R&G FINANCIAL CORP - 10-Q Quarterly Report

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


u		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

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 or organization)				(I.R.S. Employer Identification No. )

(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). xYes o No

Number of shares of Class B Common Stock outstanding as of June 30, 2003: 19,670,564 (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.)

TABLE OF CONTENTS


PART 1-FINANCIAL INFORMATION
	ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
		CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2: Management’s Discussion and Analysis
	Item 3: Quantitative and Qualitative Disclosures about Market Risk
	Item 4: Controls and Procedures
PART II — OTHER INFORMATION
	Item 1: Legal Proceedings
	Item 2: Changes in Securities
	Item 3: Defaults Upon Senior Securities
	Item 4: Submission of Matters to a Vote of Security Holders
	Item 5: Other Information
	Item 6: Exhibits and Reports on Form 8-K
SIGNATURES
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 AND CFO

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, 2003 (Unaudited) and December 31, 2002		3
		Consolidated Statements of Income for the Three and Six Months Ended June 30, 2003 and 2002 (Unaudited)		4
		Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2003 and 2002 (Unaudited)		5
		Consolidated Statements of Cash Flows for the Six Months Ended June 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				32
	Signatures			34

PART 1-FINANCIAL INFORMATION

ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


				June 30, 2003		December 31, 2002

				(Unaudited)
ASSETS				(Dollars in thousands)
Cash and due from banks				$	144,380	$	128,085
Money market investments:
	Securities purchased under agreements to resell				34,726		—
	Time deposits with other banks				21,777		65,401
	Federal funds sold				15,000		—
	Short-term investments				—		4,157
Mortgage loans held for sale, at lower of cost or market					248,345		258,738
Mortgage-backed and investment securities held for trading, at fair value					41,200		48,651
Trading securities pledged on repurchase agreements, at fair value					—		26,106
Mortgage-backed and investment securities available for sale, at fair value					2,280,597		1,819,257
Available for sale securities pledged on repurchase agreements, at fair value					745,975		737,656
Mortgage-backed and investment securities held to maturity, at amortized cost (estimated market value: 2003 - $6,567; 2002 - $30,885)					6,365		30,661
Held to maturity securities pledged on repurchase agreements, at amortized cost (estimated market value: 2003 - $65,262; 2002 - $45,926)					62,754		44,930
Loans receivable, net					3,286,745		2,759,689
Accounts receivable, including advances to investors, net					35,594		32,100
Accrued interest receivable					41,112		40,401
Servicing asset					127,146		142,334
Premises and equipment					40,645		38,665
Other assets					123,771		100,415

				$	7,256,132	$	6,277,246

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
		Deposits		$	3,240,607	$	2,802,324
		Federal funds purchased			5,000		—
		Securities sold under agreements to repurchase			1,845,488		1,489,758
		Notes payable			206,009		194,607
		Advances from FHLB			1,016,725		940,725
		Other borrowings			42,813		45,066
		Accounts payable and accrued liabilities			184,916		134,427
		Other liabilities			13,842		8,121

					6,555,400		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, 19,670,564 issued and outstanding (2002-19,440,206)		197		194
		Additional paid-in capital			115,167		114,951
		Retained earnings			340,280		294,592
		Capital reserves of the Bank			17,419		17,419
		Accumulated other comprehensive income			14,525		21,917

					700,732		662,218

				$	7,256,132	$	6,277,246

The accompanying notes are an integral part of these statements.

R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME


					Three month						Six month
					period ended						period ended
					June 30,						June 30,

					2003			2002			2003			2002

					(Unaudited)						(Unaudited)
					(Dollars in thousands except for per share data)
Interest income:
	Loans				$	55,007		$	38,980		$	106,962		$	77,483
	Money market and other investments					7,972			9,594			16,590			18,633
	Mortgage-backed securities					29,579			29,041			57,262			54,218

			Total interest income			92,558			77,615			180,814			150,334

Interest expense:
		Deposits				22,968			20,764			44,661			41,590
		Securities sold under agreements to repurchase				12,814			12,713			25,585			25,056
		Notes payable				2,139			1,585			4,009			3,357
		Other				10,068			6,504			19,769			12,277

			Total interest expense			47,989			41,566			94,024			82,280

Net interest income						44,569			36,049			86,790			68,054
Provision for loan losses						(4,444	)		(4,550	)		(8,664	)		(9,550	)

Net interest income after provision for loan losses						40,125			31,499			78,126			58,504

Other income:
	Net gain on origination and sale of loans					44,883			15,751			77,900			33,461
	Loan administration and servicing fees					13,104			10,320			26,305			19,624
	Service charges, fees and other					7,226			4,060			12,947			7,932

						65,213			30,131			117,152			61,017

			Total revenues			105,338			61,630			195,278			119,521

Operating expenses:
	Employee compensation and benefits					14,506			9,544			29,653			19,552
	Office occupancy and equipment					6,074			4,706			11,776			8,968
	Other administrative and general					42,706			18,043			73,249			33,969

						63,286			32,293			114,678			62,489

Income before income taxes						42,052			29,337			80,600			57,032

Income tax expense (benefit):
	Current					6,866			7,199			12,806			12,695
	Deferred					3,736			(481	)		7,203			185

						10,602			6,718			20,009			12,880

			Net income		$	31,450		$	22,619		$	60,591		$	44,152

Earnings per common share — Basic					$	0.81		$	0.60		$	1.55		$	1.19

				- Diluted	$	0.80		$	0.59		$	1.54		$	1.17

Weighted average number of shares outstanding — Basic						34,043,100			31,306,700			34,032,966			31,301,387
				- Diluted		34,181,137			31,654,798			34,180,949			31,654,636

The accompanying notes are an integral part of these statements.

R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


		Three month						Six month
		period ended						period ended
		June 30,						June 30,

		2003			2002			2003			2002

		(Unaudited)						(Unaudited)
		(Dollars in thousands)
Net income		$	31,450		$	22,619		$	60,591		$	44,152


Other comprehensive income, before tax:
Unrealized gains (losses):
Cash flow hedges			(1,979	)		(3,201	)		(1,639	)		(1,205	)


Investment securities:
	Arising during period		(4,933	)		36,697			(9,661	)		22,614
	Less: Reclassification adjustments for gains included in net income		(714	)		(146	)		(820	)		(221	)

			(5,647	)		36,551			(10,481	)		22,393

			(7,626	)		33,350			(12,120	)		21,188

Income tax (expense) benefit related to items of other comprehensive income			2,971			(12,993	)		4,728			(8,250	)

Other comprehensive income (loss), net of tax			(4,655	)		20,357			(7,392	)		12,938

Comprehensive income, net of tax		$	26,795		$	42,976		$	53,199		$	57,090

The accompanying notes are an integral part of these statements.

R&G FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


					Six month period ended June 30,

					2003			2002

					(Unaudited)
Cash flows from operating activities:					(Dollars in thousands)
	Net income				$	60,591		$	44,152

				Adjustments to reconcile net income to net cash provided by operating activities:
				Depreciation and amortization		4,455			3,205
				Amortization of premium on investments and mortgage-backed securities, net		5,766			1,624
				Amortization of servicing rights		24,069			10,921
				Provision for(reversal of) impairment reserves on servicing rights		14,712			(459	)
				Provision for loan losses		8,664			9,550
				Gain on sales of mortgage-backed and investment securities available for sale		(820	)		(221	)
				Unrealized loss (gain) on trading securities and derivative instruments, net		1,284			(241	)
				Increase in mortgage loans held for sale		(7,212	)		(26,296	)
				Net decrease in securities held for trading		32,425			7,604
				Increase in receivables		(4,205	)		(12,139	)
				Increase in other assets		(23,340	)		(681	)
				Increase (decrease) increase in notes payable and other borrowings		9,149			(13,858	)
				Increase in accounts payable and accrued liabilities		53,764			8,325
				Increase in other liabilities		5,721			1,054

				Total adjustments		124,432			(11,612	)

				Net cash provided by operating activities		185,023			32,540

Cash flows from investing activities:
		Purchases of investment securities				(1,431,196	)		(663,165	)
		Proceeds from sales of securities available for sale				109,908			386,537
		Principal repayments on mortgage-backed securities and redemption of securities available for sale				877,984			308,093
		Net assets acquired, net of cash received				—			(63,679	)
		Proceeds from sales of loans				52,312			—
		Net originations of loans				(588,032	)		(523,772	)
		Purchases of FHLB stock, net				(18,604	)		(20,887	)
		Acquisition of premises and equipment				(5,890	)		(4,244	)
		Acquisition of servicing rights				(23,593	)		(19,036	)

				Net cash used in investing activities		(1,027,111	)		(600,153	)

Cash flows from financing activities:
	Increase in deposits, net					438,283			5,359
	Increase in federal funds purchased					5,000			10,000
	Increase in securities sold under agreements to repurchase, net					355,730			185,352
	Advances from FHLB, net					76,000			254,500
	Net proceeds from issuance of preferred stock					—			90,799
	Proceeds from issuance of common stock					218			519
	Cash dividends:
			Common stock			(6,961	)		(4,944	)
			Preferred stock			(7,942	)		(7,013	)

				Net cash provided by financing activities		860,328			534,572

Net increase (decrease) in cash and cash equivalents						18,240			(33,041	)
Cash and cash equivalents at beginning of period						197,643			157,724

Cash and cash equivalents at end of period					$	215,883		$	124,683

Cash and cash equivalents include:
	Cash and due from banks				$	144,380		$	90,680
	Federal funds sold					15,000			—
	Securities purchased under agreements to resell					34,726			—
	Time deposits with other banks					21,777			34,003

					$	215,883		$	124,683

The accompanying notes are an integral part of these statements.

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”), a diversified financial services company, and its wholly-owned subsidiaries, R-G Premier Bank of Puerto Rico (the “Premier Bank”), a Puerto Rico commercial bank, R-G Crown Bank (formerly Crown Bank, F.S.B.) (“Crown Bank”), a Florida-based federal savings bank, R&G Mortgage Corp. (“R&G Mortgage”), Puerto Rico’s 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 31st year of operations, operates as a financial holding company, pursuant to the provisions of the Gramm-Leach-Bliley Act of 1999, and is primarily 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 six 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 local 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). 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.

R&G Mortgage also originates FHA insured, VA guaranteed and privately insured first and second mortgage loans on residential real estate (1 to 4 families), through its wholly-owned subsidiary, Mortgage Store of Puerto Rico, Inc.

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 Company’s financial condition as of June 30, 2003 and the results of operations and changes in its cash flows for the three and six months ended June 30, 2003 and 2002.

The results of operations for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003. 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, 2002.

Basis of consolidation

All significant intercompany balances and transactions have been eliminated in the accompanying unaudited financial statements.

New accounting pronouncements

On January 1, 2002 the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” it retains many of the fundamental provisions of that Statement. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of by sale, abandonment, or in a distribution to owners or is classified as held for sale. The adoption of this Statement did not have an effect on the consolidated financial position or results of operations of the Company.

On January 1, 2002 the Company adopted also SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over the respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144. The initial adoption of this Statement on January 1, 2002 had no effect on the consolidated financial position or results of operations of the Company.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees of Indebtedness of Others (an interpretation of FASB Statements No. 5, 57, 107 and rescission of FASB Interpretation No. 34)” (“FIN No. 45”). FIN No. 45 clarifies the requirements of FASB Statement No. 5, “Accounting for Contingencies,” relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. FIN No. 45 requires a guarantor of certain guarantees to recognize at its inception a liability for the fair value of the obligation undertaken when issuing the guarantee, and also expands the related disclosures. The provisions of initial recognition are effective for guarantees issued and modified after December 31, 2002. The adoption of FIN No. 45 on January 1, 2003 did not have a significant impact on the Company’s consolidated financial statements.

On April 30, 2003 the FASB issued SFAS No. 149, “Amendment of Statement 133 or 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.” This Statement is effective for contracts entered into or modified after June 30, 2003. The adoption of this Statement is not expected to have a significant effect in the consolidated financial condition or results of operations of the Company.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” FAS 150 represents phase 1 of the FASB’s broader project on (1) distinguishing between liability and equity instruments and (2) accounting for instruments that have characteristics of both types of instruments (the “liabilities and equity project”). 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. It is expected that phase 2 of the project, set to begin in July, will address (1) separating compound financial instruments (including convertible debt and conditionally redeemable stock) that

have characteristics of liabilities and equity into their liability and equity components, (2) the definition of an ownership relationship, and (3) the definition of liabilities in FASB Concepts Statement No. 6 (CON 6), “Elements of Financial Statements.”

Under the provisions of this Statement, SFAS No. 150 is effective July 1, 2003 for the Company. Among the instruments specified by SFAS No. 150, mandatorily redeemable financial instruments must be classified as liabilities. The Company has $35 million of such instruments already classified as other borrowings in its consolidated statements of financial condition as of June 30, 2003 and accordingly, this Statement will have no effect on the Company’s consolidated financial statements.

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 of outstanding stock options granted in connection with the Company’s Stock Option Plan (138,037 and 348,098 during the three months ended June 30, 2003 and 2002, respectively, and 147,983 and 353,249 during the six month periods ended June 30, 2003 and 2002, respectively), are 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				Six month
period ended				period ended
June 30,				June 30,

2003		2002		2003		2002

$	0.1060	$	0.08125	$	0.2040	$	0.1575

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.


		June 30,		December 31,
		2003		2002

		(Unaudited)
		(Dollars in thousands)
Mortgage-backed securities held for trading:
	GNMA certificates	$	—	$	9,741
	FHLMC certificates		40,375		65,016

			40,375		74,757

Investment securities held for trading:
	US government securities mutual fund		800		—
	Other		25		—

			825		—

		$	41,200	$	74,757


			June 30, 2003				December 31, 2002

			Amortized		Fair		Amortized		Fair
			cost		value		cost		value

			(Unaudited)
Mortgage-backed securities available for sale:
			(Dollars in thousands)
Collaterized mortgage obligations (CMO):
	Due within one year		$	—	$	—	$	113	$	113
	Due from one to five years			8,898		9,059		17,178		17,288
	Due from five to ten years			13,104		13,271		31,571		32,219
	Due over ten years			833,849		838,825		404,981		409,830

				855,851		861,155		453,843		459,450

CMO residuals (interest only), and interest only strips (IO’s)				69,333		71,229		30,964		32,759

FNMA certificates:
	Due from one to five years			71		73		—		—
	Due from five to ten years			13,490		13,467		370		390
	Due over ten years			330,672		340,220		258,805		269,367

				344,233		353,760		259,175		269,757

FHLMC certificates:
	Due within one year			3		3		2		2
	Due from one to five years			8		7		20		21
	Due from five to ten years			7,113		7,149		889		935
	Due over ten years			559,684		568,521		738,041		756,228

				566,808		575,680		738,952		757,186

GNMA certificates:
		Due from one to five years		25		25		—		—
		Due from five to ten years		14,414		14,963		16,515		16,759
		Due over ten years		381,511		387,588		440,767		446,339

				395,950		402,576		457,282		463,098

				2,232,175		2,264,400		1,940,216		1,982,250

Investment securities available for sale:
Mortgage securities portfolio mutual fund				—		—		3,266		2,964

U.S. Government and Agencies securities:
		Due within one year		57,627		58,649		—		—
		Due from one to five years		401,159		404,023		263,632		267,896
		Due from five to ten years		114,120		117,653		137,756		143,695

				572,906		580,325		401,388		411,591

Corporate debt obligations:
		Due within one year		14,961		15,375		3,205		3,367
		Due from one to five years		38,618		41,937		52,779		55,283
		Due from five to ten years		—		—		2,979		2,385
		Due over ten years		9,232		9,155		9,805		9,808

				62,811		66,467		68,768		70,843

US Municipal debt obligations- Due over ten years				12,215		12,439		4,884		4,879

FHLB Stock				102,941		102,941		84,337		84,337

Other				—		—		49		49

				750,873		762,172		562,692		574,663

			$	2,983,048	$	3,026,572	$	2,502,908	$	2,556,913


		June 30, 2003				December 31, 2002

		Amortized		Fair		Amortized		Fair
		cost		value		cost		value

		(Unaudited)
		(Dollars in thousands)
Mortgage-backed securities held to maturity:
GNMA certificates:
	Due from five to ten years	$	4,778	$	4,891	$	5,457	$	5,513
	Due over ten years		29,301		30,119		33,521		34,091

			34,079		35,010		38,978		39,604

FNMA certificates:
	Due over ten years		5,364		5,607		6,328		6,698

FHLMC certificates:
	Due over ten years		91		90		102		102

			39,534		40,707		45,408		46,404

Investment securities held to maturity:
United States Government and Agencies obligations:
	Due within one year		3,081		3,081		997		997
	Due from one to five years		—		—		1,500		1,500

			3,081		3,081		2,497		2,497

Puerto Rico Government and Agencies obligations:
	Due within one year		248		259		—		—
	Due from one to five years		25,156		26,622		26,586		26,804
	Due from five to ten years		1,000		1,060		1,000		1,005

			26,404		27,941		27,586		27,809

Other – Due from one to five years			100		100		100		100

			29,585		31,122		30,183		30,406

		$	69,119	$	71,829	$	75,591	$	76,810

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 June 30, 2003 the Company had investment 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 securities held for trading, at fair value	$	7,708
Mortgage-backed and investment securities available for sale, at fair value		1,103,582
Mortgage-backed securities held to maturity, at amortized cost		326

	$	1,111,616

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consist of the following:


			June 30,			December 31,
			2003			2002

			(Unaudited)
			(Dollars in thousands)
Real estate loans:
	Residential — first mortgage		$	1,863,215		$	1,473,051
	Residential — second mortgage			35,576			40,429
	Land			42,527			27,521
	Construction			489,519			355,367
	Commercial			724,590			633,233

				3,155,427			2,529,601
Undisbursed portion of loans in process				(184,979	)		(90,432	)
Net deferred loan costs (fees)				470			(45	)

				2,970,918			2,439,124

Other loans:
	Commercial			153,562			152,743
	Consumer:
		Secured by deposits		24,184			28,070
		Secured by real estate		59,683			68,156
		Other		113,174			104,715
Unearned interest				(461	)		(444	)

				350,142			353,240

		Total loans		3,321,060			2,792,364
	Allowance for loan losses			(34,315	)		(32,675	)

			$	3,286,745		$	2,759,689

The changes in the allowance for loan losses follow:


	Six months ended
	June 30,

	2003			2002

	(Unaudited)
	(Dollars in thousands)
Balance, beginning of period	$	32,675		$	17,428
Provision for loan losses		8,664			9,550
Acquired reserves		—			7,463
Loans charged-off		(7,787	)		(7,004	)
Recoveries		763			456

Balance, end of period	$	34,315		$	27,893

The following table sets forth the amounts and categories of R&G Financial’s non-performing assets at the dates indicated.


			June 30,			December 31,
			2003			2002

			(Unaudited)
			(Dollars in thousands)
Non-accruing loans:
	Residential real estate (1)		$	59,327		$	43,281
	Residential construction			1,417			1,512
	Commercial real estate			23,286			29,375
	Commercial business			2,139			2,197
	Consumer unsecured			690			802

		Total		86,859			77,167

Accruing loans greater than 90 days delinquent:
	Residential real estate (1)			37			104
	Residential construction			—			—
	Commercial real estate			—			—
	Commercial business			317			261
	Consumer			357			667

		Total accruing loans greater than 90 days delinquent		711			1,032

		Total non-performing loans		87,570			78,199

Real estate owned (2)				20,397			15,544
Other repossessed assets				260			292

				20,657			15,836

		Total non-performing assets	$	108,227		$	94,035

		Total non-performing loans as a percentage of total loans		2.50	%		2.71	%

		Total non-performing assets as a percentage of total assets		1.49	%		1.50	%

		Allowance for loan losses as a percentage of total non-performing loans		39.19	%		41.79	%

		Allowance for loan losses as a percentage of total loans outstanding		0.98	%		1.13	%

		Net charge-offs to average loans outstanding		0.43	%		0.41	%

(1)		R&G Financial’s historical charge-offs with respect to residential real estate loans has been low. As a result, R&G Financial’s aggregate charge-offs as a percentage of total average loans outstanding amounted to 0.43% during the six months ended June 30, 2003 and 0.41% during the year ended December 31, 2002.

(2)		Consist primarily of residential real estate foreclosed by the Company.

NOTE 5 — MORTGAGE LOAN SERVICING

The changes in the servicing asset of the Company follows:


	For the six month period ended June 30,

	2003			2002

	(Unaudited)
	(Dollars in thousands)
Balance at beginning of period	$	142,334		$	105,146
Rights originated		14,083			12,909
Rights purchased		9,510			43,042
Scheduled amortization		(11,245	)		(7,508	)
Unscheduled amortization		(12,824	)		(3,413	)
(Provision) reversal of impairment reserves		(14,712	)		459
Other adjustments		—			(4,436	)

Balance at end of period	$	127,146		$	146,199

The portion of the Company’s mortgage loans servicing portfolio consisting of the servicing asset that was originated by the Company prior to the adoption of SFAS No. 122 is not reflected as an asset on the Company’s consolidated financial statements, and is not subject to amortization or impairment.

NOTE 6 — DEPOSITS

Deposits are summarized as follows:


		June 30,		December 31,
		2003		2002

		(Unaudited)
		(Dollars in thousands)
Passbook savings		$	345,978	$	329,489

NOW accounts			110,779		100,031
Super NOW accounts			372,828		335,015
Regular checking accounts (non-interest bearing)			124,463		107,586
Commercial checking accounts (non-interest bearing)			313,933		282,769

			922,003		825,401

Certificates of deposit:
	Under $100,000		659,481		652,065
	$100,000 and over		1,307,785		991,504

			1,967,266		1,643,569

Accrued interest payable			5,360		3,865

		$	3,240,607	$	2,802,324

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Commitments to buy and sell GNMA certificates

As of June 30, 2003, the Company had open commitments to issue GNMA certificates of approximately $82.4 million.

Commitments to sell mortgage loans

As of June 30, 2003 the Company had commitments to sell mortgage loans to third party investors amounting to approximately $428.4 million at prevailing prices at the time of delivery.

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 June 30, 2003, 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 $952.9 million at June 30, 2003. At June 30, 2003, the Company has an allowance for recourse provisions of $3.8 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”), a Delaware statutory business trust. R&G Capital Trust issued $25.0 million of trust preferred securities in a private placement. The Company has guaranteed certain obligations of RAC to R&G Capital Trust.

During the second quarter of 2003, the US Internal Revenue Service (“IRS”) began an income tax examination of Crown Group, Inc.’s (“Crown Group”) income tax returns for the year 2001. Crown Group was the predecessor thrift holding company of Crown Bank prior to the acquisition of Crown Bank in June 2002 by the Company. Management believes that this examination should not result in any significant adverse effect on the Company’s financial condition or results of operations.

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				Six month period ended
	June 30,				June 30,

	2003		2002		2003		2002

	(Unaudited)				(Unaudited)
	(Dollars in thousands)
Employee costs	$	23,202	$	16,173	$	46,304	$	32,416

Other administrative and general expenses	$	43,513	$	19,277	$	76,220	$	36,447

Note 9 – INDUSTRY SEGMENTS

The following summarized information presents the results of the Company’s operations for its traditional banking and mortgage banking activities:


							(Dollars in thousands)
	Three month period ended June 30,

	2003								2002

	(Unaudited)

			Mortgage				Segments				Mortgage				Segments
	Banking		Banking		Other(1)		Totals		Banking		Banking		Other(1)		Totals

Revenues	$	46,364	$	55,696	$	3,929	$	105,989	$	31,309	$	28,838	$	2,202	$	62,349
Non-interest expenses		25,170		37,745		1,156		64,071		15,786		16,660		757		33,203
Income before income taxes	$	21,194	$	17,951	$	2,773	$	41,918	$	15,523	$	12,178	$	1,445	$	29,146


	Six month period ended June 30,

	2003										2002

	(Unaudited)


			Mortgage					Segments					Mortgage					Segments
	Banking			Banking		Other(1)			Totals		Banking			Banking		Other(1)			Totals

Revenues	$	87,789		$	101,359	$	7,198		$	196,346	$	63,818		$	53,334	$	3,821		$	120,973
Non-interest expenses		48,545			65,352		2,354			116,251		30,454			32,663		1,482			64,599
Income before income taxes	$	39,244		$	36,007	$	4,844		$	80,095	$	33,364		$	20,671	$	2,339		$	56,374

(1)

Comprised of broker-dealer and insurance agency operations.

The following is a reconciliation of reportable segment revenues and income before income taxes to the Company’s consolidated amounts (unaudited):


	Three month period ended						Six month period ended
	June 30,						June 30,

	2003			2002			2003			2002

	(Dollars in thousands)
Revenues:
Total revenues for reportable segments	$	105,989		$	62,349		$	196,346		$	120,973
Elimination of intersegment revenues		(1,079	)		(1,361	)		(1,983	)		(2,701	)
Corporate revenues		428			642			915			1,249

Total consolidated revenues	$	105,338		$	61,630		$	195,278		$	119,521

Income before income taxes:
Total income before income taxes for reportable segments	$	41,918		$	29,146		$	80,095		$	56,374
Elimination of intersegment profits		21			(200	)		123			(217	)
Unallocated corporate income		113			391			382			875

Income before income taxes, consolidated	$	42,052		$	29,337		$	80,600		$	57,032

Total assets of the Company among its industry segments and a reconciliation of reportable segment assets to the Company’s consolidated total assets as of June 30, 2003 and December 31, 2002 follows:


	June 30,			December 31,
	2003			2002

	(Unaudited)
	(Dollars in thousands)
Assets:
Banking	$	6,411,593		$	5,453,321
Mortgage Banking		897,883			908,660
Other		131,948			111,005

Total assets for reportable segments		7,441,424			6,472,986
Parent company assets		53,200			62,971
Elimination of intersegment balances		(238,492	)		(258,711	)

Consolidated total assets	$	7,256,132		$	6,277,246

Item 2: Management’s 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 Company’s 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.

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 31st 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, 6 mortgage and 6 commercial lending offices in the continental United States, and 43 mortgage offices in Puerto Rico, including 24 facilities located within Premier Bank’s branches.

The Company is engaged in providing a full range of banking services through R-G Premier Bank of Puerto Rico (“Premier Bank”), a Puerto Rico commercial bank, and R-G Crown Bank (formerly Crown Bank, F.S.B.) (“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 Rico’s 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 loans originator and servicer of mortgage loans on single family residences in Puerto Rico. R&G Financial’s mortgage servicing portfolio increased to approximately $11.3 billion as of June 30, 2003, from $10.9 billion as of the same date a year ago, an increase of 4.3%. R&G Financial’s strategy is to increase 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 June 30, 2003, the Company held securities available for sale with a fair market value of $3.0 billion, which included $2.3 billion of mortgage-backed securities, of which $379.7 million consisted primarily 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 Financial’s lower effective tax rates compared to the maximum statutory rates reflect 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, R&G Financial’s international banking entities 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 Financial’s total mortgage loan originations has been comprised of refinance loans. R&G Financial’s future results could be adversely affected by a significant increase in mortgage interest rates that reduces refinancing activity. However, the Company believes that 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 June 30, 2003, total assets amounted to $7.3 billion, as compared to $6.3 billion at December 31, 2002. The $978.9 million or 15.6% increase in total assets since the beginning of the year was primarily the result of a $469.7 million or 18.4% increase in mortgage-backed and investment securities available for sale, and a $527.1 million or 19.1% increase in loans receivable, net, due to record loan production during the six month period ended June 30, 2003 of $2.1 billion, a 61.2% increase versus the corresponding period in 2002.

At June 30, 2003, R&G Financial had $3.1 billion of borrowings (consisting of securities sold under agreements to repurchase, notes payable, FHLB advances and other borrowings), compared to $2.7 billion at December 31, 2002. R&G Financial utilized repurchase agreements and deposits to fund its growth during the period; total deposits grew $15.6% from $2.8 billion at December 31, 2002 to $3.2 billion at June 30, 2003, whereas repurchase agreements increased by $355.7 million or 23.9%.

At June 30, 2003, R&G Financial’s allowance for loan losses totaled $34.3 million, which represented a $1.6 million or 5.0% increase from the level maintained at December 31, 2002. At June 30, 2003, R&G Financial’s allowance represented approximately 0.98% of the total loan portfolio and 39.19% of total non-performing loans. However, excluding R&G Financial’s 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 2.14% and 121.5%, respectively, at June 30, 2003.

Non-performing loans amounted to $87.6 million at June 30, 2003, an increase of $9.4 million when compared to $78.2 million at December 31, 2002. The increase is primarily related to a $16.0 million increase in delinquent residential real estate loans over 90 days past due. At June 30, 2003, $59.3 million or 67.7% of non-performing loans consisted of residential mortgage loans in which R&G Financial has historically experienced a low level of loan charge-offs. As a result, R&G Financial’s aggregate charge-offs as a percentage of total average loans outstanding amounted to 0.43% during the six months ended June 30, 2003 and 0.41% during the year ended December 31, 2002. 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.

Real estate owned properties of the Company also increased 31.2% from $15.5 million at December 31, 2002 to $20.4 million at June 30, 2003. The increase is mostly related to residential real estate loans foreclosed by the Company, net of resales, during the period.

Stockholders’ equity increased from $662.2 million at December 31, 2002 to $700.7 million at June 30, 2003. The $38.5 million or 5.8% increase was due primarily to the net income recognized during the period, net of dividends paid.

Results of Operations

During the three and six months ended June 30, 2003, R&G Financial reported net income of $31.5 million and $60.6 million, or $0.80 and $1.54 of earnings per diluted share, respectively, compared to net income of $22.6 million and $44.2 million or $0.59 and $1.17 of earnings per diluted share for the comparative periods in 2002. Such results reflect an increase in earnings per share of 35.6% and 31.6% for the three and six months periods ending June 30, 2003 over the comparable periods in 2002.

Net interest income increased by $18.7 million or 27.5% during the six month period ended June 30, 2003 to $86.8 million, primarily due to a $1.7 billion increase in the average balance of interest-earning assets, partially offset by a 20 basis point decrease in the net interest margin from 2.96% to 2.76%. Contributing to the increase in average earning assets were the assets of Crown Bank, the Company’s Florida-based banking subsidiary acquired in June 2002.

The provision for loan losses amounted to $8.7 million during the six months ended June 30, 2003, a 10.2% decrease over the prior comparable period, reflecting the fact that approximately 67.7% of total non-performing loans as of June 30, 2003 consist of residential mortgage loans, in which the Company’s historical charge-off experience has been very low.

R&G Financial also experienced an increase in non-interest income during the six months ended June 30, 2003 over the comparable period. Net gain on sale of loans increased by $44.4 million or 132.8% over the prior comparable period, as a result of record loan production and sales. Total loan production during the six months ended June 30, 2003 amounted to $2.1 billion compared to $1.3 billion during the prior comparable period. Loan administration and servicing fees also increased by $6.7 million or 34.0% over the comparable periods, due to the growth in the loan servicing portfolio from $10.9 billion at June 30, 2002 to $11.3 billion at June 30, 2003, or an increase of $466.0 million. Contributing to the increase in loan administration and servicing fees was the $2.6 billion servicing portfolio acquired by the Company in connection with the acquisition of Crown Bank. Other fee income also increased by $5.0 million or 63.2%. Such increase reflects the added contributions made by the Company’s insurance agency and broker-dealer subsidiaries, as well as the fee income generated through the operations of Crown Bank.

Net interest income increased by $8.5 million or 23.6% to $44.6 million during the quarter ended June 30, 2003, due to an increase in the average balance of interest-earning assets, partially offset by a 28 basis points decrease in the net interest margin from 3.00% to 2.72%. Net gain on sale of loans increased 185.0% to $44.9 million during the three month ended June 30, 2003, together with a $2.8 million or 27.0% increase in loan administration and servicing fees and a $3.1 million or 78.0% increase in other fee income.

Total expenses increased by $52.2 million or 83.5% during the six months ended June 30, 2003 over the comparable 2002 period, partially due to a $10.1 million or 51.7% increase in employee compensation and benefits associated with general growth in Company operations, including expenses associated with the operations of Crown Bank. The increase in total expenses was also due to a $39.3 million or 115.6% increase in other administrative and general expenses, which includes a $24.6 million increase in expenses associated with impairment charges (including unscheduled amortization) of the Company’s servicing asset, as well as increased expenses related to the operations of Crown Bank.

Total expenses increased by $31.0 million or 96.0% during the three month period ended June 30, 2003 over the prior comparable period, due to a $24.7 million or 136.7% increase in other general and administrative expenses, which includes a $15.3 million increase in expenses associated with impairment charges of the Company’s servicing asset, a $5.0 million or 52.0% increase in employee compensation and benefits, and a $1.4 million or 29.1% increase in occupancy expenses.

Interest Rate Risk Management

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, 2003, 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 Company’s 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		$	1,007,781		$	388,207		$	567,336		$	346,508		$	1,005,684		$	3,315,516
Mortgage loans held for sale			57,492			27,508			64,048			52,216			47,081			248,345
Mortgage-backed securities(2)(3)			172,137			451,061			413,004			257,849			1,052,690			2,346,741
Investment Securities(3)			163,764			298,612			277,318			50,104			351			790,149
Other interest-earning assets(4)			71,203			300			—			—			—			71,503

Total		$	1,472,377		$	1,165,688		$	1,321,706		$	706,677		$	2,105,806		$	6,772,254

Interest bearing liabilities:
Deposits (5)
	NOW and Super NOW accounts	$	23,856		$	66,798		$	73,432		$	59,480		$	253,578		$	477,144
	Passbook savings accounts		8,649			25,083			62,449			49,959			199,838			345,978
	Regular and commercial checking		22,242			62,280			68,464			55,456			236,418			444,860
	Certificates of deposit		274,883			595,884			560,202			534,504			1,793			1,967,266
FHLB advances			272,000			78,125			403,100			123,500			140,000			1,016,725
Securities sold under agreements to repurchase (6)			819,780			305,939			461,569			125,000			138,200			1,850,488
Other borrowings(7)			73,210			140,612			—			—			—			213,822

Total			1,494,620			1,274,721			1,629,216			947,899			969,827			6,316,283

Effect of hedging instruments			170,000			—			(65,000	)		(25,000	)		(80,000	)		—

Excess (deficiency) of interest-earning assets over interest-bearing liabilities		$	147,757			($109,033	)		($372,510	)		($266,222	)	$	1,055,979		$	455,971

Cummulative excess (deficiency) of interest-earning assets over interest-bearing liabilities		$	147,757		$	38,724			($333,786	)		($600,008	)	$	455,971

Cummulative excess (deficiency) of interest-earning assets over interest-bearing liabilities as a percent of total assets			2.04	%		0.53	%		-4.60	%		-8.27	%		6.28	%

(footnotes on following 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, if any.

(7)		Comprised of warehousing lines, notes payable and other borrowings.

As of June 30, 2003, the Company had a one year positive gap of approximately $38.7 million which constituted 0.53% of total assets at such date, compared to a positive gap of approximately $498.1 million or 7.9% of total assets at December 31, 2002. R&G Financial’s positive gap within one year at June 30, 2003 and December 31, 2002 is due primarily to an increasing amount of adjustable rate loans resulting from greater emphasis in commercial and construction lending as well as to the extension during 2001 and 2002 of the maturity dates of certain borrowings of the Company into longer-term maturities at very attractive rates, taking advantage of consecutive reductions in interest rates during such years. The Company estimates that as of June 30, 2003, close to 45% of all borrowings of the Company had maturity dates longer than one year.

While the above table presents the Company’s 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 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 non-banking subsidiaries and average daily balances for banking subsidiaries in each case during the periods presented.


	For the three month period ended June 30,

	2003							2002

	Average				Yield /			Average				Yield /
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate

Interest-Earning Assets:
Cash and cash equivalents(1)	$	81,530	$	318		1.56	%	$	69,505	$	364		2.09	%
Investment securities available for sale		597,946		6,782		4.54			561,682		8,167		5.82
Investment securities held to maturity		30,374		369		4.86			24,137		329		5.45
Mortgage-backed securities held for trading		51,002		957		7.51			82,130		1,113		5.42
Mortgage-backed securities available for sale		2,197,388		27,262		4.96			1,739,599		27,199		6.25
Mortgage-backed securities held to maturity		41,627		595		5.72			50,087		729		5.82
Loans receivable, net (2)		3,457,446		55,007		6.36			2,195,686		38,980		7.10
FHLB of New York Stock		101,002		1,268		2.51			76,726		734		3.83

Total interest-earning assets		6,558,315	$	92,558		5.65	%		4,799,552	$	77,615		6.47	%

Non-interest-earning assets		514,819							312,196

Total assets	$	7,073,134						$	5,111,748


Interest-Bearing Liabilities:
Deposits	$	3,121,700	$	22,968		2.94	%	$	2,255,429	$	20,764		3.68	%
Securities sold under agreements to repurchase (3)		1,725,820		12,814		2.97			1,512,876		12,713		3.36
Notes payable		227,664		2,139		3.76			269,235		1,585		2.35
Other borrowings(4)		1,006,407		10,068		4.00			604,288		6,504		4.31

Total interest-bearing liabilities		6,081,591	$	47,989		3.16	%		4,641,828	$	41,566		3.58	%

Non-interest-bearing liabilities		300,431							130,047

Total liabilities		6,382,022							4,771,875

Stockholders’ equity		691,112							339,873

Total liabilities and stockholders’ equity	$	7,073,134						$	5,111,748

Net interest income; interest rate spread (5)			$	44,569		2.49	%			$	36,049		2.89	%

Net interest margin						2.72	%						3.00	%

Average interest-earning assets to average interest-bearing liabilities						107.84	%						103.40	%

(footnotes on page 27)


	For the six month period ended June 30,

	2003							2002

	Average				Yield /			Average				Yield /
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate

Interest-Earning Assets:
Cash and cash equivalents(1)	$	79,750	$	583		1.46	%	$	54,935	$	596		2.17	%
Investment securities available for sale		593,248		12,910		4.35			551,936		15,921		5.77
Investment securities held to maturity		30,419		768		5.05			23,913		651		5.44
Mortgage-backed securities held for trading		81,494		1,931		4.74			87,556		2,374		5.42
Mortgage-backed securities available for sale		2,080,655		54,081		5.20			1,617,957		50,354		6.22
Mortgage-backed securities held to maturity		43,359		1,249		5.76			50,725		1,490		5.87
Loans receivable, net (2)		3,284,068		106,962		6.51			2,136,038		77,483		7.25
FHLB of New York Stock		96,608		2,330		4.82			72,078		1,465		4.07

Total interest-earning assets		6,289,601	$	180,814		5.75	%		4,595,138	$	150,334		6.54	%

Non-interest-earning assets		518,237							367,492

Total assets	$	6,807,838						$	4,962,630


Interest-Bearing Liabilities:
Deposits	$	2,984,816	$	44,661		2.99	%	$	2,159,265	$	41,590		3.85	%
Securities sold under agreements to repurchase (3)		1,723,074		25,585		2.97			1,411,513		25,056		3.55
Notes payable		229,167		4,009		3.50			263,155		3,357		2.55
Other borrowings(4)		996,952		19,769		3.97			549,516		12,277		4.47

Total interest-bearing liabilities		5,934,009	$	94,024		3.17	%		4,383,449	$	82,280		3.75	%

Non-interest-bearing liabilities		192,348							247,559

Total liabilities		6,126,357							4,631,008

Stockholders’ equity		681,481							331,622

Total liabilities and stockholders’ equity	$	6,807,838						$	4,962,630

Net interest income; interest rate spread (5)			$	86,790		2.58	%			$	68,054		2.79	%

Net interest margin						2.76	%						2.96	%

Average interest-earning assets to average interest-bearing liabilities						105.99	%						104.83	%

(footnotes on following page)

(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 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.

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 six month period ended
				June 30,

				2003			2002

				(Dollars in thousands)
Composition of Servicing Portfolio at period end:
		GNMA		$	2,474,267		$	2,801,568
		FNMA/FHLMC			5,711,663			5,402,976
		Other mortgage loans (4)			3,132,576			2,647,992

Total servicing portfolio (4)				$	11,318,506		$	10,852,536

Activity in the Servicing Portfolio:
	Beginning servicing portfolio			$	10,991,945		$	7,224,571
	Add: Loan originations and purchases				1,424,138			970,064
			Servicing of portfolio loans acquired(3)		1,006,036			3,507,401
	Less: Sale of servicing rights(1)				(129,184	)		(105,090	)
			Run-offs(2)		(1,974,429	)		(744,410	)

	Ending servicing portfolio(4)			$	11,318,506		$	10,852,536

	Number of loans serviced				155,946			161,022
	Average loan size			$	73		$	67
	Average servicing fee rate				0.48	%		0.52	%

(1)		Corresponds to loans sold, servicing released, by Continental Capital.

(2)		Run-off refers to regular amortization of loans, prepayments and foreclosures.

(3) Includes $2.6 billion in June 2002 acquired in connection with the acquisition of Crown Bank.

(4) At the dates shown, included $1.5 billion and $913.7 million, respectively, serviced for Premier Bank, which constituted 13.5% and 8.4% of the total servicing portfolio, and $82.5 million and $134.4 million, respectively, serviced for Crown Bank, which constituted 0.7% and 1.2%, respectively, of the total servicing portfolio at such dates.

Substantially all of the mortgage loans in R&G Financial’s servicing portfolio are secured by single (one-to-four) family residences secured by real estate located in Puerto Rico. At June 30, 2003, approximately 66.5% of the Company’s 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 Financial’s servicing portfolio even during periods of high prepayments. In addition, a substantial portion of the Company’s 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 Financial’s servicing portfolio. During the six month periods ended June 30, 2003 and 2002, the Company recognized $12.8 million and $3.4 million, respectively, of unscheduled amortization on mortgage servicing rights.

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 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 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, 2003, the Company had $117.8 million in borrowing capacity under unused warehousing and other lines of credit, $934.0 million in borrowings capacity under unused lines of credit with the FHLB and $25 million under unused fed funds lines of credit. The Company has generally not relied upon brokered deposits as a source of liquidity.

At June 30, 2003, the Company had outstanding commitments to originate and/or purchase mortgage and non-mortgage loans of $713.2 million (including unused lines of credit). Certificates of deposit which are scheduled to mature within one year totaled $852.5 million at June 30, 2003, and borrowings that are scheduled to mature within the same period amounted to $1.7 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, 2003, 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 6.64%, 11.87% and 12.84%, respectively. At June 30, 2003 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 6.17%, 8.79% and 9.48%, 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. 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 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.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risks at December 31, 2002 are presented in Item 7A of the Company’s Annual report on Form 10-K. Information at June 30, 2003 is presented on page 23 of this Report. Management believes there have been no material changes in the Company’s market risk since December 31, 2002.

Item 4: Controls and Procedures

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-14. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s 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 Company’s periodic Securities and Exchange Commission (“SEC”) filings. There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect these controls subsequent to the date the Company carried out its evaluation.

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 SEC’s 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 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.

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

Item 4: Submission of Matters to a Vote of Security Holders

The Company’s Annual Meeting of Stockholders was held on April 25, 2003. The following matters were submitted for a vote:

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 2006 or until their respective successors are elected and qualified, the following were the number of shares voted for each nominee:


Gilberto Rivera-Arreaga	Class A — For	14,553,056	Withheld 0
	Class B — For	9,598,349	Withheld 123,403

Laureano Carús-Abarca	Class A — For	14,553,056	Withheld 0
	Class B — For	9,561,759	Withheld 159,993

Ileana M. Colón-Carlo	Class A — For	14,553,056	Withheld 0
	Class B — For	9,598,349	Withheld 123,403

Roberto Gorbea	Class A — For Class B — For	14,553,056 9,598,349	Withheld 0 Withheld 123,403

The following are the names of each of our other directors whose term of office continued after the Annual Meeting:

Directors Whose Terms Expire in 2005: Víctor J. Galán, Ramón Prats, Enrique Umpierre-Suárez and Eduardo McCormack

Directors Whose Terms Expire in 2004: Ana M. Armendáriz, Víctor L. Galán and Benigno Fernández

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, 2003, the following are the number of shares voted:


Class A — For	14,553,056	Against	0	Abstain	0	Broker Non-votes	N/A
Class B — For	9,598,926	Against	122,226	Abstain	600	Broker Non-votes	0

Item 5: Other Information

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)
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)
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)
10.4		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)(*)
10.7		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)
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 Registrant’s Current Report on Form 8-K filed with the SEC on December 20, 2001.
(3)		Incorporated by reference from the Registrant’s 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 June 18, 1996, as amended.
(5)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on November 19, 1999.
(6)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on June 12, 2001.
(7)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on August 31, 1998.
(8)		Incorporated by reference from the Registrant’s Form 10-K filed with the SEC on April 13, 2000.
(9)		Incorporated by reference from the Registrant’s Registration Statement on Form S-3 (Registration No. 333-60923) filed with the SEC on August 7, 1998.
(10)		Incorporated by reference from the Registrant’s Registration Statement on Form S-3 (Registration No. 333-90463) filed with the SEC on November 5, 1999.
(11)		Incorporated by reference from the Registrant’s Registration Statement on Form S-3 (File No. 333-55834) filed with the SEC on February 16, 2001.
(12)		Incorporated by reference from the Registrant’s Form 10-K filed with the SEC on April 2, 2001.
(13)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on March 7, 2002.
(14)		Incorporated by reference from the Registrant’s Registration Statement on Form S-3 (File No. 333-81214) filed with the SEC on January 22, 2002.
(15)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on June 18, 2002.
(16)		Incorporated by reference from the Registrant’s Form 10-Q filed with the SEC on November 14, 2002.
(*)		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 June 30, 2003:

(1)		Form 8-K filed on April 21, 2003 with an attached press release announcing the Registrant’s earnings for the quarter ended March 31, 2003.

(2)		Form 8-K filed on May 1, 2003 with an attached press release announcing that the Registrant’s Board of Directors has declared the Registrant’s quarterly cash dividend for the quarter ended March 31, 2003.

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 14, 2003		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)

280 Jesús T. Piñero Avenue
Hato Rey, San Juan, Puerto Rico

(Address of principal executive offices)

(Zip Code)

	•		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 Company’s 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.

(3)		Includes $2.6 billion in June 2002 acquired in connection with the acquisition of Crown Bank.

(4)		At the dates shown, included $1.5 billion and $913.7 million, respectively, serviced for Premier Bank, which constituted 13.5% and 8.4% of the total servicing portfolio, and $82.5 million and $134.4 million, respectively, serviced for Crown Bank, which constituted 0.7% and 1.2%, respectively, of the total servicing portfolio at such dates.