986 $ 787,235 $ 330,866 $ 807,912 $ 3,078,024
=========== =========== =========== =========== =========== ===========
Interest bearing liabilities:
Deposits (5)
NOW and Super NOW accounts $ 6,979 $ 18,821 $ 20,689 $ 16,758 $ 71,442 $ 134,689
Passbook savings accounts 2,838 8,232 20,498 16,399 65,597 113,564
Regular and commercial checking 6,963 19,497 21,433 17,361 74,014 139,268
Certificates of deposit 317,683 600,585 87,179 114,685 9,603 1,129,735
FHLB advances 434,500 11,500 5,000 -- -- 451,000
Securities sold under agreements to
repurchase (6) 802,052 -- -- -- -- 802,052
Other borrowings(7) 108,508 20,000 35,500 -- -- 164,008
----------- ----------- ----------- ----------- ----------- -----------
Total 1,679,523 678,635 190,299 165,203 220,656 2,934,316
----------- ----------- ----------- ----------- ----------- -----------
Effect of hedging instruments (150,000) 25,000 35,000 10,000 80,000 --
----------- ----------- ----------- ----------- ----------- -----------
$ 1,529,523 $ 703,635 $ 225,299 $ 175,203 $ 300,656 $ 2,934,316
=========== =========== =========== =========== =========== ===========
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities ($ 889,498) ($ 191,649) $ 561,936 $ 155,663 $ 507,256
----------- ----------- ----------- ----------- -----------
Cummulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities ($ 889,498) ($1,081,147) ($ 519,211) ($ 363,548) $ 143,708
----------- ----------- ----------- ----------- -----------
Cummulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a percent
of total assets (27.2)% (33.1)% (15.9)% (11.1)% 4.4%
----------- ----------- ----------- ----------- -----------
</TABLE>
(footnotes on following page)
17
<PAGE>
----------------------
(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.
(7) Comprised of warehousing lines, notes payable and other borrowings.
----------------------
The following table presents for the periods indicated R&G Financial's
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 R&G Mortgage and average daily
balances for the Bank in each case during the periods presented.
18
<PAGE>
<TABLE>
<CAPTION>
For the three month period ended June 30,
2000 1999
-----------------------------------------------------------------------------------
Average Yield / Average Yield /
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Cash and cash equivalents(1) $ 15,303 $ 255 6.67% $ 9,425 $ 150 6.37%
Investment securities available for sale 292,883 5,160 7.05 85,180 1,236 5.80
Investment securities held to maturity 5,435 80 5.81 6,340 86 5.36
Mortgage-backed securities held for trading 20,043 285 5.69 24,978 266 4.26
Mortgage-backed securities available for sale 699,111 10,990 6.29 516,195 6,949 5.38
Mortgage-backed securities held to maturity 21,747 324 5.96 28,761 393 5.47
Loans receivable, net (2) 1,862,564 40,049 8.60 1,351,748 27,152 8.03
FHLB of New York Stock 38,282 568 5.95 12,221 205 6.71
---------------------------------------------------------------------------------
Total interest-earning assets 2,955,368 $ 57,711 7.81% 2,034,848 $ 36,437 7.16%
---------------------------------------------------------------------------------
Non-interest-earning assets 241,102 171,148
---------------------------------------------------------------------------------
Total assets $3,196,470 $2,205,996
=================================================================================
Interest-Bearing Liabilities:
Deposits $1,468,826 $ 19,031 5.18% $1,117,210 $ 12,699 4.55%
Securities sold under agreements to
repurchase (3) 756,593 11,714 6.19 427,488 5,598 5.24
Notes payable 150,764 2,899 7.69 195,120 3,254 6.67
Other borrowings(4) 451,430 7,334 6.50 193,135 2,358 4.88
---------------------------------------------------------------------------------
Total interest-bearing liabilities 2,827,613 $ 40,978 5.80% 1,932,953 $ 23,909 4.95%
---------------------------------------------------------------------------------
Non-interest-bearing liabilities 88,946 39,098
---------------------------------------------------------------------------------
Total liabilites 2,916,559 1,972,051
---------------------------------------------------------------------------------
Stockholders' equity 279,911 233,945
---------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,196,470 $2,205,996
=================================================================================
Net interest income; interest rate spread (5) $ 16,733 2.01% $ 12,528 2.21%
------------------------ ---------------------
Net interest margin 2.26% 2.46%
------ ------
Average interest-earning ass
interest-bearing liabilities 104.52% 105.27%
------ ------
</TABLE>
(footnotes on page 21)
19
<PAGE>
<TABLE>
<CAPTION>
For the six month period ended June 30,
2000 1999
-----------------------------------------------------------------------------------
Average Yield / Average Yield /
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Cash and cash equivalents (1) $ 14,031 $ 441 6.29% $ 19,779 $ 510 5.16%
Investment securities available for sale 273,231 9,534 6.98 66,704 1,879 5.63
Investment securities held to maturity 5,436 158 5.81 6,838 191 5.56
Mortgage-backed securities held for trading 22,203 663 5.97 21,139 542 5.13
Mortgage-backed securities available for sale 696,785 21,615 6.20 501,582 14,267 5.69
Mortgage-backed securities held to maturity 22,282 668 6.00 27,688 834 6.02
Loans receivable, net (2) 1,789,021 76,778 8.58 1,277,633 53,206 8.33
FHLB of New York Stock 36,086 1,137 6.30 11,815 393 6.65
-----------------------------------------------------------------------------------
Total interest-earning assets 2,859,075 $ 110,994 7.76% 1,933,178 $ 71,822 7.43%
-----------------------------------------------------------------------------------
Non-interest-earning assets 242,569 219,080
-----------------------------------------------------------------------------------
Total assets $3,101,644 $2,152,258
===================================================================================
Interest-Bearing Liabilities:
Deposits $1,422,537 $ 36,057 5.07% $1,837,410 $ 24,159 4.51%
Securities sold under agreements to
repurchase (3) 724,384 22,249 6.14 393,587 10,972 5.58
Notes payable 183,184 6,264 6.84 210,648 6,983 6.63
Other borrowings(4) 420,733 12,931 6.15 162,626 3,946 4.85
-----------------------------------------------------------------------------------
Total interest-bearing liabilities 2,750,838 $ 77,501 5.63% 1,837,410 $ 46,060 5.01%
-----------------------------------------------------------------------------------
Non-interest-bearing liabilities 74,354 85,164
-----------------------------------------------------------------------------------
Total liabilites 2,825,192 1,922,574
-----------------------------------------------------------------------------------
Stockholders' equity 276,452 229,684
-----------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,101,644 $2,152,258
===================================================================================
Net interest income; interest rate spread (5) $ 33,493 2.13% $ 25,762 2.42%
------------------------ ----------------------
Net interest margin 2.34% 2.67%
------ ------
Average interest-earning assets to average
interest-bearing liabilities 103.93% 105.21%
------ ------
</TABLE>
(footnotes on following page)
20
<PAGE>
----------------------
(1) Comprised of cash and due from banks, securities purchased under agreements
to resell, time deposits with other banks and federal funds sold.
(2) Includes mortgage loans held for sale and non-accrual loans.
(3) Includes federal funds purchased.
(4) Comprised of long-term debt, advances from the FHLB of New York and other
borrowings.
(5) Interest rate spread represents the difference between R&G Financial's
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.
----------------------
Contributing to the 11.4% increase in revenues during the six month
period ended June 30, 2000 was a $2.6 million or 21.1% increase in loan
administration and servicing fees due to an increase in the Company's loan
servicing portfolio. These increases in revenues were partially offset by a $3.0
million or 15.1% decrease in net gain on origination and sale of loans, which
reflects increases in interest rates for mortgage loans, which have reduced the
level of loans being refinanced.
The following table sets forth certain information regarding the
mortgage loan servicing portfolio of R&G Financial for the periods indicated.
<TABLE>
<CAPTION>
At or for the six months ended
June 30,
-------------------------------
2000 1999
-------------------------------
(Dollars in Thousands)
Activity in the Servicing Portfolio:
<S> <C> <C>
Beginning servicing portfolio $ 6,177,511 $ 4,827,798
Add: Loan originations and purchases 671,287 812,927
Servicing of portfolio loans acquired 1,779 179
Less: Sale of servicing rights(1) (128,095) ( --)
Run-offs(2) (317,588) (392,285)
----------- -----------
Ending servicing portfolio(3) $ 6,404,894 $ 5,248,619
=========== ===========
Number of loans serviced 109,015 99,555
Average loan size $ 59 $ 53
Average servicing fee rate 0.485% 0.528%
</TABLE>
--------------------
(1) Includes loans sold, servicing released, by Continental Capital totaling
$87.0 million.
(2) Run-off refers to regular amortization of loans, prepayments and
foreclosures.
(3) At the dates shown, included $1.3 billion and $1.1 billion of loans
serviced for the Bank, respectively, which constituted 19.8% and 17.3% of
the total servicing portfolio, respectively.
21
<PAGE>
Total revenues for the quarter ended June 30, 2000 amounted to $34.0
million, a $4.6 million or 15.6% increase over the comparable quarter in 1999.
The increase in total revenues during the 2000 quarter was primarily
attributable to a $4.2 million or 33.6% increase in net interest income, and a
$760,000 or 11.5% increase in loan administration and servicing fees.
Total expenses increased by $9.5 million or 31.3% during the six months
ended June 30, 2000 over the prior comparable period. The six month period ended
June 30, 2000 includes expenses associated with the operations of Continental
Capital, the Company's mortgage banking subsidiary in Long Island, New York,
acquired in late 1999, which was a significant reason for the increase in
expenses during the quarter. Excluding expenses associated with Continental
Capital, expenses during the period increased by $5.2 million or 17.0%, due
primarily to a $854,000 or 8.34% increase in employee compensation and benefits
associated with employees hired for new branch openings and the Company's
commercial loan department expansion, in both instances after June of last year.
The increase in employee expenses was accompanied by a $3.1 million or 20.6%
increase in other miscellaneous expenses, mainly as a result of a $1.4 million
increase in amortization expenses of the Company's servicing asset. Finally,
occupancy expenses increased by $1.2 million or 23.7%, related to the operation
of six additional branches completed during the latter part of 1999 and an
additional branch completed in early 2000.
Total expenses increased by $4.3 million or 27.5% during the three
month period ended June 30, 2000, including expenses associated with Continental
Capital. Total expenses for the quarter ended June 30, 2000, excluding
Continental Capital operations, increased by $2.3 million or 14.8% as compared
to the prior comparable period. The increase was due to a $472,000 or 17.4%
increase in occupancy expenses, and a $2.3 million or 30.8% increase in other
miscellaneous expenses offset by a $439,000 or 8.0% decrease in employee
compensation and benefits, notwithstanding the hiring of new employees for new
branch openings and expansion of the Company's commercial loan department after
June 1999 as a result of the Company's ongoing cost reduction efforts.
Total income tax expense increased by $1.4 million or 69.0%, and
$13,000 or .21% during the three and six month period ended June 30, 2000,
respectively over the prior comparable periods. The Company's effective tax rate
amounted to 24.6% and 22.2%, respectively, during the three and six months
periods ended June 30, 2000 compared to 18.5% and 21.8% in the 1999 comparable
periods (excluding a $500,000 tax credit recorded in the second quarter of 1999
related to the purchase of certain investment tax credits). The increase in the
Company's effective tax rate during the quarter ended June 30, 2000 is primarily
related to increases in the Company's non-exempt interest income as a result of
growth of the Company's loans receivable portfolio.
Liquidity and Capital Resources
Liquidity - Liquidity refers to the Company's 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 management's 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 Company's 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
22
<PAGE>
for borrowings. Liquidity is derived from liabilities by maintaining a variety
of funding sources, including deposits, advances from the FHLB of New York and
other short and long-term borrowings.
The Company's 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 June 30, 2000, the Company had $288.4 million in borrowing capacity
under warehousing and other lines of credit, $748.9 million in borrowings
capacity under a line of credit with the FHLB of New York and $25 million under
federal funds lines of credit. The Company has generally not relied upon
brokered deposits as a source of liquidity.
At June 30, 2000, the Company had outstanding commitments to extend
credit totaling $36.1 million (excluding the undisbursed portion of loans in
process). Certificates of deposit which are scheduled to mature within one year
totaled $904.1 million at June 30, 2000, and borrowings that are scheduled to
mature within the same period amounted to $1.4 billion. The Company anticipates
that it will have sufficient funds available to meet its current loan
commitments.
Capital Resources - The FDIC's 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 FDIC's 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 June 30,
2000, the Bank met each of its capital requirements, with Tier 1 leverage
capital, Tier 1 risk-based capital and total risk-based capital ratios of 6.16%,
10.82% and 11.53%, respectively.
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. The Company
is currently in compliance with such regulatory capital requirements.
23
<PAGE>
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 Company's 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.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
In addition to historical information, forward-looking statements are
contained herein that are subject to risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which the Company
operates), the impact of government legislation and regulation (which changes
from time to time and over which the Company has no control), and other risks
detailed in this Form 10-Q and in the Company's other Securities and Exchange
Commission ("SEC") filings. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the SEC.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
-------------------------------------------------------------------
Quantitative and qualitative disclosures about market risks at December
31, 1999 are presented in Item 7A of the Company's Annual report on Form 10-K.
Information at June 30, 2000 is presented on page 17 of this Report. Management
believes there have been no material changes in the Company's market risk since
December 31, 1999.
PART II - OTHER INFORMATION
---------------------------
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
24
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on April 26,
2000.
1. With respect to the election of four directors to serve three-year
terms expiring at the Annual Meeting of Stockholders to be held in
the year 2003 or until their respective successors are elected and
qualified, the following were the number of shares voted for each
nominee:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ileana M. Colon -Carlo Class A-For 18,440,556 Withheld 0 Against 0
Class B-For 312,593 Withheld 60,680 Against 0
Roberto Gorbea Class A-For 18,440,556 Withheld 0 Against 0
Class B-For 312,593 Withheld 60,680 Against 0
Laureano Carus-Abarca Class A-For 18,440,556 Withheld 0 Against 0
Class B-For 312,593 Withheld 60,680 Against 0
Gilberto Rivera-Arreaga Class A-For 18,440,556 Withheld 0 Against 0
Class B-For 312,593 Withheld 60,680 Against 0
</TABLE>
2. With respect to the ratification of the appointment of
PricewaterhouseCoopers, LLP as the Company's independent auditors
for the fiscal year ending December 31, 2000, the following are
the number of shares voted:
Class A-For 18,440,556 Withheld 0 Against 0
Class B-For 373,273 Withheld 0 Against 0
Item 5: Other Information
Not applicable.
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
No.
---
27 Financial Data Schedule E-1
b) No Form 8-K reports were filed during the quarter.
25
<PAGE>
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: August 10, 2000 By:/S/ VICTOR J. GALAN
-------------------
Victor J. Galan, Chairman
and Chief Executive Officer
(Principal Executive Officer)
By: /S/ JOSEPH R. SANDOVAL
----------------------
Joseph R. Sandoval
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
