AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 2002
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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R&G FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PUERTO RICO 66-0532217
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
280 JESUS T. PINERO AVENUE
SAN JUAN, PUERTO RICO 00918
(787) 758-2424
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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VICTOR J. GALAN
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
R&G FINANCIAL CORPORATION
280 JESUS T. PINERO AVENUE
SAN JUAN, PUERTO RICO 00918
(787) 758-2424
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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WITH COPIES TO:
NORMAN B. ANTIN, ESQ. AURELIO EMANUELLI-FREESE, ESQ.
JEFFREY D. HAAS, ESQ. FIDDLER GONZALEZ & RODRIGUEZ, LLP
KELLEY DRYE & WARREN LLP TORRE BBVA
8000 TOWERS CRESCENT DRIVE #254 MUNOZ RIVERA AVENUE, 8TH FLOOR
SUITE 1200 SAN JUAN, PUERTO RICO 00918
VIENNA, VIRGINIA 22182
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective. If the only
securities being registered on this Form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Noncumulative Perpetual Monthly Income Preferred Stock,
Series D................................................. $57,500,000 $5,290
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(1) Pursuant to Rule 457(c) under the Securities Act of 1933, as amended, the
proposed maximum aggregate offering price is estimated solely for purposes
of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS Subject to completion and amendment January 22, 2002
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2,000,000 SHARES
(R&G FINANCIAL CORPORATION LOGO)
% NONCUMULATIVE PERPETUAL MONTHLY INCOME PREFERRED STOCK, SERIES D
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R&G Financial Corporation is a Puerto Rico chartered, financial holding company
that operates R&G Mortgage Corp., the second largest mortgage company in Puerto
Rico, and R-G Premier Bank, a Puerto Rico commercial bank.
R&G Financial is offering to the public 2,000,000 shares of its %
Noncumulative Perpetual Monthly Income Preferred Stock, Series D. The Series D
Preferred Stock has the following characteristics:
- Annual dividends of $ per share, payable monthly, if declared by the
board of directors. Missed dividends never have to be paid.
- Redeemable at R&G Financial's option beginning on , 2007.
- No mandatory redemption or stated maturity.
There is currently no public market for the Series D Preferred Stock. R&G
Financial has applied for listing of the Series D Preferred Stock on the Nasdaq
Stock Market under the symbol "RGFCM." Trading of the Series D Preferred Stock
on the Nasdaq Stock Market is expected to commence not later than 30 days after
the initial delivery of the Series D Preferred Stock.
BEFORE BUYING ANY OF THESE SECURITIES, YOU SHOULD CAREFULLY CONSIDER THE RISK
FACTORS DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE 11.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR COMMONWEALTH OF
PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES
OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Per Share Total
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Public offering price $ 25.00 $50,000,000
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Underwriting discounts $ 0.7875 $ 1,575,000
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Proceeds, before expenses, to R&G Financial $24.2125 $48,425,000
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R&G Financial has granted the underwriters a 30-day option to purchase up to an
additional 300,000 shares of the Series D Preferred Stock to cover
over-allotments at $25.00 per share less the underwriting discounts and
commissions.
UBS PAINEWEBBER INCORPORATED OF PUERTO RICO
[OTHER NAMES]
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 11
Forward-Looking Statements.................................. 15
Use of Proceeds............................................. 15
Capitalization.............................................. 16
Selected Consolidated Financial and Other Data.............. 17
Summary of Certain Terms of the Series D Preferred Stock.... 20
Description of Capital Stock................................ 27
Taxation.................................................... 30
Underwriting................................................ 40
Incorporation of Certain Documents by Reference............. 42
Where You Can Find More Information......................... 42
Legal Matters............................................... 43
Experts..................................................... 43
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Prospective investors may rely only on the information incorporated by
reference or contained in this prospectus. Neither R&G Financial nor any
underwriter has authorized anyone to provide prospective investors with
information different from that incorporated by reference or contained in this
prospectus. This prospectus is not an offer to sell, nor is it seeking an offer
to buy, the Series D Preferred Stock in any jurisdiction where the offer or sale
is not permitted. The information in this prospectus is complete and accurate
only as of the date set forth on the front cover, regardless of the time of
delivery of this prospectus or any sale of these securities.
PROSPECTUS SUMMARY
This summary provides an overview of selected information contained
elsewhere in this prospectus and does not contain all the information you should
consider. You should also read the more detailed information set out in this
prospectus or incorporated by reference into this prospectus and the "Risk
Factors" section beginning on page 11. Unless otherwise stated, all information
in this prospectus assumes that the underwriters will not exercise their
over-allotment option to purchase any of the 300,000 shares of Series D
Preferred Stock subject to that option.
THE COMPANY
GENERAL
R&G Financial is a Puerto Rico chartered, financial holding company that
operates R&G Mortgage Corp., the second largest mortgage company in Puerto Rico,
and R-G Premier Bank, a Puerto Rico commercial bank. Through R&G Mortgage, we
also operate The Mortgage Store of Puerto Rico, Inc., a Puerto Rico mortgage
company, and through R-G Premier Bank, we operate Continental Capital Corp., a
Huntington Station, New York mortgage banking company. We also operate Home and
Property Insurance Corporation, a Puerto Rico insurance agency, and R&G
Investments Corporation, a licensed broker-dealer.
In December 2001, we entered into a definitive merger agreement pursuant to
which we will acquire The Crown Group, Inc., a Florida corporation, and its
wholly-owned savings bank subsidiary, Crown Bank, a Federal Savings Bank. Crown,
which had total assets of $647 million, total deposits of $452 million and
stockholders' equity of $78 million as of September 30, 2001, operates in the
Tampa/St. Petersburg/Clearwater and Orlando metropolitan areas through 14-full
service offices.
The Orlando market is one of the fastest growing markets in Florida, both
generally and for Hispanics in particular, and provides us with what we believe
is a cost effective way to access the Hispanic markets in the United States,
while providing a strong platform for further expansion in Florida. Crown's
balance sheet is complimentary to ours and is predominantly secured by real
estate. In addition, the acquisition will allow us to access lower cost funding
in Florida as compared to Puerto Rico. For the quarter ended September 30, 2001,
Crown's cost of deposits was 4.26% as compared to our cost of deposits of 4.75%
as of such date.
Under the terms of the merger agreement, holders of Crown common stock will
receive an aggregate of $100.0 million in cash and a $5.0 million, five year
6.75% subordinated debenture. The acquisition, which is expected to be accretive
to our earnings per share in 2002, is expected to close during the second
quarter of 2002, pending the receipt of all requisite regulatory approvals and
the approval of Crown's shareholders.
We are currently in our 30th year of operations and operate our business
through our subsidiaries. We are primarily engaged in a range of real estate
secured lending activities, including the origination, servicing, purchase and
sale of mortgages on single-family residences, the securitization and sale of
various mortgage-backed and related securities and the holding and financing of
mortgage loans and mortgage-backed and related securities for sale or investment
and the purchase and sale of servicing rights associated with such mortgage
loans. We are also engaged in providing a full range of banking services,
including commercial banking services, corporate real estate and business
lending, residential construction lending, consumer lending and credit cards,
offering a diversified
1
range of deposit products and, to a lesser extent, trust and investment services
through our private banking department and our broker-dealer.
We were organized in 1972 as R&G Mortgage Corp. and completed our initial
public offering in 1996, following our reorganization as a bank holding company.
As of September 30, 2001, we had total assets of $4.3 billion, total deposits of
$1.9 billion and stockholders' equity of $453.5 million. At September 30, 2001,
we operated 63 branch offices (34 mortgage offices in Puerto Rico, four mortgage
offices in the United States and 25 bank branches, mainly located in the
northeastern section of Puerto Rico).
We have generally sought to achieve long-term financial strength and
profitability by increasing the amount and stability of our net interest income
and non-interest income. We have sought to implement this strategy by: (1)
emphasizing the growth of our mortgage banking activities, including the
origination and sale of mortgage loans, and growing our loan servicing
operation; (2) expanding our retail banking franchise in order to achieve
increased market presence and to increase core deposits; (3) enhancing our net
interest income by increasing our loans held for investment, particularly
single-family residential loans, and investment securities; (4) developing new
business relationships through an increased emphasis on commercial real estate
and commercial business lending; (5) diversifying our retail products and
services, including an increase in consumer loan originations; (6) meeting the
banking needs of our customers through, among other things, the offering of
trust and investment services and insurance products; (7) expanding our
operations in the United States; and, (8) emphasizing controlled growth and
pursuing of a variety of acquisition opportunities when appropriate.
Our senior management is comprised of five executives with an average of
over 27.8 years of experience in the financial services industry. During 2001,
we promoted Ramon Prats, our Vice Chairman, to the office of President. Mr.
Prats formerly was Executive Vice President of R&G Mortgage, a position he held
since 1980. Victor J. Galan is our Chairman and Chief Executive Officer,
positions he has held since our incorporation in 1996. Mr. Galan is also the
founder and Chairman of R&G Mortgage, a position he has held since 1972.
Our principal executive offices are located at 280 Jesus T. Pinero Avenue,
San Juan, Puerto Rico 00918 and our telephone number is (787) 758-2424.
R&G MORTGAGE
Originations. R&G Mortgage is engaged primarily in the business of
originating first and second mortgage loans on single-family residential
properties secured by real estate. R&G Mortgage also originates residential
mortgage loans through The Mortgage Store of Puerto Rico, Inc., our wholly-owned
subsidiary. Pursuant to agreements entered into between R&G Mortgage and R-G
Premier Bank, non-conforming conventional single-family residential loans and
consumer loans secured by real estate are also originated by R&G Mortgage for
portfolio retention by R-G Premier Bank. R-G Premier Bank retains the
non-conforming conventional single-family residential loans because these loans
generally do not satisfy resale guidelines of purchasers in the secondary
mortgage market, primarily because of size (in the case of "jumbo" loans) or
other underwriting technicalities at the time of origination. Jumbo loans may be
packaged and sold in the secondary market, while loans with underwriting
technicalities may be cured through payment experience and subsequently sold.
Management believes that these loans are essentially of the same credit quality
as conforming loans. During the nine months ended September 30, 2001 and the
years ended December 31, 2000, 1999 and 1998, R&G Financial originated a total
of $1.3 billion, $1.1 billion, $1.1 billion and $914.1 million of residential
mortgage loans, respectively. These aggregate originations include loans
originated by R&G Mortgage directly for R-G Premier Bank of $493.7 million,
$451.4 million,
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$437.1 million and $450.6 million during the nine months ended September 30,
2001 and the years ended December 31, 2000, 1999 and 1998, respectively, or 37%,
43%, 41% and 49%, respectively, of total originations. The loans originated by
R&G Mortgage for R-G Premier Bank are comprised primarily of conventional
residential loans and, to a lesser extent, residential construction loans and
consumer loans secured by real estate.
Servicing. R&G Financial's servicing portfolio has grown significantly
over the past several years. At September 30, 2001, R&G Financial's servicing
portfolio totaled $7.1 billion and consisted of a total of 113,181 loans. These
amounts include R&G Mortgage's servicing portfolio, totaling $6.6 billion, and
Continental's servicing portfolio, totaling $481.3 million, at September 30,
2001. At September 30, 2001, R&G Financial's servicing portfolio included $1.0
billion of loans serviced for R-G Premier Bank, or 14.1% of the total servicing
portfolio. Substantially all of the mortgage loans in R&G Financial's servicing
portfolio are secured by single-family residences. R&G Mortgage generally
retains the servicing function with respect to the loans which have been
securitized and sold. Most of R&G Financial's mortgage servicing portfolio is
comprised of mortgages secured by real estate located in Puerto Rico.
Securitizations. R&G Mortgage pools Federal Housing Administration, the
"FHA," and Veterans Administration, the "VA," loans into mortgage-backed
securities which are guaranteed by the Government National Mortgage Association,
the "GNMA." These securities are sold to securities broker-dealers and other
investors in Puerto Rico. Conventional loans may either be sold directly to
agencies such as the Federal National Mortgage Association, the "FNMA," and the
Federal Home Loan Mortgage Corporation, the "FHLMC," or to private investors, or
may be pooled into FNMA or FHLMC mortgage-backed securities, which are generally
sold to investors. During the nine months ended September 30, 2001 and the years
ended December 31, 2000, 1999 and 1998, R&G Financial sold $755.2 million,
$637.8 million, $721.0 million and $493.0 million of loans, respectively, as
part of its mortgage banking activities, which includes loans securitized and
sold, but does not include loans originated for R-G Premier Bank or loans
securitized for other institutions.
R-G PREMIER BANK
General. R-G Premier Bank's principal business consists of holding
deposits from the general public and tax-advantaged funds from eligible Puerto
Rico corporations and using them, together with funds obtained from other
sources, to originate and purchase loans secured primarily by residential real
estate in Puerto Rico, and to purchase mortgage-backed and other securities. R-G
Premier Bank also is engaged in the business of originating FHA insured, VA
guaranteed and privately insured first and second mortgage loans on residential
real estate (one-to-four family) in the States of New York, New Jersey,
Connecticut, North Carolina and Florida, through its wholly-owned subsidiary,
Continental Capital Corp. To a lesser extent but with increasing emphasis over
the past few years, R-G Premier Bank also originates construction loans and
loans secured by commercial real estate, as well as consumer and personal loans
and commercial business loans. Such loans offer higher yields, are generally for
shorter terms and offer R-G Premier Bank an opportunity to provide a greater
range of financial services to its customers. R-G Premier Bank also offers trust
services through its trust department.
Residential Loans. At September 30, 2001, R&G Financial's loans
receivable, net, totaled $1.7 billion, which represented 40.1% of R&G
Financial's $4.3 billion of total assets. At such date, all but $807,000 of R&G
Financial's loans receivable, net, were held by R-G Premier Bank. R-G Premier
Bank's loan portfolio has historically been concentrated in loans secured by
first mortgage liens on existing single-family residences. At September 30,
2001, $994.2 million, or 54.4% of R&G
3
Financial's total loans held for investment, consisted of such loans, of which
all but $1.2 million consisted of conventional loans.
Construction Loans. R-G Premier Bank has been active in originating loans
to construct single-family residences. At September 30, 2001, retail
construction loans amounted to $46.8 million, or 2.6% of R&G Financial's total
loans held for investment, while commercial construction and land acquisition
loans amounted to $143.6 million in the aggregate, or 7.9% of total loans held
for investment. R-G Premier Bank intends to continue to increase its involvement
in single-family residential construction lending. Such loans afford R-G Premier
Bank the opportunity to increase the interest rate sensitivity of its loan
portfolio.
Commercial Loans. R-G Premier Bank also originates mortgage loans secured
by commercial real estate, primarily office buildings, retail stores, warehouses
and general purpose industrial space. At September 30, 2001, $348.9 million, or
19.1% of R&G Financial's total loans held for investment, consisted of such
loans. As of such date, R-G Premier Bank's commercial real estate loan portfolio
consisted of approximately 1,230 loans with an average principal balance of
$284,000. Finally, R-G Premier Bank also offers commercial business loans,
including working capital lines of credit, inventory and accounts receivable
loans, equipment financing (including equipment leases), term loans, insurance
premium loans and loans guaranteed by the Small Business Administration and
various consumer loans. At September 30, 2001, consumer loans, which are
primarily secured by real estate, amounted to $175.4 million, or 9.6% of total
loans held for investment, and commercial business loans amounted to $78.4
million, or 4.3% of total loans held for investment.
REGULATION
We operate our businesses under a variety of federal, state and Puerto Rico
laws and rules. As a financial holding company, we are subject to the rules of
the Board of Governors of the Federal Reserve System and Office of the Puerto
Rico Commissioner of Financial Institutions, the "OCFI." Among other things, we
are required to meet minimum capital requirements, and our activities are
limited to those that are determined to be financial in nature or incidental or
complimentary to a financial activity.
R&G Mortgage's mortgage banking business is subject to the rules of the
FHA, VA, GNMA, FNMA, FHLMC, Department of Housing and Urban Development, OCFI
and state regulatory authorities with respect to originating, processing,
selling and servicing mortgage loans. Among other things, these rules prohibit
discrimination, establish underwriting guidelines, require credit reports, fix
maximum loan amounts and, in some cases, fix maximum interest rates.
R-G Premier Bank is subject to the rules of the OCFI and the Federal
Deposit Insurance Corporation, or "FDIC." Among other things, R-G Premier Bank
is subject to requirements on the type and amount of credit it may extend to its
affiliates, including a requirement that most of such credit be fully secured,
and if there were any "liquidation or other resolution" of R-G Premier Bank,
deposits and administrative expenses would be afforded a priority over general
unsecured claims. In addition, the FDIC is required to take "prompt corrective
action" if R-G Premier Bank does not meet minimum capital requirements. The FDIC
has established five capital tiers to implement this requirement, from "well
capitalized" to "critically undercapitalized." A bank's capital tier will depend
on various capital measures and other qualitative factors and will subject it to
specific requirements. As of September 30, 2001, R-G Premier Bank met the
capital measures for being "well capitalized" under the FDIC's regulations.
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THE OFFERING
SERIES D PREFERRED STOCK
OFFERED...................... 2,000,000 shares; 2,300,000 shares if the
underwriters' over-allotment option is
exercised in full.
OFFERING PRICE................ $25 per share.
LIQUIDATION PREFERENCE........ If R&G Financial is liquidated or dissolved,
you will be entitled to receive $25 per share
plus accrued dividends for the current month
from any assets available for distribution. You
will be paid before any of R&G Financial's
assets are distributed to holders of common
stock or any stock ranking junior to the Series
D Preferred Stock.
DIVIDENDS..................... Dividends will be paid on the first day of each
month beginning on , 2002. The board
of directors must approve each dividend payment
and any payment it does not approve never has
to be paid. The fixed annual dividend rate is
equal to % of the liquidation preference per
share.
NO VOTING RIGHTS.............. You will not have any voting rights, except as
described on page 24 of this prospectus.
REDEMPTION AT R&G FINANCIAL'S
OPTION...................... Series D Preferred Stock may be redeemed in
whole or in part from time to time, beginning
on , 2007 at R&G Financial's option.
Redemption prices are discussed on page 22 of
this prospectus.
NO MATURITY DATE OR MANDATORY
REDEMPTION.................. The Series D Preferred Stock does not have a
maturity date. R&G Financial is not required to
provide for the retirement of the Series D
Preferred Stock by mandatory redemption or
sinking fund payments.
RANK.......................... The Series D Preferred Stock ranks senior to
the common stock of R&G Financial and on an
equal basis to R&G Financial's outstanding
Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock for purposes
of dividend rights and the distribution of
assets upon liquidation. R&G Financial may not
issue preferred stock ranking senior to the
Series D Preferred Stock without the approval
of holders of at least two-thirds of the Series
D Preferred Stock.
5
USE OF PROCEEDS............... R&G Financial is raising funds in this offering
primarily to finance the acquisition of Crown
and maintain its well capitalized status.
Pending completion of the acquisition of Crown,
the net proceeds will be invested in short-term
securities. To the extent that the Crown
transaction does not receive regulatory
approval or otherwise is not consummated, the
proceeds will be used to support further growth
in the business of R-G Premier Bank.
NASDAQ STOCK MARKET LISTING... R&G Financial has filed an application with the
Nasdaq Stock Market to list the Series D
Preferred Stock under the symbol "RGFCM."
Trading of the Series D Preferred Stock on the
Nasdaq Stock Market is expected to commence not
later than 30 days after the initial delivery
of the Series D Preferred Stock.
6
RECENT DEVELOPMENTS
The related consolidated financial and other data set forth below as of
December 31, 2000 are derived from R&G Financial's audited consolidated
financial statements. The consolidated financial and other data for the year
ended December 31, 2001 is unaudited.
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000
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($ IN THOUSANDS,
EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets.............................................. $4,676,444 $3,539,444
Stockholders' equity...................................... 459,121 308,836
Common stockholders' equity per share..................... 10.07 8.16
INCOME STATEMENT DATA:
Net income................................................ $ 65,971 $ 43,633
Diluted earnings per common share......................... 1.83 1.30
OPERATING DATA:
Loan production........................................... $2,444,770 $1,729,373
Loan servicing portfolio.................................. 7,224,571 6,634,059
PERFORMANCE RATIOS:
Return on average assets.................................. 1.63% 1.34%
Return on average common equity........................... 20.77 18.00
Net interest margin....................................... 2.59 2.16
ASSET QUALITY RATIOS:
Non-performing assets to total assets at end of period.... 1.77% 2.96%
Non-performing loans to total loans at end of period...... 3.76 5.52
Allowance for loan losses to total loans at end of
period................................................. 0.91 0.67
Allowance for loan losses to total non-performing loans at
end of period.......................................... 24.05 12.21
Net charge-offs to average loans outstanding.............. 0.32 0.17
RESULTS OF OPERATIONS
During the year ended December 31, 2001, R&G Financial reported net income
before cumulative effect of a change in accounting principle of $66.3 million or
$1.85 of earnings per diluted share. Net income increased by $22.7 million or
52.0% during the year ended December 31, 2001, as compared to 2000, due to a
$32.1 million or 49.3% increase in net interest income and a $21.3 million or
51.6% increase in net gain on origination and sale of loans, which was partially
offset by a $26.3 million or 32.5% increase in total operating expenses. The
increase in net interest income during 2001 was due primarily to increases in
R&G Financial's loan and securities portfolios (which increased in the aggregate
from $3.3 billion at December 31, 2000 to $4.3 billion at December 31, 2001), as
well as to an increase in R&G Financial's net interest margin (from 2.16% for
2000 to 2.59% for 2001). The increase in net gain on origination and sale of
loans during 2001 reflected record volumes of loan origination and sales, as
well as improved margins in connection with the sale of such loans. The
increases in total operating expenses during 2001 reflected the general growth
in R&G Financial's operations.
CHANGES IN FINANCIAL CONDITION
At December 31, 2001, R&G Financial's total assets amounted to $4.7
billion, as compared to $3.5 billion at December 31, 2000. The $1.1 billion or
32.0% increase in total assets during the year ended December 31, 2001 was
primarily the result of a $563.3 million or 37.0% increase in mortgage-backed
and investment securities available for sale, a $183.4 million or 11.2% increase
in
7
net loans receivable, and a $81.9 million or 680.5% increase in mortgage-backed
securities held for trading.
At December 31, 2001, R&G Financial's allowance for loan losses totaled
$17.4 million, which represented a $5.8 million or 50.2% increase from the level
maintained at December 31, 2000. An increase in the allowance for loan losses
reflected the increase in R&G Financial's commercial real estate and
construction loan portfolio. At December 31, 2001, R&G Financial's allowance
represented approximately 0.91% of the total loan portfolio and 24.05% of total
non-performing loans, as compared to 0.67% and 12.21% at December 31, 2000.
Non-performing loans amounted to $72.5 million at December 31, 2001, as
compared to $122.2 million at September 30, 2001 and $95.0 million at December
31, 2000. The decrease in non-performing loans is due to the sale of
approximately $67.8 million of non-performing residential mortgage loans to
certain investors during the fourth quarter of 2001. At December 31, 2001, $50.4
million or 69.5% of non-performing loans consisted of residential mortgage
loans. Because of the nature of the collateral, R&G Financial has historically
recognized a low level of loan charge-offs. R&G Financial's aggregate
charge-offs amounted to 0.32% during 2001, as compared to 0.17% during 2000.
Although loan delinquencies have historically been higher in Puerto Rico than in
the United States, loan charge-offs have historically been lower in Puerto Rico
than in the United States. While the ratio of non-performing loans to total
loans decreased from 5.52% to 3.76% from December 31, 2000 to December 31, 2001,
the ratio was nevertheless larger than it would otherwise have been due to
significant loan securitizations during 2001 and 2000, which reduced the amount
of loans considered in the calculation of the ratio. Without giving effect to
loan securitizations, at December 31, 2001 and 2000, the ratio of non-performing
loans to total loans would have been 2.73% and 4.46%, respectively.
At December 31, 2001, R&G Financial's deposits totaled $2.1 billion, as
compared to $1.7 billion at December 31, 2000. In addition, at December 31,
2001, R&G Financial had $2.1 billion of borrowings (consisting of securities
sold under agreements to repurchase, notes payable and FHLB advances), as
compared to $1.5 billion at December 31, 2000. R&G Financial utilized deposits
(primarily certificates of deposits) and securities sold under agreements to
repurchase to fund its growth during 2001.
Stockholders' equity increased from $308.8 million at December 31, 2000 to
$459.1 million at December 31, 2001. The $150.3 million or 49.0% increase was
due both to net income recognized during the year as well as the sale by R&G
Financial of an aggregate of $69.0 million of Series C Preferred Stock in March
2001 and the sale by R&G Financial of an aggregate of $36.2 million of
additional Class B common stock in June 2001.
8
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
You should read the summary consolidated financial information presented
below, together with our consolidated financial statements and notes which are
incorporated by reference into this prospectus and with our historical financial
information included under "Selected Consolidated Financial and Other Data"
beginning on page 17 of this prospectus. Per share information takes into
account prior stock splits and dividends.
The return on average assets ratio is computed by dividing net income by
average total assets for the period. The return on average common equity ratio
is computed by dividing net income less preferred stock dividends by average
stockholders' equity for the period. Both ratios have been computed using
month-end averages.
AT OR FOR THE
NINE MONTHS ENDED AT OR FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
------------ ---------- ------------ ---------- ---------- ---------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets............ $4,298,044 $3,409,022 $3,539,444 $2,911,993 $2,044,782 $1,510,746 $1,037,798
Stockholders' equity.... 453,465 293,768 308,836 269,535 221,162 138,054 115,633
Common stockholders'
equity per share...... $ 10.01 $ 7.63 $ 8.16 $ 6.79 $ 5.99 $ 4.88 $ 4.09
INCOME STATEMENT DATA:
Income before cumulative
effect from change in
accounting principle,
net of taxes(1)....... $ 46,172 $ 31,557 $ 43,633 $ 41,335 $ 34,034 $ 23,497 $ 13,200
Diluted earnings per
common share before
cumulative effect of
change in accounting
principle............. $ 1.29 $ 0.93 $ 1.30 $ 1.28 $ 1.12 $ 0.81 $ 0.59
OPERATING DATA:
Loan production......... $1,787,185 $1,263,119 $1,729,373 $1,977,322 $1,426,069 $ 906,324 $ 624,571
Loan servicing
portfolio............. 7,104,777 6,530,986 6,634,059 6,177,511 4,827,798 3,000,888 2,550,169
PERFORMANCE RATIOS:
Return on average
assets................ 1.57% 1.32% 1.34% 1.72% 1.95% 1.85% 1.38%
Return on average common
equity................ 19.95 17.75 18.00 20.23 21.32 18.69 15.54
Net interest margin..... 2.49 2.24 2.16 2.60 2.72 3.12 3.24
ASSET QUALITY RATIOS:
Non-performing assets to
total assets at end of
period................ 3.08% 2.69% 2.96% 2.26% 2.41% 2.12% 1.90%
Non-performing loans to
total loans at end of
period................ 6.68(2) 4.69 5.52(2) 3.69 4.08 3.89 3.09
Allowance for loan
losses to total loans
at end of period(3)... 0.83 0.62 0.67 0.56 0.74 0.87 0.55
Allowance for loan
losses to total
non-performing loans
at end of period(3)... 12.41 13.24 12.21 15.11 17.92 22.34 17.64
Net charge-offs to
average loans
outstanding........... 0.33 0.16 0.17 0.25 0.55 0.40 0.75
---------------
(1) In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement, as amended, requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. Upon the adoption of this Statement, R&G Financial recognized a gain
of approxi-
(footnotes continued on next page)
9
mately $1.9 million as other comprehensive income in stockholders' equity
related to derivative instruments that were designated as cash flow hedges,
and a loss of approximately $529,000 in the income statement related to
derivative instruments that did not qualify for hedge accounting.
(2) The increase in the ratio during 2001 and 2000 was partially caused by
significant loan securitizations during such periods which reduced the
amount of loans held in portfolio that are considered in the calculation of
the ratio. Without giving effect to loan securitizations, as of September
30, 2001 and December 31, 2000, the ratio of non-performing loans to total
loans would have been 4.87% and 4.46%, respectively.
(3) See "Recent Developments" for a discussion of our historical charge-off
experience. Because of the nature of the collateral, our historical
charge-offs with respect to residential real estate loans have been low.
Excluding our residential loan portfolio, the allowance for loan losses to
total loans and to total non-performing loans at September 30, 2001 and
December 31, 2000 would have been 1.89% and 71.0%, respectively, and 1.67%
and 73.7%, respectively.
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth R&G Financial's consolidated ratios of
earnings to fixed charges and preferred stock dividends for the respective
periods indicated. R&G Financial issued its Series A Preferred Stock in August
1998, its Series B Preferred Stock in December 1999 and its Series C Preferred
Stock in March 2001. The consolidated ratios of earnings to fixed charges and
preferred stock dividends were computed by dividing earnings by fixed charges
and preferred stock dividends.
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- --------------------------------
2001 2000 2000 1999 1998 1997 1996
----- ----- ---- ---- ---- ---- ----
Earnings to fixed charges and preferred stock
dividends:
Including interest on deposits................ 1.46x 1.29x 1.29x 1.45x 1.53x 1.52x 1.42x
Excluding interest on deposits................ 1.94 1.52 1.54 1.86 2.00 2.11 2.06
For purposes of computing the ratios of earnings to fixed charges and
preferred stock dividends, earnings represent income from continuing operations
before income taxes, extraordinary items and the cumulative effect of a change
in accounting principle plus fixed charges. Fixed charges and preferred stock
dividends represent total interest expense, including and excluding interest on
deposits, as applicable, as well as the amount of pre-tax earnings required to
pay dividends on R&G Financial's Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, together with a reasonable approximation of
the interest component of rental expense.
10
RISK FACTORS
You should carefully read the following risk factors before you decide to
buy any Series D Preferred Stock. You should also consider the other information
in this prospectus and the documents that are incorporated by reference.
AN INVESTMENT IN THE SERIES D PREFERRED STOCK INVOLVES CERTAIN RISKS
Dividends Will Not Be Paid Unless Declared by the Board of
Directors. Monthly dividends will only be paid if declared by R&G Financial's
Board of Directors. The Board of Directors is not obligated or required to
declare any monthly dividends.
Missed Dividends Never Have to Be Paid. If R&G Financial's Board of
Directors does not declare a dividend for a particular month, those dividends
never have to be paid.
Banking Regulations May Restrict R&G Financial's Ability to Pay
Dividends. R&G Financial may not be able to pay dividends in the future if it
does not earn sufficient operating income. Federal Reserve Board policy states
that a bank holding company should pay dividends only out of its current
operating earnings. R&G Financial had net income from operations of $45.8
million for the nine months ended September 30, 2001.
Payment of Dividends May Be Restricted by the Ability of R&G Financial's
Subsidiaries to Pay Dividends to R&G Financial. R&G Financial is a holding
company with no significant business operations of its own. R&G Financial's only
significant source of cash to pay dividends on the Series D Preferred Stock will
consist of distributions from its subsidiaries. There can be no assurance that
the earnings from R&G Financial's subsidiaries will be sufficient to make
distributions to R&G Financial to enable payment of dividends on the Series D
Preferred Stock or, in the case of R-G Premier Bank, that such distributions
will be permitted by applicable banking laws and regulations. The ability of R-G
Premier Bank to pay dividends may, under certain circumstances, be limited by
Puerto Rico and federal banking laws and regulations. R&G Mortgage is a party to
certain indebtedness contracts that may limit or prevent it from paying
dividends to R&G Financial if it does not comply with certain terms and
conditions set forth in these contracts.
There May Be No Active or Liquid Market for the Series D Preferred
Stock. Prior to this offering, there has been no public market for the Series D
Preferred Stock. R&G Financial has applied for listing of the Series D Preferred
Stock on the Nasdaq Stock Market under the symbol "RGFCM." However, there can be
no assurance that an established and liquid trading market for the Series D
Preferred Stock will develop, that it will continue if it does develop, or that
after the completion of this offering, the Series D Preferred Stock will trade
at or above the public offering price set forth on the cover of this prospectus.
FLUCTUATIONS IN INTEREST RATES MAY IMPACT R&G FINANCIAL'S BUSINESS
Interest rate fluctuations are the primary market risks affecting R&G
Financial. Changes in interest rates affect the following areas of its business:
- the number of mortgage loans originated and purchased;
- the interest income earned on loans and securities;
- gain on sale of loans;
11
- the value of securities holdings; and,
- the value of its servicing asset.
Increases in Interest Rates Reduce Demand for New Mortgage Loan
Originations and Refinancings. Higher interest rates increase the cost of
mortgage loans to consumers and reduce demand for mortgage loans, which
negatively impacts R&G Financial's profits. Reduced demand for mortgage loans
results in reduced loan originations by R&G Financial, lower mortgage
origination income and lower gain on sales of loans. Demand for refinance loans
is particularly sensitive to increases in interest rates.
Increases in Interest Rates Reduce Net Interest Income. Increases in
short-term interest rates reduce net interest income, which is an important part
of R&G Financial's earnings. Net interest income is the difference between the
interest received by R&G Financial on its assets and the interest paid on its
borrowings. Most of R&G Financial's assets, like its mortgage loans and
mortgage-backed securities are long-term assets. In contrast, most of R&G
Financial's borrowings are short-term. When interest rates rise, R&G Financial
must pay more in interest while interest on its borrowings earned on its assets
does not rise as quickly. This causes profits to decrease.
Increases in Interest Rates May Reduce or Eliminate Gain on Sale of
Mortgage Loans. If long-term interest rates increase between the time R&G
Financial commits to or establishes an interest rate on a mortgage loan and the
time it sells the loan, R&G Financial may realize a reduced gain or a loss on
such sale.
Increases in Interest Rates May Reduce the Value of Mortgage Loans and
Securities' Holdings. Increases in interest rates may reduce the value of R&G
Financial's financial assets and have an adverse impact on its earnings and
financial condition. R&G Financial owns a substantial portfolio of mortgages,
mortgage-backed securities and other debt securities, which have both fixed and
adjustable interest rates. The market value of an obligation with a fixed
interest rate generally decreases when prevailing interest rates rise, which may
have an adverse effect on R&G Financial's earnings and financial condition. In
addition, the market value of an obligation with an adjustable interest rate can
be adversely affected when interest rates increase due to a lag in the
implementation of repricing terms as well as caps, which may limit the amount of
increase on the obligation's interest rate.
Decreases in Interest Rates May Adversely Affect the Value of R&G
Financial's Servicing Asset. Decreases in interest rates lead to increases in
the prepayment of mortgages by borrowers, which may reduce the value of R&G
Financial's servicing asset. The servicing asset is the estimated present value
of the fees R&G Financial expects to receive on the mortgages it services over
their expected term. If prepayments increase above expected levels, the value of
the servicing asset decreases because the amount of futures fees expected to be
received by R&G Financial decreases. R&G Financial may be required to recognize
this decrease in value by taking a charge against its earnings, which would
cause its profits to decrease.
R&G FINANCIAL'S BUSINESS OPERATIONS INVOLVE CREDIT AND OTHER RISKS
R&G Financial Is Subject to Default and Recourse Risk in Connection with
its Loan Originations. From the time that R&G Financial funds the mortgage
loans it originates for third parties to the time it sells them, R&G Financial
is generally at risk for any mortgage loan defaults. Once R&G Financial sells
the mortgage loans, the risk of loss from mortgage loan defaults and
foreclosures passes to the purchaser or insurer of the mortgage loans. However,
in the ordinary course of business, R&G Financial makes certain representations
and warranties to the purchasers and insurers of mortgage loans. If a mortgage
loan defaults and there has been a breach of any of these
12
representations or warranties, R&G Financial may become liable for the unpaid
principal and interest on the defaulted mortgage loan and may be required to
repurchase the mortgage loan and bear any subsequent loss on the mortgage loan.
In addition, with respect to the non-conventional mortgage loans originated by
R&G Financial, which are subsequently securitized and sold, from time-to-time
R&G Financial provides recourse in the event of mortgage loan defaults and/or
foreclosures or certain documentation deficiencies. At September 30, 2001, there
were $581.0 million of loans subject to such recourse provisions.
R&G Financial Is Subject to Default Risk in Connection with R-G Premier
Bank's Loan Originations. R-G Premier Bank is subject to the risk of loss from
mortgage loan defaults and foreclosures with respect to the loans originated for
its portfolio. Notwithstanding the care with which loans are originated,
industry experience indicates that a portion of R-G Premier Bank's loans will
become delinquent and a portion of the loans will require partial or entire
charge-offs. Regardless of the underwriting criteria utilized by R-G Premier
Bank, losses may be experienced as a result of various factors beyond R-G
Premier Bank's control, including, among others, changes in market conditions
affecting the value of collateral and problems affecting the credit of the
borrower. Due to the concentration of loans in Puerto Rico, adverse economic
conditions in Puerto Rico could result in a decrease in the value of R-G Premier
Bank's loan portfolio and underlying collateral. Although loan delinquencies
have historically been higher in Puerto Rico than in the United States, loan
charge-offs have historically been lower than in the United States.
R-G Premier Bank establishes provisions for loan losses, which are charged
to operations, in order to maintain the allowance for loan losses at a level
which is deemed to be appropriate by management based upon an assessment of
prior loss experience, the volume and type of lending being conducted, industry
standards, past due loans, general economic conditions in its market area and
other factors related to the collectibility of the loan portfolio. Although R-G
Premier Bank's management utilizes its best judgment in providing for loan
losses, there can be no assurance that R-G Premier Bank will not have to
increase its provisions for loan losses in the future as a result of future
increases in non-performing loans or for other reasons beyond the control of R-G
Premier Bank. Any such increases in R-G Premier Bank's provisions for loan
losses or any loan losses in excess of its provisions with respect thereto would
have a negative impact on R&G Financial's future financial condition and/or
results of operations.
R&G Financial's Exposure to Larger Credit Risk Will Increase as a
Consequence of the Increase in R-G Premier Bank's Construction and Commercial
Lending Activities. R-G Premier Bank has increased its emphasis on residential
construction, commercial real estate and commercial business lending, which is
likely to increase overall credit risk. R-G Premier Bank generally charges
higher interest rates on commercial and residential construction loans than on
permanent residential mortgage loans, because larger loan losses are expected in
this business line. Generally, commercial and construction loans are considered
to be riskier than permanent residential mortgage loans because they have larger
balances to a single borrower or group of related borrowers. In addition, the
borrower's ability to repay a commercial loan depends on the successful
operation of the business or the property securing the loan and, in the case of
a construction loan, on the successful completion and sale or operation of the
project. If R-G Premier Bank experiences loan losses that exceed its allowance
for loan losses, R&G Financial's profits and financial condition would be
adversely affected.
R&G Financial Is Subject to Risks in Servicing Loans for Others. R&G
Financial is also affected by mortgage loan delinquencies and defaults on
mortgage loans that it services for third parties. Under certain types of
servicing contracts, the servicer must forward all or part of the scheduled
payments to the owner of the mortgage loan, even when mortgage loan payments are
delinquent. Also, to protect their liens on mortgaged properties, owners of
mortgage loans usually
13
require the servicer to advance mortgage and hazard insurance and tax payments
on schedule even though sufficient escrow funds may not be available. The
servicer will generally recover its advances from the mortgage owner or from
liquidation proceeds when the mortgage loan is foreclosed. However, in the
interim, the servicer must absorb the cost of funds advanced during the time the
advance is outstanding. Further, the servicer must bear the increased costs of
attempting to collect on delinquent and defaulted mortgage loans. In addition,
if a default is not cured, the mortgage loan will be repaid as a result of
foreclosure proceedings. As a consequence, R&G Financial is required to forego
servicing income from the time such loan becomes delinquent, and into the
future.
R&G Financial's Business Is Concentrated in Puerto Rico, and Adverse
Conditions in Puerto Rico Could Negatively Impact its Operations. R&G
Financial's business activities and credit exposure are concentrated with
customers in Puerto Rico. Accordingly, its financial condition and results of
operations are dependent to a significant extent upon the economic conditions in
Puerto Rico, including the effect of such economic conditions on real estate
values. Any significant adverse economic developments in Puerto Rico, and, in
particular any decline in real estate values, could result in a decrease in loan
originations, an increase in the level of nonperforming assets and a reduction
in the value of R&G Financial's loans, real estate owned and mortgage servicing
portfolio.
R&G Financial's Origination Business Could Be Adversely Affected if It
Cannot Maintain Access to Stable Funding Sources. R&G Financial's business
requires continuous access to various funding sources. While R-G Premier Bank is
able to fund its operations through deposits as well as through longer-term
borrowings from the Federal Home Loan Bank, the "FHLB" of New York and other
alternative sources, the business of R&G Mortgage and Continental is
significantly dependent upon short-term borrowings under warehousing lines.
Certain of these warehousing lines of credit require the maintenance of minimum
levels of net worth and debt service and limit the amount of indebtedness and
dividends that may be declared.
While R&G Financial expects to have continued access to credit from the
foregoing sources of funds, there can be no assurance that such financing
sources will continue to be available or will be available on favorable terms.
In the event that the warehousing lines of credit of R&G Financial's
subsidiaries were reduced or eliminated and R&G Financial was not able to
replace such lines on a cost-effective basis, R&G Financial would be forced to
curtail or cease its mortgage origination business, which would have a material
adverse effect on R&G Financial's operations and financial condition. Although
R&G Financial's subsidiaries could also potentially access borrowings from R-G
Premier Bank, any such borrowings would be subject to and limited by certain
regulatory restrictions which apply to transactions between R-G Premier Bank and
its affiliates, including certain subsidiaries of R&G Financial.
Risk of Expansion into New Market. The acquisition of Crown represents R&G
Financial's first acquisition of a bank within the United States. Management of
R&G Financial does not have the same depth of experience or knowledge with
respect to the United States in general or Florida in particular as it does with
respect to Puerto Rico. Consequently, R&G Financial will have to rely to a
certain extent on the expertise and experience of Crown's management. In
addition, the Tampa/St. Petersburg/Clearwater and Orlando metropolitan areas,
which constitute Crown's primary market, are subject to economic and political
conditions which may differ from the economic and political conditions existing
within Puerto Rico. Accordingly, some of the properties underlying Crown's loans
may be located in areas which are experiencing adverse economic conditions,
including a general softening of the local real estate markets, which could
result in increased loan delinquencies and loan losses.
Risks Relating to R&G Financial's Dependence on Key Individuals. The
success of R&G Financial has been largely dependent on Victor J. Galan, Chairman
of the Board and Chief Executive
14
Officer, and Ramon Prats, Vice Chairman of the Board and President. R&G
Financial's future success will also depend, to a great extent, upon the
services of Mr. Galan and Mr. Prats. R&G Financial believes that the prolonged
unavailability or the unexpected loss of the services of Mr. Galan and/or Mr.
Prats could have a material adverse effect upon R&G Financial, as attracting
suitable replacements may involve significant time and/or expense.
Changes in Statutes and Regulations Could Adversely Affect R&G
Financial. R&G Financial, as a Puerto Rico chartered, financial holding
company, and its various subsidiaries, are each subject to extensive federal and
local governmental supervision and regulation. There are laws and regulations
which restrict transactions between R&G Financial and its various subsidiaries.
Any change in such regulations, whether by applicable regulators or as a result
of legislation subsequently enacted by the Congress of the United States or the
applicable local legislatures, could have a substantial impact on R&G
Financial's operations.
Competition with Other Financial Institutions Could Adversely Affect R&G
Financial's Profitability. R&G Financial faces substantial competition in
originating loans and in attracting deposits. The competition in originating
loans comes principally from other U.S., Puerto Rico and foreign banks, mortgage
banking companies, consumer finance companies, insurance companies and other
institutional lenders and purchasers of loans. R&G Financial will encounter
greater competition as it expands its operations in the United States. A number
of institutions with which R&G Financial competes have significantly greater
assets, capital and other resources. In addition, many of R&G Financial's
competitors are not subject to the same extensive federal regulation that
governs R&G Financial's business. As a result, many of R&G Financial's
competitors have advantages in conducting certain businesses and providing
certain services. Increased competition could require R&G Financial to increase
its rates charged on deposits or lower the rates offered on loans, which could
adversely affect R&G Financial's profitability.
FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference certain
forward-looking statements regarding R&G Financial's financial condition,
results of operations and business. These statements are not historical facts
and include statements about R&G Financial's operations, performance and
financial condition, including its future economic performance, plans and
objectives and the likelihood of success in developing and expanding its
business. These statements are based upon a number of assumptions and estimates
which are subject to significant uncertainties, many of which are beyond the
control of R&G Financial. The words "may," "would," "could," "will," "expect,"
"anticipate," "believe," "intend," "plan," "estimate" and similar expressions
are meant to identify these forward-looking statements. Actual results may
differ materially from those expressed or implied by these forward-looking
statements.
USE OF PROCEEDS
The net proceeds to R&G Financial from the sale of the shares of Series D
Preferred Stock is expected to be $48,192,375 ($55,456,125 if the underwriters'
over-allotment option is exercised in full), after deducting the underwriting
discounts and estimated offering expenses. See "Underwriting."
R&G Financial is raising funds in this offering primarily to finance the
acquisition of Crown and maintain its well capitalized status. Pending
completion of the acquisition of Crown, the net proceeds will be invested in
short-term securities. To the extent that the Crown transaction does not receive
regulatory approval or otherwise is not consummated, the proceeds will be used
to support further growth in the business of R-G Premier Bank.
15
CAPITALIZATION
The following table sets forth R&G Financial's unaudited consolidated
capitalization at September 30, 2001, and as adjusted to reflect the issuance of
the shares of Series D Preferred Stock offered by this prospectus and the
application of the net proceeds therefrom to R&G Financial, as if the sale of
the Series D Preferred Stock had been consummated on September 30, 2001. In
addition to the indebtedness reflected below, R&G Financial had total deposits
of $1.9 billion at September 30, 2001. The table does not give effect to any
exercise of the over-allotment option granted to the underwriters and should be
read in conjunction with R&G Financial's consolidated financial statements and
related notes incorporated by reference into this prospectus.
SEPTEMBER 30, 2001
----------------------------
ACTUAL AS ADJUSTED
------------ -------------
($ IN THOUSANDS, EXCEPT PER
SHARE DATA)
Borrowings(1)............................................... $1,882,124 $1,882,124
========== ==========
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized:
2,000,000 shares of Series A Preferred Stock, actual... $ 50,000 $ 50,000
1,000,000 shares of Series B Preferred Stock, actual... 25,000 25,000
2,760,000 shares of Series C Preferred Stock, actual... 69,000 69,000
2,000,000 shares of Series D Preferred Stock, as
adjusted.............................................. -- 50,000
Common stock, $0.01 par value:
Class A Shares, 40,000,000 shares authorized;
16,233,056 shares issued and outstanding(2)........... 162 162
Class B Shares, 40,000,000 shares authorized;
14,693,700 shares issued and outstanding(2)........... 147 147
Additional paid-in capital................................ 69,771 67,963
Retained earnings......................................... 219,035 219,035
Capital reserves of R-G Premier Bank...................... 7,444 7,444
Accumulated other comprehensive income, net of tax........ 12,906 12,906
---------- ----------
Total stockholders' equity........................ $ 453,465 $ 501,656
========== ==========
Common stockholders' equity per share............. $ 10.01 $ 9.95
========== ==========
---------------
(1) Includes securities sold under agreements to repurchase, notes payable, FHLB
advances and other borrowings.
(2) On November 9, 2001, Ramon Prats, the President of R&G Financial, exercised
an option granted to him by Victor Galan, the Chairman and Chief Executive
Officer of R&G Financial, to acquire 180,000 shares of Class B common stock.
In addition, on November 15, 2001, Mr. Prats exercised an option granted to
him by R&G Financial to acquire 360,000 shares of Class B common stock. As a
result and giving effect to additional exercises by employees of options to
acquire shares of Class B common stock subsequent to September 30, 2001, as
of November 15, 2001, the outstanding shares of Class A and Class B common
stock was 16,053,056 and 15,240,900, respectively.
16
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial and other data below should be read in
connection with the consolidated financial information included in R&G
Financial's Annual Report on Form 10-K/A for the year ended December 31, 2000,
and its Quarterly Report on Form 10-Q for the nine months ended September 30,
2001, incorporated by reference in this prospectus. The consolidated financial
information for the nine-month periods ended September 30, 2001 and 2000 are
derived from R&G Financial's unaudited consolidated financial statements, which,
in the opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. Results for the nine-month period ended September 30, 2001 are not
necessarily indicative of R&G Financial's results for the full year.
AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ---------- ---------- ---------- ---------- ----------
SELECTED BALANCE SHEET DATA:
Total assets(1)............. $4,298,044 $3,409,022 $3,539,444 $2,911,993 $2,044,782 $1,510,746 $1,037,798
Loans receivable, net....... 1,722,636 1,713,641 1,631,276 1,563,007 1,073,668 765,059 603,751
Mortgage loans held for
sale...................... 238,605 115,144 95,668 77,277 117,126 46,885 54,450
Mortgage-backed and
investment securities held
for trading............... 99,681 11,901 12,038 43,564 450,546 401,039 110,267
Mortgage-backed securities
available for sale........ 1,410,755 940,887 1,150,100 712,705 95,040 46,004 50,841
Mortgage-backed securities
held to maturity.......... 52,973 20,501 19,818 23,249 28,255 33,326 37,900
Investment securities
available for sale........ 460,054 375,847 368,271 258,164 59,502 75,863 30,973
Investment securities held
to maturity............... 13,692 5,432 3,703 5,438 6,344 10,693 5,270
Servicing asset............. 103,288 90,389 95,079 84,253 58,221 21,213 12,595
Cash and cash
equivalents(2)............ 87,009 46,494 69,090 65,996 103,728 68,366 98,856
Deposits.................... 1,874,685 1,582,358 1,676,062 1,330,506 1,007,297 722,418 615,567
Securities sold under
agreements to
repurchase................ 1,184,651 838,201 827,749 731,341 471,422 433,135 97,444
Notes payable............... 200,638 161,533 138,858 132,707 182,748 103,453 126,842
Other borrowings(3)......... 496,834 473,384 538,840 408,843 121,000 86,359 65,463
Total stockholders'
equity.................... 453,465 293,768 308,836 269,535 221,162 138,054 115,633
Common stockholders' equity
per share(4).............. $ 10.01 $ 7.63 $ 8.16 $ 6.79 $ 5.99 $ 4.88 $ 4.09
SELECTED INCOME STATEMENT
DATA:
Revenues:
Net interest income....... $ 67,484 $ 49,371 $ 64,987 $ 56,578 $ 43,973 $ 36,530 $ 28,923
Provision for loan
losses.................. (7,325) (4,350) (5,751) (4,525) (6,600) (6,370) (4,258)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses.................. 60,159 45,021 59,236 52,053 37,373 30,160 24,665
Loan administration and
servicing fees.......... 25,031 22,720 30,849 27,109 15,987 13,214 13,029
Net gain on sale of
loans................... 44,301 28,220 41,230 37,098 34,956 23,286 12,285
Other(5).................. 8,994 5,209 7,231 6,604 5,527 4,605 3,938
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............ 138,485 101,170 138,546 122,864 93,843 71,265 53,917
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Compensation and
benefits................ 23,840 19,952 27,031 24,433 17,095 13,653 10,794
Occupancy expenses........ 12,291 9,952 13,436 11,289 8,987 7,131 5,531
SAIF special assessment... -- -- -- -- 2,508
17
AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ---------- ---------- ---------- ---------- ----------
Other administrative and
general expenses........ 41,040 30,381 40,325 33,568 22,687 18,252 15,424
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses............ 77,171 60,285 80,792 69,290 48,769 39,036 34,257
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before minority
interest in R-G Premier
Bank, income taxes and
cumulative effect from
change in accounting
principle................. 61,314 40,885 57,754 53,574 45,074 32,229 19,660
Minority interest in R-G
Premier Bank's earnings... -- -- -- -- -- -- 538
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes
and cumulative effect from
change in accounting
principle................. 61,314 40,885 57,754 53,574 45,074 32,229 19,122
Income taxes................ 15,142 9,328 14,121 12,239 11,040 8,732 5,922
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative
effect from change in
accounting principle...... 46,172 31,557 43,633 41,335 34,034 23,497 13,200
Cumulative effect from
change in accounting
principle, net of income
taxes..................... (323) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.................. 45,849 31,557 43,633 41,335 34,034 23,497 13,200
Less: Dividends on preferred
stock..................... (7,200) (4,228) (5,638) (3,754) (1,233) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to
common stockholders....... $ 38,649 $ 27,329 $ 37,995 $ 37,581 $ 32,801 $ 23,497 $ 13,200
========== ========== ========== ========== ========== ========== ==========
Basic earnings per common
share before cumulative
effect from change in
accounting principle(4)... $ 1.32 $ 0.95 $ 1.33 $ 1.31 $ 1.15 $ 0.83 $ 0.60
========== ========== ========== ========== ========== ========== ==========
Diluted earnings per common
share before cumulative
effect from change in
accounting principle(4)... $ 1.29 $ 0.93 $ 1.30 $ 1.28 $ 1.12 $ 0.81 $ 0.59
========== ========== ========== ========== ========== ========== ==========
Basic earnings per common
share(4).................. $ 1.31 $ 0.95 $ 1.33 $ 1.31 $ 1.15 $ 0.83 $ 0.60
========== ========== ========== ========== ========== ========== ==========
Diluted earnings per common
share(4).................. $ 1.28 $ 0.93 $ 1.30 $ 1.28 $ 1.12 $ 0.81 $ 0.59
========== ========== ========== ========== ========== ========== ==========
SELECTED OPERATING DATA(6):
Performance Ratios and Other
Data:
Loan production............. $1,787,185 $1,263,119 $1,729,373 $1,977,322 $1,426,069 $ 906,324 $ 624,571
Mortgage servicing
portfolio................. 7,104,777 6,530,986 6,634,059 6,177,511 4,827,798 3,000,888 2,550,169
Return on average assets.... 1.57% 1.32% 1.34% 1.72% 1.95% 1.85% 1.38%
Return on average common
equity.................... 19.95 17.75 18.00 20.23 21.32 18.69 15.54
Equity to assets at end of
period.................... 10.55 8.62 8.73 9.26 10.82 9.13 11.14
Interest rate spread(7)..... 2.24 2.04 1.96 2.40 2.43 2.88 3.00
Net interest margin(7)...... 2.49 2.24 2.16 2.60 2.72 3.12 3.24
Average interest-earning
assets to average
interest-bearing
liabilities............... 105.33 103.64 103.54 104.21 105.93 104.61 104.60
Total non-interest expenses
to average total assets... 2.63 2.53 2.49 2.88 2.80 3.08 3.59
18
AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ---------- ---------- ---------- ---------- ----------
Cash dividends declared per
common share(4)........... $ 0.192 $ 0.146 $ 0.203 $ 0.149 $ 0.111 $ 0.065 $ 0.069
ASSET QUALITY RATIOS(8):
Non-performing assets to
total assets at end of
period.................... 3.08% 2.69% 2.96% 2.26% 2.41% 2.12% 1.90%
Non-performing loans to
total loans at end of
period.................... 6.68(9) 4.69 5.52(9) 3.69 4.08 3.89 3.09
Allowance for loan losses to
total loans at end of
period(10)................ 0.83 0.62 0.67 0.56 0.74 0.87 0.55
Allowance for loan losses to
total non-performing loans
at end of period(10)...... 12.41 13.24 12.21 15.11 17.92 22.34 17.64
Net charge-offs to average
loans outstanding......... 0.33 0.16 0.17 0.25 0.55 0.40 0.75
BANK REGULATORY CAPITAL
RATIOS(11):
Tier 1 risk-based capital
ratio..................... 12.00% 11.46% 11.46% 12.39% 13.41% 13.10% 13.91%
Total risk-based capital
ratio..................... 12.73 12.23 12.24 13.11 14.46 14.00 14.79
Tier 1 leverage capital
ratio..................... 6.67 6.19 6.04 7.07 8.04 7.34 8.45
---------------
(1) At September 30, 2001, R&G Mortgage and R-G Premier Bank had total assets
of $818.5 million and $3.6 billion, respectively, before consolidation.
(2) Comprised of cash and due from banks, securities purchased under agreements
to resell, time deposits with other banks and federal funds sold, all of
which had original maturities of 90 days or less.
(3) Comprised of advances from the Federal Home Loan Bank of New York, federal
funds purchased and other borrowings.
(4) Per share information for all periods presented takes into consideration
prior stock splits and dividends.
(5) Comprised of change in provision for cost in excess of market value of
loans available for sale and other miscellaneous revenue sources, including
service charges, fees and other income.
(6) With the exception of end of period ratios, all ratios for R&G Mortgage are
based on the average of month-end balances, while all ratios for R-G
Premier Bank are based on average daily balances, and all ratios are
annualized where appropriate.
(7) Interest rate spread represents the difference between the 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 percentage of average interest-earning assets.
(8) Non-performing loans consist of non-accrual loans and non-performing assets
consist of non-performing loans and real estate acquired by foreclosure or
deed-in-lieu thereof.
(9) The increase in the ratio was partially caused by significant loan
securitizations during such periods during 2001 and 2000, which reduced the
amount of loans held in portfolio which are considered in the calculation
of the ratio. Without giving effect to loan securitizations, as of
September 30, 2001 and December 31, 2000, the ratio of non-performing loans
to total loans would have been 4.87% and 4.46%, respectively.
(10) See "Recent Developments" for a discussion of R&G Financial's historical
charge-off experience. Because of the nature of the collateral, R&G
Financials's historical charge-offs with respect to residential real estate
loans have been low. Excluding R&G Financial's residential loan portfolio,
the allowance for loan losses to total loans and to total non-performing
loans at September 30, 2001 and December 31, 2000 would have been 1.89% and
71.0%, respectively, and 1.67% and 73.7%, respectively.
(11) All of such ratios were in compliance with the applicable requirements of
the FDIC.
19
SUMMARY OF CERTAIN TERMS OF THE SERIES D PREFERRED STOCK
GENERAL
The following summary sets forth the material terms and provisions of the
Series D Preferred Stock. The summary is qualified in its entirety by reference
to the terms and provisions of R&G Financial's Certificate of Incorporation and
to the Certificate of Designation creating the Series D Preferred Stock (the
"Certificate of Designation"), copies of which are incorporated by reference as
exhibits to the registration statement of which this prospectus is a part.
The Series D Preferred Stock constitutes an authorized series of R&G
Financial's preferred stock. R&G Financial may issue preferred stock from time
to time in one or more series with such rights, preferences and limitations as
are determined by its Board of Directors. R&G Financial's Board of Directors has
authorized the issuance of the Series D Preferred Stock offered hereby, with the
designations, dividend rights, redemption and other provisions set forth in the
Certificate of Designation and as described generally below.
R&G Financial issued $50,000,000 of 7.40% Noncumulative Perpetual Monthly
Income Preferred Stock, Series A ($25 liquidation preference per share) in
August 1998 (the "Series A Preferred Stock"), $25,000,000 of 7.75% Noncumulative
Perpetual Monthly Income Preferred Stock, Series B ($25 liquidation preference
per share) in December 1999 (the "Series B Preferred Stock") and $69,000,000 of
7.60% Noncumulative Perpetual Monthly Income Preferred Stock, Series C ($25
liquidation preference per share) in March 2001 (the "Series C Preferred
Stock"). The Series D Preferred Stock offered by this prospectus ranks equal (or
"pari passu") with the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock as to payments of dividends and as to any
preferences on the voluntary or involuntary liquidation, dissolution or winding
up of R&G Financial.
DIVIDENDS
If declared at the option of R&G Financial's Board of Directors or an
authorized committee, holders of record of the Series D Preferred Stock will be
entitled to receive cash dividends in the amount of $ per share each year,
which is equivalent to % of the liquidation preference of $25.00 per share.
R&G Financial is not required to declare or pay dividends on the Series D
Preferred Stock, even if it has funds available for the payment of such
dividends. Dividends may only be paid out of funds that are legally available
for this purpose.
Dividends on the Series D Preferred Stock will accrue from its date of
original issuance and will be payable on the first day of each month in United
States dollars beginning on , 2002. In the case of the dividend payable
on , 2002, this dividend will cover the period from the date of issuance
of the Series D Preferred Stock to and including , 2002. Thereafter,
dividends will accrue for each monthly dividend period commencing on the first
day of each month and ending on and including the date next preceding the first
day of the next month. Payment of dividends will be made to the holders of
record of the Series D Preferred Stock as they appear on the books of R&G
Financial on the fifteenth day of the month preceding the date on which the
dividends are payable. If any date on which dividends are payable is not a
Business Day, then payment of the dividend will be made on the next Business Day
without any interest or other payment in respect of the delay. A "Business Day"
is a day other than a Saturday or Sunday or a general banking holiday in San
Juan, Puerto Rico or New York, New York.
Dividends on the Series D Preferred Stock will be noncumulative. If the
Board of Directors does not declare a dividend for any monthly dividend period
on the Series D Preferred Stock, then the
20
holders of Series D Preferred Stock will not have a right to receive a dividend
for that monthly dividend period, whether or not dividends on the Series D
Preferred Stock are declared for any future monthly dividend period.
Dividends for any monthly dividend period will be paid in equal
installments in the amount of $0. per share. The aggregate payment made to
each holder will be rounded to the next lowest cent. The amount of dividends
payable for any period shorter than a full monthly dividend period will be
computed on the basis of the actual number of days elapsed in that period.
Dividend payments will be mailed to the record holders of the Series D
Preferred Stock at their addresses appearing on the register for the Series D
Preferred Stock.
The terms of the Series D Preferred Stock do not permit R&G Financial to
declare, set apart or pay any dividend or make any other distribution of assets
on, or redeem, purchase, set apart or otherwise acquire shares of common stock
or of any other class of stock of R&G Financial ranking junior to the Series D
Preferred Stock as to the payment of dividends or as to the distribution of
assets upon liquidation, dissolution or winding up of R&G Financial, unless
certain conditions are met. Those conditions are (1) all accrued and unpaid
dividends on the Series D Preferred Stock for the twelve monthly dividend
periods ending on the immediately preceding dividend payment date shall have
been paid or are paid contemporaneously, (2) the full monthly dividend on the
Series D Preferred Stock for the then current month has been or is
contemporaneously declared and paid or declared and set apart for payment, and
(3) R&G Financial has not defaulted in the payment of the redemption price of
any shares of Series D Preferred Stock called for redemption. See "Redemption at
the Option of R&G Financial." The above limitations do not apply to stock
dividends or other distributions made in stock of R&G Financial ranking junior
to the Series D Preferred Stock as to the payment of dividends and as to the
distribution of assets. The above limitations also do not apply to conversions
or exchanges for stock of R&G Financial ranking junior to the Series D Preferred
Stock as to the payment of dividends and as to the distribution of assets.
If R&G Financial is unable to pay in full the dividends on the Series D
Preferred Stock and on any other shares of stock of equal rank as to the payment
of dividends with the Series D Preferred Stock, all dividends declared upon the
Series D Preferred Stock and any such other shares of stock will be declared pro
rata. In this event, each share of Series D Preferred Stock and of the other
classes of stock of equal rank will receive dividends in the same proportion as
the $25.00 per share liquidation preference of the Series D Preferred Stock
bears to the per share liquidation preference of the other classes of equally
ranked stock.
For a discussion of the tax treatment of distributions to stockholders see
"Taxation -- Puerto Rico Taxation," and "-- United States Taxation," and for a
discussion of certain potential regulatory limitations on R&G Financial's
ability to pay dividends, see "Risk Factors -- Banking Regulations May Restrict
R&G Financial's Ability to Pay Dividends."
NO CONVERSION OR EXCHANGE RIGHTS
The Series D Preferred Stock will not be convertible into, or exchangeable
for any other securities of R&G Financial.
21
REDEMPTION AT THE OPTION OF R&G FINANCIAL
R&G Financial may not redeem the shares of the Series D Preferred Stock
prior to , 2007. On and after that date, R&G Financial may redeem
the Series D Preferred Stock for cash, at its option, in whole or in part, at
the redemption prices shown below plus accrued and unpaid dividends for the then
current monthly dividend period to the redemption date. The redemption prices
for the twelve month periods beginning on , 2007 are shown below.
YEAR REDEMPTION PRICE
---- ----------------
2007........................................................ $25.50
2008........................................................ 25.25
2009 and thereafter......................................... 25.00
In the event that R&G Financial elects to redeem less than all of the
outstanding shares of the Series D Preferred Stock, the total number of shares
to be redeemed shall be allocated pro rata or by lot as may be determined by the
Board of Directors or by such other method as the Board of Directors may approve
and deem equitable, including any method to conform to any rule or regulation of
any national or regional stock exchange or automated quotation system upon which
the shares of the Series D Preferred Stock may at the time be listed or eligible
for quotation.
R&G Financial may redeem the Series D Preferred Stock without ever having
declared or paid a dividend on such stock.
Notice of any proposed redemption shall be given by R&G Financial by
mailing a copy of such notice to the holders of record of the shares of Series D
Preferred Stock to be redeemed, at their address of record, not less than 30 nor
more than 60 days prior to the redemption date. The notice of redemption to each
holder of shares of Series D Preferred Stock shall specify the number of shares
of Series D Preferred Stock to be redeemed, the redemption date and the
redemption price payable to the holder upon redemption, and shall state that
from and after the redemption date dividends will cease to accrue. If R&G
Financial redeems less than all the shares owned by a holder, the notice shall
also specify the number of shares of Series D Preferred Stock of the holder
which are to be redeemed and the numbers of the certificates representing such
shares. Any notice which is mailed in accordance with these procedures shall be
conclusively presumed to have been properly given, whether or not the
stockholder receives such notice. The failure by R&G Financial to give such
notice by mail, or any defect in such notice, to the holders of any stock
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series D Preferred Stock.
If the redemption notice is properly mailed and R&G Financial pays the
redemption price, from and after the redemption date, all dividends on the
shares of Series D Preferred Stock called for redemption shall cease to accrue
and all rights of the holders of such shares being redeemed as R&G Financial
stockholders shall cease on the redemption date. Holders will retain the right
to receive the redemption price upon presentation of their stock certificates.
If R&G Financial redeems less than all the shares represented by any
certificate, a new certificate representing the unredeemed shares shall be
issued without cost to the holder.
At its option, R&G Financial may, on or prior to the redemption date,
irrevocably deposit the entire amount payable upon redemption of the shares of
the Series D Preferred Stock to be redeemed with a bank or trust company
designated by R&G Financial having its principal office in New York, New York,
San Juan, Puerto Rico, or any other city in which R&G Financial shall at that
time maintain a transfer agent with respect to its capital stock, and having a
combined capital and surplus of at least $50,000,000. The depositary will hold
this amount in trust for payment to the holders of the shares of the Series D
Preferred Stock to be redeemed. If the deposit is made and the funds deposited
are immediately available to the holders of the shares of the Series D Preferred
Stock to be
22
redeemed, R&G Financial will no longer have any obligation to make payment of
the amount payable upon redemption of the shares of the Series D Preferred Stock
to be redeemed. Following the deposit, except as discussed in the next
paragraph, holders of these shares shall look only to the depositary for
payment.
Any funds remaining unclaimed at the end of two years after the redemption
date for which such funds were deposited shall be returned to R&G Financial and
thereafter, the holders of shares of the Series D Preferred Stock called for
redemption shall look only to R&G Financial for the payment of the redemption
price. Any interest accrued on any funds deposited with the depositary shall
belong to R&G Financial and shall be paid to it from time to time on demand.
After the redemption of any shares of Series D Preferred Stock, the
redeemed shares shall have the status of authorized but unissued shares of
preferred stock, without designation as to series, until such shares are once
more designated as part of a particular series by the Board of Directors.
Certain Regulatory Considerations Affecting Redemptions
Under current regulations, R&G Financial may not redeem the Series D
Preferred Stock without the prior approval of the Federal Reserve Board.
Ordinarily, the Federal Reserve Board will not permit a redemption unless (1)
the shares are redeemed with the proceeds of a sale of common stock or perpetual
preferred stock, or (2) the Federal Reserve Board determines that R&G
Financial's condition and circumstances warrant the reduction of a source of
permanent capital.
Also, under Puerto Rico law, R&G Financial may not redeem any shares of its
capital stock unless the assets remaining after the redemption are sufficient to
pay any debts for which payment has not otherwise been provided.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of R&G
Financial, the record holders of shares of Series D Preferred Stock will be
entitled to receive out of the assets of R&G Financial available for
distribution to stockholders, before any distribution is made to the holders of
shares of common stock or on any other class or series of stock of R&G Financial
ranking junior to the Series D Preferred Stock as to such a distribution, an
amount equal to $25 per share, plus an amount equal to dividends accrued and
unpaid for the then current dividend period to the date fixed for payment of
such distribution.
If R&G Financial is liquidated or dissolved and the amounts payable with
respect to the Series D Preferred Stock and any other shares of stock of equal
rank upon liquidation are not paid in full, the holders of the Series D
Preferred Stock and of the other shares will share ratably in any such
distribution of assets in proportion to the full liquidation preferences to
which each would otherwise be entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of shares of
Series D Preferred Stock will not be entitled to any further participation in
any distribution of assets of R&G Financial.
A consolidation or merger of R&G Financial with or into any other
corporation or corporations or the sale, lease or conveyance, whether for cash,
shares of stock, securities or properties, of all or substantially all of R&G
Financial assets will not be regarded as a liquidation, dissolution or winding
up of R&G Financial.
23
VOTING RIGHTS
As a holder of the Series D Preferred Stock, you will not be entitled to
receive notice of or attend or vote at any meeting of R&G Financial
stockholders, except as described below.
If R&G Financial does not declare and pay dividends in full on the Series D
Preferred Stock for eighteen monthly dividend periods, whether consecutive or
not, the holders of outstanding shares of the Series D Preferred Stock, together
with the holders of shares of any one or more other series of preferred stock
entitled to vote for the election of directors in the event of any failure to
pay dividends (such as the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock), acting as a single class, will be
entitled to appoint two additional members to R&G Financial's Board of Directors
or to remove any such member so appointed by them from office and to appoint
another person in place of such member. To make this appointment, the holders of
a majority in liquidation preference of these shares must send written notice to
R&G Financial of the appointment or pass a resolution adopted by a majority of
holders at a separate general meeting of those holders called for this purpose.
Not later than 30 days after the right of holders of Series D Preferred
Stock to elect directors arises, if written notice by a majority of the holders
has not been given in accordance with the preceding sentence, R&G Financial's
Board of Directors or an authorized committee is required to convene a separate
special meeting for the above purpose. If the Board of Directors or such
authorized committee fails to convene this meeting within the 30-day period, the
holders of 10% of the outstanding shares of the Series D Preferred Stock and of
any such other securities will be entitled to convene the meeting.
The provisions of R&G Financial's Certificate of Incorporation and Bylaws
relating to the convening and conduct of general meetings of stockholders will
apply with respect to any separate special meeting. Any member of the Board of
Directors so appointed shall vacate office if, following the event which gave
rise to such appointment, R&G Financial resumes the payment of dividends in full
on the Series D Preferred Stock and each such other series of stock for twelve
consecutive monthly dividend periods, subject always to the revesting of the
right of holders of the Series D Preferred Stock, voting as a class with the
holders of any other series of stock having the right to vote for the election
of directors solely in the event of a failure to pay dividends, acting as a
single class, to elect two directors as provided herein in the event of any
subsequent failure on the part of R&G Financial to pay dividends at the stated
rate for any eighteen full monthly dividend periods, whether or not consecutive.
R&G Financial's Certificate of Incorporation provides for a minimum of 5 board
members and a maximum of 15 members. As of the date of this prospectus, the
Board of Directors consisted of 12 members.
Any amendment, alteration or repeal of the terms of the Series D Preferred
Stock contained in R&G Financial's Certificate of Incorporation, which includes
the Certificate of Designation of the Series D Preferred Stock, which would
materially and adversely affect the powers, preferences, or special rights of
the Series D Preferred Stock will require the approval of holders of at least
two thirds of the outstanding aggregate liquidation preference of the Series D
Preferred Stock. This approval can be evidenced either by a consent in writing
or by a resolution passed at a meeting of the holders of the Series D Preferred
Stock. The authorization or issuance of any shares of R&G Financial ranking
senior to the Series D Preferred Stock as to dividend rights or rights on
liquidation or similar events, will be considered a change requiring the consent
of the Series D Preferred Stock. Conversely, the authorization or issuance of
shares ranking, as to dividend rights or rights on liquidation or similar
events, on a parity or junior to the Series D Preferred Stock, will not be
considered a change requiring the consent of the holders of the Series D
Preferred Stock. The approval of the holders is not required if, at or prior to
the act with respect to which such vote would otherwise be required, all
outstanding
24
shares of Series D Preferred Stock shall have been redeemed or called for
redemption and sufficient funds deposited in trust to effect such redemption.
No vote of the holders of the Series D Preferred Stock will be required for
R&G Financial to redeem or purchase and cancel the Series D Preferred Stock in
accordance with its Certificate of Incorporation and the Certificate of
Designation.
R&G Financial will cause a notice of any meeting at which holders of Series
D Preferred Stock are entitled to vote to be mailed to each record holder of the
Series D Preferred Stock. Each such notice will include a statement setting
forth (1) the date of such meeting, (2) a description of any resolution to be
proposed for adoption at such meeting on which such holders are entitled to
vote, and (3) instructions for deliveries of proxies.
Certain Regulatory Issues Related to Voting Rights
Under regulations adopted by the Federal Reserve Board, if the holders of
shares of Series D Preferred Stock become entitled to vote for the election of
directors as described above, the Series D Preferred Stock could be deemed a
"class of voting securities." In this instance, a holder, other than a natural
person, of 25% or more of the Series D Preferred Stock could then be subject to
regulation as a bank holding company in accordance with the Bank Holding Company
Act. A holder, other than a natural person, of 5% that otherwise exercises a
"controlling influence" over R&G Financial could also be subject to regulation
under the Bank Holding Company Act. In addition, at any time the Series D
Preferred Stock is deemed a class of voting securities, (1) any other bank
holding company may be required to obtain the approval of the Federal Reserve
Board to acquire or retain 5% or more of the outstanding shares of Series D
Preferred Stock, and (2) any person other than a bank holding company may be
required to file with the Federal Reserve Board under the Change in Bank Control
Act to acquire or retain 10% or more of such series.
Section 12 of the Puerto Rico Banking Law requires that the OCFI approve
any change of control involving a bank organized under the Banking Law. The
Banking Law requires that the OCFI be informed not less than 60 days prior to
any transfer of voting stock of a Puerto Rico bank that results in any person
owning, directly or indirectly, more than 5% of the outstanding voting stock of
the bank. For the purposes of Section 12 of the Banking Law, the term "control"
means the power to, directly or indirectly, direct or influence decisively the
administration of the bank. The OCFI has made an administrative determination
that these provisions of the Banking Law are applicable to R&G Financial.
Pursuant to the Banking Law, if the OCFI receives notice of a proposed
transaction that may result in a change of control of R&G Financial, the OCFI is
required to investigate and determine whether a change of control has occurred.
The OCFI will issue an authorization for the transfer of control of R&G
Financial if the results of its investigations are in its judgment satisfactory.
The decision of the OCFI is final and unreviewable.
RANK
The Series D Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank:
- senior to all classes of common stock of R&G Financial, and to all other
equity securities issued by R&G Financial the terms of which specifically
provide that those equity securities will rank junior to the Series D
Preferred Stock;
25
- on a parity with R&G Financial's outstanding Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, and with all other
equity securities issued by R&G Financial the terms of which specifically
provide that those equity securities will rank equal to the Series D
Preferred Stock; and
- junior to all equity securities issued by R&G Financial the terms of
which specifically provide that those equity securities will rank senior
to the Series D Preferred Stock.
For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.
R&G Financial may not issue shares ranking, as to dividend rights or rights
on liquidation, winding up and dissolution, senior to the Series D Preferred
Stock, except with the consent of the holders of at least two-thirds of the
outstanding aggregate liquidation preference of the Series D Preferred Stock.
See "-- Voting Rights" above.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Series D Preferred Stock is
American Stock Transfer & Trust Co., New York, New York, or any successor
thereto (the "Registrar and Transfer Agent").
The transfer of a share of Series D Preferred Stock may be registered upon
the surrender of the certificate evidencing the Series D Preferred Stock to be
transferred, together with the form of transfer endorsed on it duly completed
and executed, at the office of the Registrar and Transfer Agent.
Registration of transfers of Series D Preferred Stock will be effected
without charge by or on behalf of R&G Financial but upon payment (or the giving
of such indemnity as the Registrar and Transfer Agent may require) in respect of
any tax or other governmental charges which may be imposed in relation to it.
R&G Financial will not be required to register the transfer of Series D
Preferred Stock after such Series D Preferred Stock has been called for
redemption.
REPLACEMENT OF LOST CERTIFICATES
If any certificate for a Series D Preferred Stock is mutilated or alleged
to have been lost, stolen or destroyed, a new certificate representing the same
share may be issued to the holder upon request subject to delivery of the old
certificate or, if alleged to have been lost, stolen or destroyed, compliance
with such conditions as to evidence, indemnity and the payment of any
out-of-pocket expenses in connection with the request as R&G Financial may
determine.
NO PREEMPTIVE OR PREFERENTIAL RIGHTS
As a holder of the Series D Preferred Stock, you will have no preemptive or
preferential rights to purchase any securities of R&G Financial.
NO REPURCHASE AT THE OPTION OF THE HOLDERS
As a holder of the Series D Preferred Stock, you will have no right to
require R&G Financial to redeem or repurchase any shares of Series D Preferred
Stock.
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NO MANDATORY REDEMPTION OR SINKING FUND OBLIGATION
The shares of Series D Preferred Stock are not subject to any mandatory
redemption, sinking fund or similar obligation.
PURCHASE OF SHARES BY R&G FINANCIAL
R&G Financial may, at its option, purchase shares of the Series D Preferred
Stock from holders thereof from time to time, by tender, in privately negotiated
transactions or otherwise.
DESCRIPTION OF CAPITAL STOCK
GENERAL
R&G Financial is authorized to issue 90,000,000 shares of capital stock, of
which 80,000,000 are shares of common stock, and 10,000,000 are shares of
preferred stock, par value $0.01 per share. The following is a summary of
certain rights and privileges of R&G Financial's common stock and preferred
stock. Statements in this summary are qualified in their entirety by reference
to R&G Financial's Certificate of Incorporation and to the General Corporation
Law of 1995 of Puerto Rico.
COMMON STOCK
R&G Financial's common stock is divided into 40,000,000 Class A Shares, of
which as of September 30, 2001, 16,233,056 were owned by Mr. Victor J. Galan,
Chairman of the Board and Chief Executive Officer of R&G Financial, and
40,000,000 Class B Shares, of which as of such date, 14,693,700 Class B Shares
were outstanding and held by members of the general public. R&G Financial's
Class B shares are listed on the Nasdaq Stock Market under the symbol "RGFC."
R&G Financial's common stock does not represent non-withdrawable capital, is not
an account of an insurable type, and is not insured by the FDIC.
Subject to the rights of the holders of preferred stock to elect directors
under certain circumstances, the holders of R&G Financial's common stock possess
exclusive voting rights in R&G Financial. They elect the Board of Directors and
act on such other matters as are required to be presented to them under Puerto
Rico law or R&G Financial's Certificate of Incorporation or as are otherwise
presented to them by the Board of Directors. Except for matters where applicable
law requires the approval of one or both classes of common stock voting as
separate classes, holders of Class A Shares and Class B Shares generally vote as
a single class on all matters submitted to a vote of the shareholders, including
the election of directors. Holders of Class A Shares are entitled to two votes
per share and holders of Class B Shares are entitled to one vote per share.
Each record holder of Class A Shares is entitled to convert any or all of
the Class A Shares held by such holder into Class B Shares at the rate of one
Class B Share for each Class A Share so converted. The Class B Shares do not
carry any conversion rights and are otherwise not convertible into Class A
Shares.
Subject to any dividend preferences which may be established with respect
to any series of preferred stock, holders of Class A Shares and Class B Shares
are entitled to share ratably, as a single class, in dividends when and as
declared by the Board of Directors out of funds legally available for the
payment of dividends.
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In the event of the liquidation, dissolution or distribution of assets of
R&G Financial, the holders of its common stock would be entitled to receive all
of its assets available for distribution, after payment or provision for payment
of all debts and liabilities and liquidation distributions due to holders of R&G
Financial's preferred stock. The Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock have, and the Series D
Preferred Stock will have, a priority over the holders of R&G Financial's common
stock in the event of a liquidation, dissolution or distribution of assets.
Holders of R&G Financial's common stock are not entitled to preemptive
rights with respect to any shares which may be issued in the future. R&G
Financial's common stock is not subject to redemption.
PREFERRED STOCK
Prior to this offering, R&G Financial had issued 2,000,000 shares of Series
A Preferred Stock, 1,000,000 shares of Series B Preferred Stock and 2,760,000
shares of Series C Preferred Stock, all of which rank pari passu with respect to
the Series D Preferred Stock. Except with respect to the dividend rate and
redemption and maturity dates, the Series A Preferred Stock, the Series B
Preferred Stock and Series C Preferred Stock each have terms which are
substantially the same as the terms of the Series D Preferred Stock. R&G
Financial may issue other series of preferred stock with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights as it may deem appropriate
under the circumstances.
RESTRICTIONS ON ACQUISITION OF R&G FINANCIAL
Restrictions in the Certificate of Incorporation and Bylaws. A number of
provisions of R&G Financial's Certificate of Incorporation and Bylaws deal with
matters of corporate governance and certain rights of stockholders. The
following discussion is a general summary of certain provisions of the
Certificate of Incorporation and Bylaws which might be deemed to have a
potential "anti-takeover" effect. Reference should be made in each case to such
Certificate of Incorporation and Bylaws, copies of which are incorporated by
reference as exhibits to the registration statement of which this prospectus is
a part.
Board of Directors. R&G Financial's Certificate of Incorporation contains
provisions relating to the Board of Directors and provides, among other things,
that the Board of Directors shall be divided into three classes as nearly equal
in number as possible with the term of office of one class expiring each year.
Cumulative voting in the election of directors is prohibited. Directors may be
removed with or without cause at a duly constituted meeting of stockholders
called expressly for that purpose. Any vacancy occurring in the Board of
Directors for any reason (including an increase in the number of authorized
directors) may be filled by the affirmative vote of a majority of the directors
then in office, though less than a quorum of the Board, or by the sole remaining
director, and a director appointed to fill a vacancy shall serve for the
remainder of the term to which the director being replaced had been elected, and
until his successor has been elected and qualified.
R&G Financial's Bylaws govern nominations for election to the Board, and
provide that nominations for election to the Board of Directors may be made by
the nominating committee of the Board of Directors or by a stockholder eligible
to vote at an annual meeting of stockholders who has complied with specified
notice requirements. Written notice of a stockholder nomination must be
delivered to, or mailed to and received at, the principal executive offices not
later than ninety days prior to the anniversary date of the mailing of the proxy
materials in connection with the immediately preceding annual meeting and, with
respect to an election to be held at a special meeting of
28
stockholders, no later than the close of business on the tenth day following the
date on which notice of such meeting is first given to stockholders.
Limitation of Liability. R&G Financial's Certificate of Incorporation
provides that the personal liability of the directors and officers for monetary
damages shall be limited to the fullest extent permitted by the General
Corporation Law of the Commonwealth of Puerto Rico ("Puerto Rico Corporate
Law").
Indemnification of Directors, Officers, Employees and Agents. R&G
Financial's Bylaws provide that R&G Financial shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding of R&G Financial, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of R&G Financial, or is or was
serving at its written request as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the fullest extent authorized by Puerto Rico Corporate Law. Notwithstanding the
foregoing, R&G Financial shall not be liable for any amounts which may be due to
any person in connection with a settlement of any action, suit or proceeding
effected without the prior written consent of R&G Financial or any action, suit
or proceeding initiated by any person seeking indemnification without the prior
written consent of R&G Financial. R&G Financial's Bylaws also provide that
reasonable expenses incurred by a director, officer, employee or agent of R&G
Financial in defending any civil, criminal, suit or proceeding may be paid by
R&G Financial in advance of the final disposition of such action, suit or
proceeding.
Special Meetings of Stockholders and Stockholder Proposals. R&G
Financial's Bylaws provide that special meetings of stockholders, for any
purpose or purposes, may be called by the Chairman of the Board, the President
or by the affirmative vote of a majority of the Board of Directors then in
office. Only such business as shall have been properly brought before an annual
meeting of stockholders shall be conducted at the annual meeting. In order to be
properly brought before an annual meeting, business must either be brought
before the meeting by or at the direction of the Board of Directors or otherwise
by a stockholder who has given timely notice thereof (along with specified
information) in writing. For stockholder proposals to be included in R&G
Financial's proxy materials, the stockholder must comply with all the timing and
informational requirements of the Securities Exchange Act of 1934, as amended.
With respect to stockholder proposals to be considered at the annual meeting of
stockholders but not included in R&G Financial's proxy materials, the
stockholder's notice must be delivered to or mailed and received at R&G
Financial's principal executive offices not later than 90 days prior to the
anniversary date of the mailing of the proxy materials in connection with the
immediately preceding annual meeting.
Amendment of Certificate of Incorporation and Bylaws. R&G Financial's
Certificate of Incorporation generally provides that any amendment of the
Certificate must be first approved by a majority of the Board of Directors and,
to the extent required by law, then by the holders of a majority of the votes
eligible to be cast in an election of directors, except that the approval of
shares representing 75% of the votes eligible to be cast in an election of
directors, as well as such additional vote of the preferred stock as may be
required by the provisions of any series thereof, is required for any amendment
concerning R&G Financial's directors, bylaws, limitation on liability of
directors and officers and amendments, unless any such proposed amendment is
approved by a vote of two-thirds of the Board of Directors then in office. R&G
Financial's Bylaws may be amended by the Board or by the stockholders. Such
action by the stockholders requires the affirmative vote of the holders of a
majority of the votes eligible to be cast generally in an election of directors,
except that the approval of shares representing 75% of the votes eligible to be
cast generally in an election of
29
directors is required for any amendment to the Bylaws which is inconsistent with
the provisions in R&G Financial's Certificate of Incorporation which address the
foregoing provisions and which are not approved by the affirmative vote of
two-thirds of R&G Financial's Board of Directors then in office.
Other Restrictions on Acquisition of R&G Financial. Under the Change in
Bank Control Act ("CIBCA"), a notice must be submitted to the Federal Reserve
Board if any person, or group acting in concert, seeks to acquire 10% or more of
R&G Financial's shares of common stock outstanding, unless the Federal Reserve
Board finds that the acquisition will not result in a change in control of R&G
Financial. Under the CIBCA, the Federal Reserve Board has 60 days within which
to act on such notices, taking into consideration certain factors, including the
financial and managerial resources of the acquiror, the convenience and needs of
the communities served by the R&G Financial and R-G Premier Bank, and the
antitrust effects of the acquisition. Under the Bank Holding Company Act, any
company would be required to obtain prior approval from the Federal Reserve
Board before it may obtain control of R&G Financial. Control generally is
defined to mean the beneficial ownership of 25% or more of any class of R&G
Financial's voting securities. Under the Puerto Rico Banking Act, a notice must
be submitted to the OCFI not less than 60 days prior to the consummation of any
transfer of R&G Financial stock if, after such transfer, the transferee
(including any group acting in concert) will own more than 5% of R&G Financial's
outstanding voting stock. Such transfer will require the approval of the OCFI if
it will result in a change of control of R&G Financial. A transfer will be
presumed to result in a change of control if, as a result of such transfer, a
person or group that did not own more than 5% of R&G Financial's outstanding
voting stock prior to such transfer owns more than 5% of such stock. In acting
upon any such request for approval, the OCFI must take into consideration
factors such as the experience and moral and financial responsibility of the
transferee, its impact on the operations of R-G Premier Bank, whether the change
of control threatens the interest of R-G Premier Bank's depositors, creditors or
shareholders and any public interest considerations.
TAXATION
GENERAL
The following is a summary of the material Puerto Rico tax and United
States federal income tax considerations relating to the purchase, ownership and
disposition of the Series D Preferred Stock. This summary is not a comprehensive
description of all the tax considerations that may be relevant to a decision to
purchase the Series D Preferred Stock and does not describe any tax consequences
arising under the laws of any state, locality or taxing jurisdiction other than
Puerto Rico and the United States.
This summary is based on the tax laws of Puerto Rico and the United States
Internal Revenue Code of 1986, as amended (the "Code"), as in effect on the date
of this prospectus, as well as regulations, including existing and proposed
regulations of the U.S. Department of the Treasury ("Treasury Regulations"),
administrative pronouncements and judicial decisions available on or before such
date and now in effect. All of the foregoing are subject to change, which change
could apply retroactively and could affect the continued validity of this
summary.
Prospective purchasers of the Series D Preferred Stock should consult their
own tax advisors as to the Puerto Rico, United States or other tax consequences
of the purchase, ownership and disposition of the Series D Preferred Stock,
including the application to their particular situations of the tax
considerations discussed below, such as life insurance companies, special
partnerships, Subchapter N corporations (under Puerto Rico law), registered
investment companies, certain pension trusts, tax-
30
exempt entities, dealers in securities, financial institutions, persons who hold
Series D Preferred Stock as part of an integrated investment (including a
straddle) or to persons whose functional currency is not the U.S. dollar or who
own 10% or more of R&G Financial's voting stock, as well as the application of
any state, local, foreign or other tax.
PUERTO RICO TAXATION
For purposes of the discussion below, the term "Puerto Rico corporation" is
used to refer to a corporation organized under the laws of Puerto Rico and the
term "foreign corporation" is used to refer to a corporation organized under the
laws of a jurisdiction other than Puerto Rico.
OWNERSHIP AND DISPOSITION OF SERIES D PREFERRED STOCK
TAXATION OF DIVIDENDS
General. Distributions of cash or other property made by R&G Financial on
the Series D Preferred Stock will be treated as dividends to the extent that R&G
Financial has current or accumulated earnings and profits. To the extent that a
distribution exceeds R&G Financial's current and accumulated earnings and
profits, the distribution will be applied against and reduce the adjusted tax
basis of the Series D Preferred Stock in the hands of the holder. The excess of
any distribution of this type over the adjusted tax basis will be treated as
gain on the sale or exchange of the Series D Preferred Stock and will be subject
to income tax as described below.
The following discussion regarding the income taxation of dividends on
Series D Preferred Stock received by individuals not residents of Puerto Rico
and foreign corporations not engaged in a trade or business in Puerto Rico
assumes that dividends will constitute income from sources within Puerto Rico.
Generally, a dividend paid by a Puerto Rico corporation will constitute income
from sources within Puerto Rico unless the corporation has derived less than 20%
of its gross income from sources within Puerto Rico for the three taxable years
preceding the year of the declaration of the dividend or for such part of such
period as the corporation has been in existence. R&G Financial has represented
that it has derived more than 20% of its gross income from Puerto Rico sources
on an annual basis since its incorporation in 1996.
Individual Residents of Puerto Rico and Puerto Rico Corporations. In
general, individuals who are residents of Puerto Rico will be subject to a
special 10% income tax (the "10% Special Tax") on dividends paid on the Series D
Preferred Stock. This tax is generally required to be withheld by R&G Financial.
An individual may elect for this withholding not to apply, and in that case he
or she will be required to include the amount of the dividend as ordinary income
and will be subject to income tax thereon at the normal income tax rates, which
may be up to 33%.
Puerto Rico corporations will be subject to income tax on dividends paid on
the Series D Preferred Stock at the normal corporate income tax rates, subject
to the dividend received deduction discussed below. In the case of a Puerto Rico
corporation, no withholding will be imposed on dividends paid on the Series D
Preferred Stock. The dividend received deduction will be equal to 85% of the
dividend received, but the deduction may not exceed 85% of the corporation's net
taxable income. Based on the applicable maximum Puerto Rico normal corporate
income tax rate of 39%, the maximum effective income tax rate on these dividends
will be 5.85% after accounting for the dividend received deduction.
As a practical matter, dividends on the Series D Preferred Stock held in
street name through foreign financial institutions or other securities
intermediaries not engaged in trade or business in
31
Puerto Rico will generally be subject to a separate 10% withholding tax imposed
on foreign corporations. See "-- Foreign Corporations." Accordingly, individual
residents of Puerto Rico who desire to be subject to the 10% Special Tax or to
file an election out of the applicable 10% Special Tax and applicable
withholding tax should have their shares of Series D Preferred Stock issued and
registered in their own names. Similarly, Puerto Rico corporations that own
shares of Series D Preferred Stock and wish to avoid the withholding imposed on
foreign corporations should have their shares issued and registered in their own
names in order to ensure that no withholding is made on dividends.
United States Citizens Not Residents of Puerto Rico. Dividends paid on the
Series D Preferred Stock to a United States citizen who is not a resident of
Puerto Rico will be subject to the 10% Special Tax which will be withheld by R&G
Financial. These individuals may elect for the withholding not to apply, and in
that case he or she will be required to include the amount of the dividend as
ordinary income and will be subject to income tax thereon at the normal income
tax rates, which may be up to 33%. In the event such individuals opt out of the
10% Special Tax, a separate 10% withholding tax will be required on the amount
of the dividend unless the individual timely files with R&G Financial a
withholding exemption certificate to the effect that the individual's gross
income from sources within Puerto Rico during the taxable year does not exceed
$1,300 if single or $3,000 if married. Withholding exemption certificates will
only be accepted by R&G Financial or its agent from individuals who have the
shares of Series D Preferred Stock registered in their names. Individuals who
hold shares of Series D Preferred Stock in street name will not be eligible to
file with R&G Financial or its agent withholding exemption certificates.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. Dividends paid on the Series D Preferred Stock to any individual who is
not a citizen of the United States and who is not a resident of Puerto Rico will
generally be subject to a 10% tax which will be withheld at source by R&G
Financial.
Foreign Corporations. The income taxation of dividends paid on the Series
D Preferred Stock to a foreign corporation will depend on whether or not the
corporation is engaged in a trade or business in Puerto Rico.
A foreign corporation that is engaged in a trade or business in Puerto Rico
will be subject to the normal corporate income tax rates applicable to Puerto
Rico corporations on their net income that is effectively connected with the
trade or business in Puerto Rico. This income will include net income from
sources within Puerto Rico and certain items of net income from sources outside
Puerto Rico that are effectively connected with the trade or business in Puerto
Rico. Net income from sources within Puerto Rico will include dividends on the
Series D Preferred Stock. A foreign corporation that is engaged in a trade or
business in Puerto Rico will be entitled to claim the 85% dividend received
deduction discussed above in connection with Puerto Rico corporations.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico are also subject to a 10% branch profits tax. However, dividends on
the Series D Preferred Stock received by these corporations will be excluded
from the computation of the branch profits tax liability of these corporations.
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will be subject to a 10% withholding tax on dividends received on the
Series D Preferred Stock.
Partnerships. Partnerships are generally taxed in the same manner as
corporations. Accordingly, the preceding discussion with respect to corporations
is equally applicable in the case of most partnerships.
32
TAXATION OF GAINS UPON SALES OR EXCHANGES OTHER THAN REDEMPTIONS
General. The sale or exchange of Series D Preferred Stock will give rise
to gain or loss equal to the difference between the amount realized on the sale
or exchange and the tax basis of the Series D Preferred Stock in the hands of
the holder. Any gain or loss that is required to be recognized will be a capital
gain or loss if the Series D Preferred Stock is held as a capital asset by the
holder and will be a long-term capital gain or loss if the stockholder's holding
period of the Series D Preferred Stock exceeds six months.
Individual Residents of Puerto Rico and Puerto Rico Corporations. Gain on
the sale or exchange of Series D Preferred Stock by an individual resident of
Puerto Rico or a Puerto Rico corporation will generally be required to be
recognized as gross income and will be subject to income tax. If the stockholder
is an individual and the gain is a long-term capital gain, the gain will be
taxable at a maximum rate of 10%.
If the stockholder is a Puerto Rico corporation and the gain is a long-term
capital gain, the gain will qualify for an alternative tax rate of 12.5%.
United States Citizens Not Residents of Puerto Rico. A United States
citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico
income tax on the sale or exchange of Series D Preferred Stock if the gain
resulting therefrom constitutes income from sources outside Puerto Rico.
Generally, gain on the sale or exchange of Series D Preferred Stock will be
considered to be income from sources outside Puerto Rico if all rights, title
and interest in or to the Series D Preferred Stock are transferred outside
Puerto Rico, and if the delivery or surrender of the instruments that evidence
the Series D Preferred Stock is made to an office of a paying or exchange agent
located outside Puerto Rico. If the gain resulting from the sale or exchange
constitutes income from sources within Puerto Rico, an amount equal to 10% of
the payments received will be withheld at the source; and if the gain
constitutes a long-term capital gain, it will be subject to a tax at a maximum
rate of 10%. The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.
Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. An individual who is not a citizen of the United States and who is not a
resident of Puerto Rico will be subject to the rules described above under
"-- United States Citizens Not Residents of Puerto Rico." However, if the gain
resulting from the sale or exchange of Series D Preferred Stock constitutes
income from sources within Puerto Rico, an amount equal to 25% of the payments
received will be withheld at the source; provided, that if the gain resulting
from the sale or exchange represents a capital gain from sources within Puerto
Rico, the individual will generally be subject to tax on this gain at a fixed
rate of 29%. The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.
Foreign Corporations. A foreign corporation that is engaged in a trade or
business in Puerto Rico will generally be subject to Puerto Rico corporate
income tax on any gain realized on the sale or exchange of Series D Preferred
Stock if the gain is (1) from sources within Puerto Rico or (2) from sources
outside Puerto Rico and effectively connected with a trade or business in Puerto
Rico. Any such gain will qualify for an alternative tax of 12.5% if it qualifies
as a long-term capital gain.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico will also be subject to a 10% branch profits tax. In the computation
of this tax, any gain realized by these corporations on the sale or exchange of
Series D Preferred Stock and that is subject to Puerto Rico income tax will be
taken into account. However, a deduction will be allowed in the computation for
any income tax paid on the gain realized on the sale or exchange.
33
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will generally be subject to a corporate income tax rate of 29% on any
capital gain realized on the sale or exchange of Series D Preferred Stock if the
gain is from sources within Puerto Rico. Gain on the sale or exchange of Series
D Preferred Stock will generally not be considered to be from sources within
Puerto Rico if all rights, title and interest in or to the Series D Preferred
Stock are transferred outside Puerto Rico, and if the delivery or surrender of
the instruments that evidence the Series D Preferred Stock is made to an office
of a paying or exchange agent located outside Puerto Rico. If the gain resulting
from the sale or exchange constitutes income from sources within Puerto Rico, an
amount equal to 25% of the payments received will be withheld at the source and
be creditable against the shareholder's Puerto Rico income tax liability. In the
case of such foreign corporation, no income tax will be imposed if the gain
constitutes income from sources outside Puerto Rico.
Partnerships. Partnerships are generally taxed as corporations.
Accordingly, the discussion with respect to corporations is equally applicable
to most partnerships.
TAXATION OF REDEMPTIONS
A redemption of shares of the Series D Preferred Stock for cash will be
treated as a distribution taxable as a dividend to the extent of R&G Financial's
current or accumulated earnings and profits if the redemption is essentially
equivalent to a dividend. Under regulations issued by the Department of the
Treasury of Puerto Rico (1) a redemption of stock that completely terminates a
shareholder's interest in a corporation does not constitute a dividend, and (2)
certain pro rata redemptions among all the shareholders will be treated as a
dividend. In situations not described by these regulations, the Department of
the Treasury of Puerto Rico will generally follow principles applied by United
States courts and the United States Internal Revenue Service under the Code, in
determining whether a distribution is essentially equivalent to a dividend. The
Department of the Treasury of Puerto Rico, however, is not bound by such
principles and is free to adopt a different rule.
If the redemption of the Series D Preferred Stock is not treated as a
dividend, it will generally generate gain or loss that will be measured as
provided above under "-- Taxation of Gains upon Sales or Exchanges Other Than
Redemptions" for a sale or exchange of Series D Preferred Stock. Gain on the
redemption of Series D Preferred Stock will generally be recognized and will be
subject to income tax. If the stockholder of the Series D Preferred Stock is an
individual resident of Puerto Rico and the gain is a long-term capital gain, the
gain will be taxable at a maximum rate of 10%. If the stockholder is a Puerto
Rico corporation and the gain is a long-term capital gain, the gain will qualify
for the alternative tax rate of 12.5%.
If the stockholder of the Series D Preferred Stock is an individual who is
not a resident of Puerto Rico or a foreign corporation or foreign partnership,
any gain realized by the holder on the redemption of the Series D Preferred
Stock that is not taxable as a dividend may be subject to Puerto Rico income tax
if the gain constitutes income from sources within Puerto Rico or is effectively
connected with a trade or business conducted by the holder in Puerto Rico. The
Puerto Rico income tax law does not provide clear rules in this area. As a
result thereof, these prospective shareholders should be aware that gain
realized from a redemption of the Series D Preferred Stock may be treated as
income from sources within Puerto Rico or effectively connected income and
subject to income tax accordingly. If the gain is treated as income from sources
within Puerto Rico an amount equal to 10%, in the case of United States
citizens, or 25%, in all other cases, of the payments received would be withheld
at the source.
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ESTATE AND GIFT TAXATION
The transfer of Series D Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to estate and gift tax if the
individual is a citizen of the United States who acquired his or her citizenship
solely by reason of birth or residence in Puerto Rico. Other individuals should
consult their own tax advisors in order to determine the appropriate treatment
for Puerto Rico estate and gift tax purposes of the transfer of the Series D
Preferred Stock by death or gift.
MUNICIPAL LICENSE TAXATION
Individuals and corporations that are not engaged in a trade or business in
Puerto Rico will not be subject to municipal license tax on dividends paid on
the Series D Preferred Stock or on any gain realized on the sale, exchange or
redemption of the Series D Preferred Stock.
A corporation or partnership, Puerto Rico or foreign, that is engaged in a
trade or business in Puerto Rico will generally be subject to municipal license
tax on dividends paid on the Series D Preferred Stock and on the gain realized
on the sale, exchange or redemption of the Series D Preferred Stock if the
dividends or gain are attributable to that trade or business. The municipal
license tax is imposed on the volume of business of the taxpayer, and the tax
rates range from a maximum of 1.5% for financial businesses to a maximum of 0.5%
for other businesses.
PROPERTY TAXATION
The Series D Preferred Stock will not be subject to property tax.
UNITED STATES TAXATION
The following discussion is limited to the United States federal tax
consequences of the ownership and disposition of the Series D Preferred Stock by
U.S. Holders, as defined below, and corporations organized under the laws of
Puerto Rico ("PR Corporations"). This discussion is based on the Code, existing
and proposed regulations of the United States Department of the Treasury
promulgated thereunder, administrative pronouncements and judicial decisions,
all of which are subject to change, even with retroactive effect. This
discussion deals only with Series D Preferred Stock held by initial purchasers
as capital assets within the meaning of Section 1221 of the Code. It does not
discuss all of the tax consequences that may be relevant to a purchaser in light
of that person's particular circumstances or to purchasers subject to special
rules, such as, among others, entities that are taxed under the Code as
partnerships, Subchapter S corporations, life insurance companies, tax exempt
entities, dealers in securities, financial institutions, or to persons whose
functional currency is not the U.S. dollar.
As used herein, the term "U.S. Holder" means a beneficial owner of Series D
Preferred Stock that does not own directly, constructively or by attribution,
10% or more of the voting stock of the R&G Financial and is, for United States
federal income tax purposes: a citizen or resident of the United States, a
corporation organized under the laws of the United States or of any political
subdivision thereof (including the District of Columbia), an estate the income
of which is subject to United States federal income taxation regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over its administration and one or more United States
persons (as such term is defined in the Code) have authority to control all
substantial decisions of the trust. The term "U.S. Holder" does not include
individual Puerto Rico residents who are not citizens
35
or residents of the United States nor does it include PR Corporations. As used
herein, the term "Puerto Rico U.S. Holder" means an individual U.S. Holder who
is a bona fide resident of Puerto Rico during the entire taxable year for
purposes of Section 933 of the Code.
OWNERSHIP AND DISPOSITION OF SERIES D PREFERRED STOCK
TAXATION OF DIVIDENDS
General. Dividends on the Series D Preferred Stock will constitute gross
income from sources outside the United States if less than 25% of the gross
income from all sources of R&G Financial for the three-year period ending with
the close of the taxable year preceding the declaration of such dividends (or
for such part of such period as R&G Financial has been in existence) was
effectively connected with a trade or business within the United States (the
"ECI Test"). Since its incorporation in 1996, less than 25% of R&G Financial's
gross income has been effectively connected in the conduct of a trade or
business in the United States, and R&G Financial expects to satisfy the ECI Test
on an ongoing basis. Accordingly, dividends on the Series D Preferred Stock
distributed by R&G Financial will constitute gross income from sources outside
the United States so long as R&G Financial continues to meet the ECI Test.
U.S. Holders Other Than Puerto Rico U.S. Holders. Subject to the
discussion under "-- Passive Foreign Investment Company Rules" below,
distributions made with respect to the Series D Preferred Stock, including the
amount of any Puerto Rico taxes withheld on the distribution, will be includable
in the gross income of a U.S. Holder, other than a Puerto Rico U.S. Holder, as
foreign source gross income (so long as R&G Financial meets the ECI Test) to the
extent the distributions are paid out of current or accumulated earnings and
profits of R&G Financial as determined for United States federal income tax
purposes. These dividends will not be eligible for the dividends received
deduction generally allowed to U.S. Holders that are corporations. To the
extent, if at all, that the amount of any such distribution by R&G Financial
exceeds its current and accumulated earnings and profits as determined for
United States federal income tax purposes, the excess will be treated first as a
tax-free return of the U.S. Holder's tax basis in the Series D Preferred Stock
and thereafter as capital gain.
Subject to certain conditions and limitations contained in the Code, the
Puerto Rico income tax imposed on dividends distributed by R&G Financial in
accordance with Puerto Rico law will be eligible for a deduction or a credit
against the U.S. Holder's United States federal income tax liability. See
"Puerto Rico Taxation -- Ownership and Disposition of Series D Preferred
Stock -- Taxation of Dividends" above. For purposes of calculating a U.S.
Holder's United States foreign tax credit limitation, dividends distributed by
R&G Financial will generally constitute foreign source "passive income" or, in
the case of certain U.S. Holders (those predominantly engaged in the active
conduct of a banking, financing or similar business), foreign source "financial
services income."
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, distributions of dividends
made by R&G Financial on the Series D Preferred Stock to a Puerto Rico U.S.
Holder will constitute gross income from sources within Puerto Rico (so long as
R&G Financial meets the ECI Test), will not be includable in the stockholder's
gross income and will be exempt from United States federal income taxation. For
United States federal income tax purposes, no deduction or credit will be
allowed that is allocable to or chargeable against amounts so excluded from the
Puerto Rico U.S. Holder's gross income.
PR Corporations. In general, distributions of dividends made by R&G
Financial on the Series D Preferred Stock to a PR Corporation will not, in the
hands of the PR Corporation, be subject
36
to United States federal income tax (so long as R&G Financial meets the ECI
Test) if the dividends are not effectively connected with the conduct of a
United States trade or business of the PR Corporation.
TAXATION OF SALES OR OTHER DISPOSITIONS
U.S. Holders Other Than Puerto Rico U.S. Holders. A U.S. Holder, other
than a Puerto Rico U.S. Holder, will recognize gain or loss on the sale or other
disposition of Series D, including redemptions treated as sales or exchanges of
the Series D Preferred Stock under Section 302 of the Code, in an amount equal
to the difference between the U.S. Holder's adjusted tax basis in the Series D
Preferred Stock and the amount realized on the sale or other disposition.
Subject to the discussion under "-- Passive Foreign Investment Company Rules"
below, the gain or loss will be a capital gain or loss, and will be long-term
capital gain or loss if the U.S. Holder's holding period for the Series D
Preferred Stock exceeds one year. Long-term capital gains are subject to a
maximum United States federal tax rate of 20%. Redemptions of the Series D
Preferred Stock that are not treated as sales or exchanges under Section 302 of
the Code will generally be subject to income tax under the Code as dividends (to
the extent of current and accumulated earnings and profits of R&G Financial).
Gain recognized by a U.S. Holder on the sale or other disposition of Series
D Preferred Stock generally will be treated as United States source income.
Puerto Rico U.S. Holders. In general, and subject to the discussion under
"-- Passive Foreign Investment Company Rules" below, gain from the sale or
exchange of the Series D Preferred Stock, including redemptions treated as sales
or exchanges of the Series D Preferred Stock under Section 302 of the Code, by a
Puerto Rico U.S. Holder that is not a United States resident as determined under
Section 865(g) of the Code (1) will constitute income from sources within Puerto
Rico, (2) will not be includable in the stockholder's gross income and (3) will
be exempt from United States federal income taxation. Puerto Rico U.S. Holders
should consult their tax advisors with respect to whether they are United States
residents under Section 865(g) of the Code. Also, no deduction or credit will be
allowed that is allocable to or chargeable against amounts so excluded from the
Puerto Rico U.S. Holder's gross income. Redemptions of the Series D Preferred
Stock that are not treated as sales or exchanges under Section 302 of the Code
will generally constitute dividends (to the extent of current and accumulated
earnings and profits of R&G Financial) and will constitute gross income from
sources in Puerto Rico (so long as R&G Financial meets the ECI Test), will not
be includable in the stockholder's gross income and will be exempt from United
States federal income taxation. Also, no deduction or credit will be allowed
that is allocable to or chargeable against amounts so excluded from the Puerto
Rico U.S. Holder's gross income.
PR Corporations. In general, any gain derived by a PR Corporation from the
sale or exchange of the Series D Preferred Stock will not, in the hands of the
PR Corporation, be subject to United States income tax if the gain is not
effectively connected with the conduct of a United States trade or business of
the PR Corporation. Redemptions of the Series D Preferred Stock that are not
treated as sales or exchanges under Section 302 of the Code will generally
constitute dividends (to the extent of current and accumulated earnings of R&G
Financial) but will not be subject to United States federal income tax (so long
as R&G Financial meets the ECI Test) if the dividends are not effectively
connected with the conduct of a United States trade or business of the PR
Corporation.
Backup Withholding. Certain noncorporate U.S. Holders may be subject to
backup withholding at the fourth lowest rate of tax applicable under section
1(c) of the Code, on dividends paid or the proceeds of a sale, exchange or
redemption of Series D Preferred Stock. Generally, backup withholding applies
only when the taxpayer fails to furnish or certify a proper taxpayer
identification
37
number or when the payor is notified by the IRS that the taxpayer has failed to
report payments of interest and dividends properly. U.S. Holders should consult
their own tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining any applicable exemption.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
The Code provides special rules for distributions received by U.S. Holders
on stock of a passive foreign investment company ("PFIC"), as well as amounts
received from the sale or other disposition of PFIC stock. In general, a PFIC is
a foreign corporation if, for any taxable year, 75% or more of its gross income
for the taxable year is passive income or 50% or more of its assets produce or
are held for the production of passive income as determined for United States
federal income tax purposes. For purposes of applying these rules, a foreign
corporation is deemed to receive its pro rata share of the income and to hold
its pro rata share of the assets, of any corporation in which it directly or
indirectly owns 25% or more of the stock measured by value.
Based upon certain proposed Treasury Regulations under the PFIC provisions
of the Code (the "Proposed Regulations"), R&G Financial believes that it has not
been a PFIC for any of its prior taxable years and expects to conduct its
affairs in a manner so that it will not meet the criteria to be considered a
PFIC in the foreseeable future. If, contrary to R&G Financial's expectation, the
Series D Preferred Stock were considered to be shares of a PFIC for any fiscal
year, a U.S. Holder would, except as noted in the next paragraph, generally be
subject to special rules, regardless of whether R&G Financial remains a PFIC,
with respect to (1) any "excess distribution" by R&G Financial to the U.S.
Holder and (2) any gain realized on the sale, pledge or other direct or indirect
disposition of Series D Preferred Stock. An "excess distribution" is generally
any distribution received by the U.S. Holder on the Series D Preferred Stock in
a taxable year that is greater than 125% of the average annual distributions
received by the U.S. Holder in the three preceding taxable years, or the U.S.
Holder's holding period for the Series D Preferred Stock if shorter. Under these
rules, (1) the excess distribution or gain would be allocated ratably over the
U.S. Holder's holding period for the Series D Preferred Stock, (2) the amount
allocated to the current taxable year and any taxable year prior to the first
taxable year in which R&G Financial is a PFIC would be taxed as ordinary income,
and (3) the amount allocated to each of the other taxable years would be subject
to tax at the highest rate of tax in effect for the applicable class of taxpayer
for that year, and an interest charge for the deemed deferral benefit would be
imposed on the resulting tax attributable to each such year.
As an alternative to the rules described above, if R&G Financial were a
PFIC, U.S. Holders may, in certain circumstances, make a mark-to-market election
with respect to their Series D Preferred Stock, provided that the Series D
Preferred Stock will constitute "marketable stock" for purposes of these rules.
The alternative rules applicable to a qualifying electing fund (a "QEF") will
not be available to U.S. Holders because R&G Financial does not intend, if it
were a PFIC, to comply with the specified reporting requirements necessary for a
U.S. Holder to make a QEF election. In general, if a shareholder makes a QEF
election with respect to shares it owns in a PFIC, the shareholder will be
currently taxable on its pro rata share of ordinary earnings and net capital
gain of the PFIC for each taxable year in which the foreign corporation
qualifies as a PFIC and certain other rules will apply.
Proposed Treasury Regulations under the PFIC provisions of the Code provide
that Puerto Rico U.S. Holders would be subject to the rule described in (3)
above only to the extent that any excess distribution or gain is allocated to a
taxable year during which the individual held the Series D Preferred Stock and
was not a bona fide resident of Puerto Rico during the entire taxable year or,
in certain cases, a portion thereof.
38
If R&G Financial is a PFIC in any year, a U.S. Holder who beneficially owns
Series D Preferred Stock during that year must make an annual return on IRS Form
8621 that describes any distributions received from R&G Financial and any gain
realized on the disposition of Series D Preferred Stock.
ESTATE AND GIFT TAXATION
The transfer of Series D Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to U.S. federal estate and gift tax
if the individual is a citizen of the United States who acquired his or her
citizenship solely by reason of birth or residence in Puerto Rico. Other
individuals should consult their own tax advisors in order to determine the
appropriate treatment for U.S. federal estate and gift tax purposes of the
transfer of the Series D Preferred Stock by death or gift.
39
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), R&G Financial has agreed to sell to each of the
underwriters named below, and each of such underwriters has severally agreed to
purchase from R&G Financial, the aggregate number of shares of Series D
Preferred Stock set forth opposite its name below. The table does not include
the shares of Series D Preferred Stock subject to the over-allotment option
discussed below.
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
UBS PaineWebber Incorporated of Puerto Rico.................
---------
Total............................................. 2,000,000
=========
Under the terms and conditions of the Underwriting Agreement, R&G Financial
is obligated to sell, and the underwriters are obligated to purchase, all of the
shares of Series D Preferred Stock shown on the table above, if any are
purchased.
The underwriters propose to offer the shares of Series D Preferred Stock to
the public initially at the public offering price set forth on the cover page of
this prospectus, and to certain selected dealers at the public offering price
less a concession not to exceed $0. per share. After the shares of Series D
Preferred Stock are released to the public, the public offering price and other
selling terms may be changed by the underwriters.
R&G Financial has granted the underwriters an option exercisable for 30
days from the date of this prospectus, to purchase up to 300,000 additional
shares of Series D Preferred Stock to cover over-allotments, if any, at the
initial public offering price, less the underwriting discounts, as shown on the
cover page of this prospectus. If the underwriters exercise this option, then
each of the underwriters will have a firm commitment, subject to certain
conditions contained in the Underwriting Agreement, to purchase a number of
option shares proportionate to the underwriter's initial commitment as indicated
in the table above. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the shares of Series D
Preferred Stock offered hereby.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by R&G Financial as well as the
proceeds received by R&G Financial from the offering, before deducting expenses.
The amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase up to an additional 300,000 shares.
TOTAL,
ASSUMING
FULL EXERCISE OF
OVER-ALLOTMENT
PER SHARE TOTAL OPTION
--------- ----------- ----------------
Public Offering Price.................................. $ 25.00 $50,000,000 $57,500,000
Underwriting Discount.................................. $ .7875 $ 1,575,000 $ 1,811,250
Proceeds to R&G Financial.............................. $24.2125 $48,425,000 $55,688,750
In connection with this offering, certain underwriters may engage in
passive market making transactions on the Nasdaq Stock Market immediately prior
to the commencement of sales in this offering, in accordance with Rule 103 of
Regulation M. Passive market making consists of displaying bids on the Nasdaq
Stock Market limited by the bid prices and effect in response to order flow. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive
40
market maker's average daily trading volume in the Series D Preferred Stock
during a specified period and must be discontinued when that limit is reached.
Passive market making may stabilize the market price of the Series D Preferred
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.
Until the distribution of the Series D Preferred Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for and purchase the Series D Preferred Stock. As an
exception to these rules, the underwriters may engage in certain transactions
that stabilize the price of the Series D Preferred Stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Series D Preferred Stock.
If the underwriters create a short position in the Series D Preferred Stock
in connection with the offering, i.e., if the underwriters sell more shares of
Series D Preferred Stock than are set forth on the cover page of this
prospectus, they may reduce that short position by purchasing shares of Series D
Preferred Stock in the open market. The underwriters may also elect to reduce
any short position by purchasing all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases.
R&G Financial estimates that the total expense of this offering, excluding
underwriting discounts and commissions, will be $232,625.
R&G Financial has agreed to indemnify the several underwriters against
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended, or to contribute to payments that the underwriters may be
required to make in respect thereof.
Several of the underwriters have from time to time been customers of,
engaged in transactions with, or performed services for, R&G Financial and its
subsidiaries in the ordinary course of business. Such transactions and services
are expected to continue in the future.
UBS Warburg LLC, an affiliate of UBS PaineWebber Incorporated of Puerto
Rico, acted as financial advisor to R&G Financial in connection with the Crown
transaction.
R&G Financial has applied for listing of the Series D Preferred Stock on
the Nasdaq Stock Market under the symbol "RGFCM." Trading of the Series D
Preferred Stock is expected to commence not later than 30 days after initial
delivery of the Series D Preferred Stock. R&G Financial has been advised by the
underwriters that they intend to make a market in the Series D Preferred Stock
prior to the commencement of trading. The underwriters will have no obligation
to make a market in the Series D Preferred Stock, however, and may cease market
making activities, if commenced, at any time.
41
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows R&G Financial to "incorporate
by reference" the information it files with them, which means R&G Financial can
disclose important information to you by referring to these documents. The
information included in the following documents is incorporated by reference and
is considered a part of this prospectus. The most recent information that R&G
Financial files with the Securities Exchange Commission automatically updates
and supersedes previously filed information. R&G Financial has previously filed
the following documents with the Securities Exchange Commission and is
incorporating them by reference into this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 2000, as
amended;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, as
amended;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, as
amended;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2001,
- Current Report on Form 8-K dated as of February 16, 2001;
- Current Report on Form 8-K dated as of June 12, 2001; and
- Current Report on Form 8-K dated as of December 20, 2001.
R&G Financial also incorporates by reference all documents filed by it
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, after the date of this prospectus and until all the shares being offered
by this prospectus are sold.
R&G Financial will provide, at no cost, to each person, including a
beneficial owner, to whom this prospectus is delivered, upon written or oral
request, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to these documents unless such exhibits are specifically
incorporated by reference into such documents. Requests for copies should be
directed to R&G Financial, Attention: Enrique Umpierre-Suarez, Secretary, 280
Jesus T. Pinero Avenue, San Juan, Puerto Rico 00918; telephone number: (787)
729-8200.
WHERE YOU CAN FIND MORE INFORMATION
R&G Financial files annual, quarterly and current reports, proxy statements
and other information with the Securities Exchange Commission. R&G Financial has
also filed with the Securities Exchange Commission a Registration Statement on
Form S-3, to register the Series D Preferred Stock being offered in this
prospectus. This prospectus, which forms part of the Registration Statement,
does not contain all of the information included in the Registration Statement.
For further information about R&G Financial and the shares of Series D Preferred
Stock offered in this prospectus, you should refer to the Registration Statement
and its exhibits.
You may read and copy any document filed by R&G Financial with the
Securities Exchange Commission at the Securities Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the Public Reference Room. R&G Financial files its Securities
Exchange Commission materials electronically with the Securities Exchange
Commission, so you can also review R&G Financial's filings by accessing the web
site maintained by the Securities Exchange Commission at http://www.sec.gov.
This site contains reports, proxy and information
42
statements and other information regarding issuers that file electronically with
the Securities Exchange Commission.
LEGAL MATTERS
The validity of the Series D Preferred Stock will be passed upon for R&G
Financial by Kelley Drye & Warren LLP, Washington, D.C. The validity of the
Series D Preferred Stock will be passed upon as to matters of Puerto Rico law
for R&G Financial by McConnell Valdes, San Juan, Puerto Rico. Kelley Drye &
Warren LLP will rely as to all matters of the laws of the Commonwealth of Puerto
Rico upon the opinion of McConnell Valdes. The discussion of Puerto Rico and
U.S. tax issues arising in connection with the Series D Preferred Stock has been
provided by McConnell Valdes, San Juan, Puerto Rico, and by Kelley Drye & Warren
LLP, Washington, D.C., respectively. As of the date of this prospectus, certain
members of Kelley Drye & Warren LLP owned in the aggregate approximately 11,623
Class B Shares of R&G Financial's common stock. Certain legal matters will be
passed upon for the underwriters by Fiddler Gonzalez & Rodriguez, LLP, San Juan,
Puerto Rico.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K of R&G Financial Corporation for the
year ended December 31, 2000, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
43
(R&G FINANCIAL CORPORATION LOGO)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee........................................ $ 5,290.00
Nasdaq listing fee.......................................... 5,000.00
NASD filing fee............................................. 6,250.00
Legal fees and expenses..................................... 83,000.00
Accounting fees and expenses................................ 35,000.00
Printing.................................................... 35,000.00
Miscellaneous expenses...................................... 61,085.00
-----------
Total............................................. $232,625.00
===========
---------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Registrant's Bylaws provide as follows:
6.1 Indemnification.
(a) The Company shall indemnify, to the fullest extent authorized by
the General Corporation Law of the Commonwealth of Puerto Rico, any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that he is or was a
director, officer, employee, or agent of the Company, or is or was serving
at the written request of the Company as a director, officer, employer or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a matter he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful,
provided that the Company shall not be liable for any amounts which may be
due to any person in connection with a settlement of any action, suit or
proceeding effected without our prior written consent or any action, suit
or proceeding initiated by any person seeking indemnification hereunder
without our prior written consent. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or our equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his conduct was unlawful.
(b) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Company to procure a judgment in
our favor by reason of the fact that he is or was a director, officer,
employee, or agent of the Company, or is or was serving at the written
request of the Company as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action
or suit if
II-1
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company, except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for negligence
or misconduct in the performance of his duty to the Company unless and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense which such court shall
deem proper.
(c) To the extent that a director, officer, employee, or agent of the
Company has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 6.1(a) or Section 6.1(b)
of this Article VI, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(d) Any indemnification under Section 6.1(a) or Section 6.1(b) of this
Article VI (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth therein.
Such determination shall be made (a) by our Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable,
or, even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (c) by the stockholders.
(e) The Company shall not be liable for any amounts which may be due
to any person in connection with a settlement of any action, suit or
proceeding initiated by any person seeking indemnification under this
Article VI without our prior written consent.
6.2 Advancement of Expenses. Reasonable expenses (including attorneys'
fees) incurred in defending a civil or criminal action, suit or proceeding
described in Section 6.1 may be paid by the Company in advance of the final
disposition of such action, suit or proceeding as authorized by our Board of
Directors in the specific case upon receipt of an undertaking by or on behalf of
the director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Company as authorized in
this Article VI.
6.3 Other Rights and Remedies. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any statute, by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to actions
in their official capacity and as to actions in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
6.4 Insurance. By action of our Board of Directors, notwithstanding any
interest of the directors in the action, the Company may purchase and maintain
insurance, in such amounts as our Board of Directors deems appropriate, on
behalf of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the written request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power or would be required to
indemnify him against such liability under the provisions of this Article VI or
of the General Corporation Law of the Commonwealth of Puerto Rico, or of the
laws of any other State or political dependency of the United States or foreign
country as may be applicable.
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6.5 Modification. The duties of the Company to indemnify and to advance
expenses to a director, officer, employee or agent provided in this Article VI
shall be in the nature of a contract between the Company and each such person,
and no amendment or repeal of any provision of this Article VI shall alter, to
the detriment of such person, the right of such person to the advance of
expenses or indemnification related to a claim based on an act or failure to act
which took place prior to such amendment or repeal.
An unofficial English translation of Article 4.08 of the General
Corporation Law of 1995 of the Commonwealth of Puerto Rico provides:
A. A corporation may indemnify any person who is or was a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that said person was or is a director, officer
employee, or agent of the corporation, or was or is serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnification may include expenses reasonably incurred, including
attorneys' fees, awards or judgments, fines and amounts paid in settlement
of such action, suit or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any legal action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith or in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, that the person did not have
reasonable cause to believe that his conduct was unlawful.
B. A corporation may indemnify any person who is or was a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to protect the
interests of the corporation to procure a judgment in our favor by reason
of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as
a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnification
may include expenses reasonably incurred, including attorneys' fees, in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in, and
not opposed to, the best interests of the corporation. No indemnification
shall be made in respect of any claim, matter or issue as to which such
person shall have been adjudged to be liable to the corporation unless,
upon application therefor, the court in which such action or suit was
brought shall determine that, despite the adjudication of liability and in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which such court
shall deem proper, and only to the extent to which said court shall
determine.
C. To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections A and B or in
defense of any claim, matter or issue related thereto, he shall be
indemnified against expenses reasonably incurred by him (including
attorneys' fees) by reason of such action, suit or proceeding.
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D. Any indemnification under subsections A and B (except that ordered
by a court) shall be made by the corporation, only as authorized in the
specific case, upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections A and B of
this article. Such determination shall be made:
1. by our Board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, even if said directors constitute less than a quorum; or
2. if there shall not be any such directors, or if such directors
shall so determine by an independent legal counsel in a written opinion
to such effect; or
3. by the stockholders.
E. Prior to the final disposition of such action, suit or proceeding,
the corporation may pay in advance expenses incurred by an officer or
director defending a civil or criminal action, suit or proceeding. Upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to such indemnification by the corporation, as authorized in this
Article. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as our Board of directors
deems convenient.
F. The indemnification and advancement of expenses provided by this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement (of expenses) may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions
in another capacity while holding such office.
G. Every corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him or incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of this Article.
H. For purposes of this Article, "the corporation" shall be deemed to
include, in addition to the resulting corporations, any corporation which
is a party to any consolidation or merger that is absorbed in a
consolidation or merger which, if its separate legal existence had
continued, would have had the power and authority to indemnify our
directors, officers, and employees or agents. So that any person who is or
was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer or employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate legal existence had continued.
I. For purposes of this Article, the term "other enterprises" shall
include employee benefit plans. The term "fines" shall include any taxes
assessed on a person with respect to any benefit or employee plan. The term
"serving at the request of the corporation" shall include any service as a
director, officer, employee, or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee pension plan,
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its participants, or beneficiaries. A person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee pension plan shall further be deemed to
have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits:
EXHIBIT
NO. EXHIBIT
------- -------
1.0 -- Form of Underwriting Agreement
2.1 -- Amended and Restated Agreement and Plan of Merger by and
between R&G Financial Corporation, the Bank and R-G Interim
Premier Bank, dated as of September 27, 1996(1)
2.2 -- Agreement and Plan of Reorganization among R&G Financial
Corporation, R&G Holdings Corporation, The Crown Group, Inc.
and Crown Bank, a federal savings bank dated as of December
19, 2001(2)
3.1.0 -- Certificate of Incorporation of R&G Financial Corporation(3)
3.1.1 -- Certificate of Amendment to Certificate of Incorporation of
R&G Financial Corporation(2)
3.1.2 -- Amended and Restated Certificate of Incorporation of R&G
Financial Corporation(4)
3.1.3 -- Amendment to Amended and Restated Certificate of
Incorporation of R&G Financial Corporation(5)
3.1.4 -- Certificate of Resolutions designating the terms of the
Series A Preferred Stock(6)
3.1.5 -- Certificate of Resolutions designating the terms of the
Series B Preferred Stock(7)
3.1.6 -- Certificate of Resolutions designating the terms of the
Series C Preferred Stock(8)
3.1.7 -- Certificate of Resolutions designating the terms of the
Series D Preferred Stock
3.2 -- Bylaws of R&G Financial Corporation(3)
4.0 -- Specimen of Stock Certificate of R&G Financial
Corporation(3)
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
5.0 -- Opinion of Kelley Drye & Warren LLP re: legality of Series D
Preferred Stock issuance
5.1 -- Opinion of McConnell Valdes re: legality of Series D
Preferred Stock issuance (as to matters of Puerto Rico Law)
8.0 -- Opinion of McConnell Valdes re: certain Puerto Rico income
tax consequences
8.1 -- Opinion of Kelley Drye & Warren LLP re: certain federal
income tax consequences
12.0 -- Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
23.1.1 -- Consent of Kelley Drye & Warren LLP (included in Exhibit 5.0
and 8.1)
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EXHIBIT
NO. EXHIBIT
------- -------
23.1.2 -- Consent of McConnell Valdes (included in Exhibit 5.1 and
8.0)
23.2 -- Consent of PricewaterhouseCoopers LLP
24.0 -- Power of Attorney (included in Signature Page of the
Registration Statement)
---------------
(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 of Form 8-K
filed with the SEC on December 20, 2001.
(3) 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.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed with the SEC on November 19, 1999.
(5) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed with the SEC on June 12, 2001.
(6) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed with the SEC on August 31, 1998.
(7) Incorporated by reference from the Registrants' Form 10-K filed with the
SEC on April 13, 2000.
(8) Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-3 (File No. 333-55834), filed
with the SEC on March 7, 2001.
(9) Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (Registration No. 333-60923), as amended, 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.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities
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Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
under Item 15 above, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final adjudication
of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Juan, Commonwealth of Puerto Rico on the 22nd day
of January of 2002.
R&G FINANCIAL CORPORATION
By: /s/ VICTOR J. GALAN
------------------------------------
Victor J. Galan
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each of the directors and/or officers of
the Registrant whose signature appears below hereby appoints Victor J. Galan,
Ramon Prats and Joseph R. Sandoval, and each of them severally, as his or her
attorney-in-fact to sign in his or her name and behalf, in any and all
capacities stated below and to file with the Securities and Exchange Commission
any and all amendments, including post-effective amendments, to this
Registration Statement on Form S-3, and any Registration Statement relating to
the same Offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) under the Security Act of 1933, making such
changes in the Registration Statement as appropriate, and generally to do all
such things in their behalf in their capacities as directors and/or officers to
enable the Registrant to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission.
NAME TITLE DATE
---- ----- ----
/s/ VICTOR J. GALAN Chairman of the Board, and January 22, 2002
----------------------------------------------------- Chief Executive Officer
Victor J. Galan (principal executive
officer)
/s/ RAMON PRATS President and Director January 22, 2002
-----------------------------------------------------
Ramon Prats
/s/ JOSEPH R. SANDOVAL Senior Vice President and January 22, 2002
----------------------------------------------------- Chief Financial Officer
Joseph R. Sandoval (Principal financial and
accounting officer)
/s/ ANA M. ARMENDARIZ Director and Treasurer January 22, 2002
-----------------------------------------------------
Ana M. Armendariz
/s/ ENRIQUE UMPIERRE-SUAREZ Director and Secretary January 22, 2002
-----------------------------------------------------
Enrique Umpierre-Suarez
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NAME TITLE DATE
---- ----- ----
/s/ VICTOR L. GALAN FUNDORA Director January 22, 2002
-----------------------------------------------------
Victor L. Galan Fundora
/s/ PEDRO RAMIREZ Director January 22, 2002
-----------------------------------------------------
Pedro Ramirez
/s/ LAURENO CARUS ABARCA Director January 22, 2002
-----------------------------------------------------
Laureno Carus Abarca
/s/ EDUARDO MCCORMACK Director January 22, 2002
-----------------------------------------------------
Eduardo McCormack
/s/ GILBERTO RIVERA-ARREAGA Director January 22, 2002
-----------------------------------------------------
Gilberto Rivera-Arreaga
/s/ BENIGNO R. FERNANDEZ Director January 22, 2002
-----------------------------------------------------
Benigno R. Fernandez
/s/ ILEANA M. CARLO Director January 22, 2002
-----------------------------------------------------
Ileana M. Carlo
/s/ ROBERTO GORBEA Director January 22, 2002
-----------------------------------------------------
Roberto Gorbea
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