SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| ¨ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES | |
| EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003 |
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
(Registrant’s 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 oNO
Number of shares of Class B Common Stock outstanding as of November 11, 2003: 19,670,888 (Does not include 14,373,056 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
| Page | ||||||
Part I - Financial Information |
||||||
Item 1. Consolidated Financial Statements |
3 | |||||
Consolidated Statements of Financial Condition as of
September 30, 2003 (Unaudited) and December 31, 2002 |
3 | |||||
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2003 and 2002 (Unaudited) |
4 | |||||
Consolidated Statements of Comprehensive Income for the Three and Nine
Months Ended September 30, 2003 and 2002 (Unaudited) |
5 | |||||
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2003 and 2002 (Unaudited) |
6 | |||||
Notes to Unaudited Consolidated Financial Statements |
7 | |||||
Item 2. Management’s Discussion and Analysis |
19 | |||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
30 | |||||
Item 4. Controls and Procedures |
30 | |||||
Part II - Other Information |
||||||
Item 1. Legal Proceedings |
31 | |||||
Item 2. Changes in Securities |
31 | |||||
Item 3. Defaults Upon Senior Securities |
31 | |||||
Item 4. Submission of Matters to a Vote of Security Holders |
31 | |||||
Item 5. Other Information |
31 | |||||
Item 6. Exhibits and Reports on Form 8-K |
31 | |||||
Signatures |
34 | |||||
2
PART 1-FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
| September 30, 2003 | December 31, 2002 | |||||||||
| (Unaudited) | ||||||||||
| (Dollars in thousands) | ||||||||||
ASSETS |
||||||||||
Cash and due from banks |
$ | 81,774 | $ | 128,085 | ||||||
Money market investments: |
||||||||||
Securities purchased under agreements to resell |
53,698 | — | ||||||||
Time deposits with other banks |
41,306 | 65,401 | ||||||||
Short-term investments |
— | 4,157 | ||||||||
Mortgage loans held for sale, at lower of cost or market |
240,535 | 258,738 | ||||||||
Mortgage-backed and investment securities held for trading, at fair value |
33,821 | 48,651 | ||||||||
Trading securities pledged on repurchase agreements, at fair value |
7,128 | 26,106 | ||||||||
Mortgage-backed and investment securities available for sale, at fair value |
2,135,193 | 1,819,257 | ||||||||
Available for sale securities pledged on repurchase agreements, at fair value |
1,040,408 | 737,656 | ||||||||
Mortgage-backed and investment securities held to maturity, at amortized cost
(estimated market value: 2003 - $15,927; 2002 - $30,885) |
15,436 | 30,661 | ||||||||
Held to maturity securities pledged on repurchase agreements, at amortized cost
(estimated market value: 2003 - $57,810; 2002 - $45,926) |
55,884 | 44,930 | ||||||||
Loans receivable, net |
3,754,039 | 2,759,689 | ||||||||
Accounts receivable, including advances to investors, net |
40,911 | 32,100 | ||||||||
Accrued interest receivable |
42,425 | 40,401 | ||||||||
Servicing asset |
124,149 | 142,334 | ||||||||
Premises and equipment |
40,358 | 38,665 | ||||||||
Other assets |
127,936 | 100,415 | ||||||||
| $ | 7,835,001 | $ | 6,277,246 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Liabilities: |
||||||||||
Deposits |
$ | 3,431,976 | $ | 2,802,324 | ||||||
Federal funds purchased |
35,000 | — | ||||||||
Securities sold under agreements to repurchase |
2,112,382 | 1,489,758 | ||||||||
Notes payable |
194,632 | 194,607 | ||||||||
Advances from FHLB |
1,098,725 | 940,725 | ||||||||
Other borrowings |
57,739 | 45,066 | ||||||||
Accounts payable and accrued liabilities |
165,844 | 134,427 | ||||||||
Other liabilities |
13,571 | 8,121 | ||||||||
| 7,109,869 | 5,615,028 | |||||||||
Stockholders’equity: |
||||||||||
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, 14,373,056
issued and outstanding (2002 - 14,553,056) |
144 | 145 | ||||||||
Class B - $.01 par value, 60,000,000 shares authorized, 19,670,888
issued and outstanding (2002-19,440,206) |
197 | 194 | ||||||||
Additional paid-in capital |
115,177 | 114,951 | ||||||||
Retained earnings |
366,720 | 294,592 | ||||||||
Capital reserves |
17,419 | 17,419 | ||||||||
Accumulated other comprehensive income |
12,475 | 21,917 | ||||||||
| 725,132 | 662,218 | |||||||||
| $ | 7,835,001 | $ | 6,277,246 | |||||||
The accompanying notes are an integral part of these statements.
3
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
| Three month | Nine month | |||||||||||||||||||
| period ended | period ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||
| (Dollars in thousands except for per share data) | ||||||||||||||||||||
Interest income: |
||||||||||||||||||||
Loans |
$ | 59,528 | $ | 50,086 | $ | 166,490 | $ | 127,569 | ||||||||||||
Money market and other investments |
8,003 | 9,480 | 24,593 | 28,113 | ||||||||||||||||
Mortgage-backed securities |
27,816 | 29,346 | 85,078 | 83,564 | ||||||||||||||||
Total interest income |
95,347 | 88,912 | 276,161 | 239,246 | ||||||||||||||||
Interest expense: |
||||||||||||||||||||
Deposits |
23,362 | 23,826 | 68,023 | 65,416 | ||||||||||||||||
Securities sold under agreements to repurchase |
12,144 | 12,708 | 37,729 | 37,764 | ||||||||||||||||
Notes payable |
1,519 | 1,795 | 5,528 | 5,152 | ||||||||||||||||
Other |
10,579 | 9,273 | 30,348 | 21,550 | ||||||||||||||||
Total interest expense |
47,604 | 47,602 | 141,628 | 129,882 | ||||||||||||||||
Net interest income |
47,743 | 41,310 | 134,533 | 109,364 | ||||||||||||||||
Provision for loan losses |
(4,292 | ) | (3,970 | ) | (12,956 | ) | (13,520 | ) | ||||||||||||
Net interest income after provision for loan losses |
43,451 | 37,340 | 121,577 | 95,844 | ||||||||||||||||
Other income: |
||||||||||||||||||||
Net gain on origination and sale of loans |
30,167 | 24,380 | 107,970 | 57,841 | ||||||||||||||||
Loan administration and servicing fees |
12,587 | 11,193 | 38,989 | 30,817 | ||||||||||||||||
Service charges, fees and other |
7,943 | 4,539 | 20,890 | 12,471 | ||||||||||||||||
| 50,697 | 40,112 | 167,849 | 101,129 | |||||||||||||||||
Total revenues |
94,148 | 77,452 | 289,426 | 196,973 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Employee compensation and benefits |
15,377 | 12,535 | 45,030 | 32,087 | ||||||||||||||||
Office occupancy and equipment |
6,489 | 5,138 | 18,265 | 14,106 | ||||||||||||||||
Other administrative and general |
26,638 | 27,712 | 99,887 | 61,681 | ||||||||||||||||
| 48,504 | 45,385 | 163,182 | 107,874 | |||||||||||||||||
Income before income taxes |
45,644 | 32,067 | 126,244 | 89,099 | ||||||||||||||||
Income tax expense: |
||||||||||||||||||||
Current |
9,179 | 5,880 | 21,985 | 18,575 | ||||||||||||||||
Deferred |
2,173 | 1,139 | 9,376 | 1,324 | ||||||||||||||||
| 11,352 | 7,019 | 31,361 | 19,899 | |||||||||||||||||
Net income |
$ | 34,292 | $ | 25,048 | $ | 94,883 | $ | 69,200 | ||||||||||||
Earnings per common share - Basic |
$ | 0.89 | $ | 0.64 | $ | 2.44 | $ | 1.83 | ||||||||||||
- Diluted |
$ | 0.89 | $ | 0.63 | $ | 2.43 | $ | 1.81 | ||||||||||||
Weighted average number of shares outstanding - Basic |
34,043,641 | 33,053,988 | 34,036,563 | 31,892,007 | ||||||||||||||||
- Diluted |
34,193,941 | 33,301,846 | 34,185,327 | 32,209,740 | ||||||||||||||||
The accompanying notes are an integral part of these statements.
4
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three month | Nine month | ||||||||||||||||
| period ended | period ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
Net income |
$ | 34,292 | $ | 25,048 | $ | 94,883 | $ | 69,200 | |||||||||
Other comprehensive income, before tax: |
|||||||||||||||||
Unrealized gains (losses): |
|||||||||||||||||
Cash flow hedges |
2,482 | (6,749 | ) | 843 | (7,954 | ) | |||||||||||
Investment securities: |
|||||||||||||||||
Arising during period |
(5,816 | ) | 12,651 | (15,477 | ) | 35,265 | |||||||||||
Less: Reclassification adjustments for gains
included in net income |
(11 | ) | (228 | ) | (831 | ) | (449 | ) | |||||||||
| (5,827 | ) | 12,423 | (16,308 | ) | 34,816 | ||||||||||||
| (3,345 | ) | 5,674 | (15,465 | ) | 26,862 | ||||||||||||
Income tax (expense) benefit related to items of
other comprehensive income |
1,295 | (2,226 | ) | 6,023 | (10,476 | ) | |||||||||||
Other comprehensive (loss) income, net of tax |
(2,050 | ) | 3,448 | (9,442 | ) | 16,386 | |||||||||||
Comprehensive income, net of tax |
$ | 32,242 | $ | 28,496 | $ | 85,441 | $ | 85,586 | |||||||||
The accompanying notes are an integral part of these statements.
5
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine month period ended September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
| (Unaudited) | ||||||||||||
| (Dollars in thousands) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 94,883 | $ | 69,200 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
7,055 | |||||||||||