8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): August 29, 2006 (August 28, 2006)

R&G Financial Corporation

(Exact name of registrant as specified in its charter)

Puerto Rico

(State or other jurisdiction of incorporation)

001-31381	66-0532217
(Commission File Number)	(I.R.S. Employer Identification No.)

280 Jesús T. Piñero Ave.

Hato Rey, San Juan, Puerto Rico 00918

(Address of principal executive offices and zip code)

(787) 758-2424

(Registrant’s telephone number, including area code)

Not applicable.

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

See Items 5.02(b) and (c), which are incorporated into this Item 1.01 by reference.

Item 1.02 Termination of a Material Definitive Agreement.

See Item 5.02(b), which is incorporated into this Item 1.02 by reference.

Item 2.02 Results of Operations and Financial Condition.

The announcement described in Item 7.01 below includes information regarding the results of operations and financial condition of R&G Financial Corporation (the “Company”) for the six months ended June 30, 2006.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

(b) Effective August 28, 2006, the Company and certain of its subsidiaries entered into an agreement with Vicente Gregorio, the Company’s Executive Vice President and Chief Financial Officer, which modified the terms of his employment arrangement with the Company. Under the terms of the agreement, Mr. Gregorio will continue to be employed under his current titles and with his current responsibilities until October 31, 2006, at which time he will resign from his position as Chief Financial Officer. During the period of his continued employment with the Company, Mr. Gregorio will continue to be compensated in accordance with the terms of the letter agreement, dated August 24, 2005, between Mr. Gregorio and the Company, which was previously filed on August 24, 2005 under the cover of a Form 8-K as Exhibit 10.1. Mr. Gregorio will continue as Executive Vice President of the Company until December 31, 2006, at which point he will resign from the Company. The Board of Directors made the decision to bring in a new senior executive to continue with the completion of the restatement of the Company’s consolidated financial statements. During the period of his continued employment with the Company, Mr. Gregorio will continue to assist the Company in its efforts to restate its previously filed consolidated financial statements for the years ended December 31, 2002-2004, and will assist in transitioning Mr. Andrés Pérez into his management responsibilities and ultimately, into his role as the Company’s new Chief Financial Officer, which will take effect on November 1, 2006.

A copy of the agreement is being filed herewith as Exhibit 10.1 and is incorporated into this Item 5.02(b) by reference.

(c) On August 28, 2006, the Company entered into an employment agreement with Andrés I. Pérez, which is effective October 1, 2006, pursuant to which Mr. Pérez will serve as Executive Vice President of the Company until November 1, 2006, at which time Mr. Pérez will assume the additional title and role of the Company’s Chief Financial Officer. Mr. Vicente Gregorio, presently an Executive Vice President and Chief Financial Officer of the Company, will relinquish his Chief Financial Officer title and role as of October 31, 2006 and continue to be employed by the Company as Executive Vice President until December 31, 2006. The Board of Directors of the Company has approved of the hiring of Mr. Pérez under the terms and circumstances described herein. Since 1998, Mr. Pérez has served as a Partner of KPMG LLP, with whom he has worked in various positions since 1984. Mr. Pérez most recently has served as Audit Partner in the South Florida

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Business Unit and Industry Sector Leader of the Financial Services Practice, from which he worked in Miami and Puerto Rico. Prior to that, Mr. Pérez served in various positions, including as a Senior Manager in KPMG LLP’s U.S. Capital Markets Group in London, England and its Professional Practice Department in New York, New York. Mr. Pérez is a Certified Public Accountant who is licensed in Puerto Rico and Florida and he received a Bachelor of Business Administration with distinction from Babson College. He is a member of the Puerto Rico College of Certified Public Accountants and the American Institute of Certified Public Accountants. Mr. Pérez is 44 years old.

Under the terms of its employment agreement relating to his employment with the Company, Mr. Pérez will receive an initial base salary of $500,000 and a guaranteed bonus of $200,000 following the end of 2007 and 2008, subject to pro rata adjustment in the event Mr. Pérez’s employment with the Company does not continue for the full year in question. In connection with the execution of the employment agreement, Mr. Pérez received a $150,000 signing bonus. Mr. Pérez will be entitled to a performance bonus in the amount of $100,000 following the end of 2007, and $200,000 following the end of 2008, provided that his individual performance and the Company’s performance each meet or exceed certain quantitative and qualitative goals set by the Board of Directors of the Company for the relevant year.

Mr. Pérez may receive a bonus payment of up to $125,000 if the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2004 (the “Form 10-K/A”) is provided to the Company’s independent public accountants for final review and approval by no later than November 17, 2006 with such bonus payment decreasing by specific amounts if the Form 10-K/A is provided to the Company’s independent public accountants on certain subsequent dates as specifically provided for in the employment agreement. Mr. Pérez will receive a bonus payment of $150,000 provided that the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 is filed with the SEC on or before March 27, 2007. Mr. Pérez will receive a bonus payment of $50,000 provided that the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 is filed with the SEC on or before June 30, 2007. Finally, Mr. Pérez will receive a bonus payment of $50,000 provided that the Company’s Form 10-Q for the quarter ended March 31, 2007 and for the quarter and six months ended June 30, 2007 are filed with the SEC on or before September 31, 2007.

In addition, upon completion of the restatement process and the Company’s becoming current in all of its financial reporting obligations, Mr. Pérez will also be granted 30,000 stock options to purchase the Company’s common stock, pursuant to the R&G Financial Corporation 2004 Stock Option Plan. The Company will provide Mr. Pérez with a $2,750 per month car allowance and an annual allowance of $15,000 for a country club membership. He will also be eligible to participate in the Company’s Profit Sharing Plan after he has been employed for six months and will receive standard health and other benefits offered to employees of comparable position.

In accordance with the terms of the employment agreement, in the event of a change in control of the Company, Mr. Pérez may be entitled to a $500,000 payment. The terms and conditions pursuant to which the change in control payment must be made are specified in a separate change in control agreement entered into between the Company and Mr. Pérez. The sale or merger of one of the Company’s subsidiaries is not deemed to be a change in control under the change in control agreement.

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A copy of the employment agreement is being filed herewith as Exhibit 10.2 and is incorporated into this Item 5.02 (c) by reference. A copy of the change in control agreement is being filed herewith as Exhibit 10.3 and is incorporated into this Item 5.02 (c) by reference.

Item 7.01 Regulation FD Disclosure.

On August 28, 2006, the Company announced by press release information on the status of the Company’s restatement of its consolidated financial statements for the years ended December 31, 2002 through 2004, certain unaudited and preliminary operational data for the six months ended June 30, 2006 and an updated assessment of the aggregate reduction to stockholders’ equity that will likely be required in connection with the restatement.

In addition, on August 28, 2006, the Company announced that it had been informed by the Federal Deposit Insurance Corporation that based upon improved controls and procedures implemented by R&G Premier Bank of Puerto Rico, the Company’s wholly-owned Puerto Rico commercial bank subsidiary (the “Bank”), the previously disclosed Memorandum of Understanding dated December 16, 2004, entered into between the Bank and the Federal Deposit Insurance Corporation with respect to alleged violations of the Bank Secrecy Act had been terminated.

The information furnished pursuant to Items 2.02 and 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended, nor shall it be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, unless otherwise expressly stated in such filing.

Item 9.01 Financial Statements and Exhibits.

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Exhibits.

10.1 Separation and Release Agreement dated August 28, 2006 between R&G Financial Corporation and Vicente Gregorio.

10.2 Employment Agreement dated August 28, 2006 between R&G Financial Corporation and Andrés I. Pérez.

10.3 Change in Control Agreement dated August 28, 2006 between R&G Financial Corporation and Andrés I. Pérez.

99.1 Press Release issued on August 28, 2006 by R&G Financial Corporation.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	R&G FINANCIAL CORPORATION
Date: August 29, 2006
	By:	/s/ VICTOR GALÁN
		Victor Galán
		Chairman of the Board of Directors and
		Chief Executive Officer

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EX-10.1

Exhibit 10.1

SEPARATION AND RELEASE AGREEMENT

This Separation and Release Agreement (“Agreement”) is entered into as of this 28^th day of August 2006, between R&G Financial Corporation (the “Company”), R&G Portfolio Management Corporation, R&G Mortgage Corporation, R&G International Corporation, R&G Acquisition Holdings Corporation (collectively, the “Employers”), Vicente Gregorio (the “Employee”) and Carmen A. Martinez, his wife (hereinafter, “Employee and Spouse”), and the conjugal partnership they compose, both of whom are of legal age, married and residents of Puerto Rico.

RECITALS

WHEREAS, the Employee has agreed to modify his employment relationship with the Company from that which was initially set forth in that certain Letter Agreement entered into with the Company on August 24, 2005 (the “Letter Agreement”) and as subsequently modified by action of the Company’s Board of Directors, and the Employers and the Employee and Spouse have mutually agreed to certain arrangements and understandings which are set forth herein which address the Executive’s continued employment with the Company as well as the terms of his eventual resignation from the Company.

NOW, THEREFORE, in consideration of the mutual promises and the terms and conditions set forth below and the other obligations under this Agreement, the Employers, the Employee and Spouse, and the conjugal partnership composed of them (collectively referred to as the “‘Parties”) hereby agree as follows:

AGREEMENT

1. Continuation of Employment Relationship. The Employee shall continue to serve as Executive Vice President and Chief Financial Officer of the Company until October 31, 2006, at which time he shall resign from the position of Chief Financial Officer. The Employee shall continue as an Executive Vice President of the Company until December 31, 2006. During the period from November 1, 2006 through December 31, 2006 he shall perform such services as shall be requested of him by the Company’s Chief Executive Officer and the Board of Directors provided, however, that such services shall generally not require more than 40 hours per month of his time, although reasonable accommodations would be made if the Company requested the Employee to provide more time.

2. Termination of Employment Relationships. The employment relationships between the Employee and the Employers shall terminate on December 31, 2006 or any earlier date covered by this section 2 (the “Resignation Date”). Effective as of the Resignation Date, the Employee hereby resigns all officer and employee positions (including all responsibilities attendant thereto) with each of the Employers, his membership on all Boards of Directors and committees of each of the Employers and his positions as trustee or administrator with respect to any statutory business trusts formed by the Company. Employee agrees, upon request by Employers, to sign writings confirming his resignation from any such positions. After October 31, 2006 but before December 31, 2006, Employee may

resign should he become employed by another company, and under such circumstances, he will be paid his $425,000 bonus, while any salary, car allowance and any other amount owed to him will be paid out pro-rata calculated to his date of termination.

3. Salary and Expenses Payment. During the period from the signing of this letter to December 31, 2006 the Employee shall receive the regular compensation he was paid prior to this Agreement, including but not limited to salary, bonus and car allowance. At the close of business on the Resignation Date, the Employee shall receive from the Company (i) any remaining salary and wages owed to Employee, (ii) a bonus payment due to him under the Letter Agreement of $425,000 and (iii) reimbursement for all reasonable and documented business expenses which have been submitted to the Employers. The Parties hereby acknowledge that except as provided herein, no other payments or benefits are due to the Employee under the Letter Agreement.

4. Benefits. (a) For a period of eighteen (18) months from the Resignation Date, which Resignation Date shall be the “qualifying event” date under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Employee shall have the right to continue coverage under the Company’s medical insurance programs as provided by COBRA. At the close of business on the Resignation Date, Employee shall receive payment for Employee’s accumulated unused vacation time and the amount which constitutes Employee’s vested interest in the Company’s profit sharing plan. The Company shall continue to provide medical and life insurance through the end of December 2006 and shall permit Employee to convert the Company’s life insurance with respect to Employee to a personal policy if desired by Employee, and at Employee’s expense.

(b) Except as set forth in this Section 4, the Employee shall not be entitled to participate in any benefit plans or programs provided to employees of the Employers following the Resignation Date.

5. No Other Payments Due. Except as provided in Section 3 and Section 4 hereof, the Employee shall not be entitled to any payments or other benefits following the Resignation Date. The Employee further acknowledges that, subject to the above-referenced exceptions, there is no other wages, accrued but unused vacation or other compensation or benefits arising out of or as a result of his employment by the Employers.

6. Release. (a) In consideration of the above, the sufficiency of which the Employee and Spouse hereby acknowledge, the Employee and Spouse, and the conjugal partnership they compose, on behalf of the Employee and Spouse, and the conjugal partnership they compose and their heirs, executors and assigns, hereby knowingly and voluntarily release and forever discharge the Employers and each of the Employers’ shareholders, parents, affiliates, subsidiaries, divisions, any and all current and former directors, officers, employees, agents, and representatives (including but not limited to all counsel to the Employers), and their heirs and assigns, and any and all employee pension benefit or welfare benefit plans of the Employers, including current and former trustees and administrators of such employee pension benefit and welfare benefit plans (the “Released Parties”), from all claims, charges, or demands, in law or in equity, whether known or unknown, which may have existed or which may now exist from the beginning of time to the date of this Agreement, arising from or relating to the Employee’s employment relationships or termination from such relationships with the Employers, including,

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but not limited to, a release of any rights or claims the Employee may have under Title VII of the Civil Rights Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit discrimination in employment based upon race, color, sex, religion and national origin); the Americans with Disabilities Act of 1990, as amended, and the Rehabilitation Act of 1973 (which prohibit discrimination based upon disability); the Family and Medical Leave Act of 1993 (which prohibits discrimination based on requesting or taking a family or medical leave); Section 1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits conspiracies to discriminate); the National Labor Relations Act; the Employee Retirement Income Security Act of 1974, as amended (other than any accrued benefit(s) to which the Employee has a non-forfeitable right under any pension benefit plan) (which prohibits discrimination with regard to benefits); the Worker Adjustment and Retraining Notification Act; the Fair Labor Standards Act; any claim to further payment by the Employee and Spouse other than the payments set forth herein; Puerto Rico Law 80 of May 30, 1976; (unjustified dismissal); dismissal or discriminatory treatment prohibited by the Constitution of Puerto Rico; Puerto Rico Law 17 of April 22, 1988 (Sexual Harassment); Puerto Rico Law 3 of March 13, 1942, as amended; Puerto Rico Law 115 of December 20, 1991; Puerto Rico Law 139 of June 26, 1968; Puerto Rico Law 45 of April 18, 1935 (State Insurance Fund); Puerto Rico Law 379 of May 15, 1948 (Days and Hours of Work); Puerto Rico Law 96 of June 26, 1956 (Minimum Wage); Puerto Rico Law 180 of July 27, 1998; the Insurance and Civil Codes of Puerto Rico; and claims the Employee and Spouse and the conjugal partnership they compose may have arising under or any other U.S. federal, Puerto Rico, local statute, or common law relating to discrimination, employment, wages, hours, or any other terms and conditions of employment. The release provided for herein includes a release by the Employee and Spouse of any claims for wrongful discharge, breach of contract, torts, attorney’s fees or any other claims in any way related to the Employee’s employment relationships with, or resignation or termination from, each of the Employers. Nothing in this Agreement is intended to modify any rights to contribution, indemnification or advancement of expenses that Employee may have under the Company’s articles of incorporation and/or by-laws, the Company’s director and officer insurance policies that provide coverage for any time period prior to the effective date of this Agreement, or applicable law.

(b) It is a condition hereof, and it is the Parties’ intention in the execution of the release in this Section 6, that the same shall be effective as a bar to each and every claim hereinabove specified.

(c) Employee and Spouse hereby represent that Employee and Spouse have not filed any action, complaint, charge, grievance or arbitration against the Released Parties, and covenant and agree not to file any action, complaint, grievance or arbitration or commence any other proceedings against the Released Parties in any court of law or equity or in any arbitral forum with respect to any matter, cause or thing occurring through the date of this Agreement. Employee and Spouse agree not to bring any claim based upon the failure or refusal of the Employers to employ Employee after the Resignation Date.

(d) Employers hereby release, forever discharge and hold harmless the Employee and Spouse and the conjugal partnership they compose, from all claims, charges or demands which may arise from the contractual relationship between the Employers and Employee.

7. No Authority to Bind the Employers. As of the Resignation Date, neither the Employee, nor any partner, agent or employee of the Employee, has authority to enter into any contracts that bind one or more of the Employers or create obligations on the part of any of the Employers.

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8. Confidentiality and Non-Disparagement.

(a) Employee confirms his continuing obligations as a former Company employee hereafter under the Company’s policies and procedures in effect as of the date of this Agreement and agrees that, to the maximum extent permitted by law, Employee will not divulge and/or communicate to any third parties, or make use of any confidential, sensitive or proprietary information (collectively “Confidential Information”) acquired in the performance of Employee’s duties for and/or during Employee’s employment with the Employers, except that the Employee may make use of Confidential Information for the purpose of enforcing this Agreement, in which event Employee will take steps to limit the disclosure of such Confidential Information to the maximum extent reasonably possible including, for example, by making filings under seal. For purposes of this Agreement, “Confidential Information” shall include, without limitation, information not otherwise known in the financial services industry, not generally known by persons not employed by the Employers and that could not easily be determined or learned by someone outside of the Employers, and/or not previously disclosed to the public by the Employers or their management with respect to the Employers’ businesses, business and financial methods or practices, operations, facilities, trade secrets and other intellectual property, systems, procedures, technical know-how, methods of investment, processes, customers, clients, investors, marketing methods or techniques, manuals, confidential reports, fee information, finances, financial or listing information (including, without limitation, the revenues, costs or profits associated with any activities or products of the Employers), business plans, prospects, budgetary objectives, customers, vendors, suppliers, training programs, manuals or materials, contracts, systems, mailing lists, trade names, improvements, pricing, price lists, or other data, litigation, regulatory investigations, strategy, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, other plans (technical or otherwise), correspondence, internal reports, personnel files, employee compensation, sales and advertising material which is or was used in the business of the Employers. The Employee agrees and acknowledges that all of such Confidential Information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Employers and the Employee shall return to the Employers the originals and all copies of any such information provided to or acquired by the Employee in connection with the performance of his duties for the Employers, and shall return to the Employers all files, correspondence and/or other communications received, maintained and/or originated by the Employee during the course of his relationship with the Employers, and no copy of any such information shall be retained by him. “Confidential Information” shall not include information which is known within the financial services industry or is or becomes generally available to the public other than as a result of disclosure by Employee or Spouse in violation of this Section 8.

(b) The Company understands and agrees that if the Human Resources Department of the Company and/or its senior management are contacted by any person with respect to a reference regarding the Employee, the Company shall not, without the written consent of the Employee, provide any information in response other than length of service and positions held with the Company and/or its subsidiaries. The Employers agree not to disparage (i.e., by making negative comments about the Employee and/or Spouse) and also agree not to initiate or participate in any discussion or written or oral communication that reflects negatively on the Employee and/or Spouse. For purposes of this Section 8(b), the Employee and Spouse acknowledge that they have had an opportunity to review the Form 8-K and related press release to be filed by the Company with the United States Securities and Exchange Commission with respect to Employee’s departure from the Employers and agree that such Form 8-K and related press release do not in any way constitute disparagement of Employee or his Spouse.

(c) Nothing herein shall limit (i) the Parties’ right under applicable law to provide truthful information to judicial, regulatory, administrative or other governmental

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authorities or in connection with testimony given pursuant to compulsory process; or (ii) Employee’s right to provide truthful information in response to inquiries from or with the express consent of the Company’s Chief Executive Officer.

(d) If there is a breach or threatened breach of the provisions of this Section 8, the Employers or the Employee, as the case may be, shall be entitled to an injunction restraining the other party from such breach. Nothing herein shall be construed as prohibiting any other remedies for such breach.

9. Cooperation in Legal and Other Matters. (a) Without waiving any applicable privilege or constitutional rights, Employee agrees to make himself reasonably available to the Employers to respond to requests by the Employers for information involving facts or events relating to the Employers that may be within Employee’s knowledge. Employee agrees that he will cooperate in good faith with the Employers and their counsel in connection with any investigation, administrative proceeding, litigation or regulatory proceeding relating to any matter that occurred during Employee’s employment with the Employers in which Employee was involved or of which Employee has knowledge. Under such circumstances, Employers agree to pay the Employee for his time as a consultant and/or witness at the rate of $350/hour and to reimburse Employee for reasonable expenses that Employee may incur in complying with this Section 9. Employers will provide and pay for counsel of the Employee choosing (i) to assist Employee in responding to requests by the Employers for information involving facts or events relating to the Employers that may be within Employee’s knowledge (ii) to accompany and counsel Employee in connection with any investigation, administrative procedure or litigation, and (iii) otherwise, to the extent that the Employers deem it necessary and appropriate to do so.

(b) Employee agrees that, in the event that Employee is subpoenaed, requested to appear for an interview or otherwise provide information by any person or entity (including but not limited to, any government agency) to provide testimony or information (in a deposition, court proceeding, interview or otherwise) which in any way relates to Employee’s employment with the Employers beyond the mere fact of employment, positions held and years of service, Employee will give prompt notice of such request to the Chief Executive Officer or Corporate Secretary of the Company, and will make no disclosure, unless otherwise required by law, until the Company has had a reasonable opportunity to contest the right of the requesting person or entity to such disclosure. Should the Company fail to act within the time frame specified in the subpoena, the Employee will comply and will provide the testimony or information requested.

(c) Nothing in this Agreement is intended to modify any rights to contribution, indemnification or advancement of expenses that Employee may have under the Company’s articles of incorporation and/or by-laws, the Company’s director and officer insurance policies that provide coverage for any time period prior to the effective date of this Agreement, or applicable law.

10. Return of Property. The Employee shall promptly return all the Employers’ property in the Employee’s possession of which the Employee is aware after a diligent search, including, but not limited to, the Employers’ keys, credit cards, computer software and peripherals and originals or copies of books, records, or other information pertaining to the Employers’ businesses, including any Employer information regarding Employers on Employee’s personal computers. The Employee will keep his contact list contained in the Employer’s computer system.

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11. Acknowledgment of Spouse. Spouse acknowledges that she has not suffered any damages attributed to the Employers for any reason including, but not limited to, the employment relationship of Employee, the termination of same and any other event, act or omission occurring during his employment or thereafter and states that her spouse, family members, heirs, executor, assignees, bondsmen, dependents, friends or relatives have not suffered any damages caused by the Employers for any reason including, but not limited to, the employee relationship of Employee, the termination of same and any other incident or fact occurring during his employment or thereafter and promises and agrees to testify to such effect in any forum which is established to consider such matter.

12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Puerto Rico, without reference to the principles of conflict of laws.

13. Deductions. All payments to be made hereunder shall be net of all applicable deductions.

14. Complete Agreement; Amendments. This Agreement represents the complete agreement between the Parties concerning the subject matter in this Agreement and supersedes all prior agreements or understandings, written or oral, including without limitation the terms of the Letter Agreement and any and all other prior agreements with respect to Employee’s employment with Employers. In executing this Agreement, none of the Parties has relied or is relying on any representation with respect to the subject matter of this Agreement or any representation inducing the execution of this Agreement except those representations as are expressly set forth in this Agreement, and the Parties acknowledge that each has relied on their own judgment in entering into this Agreement. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

15. Severability. If, at any time after the execution of this Agreement, any provision of this Agreement shall be held to be illegal, void or unenforceable by a court, arbitrator or agency of competent jurisdiction, solely such provision shall be of no force or effect. The illegality or unenforceability of such provision shall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement; provided, however, that, upon any finding by a court, arbitrator or agency of competent jurisdiction that the covenant and release provided for by Section 6(a) and/or (d) of this Agreement is illegal, void or unenforceable, Employee and Spouse, and Employers, respectively, agree to execute a release, waiver and/or covenant that cures the matter determined to be illegal, void or unenforceable and that is legal and enforceable.

16. Counterparts. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.

17. Notices. All notices, requests, claims, demands or other communications hereunder shall be in writing and shall be deemed given when delivered personally, upon receipt of a

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transmission confirmation if sent by telecopy or like transmission and on the next business day when sent by a reputable overnight carrier service to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

If to the Employers:

R&G Financial Corporation

280 Jesús T. Piñero Avenue

Hato Rey, San Juan, Puerto Rico

Attention: Corporate Secretary

Fax: (787) 766-8175

With a copy to:

Patton Boggs LLP

2550 M Street, NW

Washington, DC 20037

Attention:	Norman B. Antin, Esq.
	Jeffrey D. Haas, Esq.

Fax: (202) 457-6315

If to the Employee and Spouse:

G-15 Granada

Vistamar Marina Este

Carolina, Puerto Rico 00983

18. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or on behalf of the Parties hereto. Each Party acknowledges that (i) they have had the opportunity to consult an attorney regarding the terms and conditions of this Agreement before executing it, (ii) they have read the Agreement and they fully understand the terms of this Agreement including, without limitation, the significance and consequences of the release in Section 6 hereof, (iii) they are executing this Agreement in exchange for consideration in addition to anything of value to which they are entitled, and (iv) they are fully satisfied with the terms of this Agreement and are executing this Agreement voluntarily, knowingly and willingly and without duress.

[Signature Page Follows]

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In San Juan, Puerto Rico, the Parties to this Agreement have executed this Agreement as of the day and first written above. The signature of the Parties hereto shall reflect that each has received an executed copy of this Agreement.

R&G FINANCIAL CORPORATION
By:	/s/ Victor J. Galán
Name:	Victor J. Galán
Title:	Chairman of the Board and Chief Executive Officer
R&G PORTFOLIO MANAGEMENT CORPORATION
By:	/s/ Victor J. Galán
Name:	Victor J. Galán
Title:	Chairman of the Board
R&G MORTGAGE CORPORATION
By:	/s/ Victor J. Galán
Name:	Victor J. Galán
Title:	Chairman of the Board and
	Chief Executive Officer
R&G INTERNATIONAL CORPORATION
By:	/s/ Victor J. Galán
Name:	Victor J. Galán
Title:	Chairman of the Board
R&G ACQUISITION HOLDINGS CORPORATION
By:	/s/ Victor J. Galán
Name:	Victor J. Galán
Title:	Chairman of the Board
VICENTE GREGORIO
/s/ Vincente Gregorio
CARMEN A. MARTINEZ
/s/ Carmen A. Martinez
Spouse

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EX-10.2

Exhibit 10.2

AGREEMENT

AGREEMENT, dated this 28^th day of August 2006 between R&G Financial Corporation, a Puerto Rico corporation (the “Company”), and Mr. Andrés Pérez (the “Executive”).

RECITALS

WHEREAS, the Company desires to be ensured of the Executive’s continued active participation in the business of the Company; and

WHEREAS, the Company desires to enter into an employment agreement with the Executive with respect to Executive’s employment by the Company.

AGREEMENT

NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Definitions. The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

a. Base Salary. “Base Salary” shall have the meaning set forth in Section 3(a) hereof.

(b) Cause. Termination of the Executive’s employment for “Cause” shall mean termination because of personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order or material breach of any provision of this Agreement.

(c) Date of Termination. “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive’s employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice.

(d) Disability. Termination by the Company of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Company or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Securities System.

(e) Notice of Termination. Any purported termination of the Executive’s employment by the Company for any reason, including without limitation for Cause or

Disability, or by the Executive for any reason, shall be communicated by written “Notice of Termination” to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Company’s termination of Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 9 hereof.

2. Term of Employment.

(a) The Company hereby employs the Executive as Executive Vice President of the Company and the Executive hereby accepts said employment and agrees to render such services to the Company on the terms and conditions set forth in this Agreement. The term of employment under this Agreement shall be as of October 1, 2006 until midnight of December 31, 2008 commencing on the date of this Agreement. The Executive shall also become the Company’s Chief Financial Officer effective November 1, 2006. The term of this Agreement, and the employment of the Executive hereunder, may be renewed and extended for such period or periods as may be mutually agreed to by the Company and the Executive in a written supplement to this Agreement. If this Agreement is not so renewed and extended, this Agreement shall automatically terminate and the employment of the Executive shall become month-to-month unless otherwise agreed to by the parties.

(b) During the term of this Agreement, the Executive shall perform such executive services for the Company as may be consistent with the Executive’s titles and from time to time assigned to the Executive by the Company’s Board of Directors.

3. Compensation and Benefits.

(a) (i) The Company shall compensate and pay the Executive for services during the term of this Agreement at a base annual salary of $500,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Board of Directors of the Company and may not be decreased without the Executive’s express written consent.

(ii) In addition to Base Salary, the Executive shall be entitled to receive during the term of this Agreement a Guaranteed Bonus of $200,000, payable following each of December 31, 2007 and 2008, which shall be subject to pro rata adjustment based on the months employed in the year to the extent that the Executive terminate the employment agreement or the Company terminates the agreement for cause.

(iii) An additional “Restatement” Bonus in the amounts shown below provided that a complete and final Form 10-K/A for the year 2004 is provided to the Company’s independent auditors for final review and authorization by no later than the following dates:

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$125,000 if by November 17, 2006, $100,000 if by November 30,2006, $75,000 if by December 15, 2006 and $50,000 if by December 31, 2006 and nothing if thereafter; $150,000 subject to completion and filing with the SEC of the 2005 Form 10-K by the March 27, 2007 deadline for New York Stock Exchange delisting of the Company’s common stock; $50,000 subject to completion and filing with the SEC of the 2006 Form 10-K filing by June 2007; $50,000 subject to completion and filing with the SEC of the 2007 quarterly filings with the SEC (i.e. March and June Form 10-Qs) by no later than September 31, 2007. Due dates have to be met for any Restatement Bonuses to be paid.

(iv) A Performance Bonus of $100,000 will be paid after December 31, 2007 and $200,000 will be paid after December 31, 2008, provided in each case that Executive’s performance and that of the Company is in accordance with the Company’s financial plan for the period, which shall be subject to the approval of the Board of Directors.

(v) Stock options of 30,000 shares of the Company’s common stock will be issued once the filing of all SEC reports is completed and the Company is up to date and current in all its SEC filings. The stock options will vest and be exercisable in accordance with the Company’s 2004 Stock Option Plan.

(vi) A Signing Bonus of $150,000 shall be paid upon execution of this Agreement.

(b) During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Company, to the extent commensurate with then duties and responsibilities, as fixed by the Board of Directors of the Company.

(c) During the term of this Agreement, the Executive shall be entitled to eighteen (18) days paid annual vacation. The Executive shall not be entitled to receive any additional compensation from the Company for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation in excess of 36 days except to the extent authorized by the Board of Directors of the Company.

(d) In the event the Executive’s employment is terminated due to Disability, the Executive may continue coverage for medical and life insurance coverage under COBRA (36 months) and individual policy conversion for life insurance.

(e) The Company shall, during the term of this Agreement, pay the Executive the sum of $2,750 per month as a car allowance.

(f) The Company shall provide up to $15,000 annually for one country club membership.

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4. Expenses. The Company shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Company, including, but not by way of limitation, traveling expenses, subject to such reasonable documentation and other limitations as may be established by the Board of Directors of the Company. If such expenses are paid in the first instance by the Executive, the Company shall reimburse the Executive therefor.

5. Termination.

(a) The Company shall have the right, at any time upon prior Notice of Termination, to terminate the Executive’s employment hereunder for any reason, including without limitation, termination for Cause or Disability, and the Executive shall have the right, upon prior Notice of Termination, to terminate employment hereunder for any reason.

(b) In the event that (i) the Executive’s employment is terminated by the Company for Cause or (ii) the Executive terminates employment hereunder other than for Disability or death, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination.

(c) In the event that the Executive’s employment is terminated as a result of Disability during the term of this Agreement, the Executive shall receive Base Salary for the duration of the term of this Agreement. In the event of the Executive’s death during the term of the Agreement, the Executive’s estate shall receive Base Salary to the end of the term of this Agreement.

(d) In the event that (i) the Executive’s employment is terminated by the Company for other than Cause, Disability, or the Executive’s death or (ii) such employment is terminated by the Executive due to a material breach of this Agreement by the Company, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Company, then the Company shall provide the Executive with the compensation otherwise payable pursuant to Section 3(a) hereof.

(e) In the event of change of control of the operation at RG Financial Corp., a $500,000 payment shall be entitled as specified in the Change of Control Agreement. The selling or merger of one of the subsidiaries will not considered as a change of control event.

6. Non-Competition. The Executive agrees that:

(a) During the term of this Agreement, the Executive will not, directly or indirectly, participate in or act as a principal, partner, officer, employee, agent, or consultant to any business entity which is competitive with the business now or hereafter engaged in or conducted by the Company, nor shall the Executive hold greater than 5% of the equity securities of any such business.

(b) For a period of one year following the termination of this Agreement for any reason, the Executive will not, directly or indirectly, solicit for employment, or hire any person who during the term of this Agreement was engaged as an employee or officer of the Company or any of its subsidiary or affiliated companies.

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7. Withholding. All payments required to be made by the Company hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine should be withheld pursuant to any applicable law or regulation.

8. Assignability. The Company may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, Company or other entity with or into which the Company may hereafter merge or consolidate or to which the Company may transfer all or substantially all of its assets, if in any such case said corporation, Company or other entity shall by operation of law or expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

9. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below:

The Company : Chairman of the Board and CEO
	R&G Financial Corporation
	R&G Tower
	290 Jesús T. Pinero Avenue
	San Juan, Puerto Rico 00918
	With a copy to:
	Secretary
	R&G Financial Corporation
	R&G Tower
	290 Jesús T. Pinero Avenue
	San Juan, Puerto Rico 00918
The Executive:
	Mr. Andrés Pérez
	313 Rey Felipe
	La Villa de Torrimar
	Guaynabo, Puerto Rico 00969

10. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the

5

Board of Directors of the Company to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

11. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of Puerto Rico.

12. Nature of Obligations. Nothing contained herein shall create or require the Company to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

13. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

14. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.

15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

16. Entire Agreement. This Agreement embodies the entire agreement between the Company and the Executive with respect to the matters agreed to herein. All prior agreements between the Company and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.

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IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

R-G FINANCIAL CORPORATION
By:	/s/ Víctor J. Galán
	Víctor J. Galán
	Chairman of the Board and CEO
EXECUTIVE
By:	/s/ Andrés Pérez
	Andrés Pérez

EX-10.3

Exhibit 10.3

[R&G Financial Corporation Letterhead]

August 28, 2006

CONFIDENTIAL

Mr. Andrés Pérez

Executive Vice President

R&G Financial Corporation

San Juan, Puerto Rico

Dear Mr. Pérez:

This Agreement (the “Agreement”) sets forth the terms and conditions pursuant to which R&G Financial Corporation (the “Company”) will pay you the amount (the “Change of Control Bonus”) of $500,000.00, in the event that a “Change of Control” (as defined below) should occur with respect to the Company between the date hereof and December 31, 2008. Such expiration date shall be extended consistent with the duration of your Employment Agreement with the Company dated as of August 28, 2006 (the “Employment Agreement”).

Your right to receive payment of the Change of Control Bonus shall be also contingent upon your continued employment with the Company from the date hereof through and until the Effective CC Date (as defined below).

For purposes of this Agreement, the following words and terms shall have the meanings set forth below:

“Change of Control” means the consummation of:

(i) the sale of all or substantially all of the assets of the Company to an unrelated person or entity;

(ii) a merger, reorganization or consolidation involving the Company, as a result of which the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the surviving or resulting entity immediately upon completion of such transaction; or

(iii) any other transaction involving the Company, as a result of which the owners of The Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the relevant entity after the transaction, in each case, regardless of the form thereof.

For purposes of this Agreement, the sale of all or substantially all of the assets of any of the Company’s subsidiaries, or a merger transaction involving any of the Company’s subsidiaries shall not constitute a Change of Control. In addition, any internal reorganization of any of the Company’s subsidiaries shall not constitute a Change in Control.

Mr. Andrés Pérez

August 28, 2006

Page 2

“Effective CC Date” means the date as of which a Change of Control shall be consummated and become effective, after receipt of any and all applicable regulatory and/or shareholder approvals therefor and the lapse of any applicable waiting period therefor, and without any pending approvals, actions, or filings for its consummation and effectiveness.

You are referred to in this Agreement as “you” or “the Executive”.

Your right to receive the Change of Control Bonus is also subject to the following terms and conditions:

1. By agreeing to the terms and conditions of this Agreement, you indicate your intent and agreement to continue to be employed by the Company through and until the Expiration Date, and you will devote your best efforts and all of your business time, attention, and skill to the performance of the duties associated with your employment. You will also perform such other duties as the Chairman of the Board and/or the Chief Executive Officer of the Company may in good faith assign to you, which shall not be inconsistent with your position with the Company.

2. The Change of Control Bonus shall be payable separately from, and in addition to, any other compensation and benefits to which you are entitled for your employment and performance; provided, however, that the Change of Control Bonus shall not be considered as earnings, compensation, or otherwise for purposes of determining your benefits under any other plan or program of the Company (including, without limitation, any bonus, stock option, disability, life insurance, and/or retirement benefits under any qualified or unqualified plan.) Your entitlement to any compensation or benefits other than the Change of Control Bonus provided herein shall be determined in accordance with the compensation and employee benefit plans of the Company as in effect from time to time and as may be modified.

3. This Agreement shall not confer, and shall not be construed as conferring, any legal or other right for the continuation of your employment with the Company for any period. The Company expressly reserves the authority (which may be exercised at any time and without regard to any Change of Control or the Expiration Date) to discharge you from your employment, and such discharge shall not entitle you to the Change of Control Bonus, but in any event such discharge shall be without prejudice to any other rights you may have in the event of such termination under any plan and/or under any applicable law.

Mr. Andrés Pérez

August 28, 2006

Page 3

4. Termination of Employment Prior to a Change of Control.

(a) If you terminate your employment for any reason, or if your employment is terminated by the Company for cause, as that term is defined in the Employment Agreement, prior to the Effective CC Date, you will not be entitled to the Change of Control Bonus.

(b) Any termination of your employment by the Company shall be effective in accordance with the terms of your Employment Agreement with the Company.

5. This Agreement sets forth the entire agreement of the parties with respect to the Change of Control Bonus and supersedes any and all agreements, oral or written, with respect thereto.

6. The validity, interpretation, construction, and performance of this Agreement shall in all respects be governed by the laws of the Commonwealth of Puerto Rico.

7. The payment of the Change of Control Bonus hereunder shall be subject to all income tax, social security, and other applicable taxes and/or other amounts required to be withheld by the Company pursuant to federal or Commonwealth laws.

8. You shall not assign, pledge or otherwise transfer all or any portion of the Change of Control Bonus or any other rights conferred to you under this Agreement, and any attempted assignment, pledge or other transfer by you (other than by will or the laws of descent and distribution) shall cause any right that you may have to receive payment of the Change of Control Bonus (or any portion thereof) to be immediately forfeited.

9. No provision of this Agreement may be modified, altered, or amended except by an instrument in writing executed by (a) you and (b) the Chief Executive Officer or the Director of the Human Resources Department of the Company, on behalf of the Company.

10. Arbitration.

(a) By signing this Agreement, you agree that all claims or disputes covered by this Agreement or otherwise arising out of or relating to your right or entitlement to, or forfeiture of, the Change of Control Bonus, and which disputes or claims cannot be resolved informally, must be submitted to binding arbitration and that this arbitration will be the sole and exclusive remedy for resolving any such claim or dispute. This promise to resolve claims by arbitration is equally binding upon both you and the Company.

(b) Any arbitration will be administered by the American Arbitration Association under its Commercial Arbitration Rules, and any arbitration shall take place in San Juan, Puerto Rico. The arbitrator shall have jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold pre-hearing conferences by telephone or in person as the arbitrator deems necessary. The decision of the arbitrator shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof.

Mr. Andrés Pérez

August 28, 2006

Page 4

(c) The Company shall pay the costs of arbitration and each party shall bear its own expenses; provided, however, that if you are the prevailing party in any such proceeding, the Company shall reimburse you for your reasonable costs and expenses, including attorney’s fees, incurred in connection with such proceeding.

(d) The arbitration proceedings and the decision rendered by the arbitrator shall remain strictly confidential.

(e) The arbitration provisions of this Section shall survive termination of this Agreement.

(f) If, notwithstanding the foregoing provisions of this Section, any claim, arising under this Agreement is found not to be subject to final and binding arbitration, the parties agree to waive any right to a jury trial if such claim is brought in federal court.

11. Notwithstanding anything to the contrary, the Expiration Date shall be extended until the Effective CC Date if the shareholders of the Company and the applicable regulatory agencies shall have approved the Change of Control prior to the Expiration Date, but the consummation and effectiveness thereof shall be pending as of the Expiration Date.

* * *

If you accept the terms of this Agreement, please read the “Statement of Agreement and Acceptance by Executive” and sign in the space provided.

Very truly yours,

R&G FINANCIAL CORPORATION

By:	/s/ HECTOR SECOLA MARCHESE
Name:	Hector Secola Marchese
Position:	Human Resources Director

Mr. Andrés Pérez

August 28, 2006

Page 5

STATEMENT OF AGREEMENT AND ACCEPTANCE BY EXECUTIVE:

I hereby accept and agree to be bound by the terms of the foregoing Agreement, and I further declare and represent that I have carefully read and fully understand the terms of this Agreement, and that I knowingly and voluntarily, of my own free will, without any duress, being fully informed and after due deliberate thought and action, accept the terms of and sign the same as my own free act.

/s/ ANDRÉS PÉREZ

Andrés Pérez

Date: August 28, 2006

EX-99.1

EXHIBIT 99.1

CONTACT: Victor J. Galán, Chairman of the Board and Chief Executive Officer

PHONE #: (787) 766-8301

FOR RELEASE IMMEDIATELY

R&G FINANCIAL ANNOUNCES MANAGEMENT CHANGES AND

PROVIDES UPDATE ON RESTATEMENT PROCESS AND LIMITED 2006

OPERATIONAL INFORMATION

San Juan, Puerto Rico: August 28, 2006—R&G Financial Corporation (NYSE: RGF) (the “Company”) announced today that it had filed a Form 8-K with the Securities and Exchange Commission with respect to a number of matters, which are addressed in this press release.

Management Changes

On August 28, 2006, the Company entered into an employment agreement with Andrés I. Pérez, which is effective October 1, 2006, pursuant to which Mr. Pérez will serve as Executive Vice President of the Company until November 1, 2006, at which time Mr. Perez will assume the additional title of the Company’s Chief Financial Officer. Mr. Vicente Gregorio, presently an Executive Vice President and Chief Financial Officer of the Company, will relinquish his Chief Financial Officer role as of October 31, 2006 but will continue to be employed by the Company as Executive Vice President, assisting in the transition as requested by management and the Board of Directors, until December 31, 2006.

In commenting on the management changes, Victor J. Galán, the Company’s Chairman and Chief Executive Officer, indicated that “the Board had made the decision to bring in a new senior executive to continue with the completion of the restatement of its consolidated financial statements.” Mr. Pérez has served as a Partner of KPMG LLP since 1998, most recently as Audit Partner in the South Florida Business Unit and Industry Sector Leader of the Financial Services Practice, from which he worked in Miami and Puerto Rico. Prior to that, Mr. Pérez served in various positions, including as a Senior Manager in KPMG LLP’s U.S. Capital Markets Group in London, England and its Professional Practice Department in New York, New York. The Company noted that KPMG is one of the Company’s consultants in its restatement process, and that Mr. Pérez has had a very active involvement working with the Company on its restatement project. Mr. Pérez is a Certified Public Accountant who is licensed in Puerto Rico and Florida and he received a Bachelor of Business Administration with distinction from Babson College. He is a member of the Puerto Rico College of Certified Public Accountants and the American Institute of Certified Public Accountants.

Restatement

As previously announced, the Company is in the process of preparing restated consolidated financial statements for the years ended December 31, 2002 through 2004. The Company continues to work diligently to complete the restatement process, and after completing a review of the process, the Company currently anticipates finishing its work on its restated financial statements, the results of which will be subject to audit, together with its amended Annual Report on Form 10-K/A for the year ended December 31, 2004 (the “2004 10-K/A”), in the middle of the fourth quarter of 2006. The Company is expressing no view as to when audited financial statements and its 2004 10-K/A will be available, but believes it more likely than not that it will be in the first quarter of 2007. The Company also will be concurrently working on its Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 10-K”). If the Company fails to file its 2005 10-K in satisfaction of the filing requirements of the New York Stock Exchange (the “Exchange”), the Company expects that its Common Stock will be de-listed by the Exchange. Under the rules of the Exchange, a listed company is required to file its Annual Report on Form 10-K not later than six months after the filing was originally due, but the Company can request an extension of the time by which the 2005 10-K must be filed to March 27, 2007, and the Company intends to request such an extension. Granting this extension will be in the discretion of the Exchange, and, in the event not given, the Company’s Common Stock will be subject to de-listing in late September, 2006.

While the Company’s restatement process is ongoing, the Company is providing an updated assessment on the aggregate reduction to stockholders’ equity that will likely be required in connection with the restatement, as well as some limited financial information for the six months ended June 30, 2006 which is not impacted by the restatement process. On November 4, 2005, the Company disclosed that it expected to reduce stockholders’ equity by an aggregate of between $168 million and $183 million after taxes ($275 million to $300 million before taxes, of which $190 million related to the adjustments for retained residual interests). While the restatement process is not yet complete, the Company currently believes that the aggregate reductions required to its stockholders’ equity are within the previously disclosed range of reductions, of which $195 million relates to the adjustments for residual retained interests.

The Company had previously disclosed that as part of the restatement process, it was also reviewing its accounting for deferral and recognition of mortgage origination fees and expenses, revenue recognition related to specific loan sales transactions (which included whether such transactions constituted “true sales” or financings) and the amortization process used in connection with mortgage servicing rights. The Company has expanded that review to include its accounting for deferral and recognition of origination fees and expenses for other types of loans, and is also reviewing the appropriate treatment of all loan sales transactions during the period. As previously disclosed, the Company was also reviewing valuation and accounting issues associated with mortgage servicing rights. In addition, the Company is also reviewing the accounting for derivative instruments, accounting for leases and accounting for allowances and reserves, such as allowances for loan and lease losses, recourse obligations and lower of cost or market valuation of loans held for sale, mortgage servicing rights for the financial statements of certain of its subsidiaries and amortizations of premiums and discounts on investment securities.

Assuming the upper end of the range of reduction to stockholders’ equity of $183 million (after taxes) as of June 30, 2006, discussed above, and based on current information, the Company, as of June 30, 2006, was a “well-capitalized” bank holding company within the

meaning of the federal bank regulations, and as of such date, its Puerto Rico bank subsidiary, R-G Premier Bank of Puerto Rico (“Premier Bank”), was “well-capitalized.” Assuming the upper end of the range of reduction to stockholders’ equity noted above, the Company’s Florida thrift subsidiary, R-G Crown Bank (“Crown Bank”), had a total risk-based capital ratio of 9.88% as of June 30, 2006, below the 10% level required to be “well-capitalized”, and therefore was not “well-capitalized” as of that date. However, the Company has provided a capital infusion of $5 million to Crown Bank and, as a result, at June 30, 2006, on a pro forma basis after giving effect to the capital infusion, Crown Bank would have been “well-capitalized”.

Operations

From an operations standpoint, the Company continues to conduct business in the normal course at both its Puerto Rico and Florida financial institutions, although during 2005 the Company increased the sale of its investment and mortgage-backed securities when compared to prior periods in order to limit its asset growth and support its liquidity and capital position. During the six months ended June 30, 2006, the Company’s consolidated deposits grew to $6.1 billion, a $108.1 million or 1.8% increase over the $6.0 billion of deposits at December 31, 2005, which takes into consideration Crown Bank’s acquisition of 18 branches from SouthTrust Bank in early 2005. The Company’s servicing portfolio amounted to $12.4 billion at June 30, 2006, a $112.7 million or 0.9% increase over the $12.2 billion portfolio at December 31, 2005. Finally, the Company’s loan production, which includes both originations and purchases of loans, decreased by $1.1 billion or 33.2% from $3.2 billion for the six months ended June 30, 2005 to $2.1 billion for the six months ended June 30, 2006. This reduction is comprised of a reduction in loan production of $145 million as a result of the closing of Continental Capital Corporation, a former New York-based subsidiary of Crown Bank, in September 2005, the decision made by management at Crown Bank to reduce purchases of loan portfolios during 2006 by $423 million and a reduction in loan production of approximately $197 million in Florida and $287 million in Puerto Rico, principally attributable to general increases in interest rates. The loan production information excludes loans purchased from Doral Financial Corporation, which are being accounted for as financings. For purposes of our regulatory capital analysis above, we determined that all sales of loans with variable interest rate features and a majority of sales of whole loans having fixed rates to other Puerto Rico financial institutions and other third parties previously considered to be true sales are financings. In 2005, the increase in our balance sheet which would have resulted from all of such loan sales being considered as financings rather than as true sales was mitigated as a result of the above-referenced sale of investment and mortgage-backed securities. The Company believes that results for 2006 will be adversely impacted by decreases in net interest income due to compression of margins and expenses incurred in connection with the restatement. The financial information provided above is unaudited and preliminary.

Lifting of Memorandum of Understanding

In addition, the Company announced that it had been informed by the Federal Deposit Insurance Corporation (“FDIC”) that, based upon improved controls and procedures implemented by Premier Bank, the previously disclosed Memorandum of Understanding, dated December 16, 2004, entered into between Premier Bank and the FDIC with respect to alleged violations of the Bank Secrecy Act, had been terminated.

*   *   *   *

The Company, currently in its 34^th year of operation, is a diversified financial holding company with operations in Puerto Rico and the United States, providing banking, mortgage banking, investments, consumer finance and insurance through its wholly owned subsidiaries, R-G Premier Bank of Puerto Rico, R-G Crown Bank, R&G Mortgage Corporation, Puerto

Rico’s second largest mortgage banker, R-G Investments Corporation, the Company’s Puerto Rico broker-dealer, and R-G Insurance Corporation, its Puerto Rico insurance agency. At June 30, 2006 the Company operated 37 bank branches in Puerto Rico, 35 bank branches in the Orlando, Tampa/St. Petersburg and Jacksonville, Florida and Augusta, Georgia markets, and 49 mortgage offices in Puerto Rico, including 37 facilities located within R-G Premier Bank of Puerto Rico’s banking branches.

FORWARD LOOKING STATEMENTS

This press release contains certain “forward-looking statements” concerning the Company’s economic future performance. The words or phrases “expect,” “believe,” “anticipate,” “estimate,” “intend,” “look forward,” “should” and similar expressions are meant to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following: the Company’s ability to attract new clients and retain existing clients; risks associated with the effects of global, national and regional economic and political conditions, including with respect to fluctuations in interest rates; potential adverse effects to the Company’s financial condition, results of operations or prospects as a result of the required adjustments to prior period financial statements; risks associated with the Company’s inability to prepare and timely file financial statements; potential adverse effects if the Company is required to recognize additional impairment charges or other adverse accounting-related developments; potential adverse developments in connection with the ongoing SEC inquiry; potential adverse developments from enforcement actions by bank regulatory agencies; and developments from changes in the regulatory and legal environment for financial services companies in Puerto Rico and the United States. The range provided for the impact on stockholders’ equity is an estimate and is subject to change. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.