Edgar Filing: R&G FINANCIAL CORP

Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-90812

PROSPECTUS July 29, 2002
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3,500,000 SHARES

(R-G FINANCIAL CORPORATION LOGO)

CLASS B COMMON STOCK
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R&G Financial is a Puerto Rico chartered financial holding company that operates
R-G Premier Bank of Puerto Rico, a Puerto Rico commercial bank, R&G Mortgage
Corp., the second largest mortgage company in Puerto Rico, and Crown Bank, a
Federal Savings Bank, with offices in Central Florida. We are offering 2,000,000
shares of Class B common stock, and our majority stockholder (the "Selling
Stockholder") is offering 1,500,000 shares of Class B common stock. We will not
receive any proceeds from the sale of shares by the Selling Stockholder. Upon
consummation of such sale, the Selling Stockholder will own 43.71% of our stock
and continue to have voting control of our company.

Effective as of July 12, 2002, our Class B common stock is listed on the New
York Stock Exchange under the symbol "RGF." The last reported sale price of our
Class B common stock on July 29, 2002 was $20.03 per share.

BEFORE BUYING ANY OF THESE SHARES, YOU SHOULD CAREFULLY CONSIDER THE RISK
FACTORS DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE 10.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR COMMONWEALTH OF
PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF 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, DEPOSITS OR OBLIGATIONS OF ANY BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING LOSS OF THE
PRINCIPAL INVESTED.

PER SHARE TOTAL

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Public offering price $19.0000 $66,500,000
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Underwriting discounts and commissions $ 0.9975 $ 3,491,250
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Proceeds, before expenses, to R&G Financial $18.0025 $36,005,000
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Proceeds, before expenses, to the Selling Stockholder $18.0025 $27,003,750
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We have also granted the underwriters a 30-day option to purchase up to 525,000
shares of Class B common stock to cover over-allotments at the public offering
price per share less the underwriting discounts and commissions.

The underwriters are offering the shares of our Class B common stock as
described in "Underwriting." Delivery of the shares will be made on or about
August 2, 2002.

UBS WARBURG KEEFE, BRUYETTE & WOODS, INC.
FRIEDMAN BILLINGS RAMSEY SANDLER O'NEILL & PARTNERS, L.P.

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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 Class
B common 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.

TABLE OF CONTENTS
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Prospectus summary.................... 3
Risk factors.......................... 10
Forward-looking statements............ 14
Use of proceeds....................... 14
Price range of Class B common stock... 15
Dividend policy....................... 15
Capitalization........................ 16
Selected consolidated financial and
other data.......................... 17
Management............................ 20
Description of capital stock.......... 24
Taxation.............................. 27
Selling stockholder................... 33
Underwriting.......................... 34
Incorporation of certain documents by
reference........................... 36
Where you can find more information... 37
Legal matters......................... 37
Experts............................... 37

Prospectus summary

This summary provides an overview of selected information contained elsewhere in
this prospectus and does not contain all of 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 10.

Unless otherwise stated, all information in this prospectus assumes that the
underwriters will not exercise their over-allotment option to purchase any of
the 525,000 shares of Class B common stock subject to that option.

THE COMPANY

GENERAL
R&G Financial is a Puerto Rico chartered financial holding company that operates
R-G Premier Bank of Puerto Rico, a Puerto Rico commercial bank, and R&G Mortgage
Corp., the second largest mortgage company in Puerto Rico. Through R&G Mortgage,
we also operate The Mortgage Store of Puerto Rico, Inc., formerly Champion
Mortgage Corporation, a Puerto Rico mortgage company. R&G Financial also
operates Home & Property Insurance Corporation, a Puerto Rico insurance agency,
and R-G Investments Corporation, a licensed broker-dealer.

In order to continue our strategy of targeted growth in Hispanic (and
particularly Puerto Rican) markets within the continental United States, we
acquired The Crown Group, Inc., a Florida corporation, and its wholly-owned
subsidiary, Crown Bank, a Federal Savings Bank, in June 2002. As of March 31,
2002, The Crown Group had total assets of $664 million, total deposits of $461
million and stockholders' equity of $64 million. Crown Bank operates in the
Tampa-St. Petersburg-Clearwater and Orlando, Florida, metropolitan areas through
14 branches. Following the completion of the acquisition, we changed the name of
Crown Bank's holding company, which will now be our holding company for all U.S.
operations, to R&G Acquisition Holdings Corporation, and we transferred the
ownership of Continental Capital Corp., our New York and North Carolina-based
mortgage banking company, from R-G Premier Bank to Crown Bank in order to
consolidate our U.S. operations. We believe that a consolidated banking and
mortgage banking operation in the continental United States will permit us to
emulate the business model we have successfully employed in Puerto Rico. R&G
Acquisition Holdings also operates R&G Capital Trust I, a Delaware business
trust, which in April 2002 issued $25.0 million of trust preferred securities in
a private placement. We have guaranteed certain obligations of R&G Acquisition
Holdings to R&G Capital Trust I.

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. We securitize and sell various mortgage-
backed and related securities and hold and finance mortgage loans and
mortgage-backed and related securities for sale or investment. We also purchase
and sell 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, and in offering a
diversified range of deposit products and, to a lesser extent, trust and
investment services through our private banking department.

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
March 31, 2002, we had consolidated total assets of $4.8 billion, consolidated
total deposits of $2.0 billion and consolidated stockholders' equity of $534.4
million. We operate 68 branch offices, which are comprised of 26 bank branches
and 38 mortgage offices in Puerto Rico, mainly located in the northeastern
section of Puerto Rico, and four mortgage offices in the continental United
States, and through recently-acquired Crown Bank, we now operate 14 bank
branches in the Tampa-St. Petersburg-Clearwater and Orlando, Florida
metropolitan areas.

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 our net interest income by increasing our loans held for investment,
particularly single-family residential loans, and investment securities; (2)
expanding our retail banking franchise in order to achieve increased market
presence and to increase core deposits; (3) continuing the growth of our
mortgage banking activities, including the origination and sale of mortgage
loans, and growing our loan servicing operations; (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
continental United States; and (8) controlling growth and pursuing a variety of
acquisition opportunities when appropriate.

Our senior management is comprised of six executives with an average of 23 years
of experience in the financial services industry. Victor J. Galan, the Selling
Stockholder, is our Chairman and Chief Executive Officer, positions he has held
since our reorganization as a bank holding company in 1996. Mr. Galan is also
the founder and Chairman of R&G Mortgage, a position he has held since 1972.
During 2001, we promoted Ramon Prats, our Vice Chairman, to the office of
President. Prior to his promotion, Mr. Prats was Executive Vice President of R&G
Mortgage, a position he held since 1980. Joseph R. Sandoval has served as our
Chief Financial Officer since 1997. Previously, Mr. Sandoval was an accountant
with a predecessor to PricewaterhouseCoopers LLP. Mario Ruiz has been with R&G
Financial subsidiaries since 1990 and is presently Executive Vice President of
R-G Premier Bank. Mr. Ruiz previously served in various capacities for R&G
Mortgage and The Mortgage Store of Puerto Rico, Inc. Steven Velez has been with
R&G Mortgage since 1989 and is presently Executive Vice President of R&G
Mortgage. John A. Koegel has been with Crown Bank since its inception in 1985,
serving as its President and Chief Executive Officer. Since its acquisition by
R&G Financial, Mr. Koegel has served as Crown Bank's President.

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 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. 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. Prior to R&G Financial's acquisition of Crown Bank, R-G Premier Bank
also originated Federal Housing Administration, or FHA, insured, Veterans
Administration, or 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. In order to, among other
things, consolidate its U.S. operations, ownership of Continental Capital was
transferred to Crown Bank following completion of the acquisition of Crown Bank.

RESIDENTIAL LOANS
At March 31, 2002, R&G Financial's loans receivable, net, totaled $1.8 billion,
which represented 37.4% of R&G Financial's $4.8 billion of total assets. At such
date, all but $1.7 million 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 March 31, 2002, $934.4 million, or 48.5% of R&G Financial's total
loans held for investment, consisted of such loans, of which all but $1.0
million consisted of conventional loans.

CONSTRUCTION LOANS
R-G Premier Bank has been active in originating loans to construct single-family
residences. At March 31, 2002, retail construction loans amounted to $54.8
million, or 2.8% of R&G Financial's total loans held for investment, while
commercial construction and land acquisition loans amounted in the aggregate to
$266.8 million, or 13.8% of total loans held for investment. R-G Premier Bank
intends to continue to increase its involvement in single-family residential
construction lending.

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 March 31, 2002, $379.1 million, or 19.7% 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 1,666 loans with an average principal balance of approximately
$228,000. 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 March 31, 2002, consumer loans, which are primarily
secured by real estate, amounted to $177.5 million, or 9.2% of total loans held
for investment, and commercial business loans amounted to $80.5 million, or 4.2%
of total loans held for investment.

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, 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 three months ended March 31, 2002, and the years ended December 31,
2001, 2000 and 1999, R&G Mortgage originated a total of $374.2 million, $1.8
billion, $1.1 billion and $1.1 billion of residential mortgage loans,
respectively. These aggregate originations include loans originated by R&G
Mortgage directly for R-G Premier Bank of $155.6 million, $664.8 million, $451.4
million and $437.1 million during the three months ended March 31, 2002 and the
years ended December 31, 2001, 2000 and 1999, respectively, or 42%, 36%, 43% and
41%, 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 March 31, 2002, R&G Financial's servicing portfolio totaled
$7.3 billion and consisted of a total of 113,456 loans. These amounts include
R&G Mortgage's $6.8 billion servicing portfolio and Continental's $472.1 million
servicing portfolio. At March 31, 2002, R&G Financial's servicing portfolio
included $942.6 million of loans serviced for R-G Premier Bank, or 12.9% of the
total servicing portfolio. Substantially all of the mortgage loans in R&G
Financial's servicing portfolio are secured by residential (one-to-four family)
real estate located in Puerto Rico. R&G Mortgage generally retains the servicing
function with respect to the loans which have been securitized and sold.

SECURITIZATIONS
R&G Mortgage pools FHA and VA loans, which are then exchanged for
mortgage-backed securities which are guaranteed by the Government National
Mortgage Association, or 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,
or FNMA, and the Federal Home Loan Mortgage Corporation, or FHLMC, or to private
investors, or pooled and exchanged for FNMA or FHLMC mortgage-backed securities
which are generally sold to investors. During the three months ended March 31,
2002 and the years ended December 31, 2001, 2000 and 1999, R&G Financial sold
$277.6 million, $1.1 billion, $637.8 million and $721.0 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.

CROWN BANK
Crown Bank became our first banking institution in the continental United States
on June 7, 2002 upon completion of our acquisition. From an organizational
standpoint, we operate R&G Acquisition Holdings Corporation as a direct
subsidiary, which is a savings and loan holding company and the sole stockholder
of Crown Bank. Crown Bank operates 14 branch offices which primarily serve
individuals and small to mid-sized businesses in the Tampa-St.
Petersburg-Clearwater and Orlando, Florida, metropolitan areas. Crown Bank,
which was organized in 1985, provides traditional commercial banking services to
residents and businesses in and around Orlando and the west coast of Florida
from north of Clearwater to south of Fort Myers. The members of the existing
management team, led by John A. Koegel, who continues as President, have entered
into employment agreements with Crown Bank and will continue working for Crown
Bank. In connection with the acquisition, we have consolidated our U.S.
operations by transferring the ownership of Continental Capital Corp., our New
York and North Carolina-based mortgage bank, from R-G Premier Bank to Crown
Bank. We intend to offer the same products and services at Crown Bank as we do
at R-G Premier Bank. Of Crown Bank's $664 million of assets at March 31, 2002,
an aggregate of $473 million consisted of net loans receivable, which were
comprised of primarily conventional residential loans, commercial loans secured
by real estate, residential construction loans and consumer loans. At March 31,
2002, Crown Bank had a loan servicing portfolio of $2.6 billion. We are
currently revising and enhancing Crown Bank's policies and procedures in order
to ensure that they are consistent with the existing policies and procedures at
R-G Premier Bank.

We believe that the acquisition of Crown Bank will allow us to replicate our
Puerto Rico business model in Florida, particularly in areas of large Puerto
Rican and other Hispanic populations. We intend to integrate our existing
mortgage operations in the continental United States into Crown Bank. In
addition, the cost of deposits is generally lower in Florida than in Puerto
Rico.

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 the Office of the
Commissioner of Financial Institutions of Puerto Rico, or 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 Premier Bank is subject to the rules of the OCFI and the Federal Deposit
Insurance Corporation, or FDIC, and Crown Bank is subject to the rules of the
Office of Thrift Supervision, or OTS, and the FDIC. Among other things, R-G
Premier Bank and Crown Bank are subject to requirements on the type and amount
of credit each 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 or Crown Bank, deposits and administrative
expenses would be afforded a priority over general unsecured claims. In
addition, each bank's primary regulator is required to take "prompt corrective
action" if either bank does not meet minimum capital requirements. There are
established five capital tiers set forth in the applicable federal regulations
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 March 31, 2002, R-G Premier Bank met the capital measures for

being "well capitalized" under the applicable regulations and, as of the
effective date of the Crown Bank acquisition, Crown Bank also met the capital
measures for being "well capitalized."

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.

THE OFFERING
Class B common stock
offered............... 2,000,000 shares by R&G Financial and 1,500,000
shares by the Selling Stockholder(1)

Common stock
outstanding after this
offering(2)........... 14,553,056 shares of Class A common stock
18,745,249 shares of Class B common stock

New York Stock
Exchange symbol....... RGF

Use of proceeds....... We are raising funds in this offering primarily for
general corporate purposes and to support further
expansion of our operations both in Puerto Rico and
in the continental United States.

While we periodically engage in discussions with
companies and investment banking firms concerning
potential acquisition opportunities, we have no
present agreements or understandings with any
party, and there can be no assurance that we will
be successful in completing any acquisitions in the
future.

We will not receive any of the proceeds from the
sale of the Class B common stock by the Selling
Stockholder.

Dividends............. We currently pay a cash dividend of $0.08125 per
share of Class A and Class B common stock per
quarter, or $0.325 per share per year. The dividend
payment we declared for the quarter ended March 31,
2002, which was paid on June 27, 2002, represents
the 22nd consecutive increase in quarterly dividend
payments by us, which reflects every quarter since
our initial public offering in 1996. We pay the
same dividend per share to the holders of shares of
Class A common stock and Class B common stock. The
dividend rate and the continued payment of
dividends will depend on a number of factors. No
assurance can be given that we will continue to pay
dividends or that they will not be reduced in the
future.

Voting rights......... The rights of holders of our common stock are
identical, except that the Class A common stock is
entitled to two votes per share and the Class B
common stock is entitled to one vote per share.
Following the offering, Victor J. Galan, our
Chairman of the Board and Chief Executive Officer
and the Selling Stockholder, will own 43.71% of the
outstanding common stock and will be entitled to
exercise 60.83% of the outstanding voting rights
(43.03% and 60.17%, respectively, if the
underwriters' over-allotment option is exercised in
full).

Risk factors.......... Investing in our Class B common stock involves
certain risks, which are described under "Risk
factors" beginning on page 10.

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(1) We have two classes of outstanding common stock: Class A common stock,
which is unregistered and solely owned by Victor J. Galan, our Chairman
of the Board and Chief Executive Officer, who is the Selling
Stockholder; and Class B common stock, which is listed on the New York
Stock Exchange (the shares of Class A common stock and Class B common
stock are sometimes collectively referred to as the "common stock"). The
shares of Class A common stock are convertible into shares of Class B
common stock on a one-for-one basis. Only shares of Class B common stock
are being offered by this prospectus.
(2) Excludes 358,760 shares of common stock which are reserved for issuance
upon the exercise of outstanding options pursuant to our stock option
plan at exercise prices ranging between $4.03 and $16.13 per share.

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 common
stockholders' equity for the period. Both ratios have been computed using
month-end averages.

AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

BALANCE SHEET DATA
Total assets........................... $4,831,428 $3,671,472 $4,664,394 $3,539,444 $2,911,993 $2,044,782 $1,510,746
Loans receivable, net.................. 1,807,860 1,662,508 1,802,388 1,631,276 1,563,007 1,073,668 765,059
Deposits............................... 2,014,676 1,740,004 2,061,224 1,676,062 1,330,506 1,007,297 722,418
Stockholders' equity................... 534,382 389,463 459,121 308,836 269,535 221,162 138,054
Common stockholders' equity per
share................................. $ 10.27 $ 8.56 $ 10.07 $ 8.16 $ 6.79 $ 5.99 $ 4.88
INCOME STATEMENT DATA
Income before cumulative effect from
change in accounting principle, net of
taxes................................. $ 21,533 $ 13,329 $ 66,294 $ 43,633 $ 41,335 $ 34,034 $ 23,497
Diluted earnings per common share
before cumulative effect of change in
accounting principle.................. $ 0.58 $ 0.39 $ 1.85 $ 1.30 $ 1.28 $ 1.12 $ 0.81
OPERATING DATA
Loan production........................ $ 577,747 $ 528,096 $2,473,168 $1,729,373 $1,977,322 $1,426,069 $ 906,324
Loan servicing portfolio............... 7,311,066 6,791,561 7,224,571 6,634,059 6,177,511 4,827,798 3,000,888
PERFORMANCE RATIOS
Return on average assets............... 1.81% 1.48% 1.63% 1.34% 1.72% 1.95% 1.85%
Return on average common equity........ 23.17 19.31 20.77 18.00 20.23 21.32 18.69
Net interest margin.................... 2.92 2.18 2.59 2.16 2.60 2.72 3.12
ASSET QUALITY RATIOS
Non-performing assets to total assets
at end of period...................... 1.91% 3.19% 1.78% 2.96% 2.26% 2.41% 2.12%
Non-performing loans to total loans at
end of period(1)...................... 4.13 5.83 3.79 5.52 3.66 4.08 3.89
Allowance for loan losses to total
loans at end of period(2)............. 0.96 0.66 0.91 0.67 0.55 0.74 0.87
Allowance for loan losses to total
non-performing loans at end of
period(2)............................. 23.26 11.25 24.05 12.21 15.11 17.92 22.34
Net charge-offs to average loans
outstanding........................... 0.75(3) 0.35 0.32 0.17 0.25 0.55 0.40

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(1) The increase in the ratio since 1999 was partially caused by an
increasing amount of loan securitizations when compared to prior 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 March 31, 2002, December 31, 2001 and December 31,
2000, the ratio of non-performing loans to total loans would have been
2.85%, 2.75% and 4.46%, respectively.

(2) 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 March 31, 2002, December 31, 2001
and December 31, 2000 would have been 1.92% and 83.7%, respectively,
1.97% and 78.8%, respectively, and 1.67% and 73.7%, respectively.

(3) An aggregate of $1.8 million of the $3.9 million of net charge-offs
during the quarter relates to one commercial real estate loan. Net loan
charge-offs to average loans outstanding would otherwise have been 0.41%
for the quarter without the charge-off associated with such loan.

Risk factors

You should carefully read the following risk factors before you decide to buy
any Class B common stock. You should also consider the other information in this
prospectus and the documents that are incorporated by reference.

FLUCTUATIONS IN INTEREST RATES MAY IMPACT R&G FINANCIAL'S BUSINESS

The primary market risk affecting R&G Financial is interest rate fluctuations.
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;

- the gain on sale of loans;

- the value of securities holdings; and

-the value of our 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 sale of
loans. Demand for refinancings 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 on its borrowings while interest
earned on its assets does not rise as quickly, which 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 mortgage loans, 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 due to caps, which may limit the
amount of increase in 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 future fees expected to be received by R&G Financial
decreases. R&G Financial may be required to

11
RISK FACTORS

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 representations and warranties to the purchasers
and insurers of mortgage loans. If a borrower defaults on a mortgage loan and
there has been a breach of any of these 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 March 31, 2002, there were $559.2 million of
loans subject to such recourse provisions.

R&G FINANCIAL IS SUBJECT TO DEFAULT RISK IN CONNECTION WITH LOAN ORIGINATIONS OF
ITS BANKS
Both R-G Premier Bank and Crown Bank are subject to the risk of loss from
mortgage loan defaults and foreclosures with respect to the loans originated for
its respective portfolio. Notwithstanding the care with which loans are
originated, industry experience indicates that a portion of a bank's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by R-G Premier Bank
and Crown Bank, losses may be experienced as a result of various factors beyond
each 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 R-G Premier Bank and Crown Bank's loans in
Puerto Rico and Florida, respectively, adverse economic conditions in Puerto
Rico and Florida could result in a decrease in the value of either bank's loan
portfolio and underlying collateral. Although loan delinquencies have
historically been higher in Puerto Rico than in the continental United States,
loan charge-offs have historically been lower than in the continental United
States.

Each of R-G Premier Bank and Crown Bank has established 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 each bank's management utilizes its best judgment in
providing for loan losses, there can be no assurance that either 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 either bank. Any such increases in either bank's provisions for loan losses
or any loan losses in excess of its provisions with respect thereto could 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 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 Financial intends to continue this business
plan with Crown Bank in Florida. Banks generally charge higher interest rates on
commercial and residential construction loans than on residential mortgage
loans, because larger loan losses are expected in this business line. Generally,
commercial and construction loans are considered to be riskier than 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
and a construction loan depends, in the case of a commercial loan, 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

12
RISK FACTORS

operation of the project. If R-G Premier Bank or Crown Bank experienced loan
losses that are higher than 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 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 HAS HISTORICALLY BEEN CONCENTRATED IN PUERTO RICO, AND
ADVERSE CONDITIONS IN PUERTO RICO COULD NEGATIVELY IMPACT ITS OPERATIONS
R&G Financial's business activities and credit exposure have historically been
concentrated with customers in Puerto Rico. Accordingly, its financial condition
and results of operations have been dependent to a significant extent upon the
economic conditions prevailing 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 downturn 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. While the acquisition
of Crown Bank will facilitate a diversification of overall lending
concentration, Crown Bank will be subject to similar concentration risks in the
Florida markets in which it operates.

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 and Crown Bank are able to fund their operations through
deposits as well as through longer-term borrowings from the Federal Home Loan
Bank, and other alternative sources, the business of R&G Mortgage (and
Continental prior to the Crown Bank acquisition) has been 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. R&G Financial anticipates that Crown Bank will be a source of
funding to Continental in the future.

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 its
banks, any such borrowings would be subject to and limited by certain regulatory
restrictions which apply to transactions between banks and its affiliates,
including certain subsidiaries of R&G Financial.

RISKS RELATING TO CONCENTRATION OF OWNERSHIP AND DISPARATE VOTING RIGHTS
The shares of Class A common stock are entitled to two votes per share and the
shares of Class B common stock are entitled to one vote per share. Upon
completion of this offering (taking into consideration the sale of shares of
Class B common stock by the Selling Stockholder), Victor J. Galan, Chairman of
the Board and Chief Executive Officer and the Selling Stockholder, will own
43.71% of our outstanding

13
RISK FACTORS

common stock and will be entitled to exercise 60.83% of the outstanding voting
rights (43.03% and 60.17%, respectively, assuming full exercise of the
underwriters' over-allotment option). As a result, Mr. Galan will continue to
have the power to elect and remove all of R&G Financial's board of directors and
management and to determine the outcome of substantially all other matters to be
decided by a vote of stockholders. Mr. Galan's interest may not necessarily
always be consistent with the interests of all other stockholders.

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 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 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 continental 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 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.

CERTAIN PROVISIONS IN R&G FINANCIAL'S CERTIFICATE OF INCORPORATION AND BYLAWS
COULD DISCOURAGE AN ACQUISITION OF R&G FINANCIAL
In addition to the amount of common stock controlled by R&G Financial's Chairman
of the Board and Chief Executive Officer described above under "-- Risks
relating to concentration of ownership and disparate voting rights," certain
provisions of R&G Financial's certificate of incorporation and bylaws could have
the effect of discouraging non-negotiated takeover attempts, which certain
stockholders might deem to be in their interest, and make it more difficult for
stockholders of R&G Financial to remove members of its board of directors and
management. In addition, various federal laws and regulations could affect the
ability of a person, firm or entity to acquire R&G Financial or shares of its
common stock. See "Description of capital stock - Restrictions on Acquisition of
R&G Financial."

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, such as those made in R&G Financial's Current Reports on Form 8-K
filed with the Securities and Exchange Commission on April 15, 2002, April 23,
2002, June 7, 2002, June 18, 2002, July 3, 2002, July 11, 2002 and July 17,
2002. 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

Our net proceeds from the sale of our shares of Class B common stock are
estimated to be $35,719,286 ($45,170,598 if the underwriters' over-allotment
option is exercised in full), after deducting the underwriting discounts and
commissions and estimated offering expenses.

We will not receive any of the proceeds from the sale of shares of Class B
common stock by the Selling Stockholder. See "Underwriting" on page 34.

We are raising proceeds in this offering primarily for general corporate
purposes, and to support further expansion of our operations both in the
continental United States and in Puerto Rico. While we periodically engage in
discussions with companies and investment banking firms concerning potential
acquisition opportunities, we have no present agreements or understanding with
any party and there can be no assurance that we will be successful in completing
any acquisitions in the future.

Price range of Class B common stock

R&G Financial's Class B common stock was initially offered to the public on
August 22, 1996 at $4.03 per share (as adjusted for stock splits and dividends).
It traded from that date through July 11, 2002 on the Nasdaq Stock Market under
the symbol "RGFC." Our Class B common stock was listed on the New York Stock
Exchange effective as of July 12, 2002. The high and low sales prices of R&G
Financial's Class B common stock, as reported by Nasdaq through July 11, 2002
and by the New York Stock Exchange since July 12, 2002, and the dividends paid
by R&G Financial, in each case, during the last two years and through July 29,
2002, were as follows:

HIGH LOW DIVIDENDS PAID
------------------------------------------------------------------------------------------------

2000
-------------------------------------------------------
First Quarter.......................................... $12.0000 $ 7.6875 $ 0.04500
Second Quarter......................................... 9.5000 6.5000 0.04875
Third Quarter.......................................... 11.0000 7.8750 0.05250
Fourth Quarter......................................... 14.5000 8.6250 0.05650
2001
-------------------------------------------------------
First Quarter.......................................... 17.0000 12.6250 0.06000
Second Quarter......................................... 20.0000 14.1200 0.06375
Third Quarter.......................................... 20.9100 15.7000 0.06775
Fourth Quarter......................................... 19.2500 14.9300 0.07200
2002
-------------------------------------------------------
First Quarter.......................................... 22.1500 16.4000 0.07650
Second Quarter......................................... 25.2500 18.8200 0.08125
Third Quarter (through July 29, 2002).................. 23.5000 19.4800 --

On July 29, 2002, the last reported sale price of R&G Financial's Class B common
stock on the New York Stock Exchange was $20.03. As of July 26, 2002, there were
approximately 148 holders of record of R&G Financial's Class B common stock and
one holder of record of R&G Financial's Class A common stock.

Dividend policy

We currently pay a cash dividend of $0.08125 per share of Class A common stock
and Class B common stock per quarter, or $0.325 per share per year. Our dividend
payment for the quarter ended March 31, 2002, which was paid on June 27, 2002,
represents the 22nd consecutive increase in quarterly dividend payments we have
made since our initial public offering in 1996. We pay the same dividend to
holders of shares of Class A common stock and Class B common stock.

The dividend amount and the continued payment of dividends depends on a number
of factors, including our capital requirements, our financial condition and
results of operations, tax considerations, statutory and regulatory limitations
and general economic conditions. No assurance can be given that we will continue
to pay dividends or that they will not be reduced in the future.

Capitalization

The following table sets forth R&G Financial's unaudited consolidated
capitalization at March 31, 2002, and as adjusted to reflect the issuance of the
shares of Class B common stock offered by this prospectus and the application of
the net proceeds (after deducting the underwriting discounts and commissions and
estimated offering expenses) therefrom to R&G Financial, as if the sale of the
Class B common stock had been consummated on March 31, 2002. In addition to the
indebtedness reflected below, R&G Financial had total deposits of $2.0 billion
at March 31, 2002. The table does not reflect the $25.0 million of trust
preferred securities which were issued in April 2002 by R&G Capital Trust I, a
newly established, wholly-owned subsidiary of R&G Acquisition Holdings
Corporation. We have guaranteed certain obligations of R&G Acquisition Holdings
to R&G Capital Trust I. The table also 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.

AT MARCH 31, 2002
------------------------------
ACTUAL AS ADJUSTED
--------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)

Borrowings(1)............................................... $2,165,678 $2,165,678
---------- ----------
Stockholders' equity(2):
Preferred stock, $0.01 par value, 10,000,000 shares
authorized:
2,000,000 shares of Series A preferred stock
outstanding........................................... $ 50,000 $ 50,000
1,000,000 shares of Series B preferred stock
outstanding........................................... 25,000 25,000
2,760,000 shares of Series C preferred stock
outstanding........................................... 69,000 69,000
2,760,000 shares of Series D preferred stock
outstanding........................................... 69,000 69,000
Common stock, $0.01 par value:
Class A common stock, 40,000,000 shares authorized,
16,053,056 shares issued and outstanding.............. 161 146
Class B common stock, 40,000,000 shares authorized,
15,245,249 shares issued and outstanding.............. 152 187
Additional paid-in capital................................ 68,891 104,590
Retained earnings......................................... 246,041 246,041
Capital reserves of R-G Premier Bank...................... 11,629 11,629
Accumulated other comprehensive (loss) income............. (5,492) (5,492)
---------- ----------
Total stockholders' equity........................ $ 534,382 $ 570,101
========== ==========
Common stockholders' equity per share............. $ 10.27 $ 10.72
========== ==========

---------------

(1) Includes securities sold under agreements to repurchase, notes payable,
Federal Home Loan Bank advances and other borrowings.
(2) At our 2002 annual stockholders' meeting held on April 30, 2002, our
stockholders authorized an amendment to our certificate of incorporation
which increased our authorized preferred stock to 20,000,000 shares and
our authorized Class B common stock to 60,000,000 shares.

Selected consolidated financial and other 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 for the year ended December 31, 2001, and
its quarterly report on Form 10-Q for the three months ended March 31, 2002,
incorporated by reference into this prospectus. The consolidated financial
information for the three-month periods ended March 31, 2002 and 2001 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 three-month period ended March 31, 2002 are not
necessarily indicative of R&G Financial's results for the full year.

AT OR FOR THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

SELECTED BALANCE SHEET DATA
Total assets(1)............... $ 4,831,428 $ 3,671,472 $ 4,664,394 $ 3,539,444 $ 2,911,993 $ 2,044,782 $ 1,510,746
Loans receivable, net......... 1,807,860 1,662,508 1,802,388 1,631,276 1,563,007 1,073,668 765,059
Mortgage loans held for
sale......................... 256,927 152,507 236,434 95,668 77,277 117,126 46,885
Mortgage-backed and investment
securities held for
trading...................... 77,966 102,210 93,948 12,038 43,564 450,546 401,039
Mortgage-backed securities
available for sale........... 1,630,273 1,044,323 1,482,947 1,150,100 712,705 95,040 46,004
Mortgage-backed securities
held to maturity............. 50,683 19,035 51,946 19,818 23,249 28,255 33,326
Investment securities
available for sale........... 610,498 405,935 598,732 368,271 258,164 59,502 75,863
Investment securities held to
maturity..................... 23,686 3,668 23,686 3,703 5,438 6,344 10,693
Servicing assets.............. 104,815 97,451 105,147 95,079 84,253 58,221 21,213
Cash and cash
equivalents(2)............... 145,017 85,553 157,725 69,090 65,996 103,728 68,366
Deposits...................... 2,014,676 1,740,004 2,061,224 1,676,062 1,330,506 1,007,297 722,418
Securities sold under
agreements to repurchase..... 1,439,618 892,318 1,396,939 827,749 731,341 471,422 433,135
Notes payable................. 187,700 173,076 195,587 138,858 132,707 182,748 103,453
Other borrowings(3)........... 538,360 417,465 472,097 538,840 408,843 130,000 91,359
Common stockholders' equity... 534,382 389,463 459,121 308,836 269,535 221,162 138,054
Common stockholders' equity
per share(4)................. $ 10.27 $ 8.56 $ 10.07 $ 8.16 $ 6.79 $ 5.99 $ 4.88
SELECTED INCOME STATEMENT DATA
Revenue:
Net interest income.......... $ 32,005 $ 18,167 $ 97,045 $ 64,987 $ 56,578 $ 43,973 $ 36,530
Provision for loan losses.... (5,000) (2,000) (11,125) (5,751) (4,525) (6,600) (6,370)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses..................... 27,005 16,167 85,920 59,236 52,053 37,373 30,160
Loan administration and
servicing fees............. 9,304 8,023 33,920 30,849 27,109 15,987 13,214
Net gain on sale of loans.... 17,710 15,038 62,512 41,230 37,098 34,955 23,286
Other(5)..................... 3,872 2,525 12,615 7,231 6,604 5,528 4,605
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues............... 57,891 41,753 194,967 138,546 122,864 93,843 71,265
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Compensation and benefits.... 10,008 7,550 33,290 27,031 24,433 17,095 13,653
Occupancy expenses........... 4,262 3,902 16,649 13,436 11,289 8,987 7,131
Other administrative and
general expenses........... 15,926 11,876 57,133 40,325 33,568 22,687 18,252
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses............... 30,196 23,328 107,072 80,792 69,290 48,769 39,036
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes and
cumulative effect from change
in accounting principle...... 27,695 18,425 87,895 57,754 53,574 45,074 32,229
Income taxes.................. 6,162 5,096 21,601 14,121 12,239 11,040 8,732
----------- ----------- ----------- ----------- ----------- ----------- -----------

18
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

SELECTED INCOME STATEMENT DATA
(CONTINUED)
Income before cumulative
effect from change in
accounting principle......... 21,533 13,329 66,294 43,633 41,335 34,034 23,497
Cumulative effect from change
in accounting principle, net
of income taxes.............. -- (323) (323) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.................... 21,533 13,006 65,971 43,633 41,335 34,034 23,497
Less: Dividends on preferred
stock........................ (3,095) (1,759) (9,920) (5,638) (3,754) (1,234) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income available to common
stockholders................. $ 18,438 $ 11,247 $ 56,051 $ 37,995 $ 37,581 $ 32,800 $ 23,497
=========== =========== =========== =========== =========== =========== ===========
Basic earnings per common
share before cumulative
effect from change in
accounting principle(4)...... $ 0.59 $ 0.40 $ 1.89 $ 1.33 $ 1.31 $ 1.15 $ 0.83
=========== =========== =========== =========== =========== =========== ===========
Diluted earnings per common
share before cumulative
effect from change in
accounting principle(4)...... $ 0.58 $ 0.39 $ 1.85 $ 1.30 $ 1.28 $ 1.12 $ 0.81
=========== =========== =========== =========== =========== =========== ===========
Basic earnings per common
share(4)..................... $ 0.59 $ 0.39 $ 1.88 $ 1.33 $ 1.31 $ 1.15 $ 0.83
=========== =========== =========== =========== =========== =========== ===========
Diluted earnings per common
share(4)..................... $ 0.58 $ 0.38 $ 1.83 $ 1.30 $ 1.28 $ 1.12 $ 0.81
=========== =========== =========== =========== =========== =========== ===========
SELECTED OPERATING DATA(6)

PERFORMANCE RATIOS AND OTHER
DATA
Loan production............... $ 577,747 $ 528,096 $ 2,473,168 $ 1,729,373 $ 1,977,322 $ 1,426,069 $ 906,324
Mortgage servicing
portfolio.................... 7,311,066 6,791,561 7,224,571 6,634,059 6,177,511 4,827,798 3,000,888
Return on average assets...... 1.81% 1.48% 1.63% 1.34% 1.72% 1.95% 1.85%
Return on average common
equity....................... 23.17 19.31 20.77 18.00 20.23 21.32 18.69
Equity to assets at end of
period....................... 11.06 10.61 9.84 8.73 9.26 10.82 9.13
Interest rate spread(7)....... 2.68 1.95 2.33 1.96 2.40 2.43 2.88
Net interest margin(7)........ 2.92 2.18 2.59 2.16 2.60 2.72 3.12
Average interest-earning
assets to average
interest-bearing
liabilities.................. 106.46 104.25 105.56 103.54 104.21 105.93 104.61
Total non-interest expenses to
average total assets......... 2.54 2.59 2.64 2.49 2.88 2.80 3.08
Cash dividends declared per
common share(4).............. $ 0.077 $ 0.060 0.264 $ 0.203 $ 0.149 $ 0.111 $ 0.065

ASSET QUALITY RATIOS(8)
Non-performing assets to total
assets at end of period...... 1.91% 3.19% 1.78% 2.96% 2.26% 2.41% 2.12%
Non-performing loans to total
loans at end of period(9).... 4.13 5.83 3.79 5.52 3.66 4.08 3.89
Allowance for loan losses to
total loans at end of
period(10)................... 0.96 0.66 0.91 0.67 0.55 0.74 0.87
Allowance for loan losses to
total non-performing loans at
end of period(10)............ 23.26 11.25 24.05 12.21 15.11 17.92 22.34
Net charge-offs to average
loans outstanding............ 0.75(11) 0.35 0.32 0.17 0.25 0.55 0.40

R-G PREMIER BANK REGULATORY
CAPITAL RATIOS(12)
Tier 1 risk-based capital
ratio........................ 12.04% 13.29% 11.35% 11.37% 12.36% 13.41% 13.10%
Total risk-based capital
ratio........................ 12.86 14.05 12.11 12.15 13.08 14.46 14.00
Tier 1 leverage capital
ratio........................ 6.62 7.05 6.44 6.04 7.07 8.04 7.34

19
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

---------------

(1) At March 31, 2002, R&G Mortgage and R-G Premier Bank had total assets of
$834.5 million and $4.0 billion, respectively, before consolidation.
(2) Comprised of cash and cash 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 since 1999 was partially caused by an increasing
amount of loan securitizations when compared to prior periods, 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 March 31, 2002, December 31, 2001 and December 31, 2000, the ratio of
non-performing loans to total loans would have been 2.85%, 2.75% and 4.46%,
respectively.
(10) Because of the nature of the collateral, R&G Financial'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 March 31,
2002, December 31, 2001 and December 31, 2000 would have been 1.92% and
83.7%, respectively, 1.97% and 78.8%, respectively, and 1.67% and 73.7%,
respectively.
(11) An aggregate of $1.8 million of the $3.9 million of net charge-offs during
the quarter relates to one commercial real estate loan. Net loan
charge-offs to average loans outstanding would otherwise have been 0.41%
for the quarter without the charge-off associated with such loan.
(12) All of such ratios were in compliance with the applicable regulatory
requirements.

Management

The following table presents information concerning the directors of R&G
Financial and executive officers of R&G Financial and its subsidiary companies.

NAME AGE(1) TITLE
---- ------ -----

Victor J. Galan........................... 68 Chairman of the Board and Chief Executive
Officer
Ramon Prats............................... 52 Vice Chairman of the Board and President
Joseph R. Sandoval........................ 38 Senior Vice President and Chief Financial
Officer
Ana M. Armendariz......................... 69 Director and Treasurer
Enrique Umpierre-Suarez................... 60 Director and Secretary
Victor L. Galan........................... 38 Director and Vice President of Loan
Production Marketing and Business
Development -- R&G Mortgage
Pedro Ramirez............................. 59 Director
Laureno Carus Abarca...................... 72 Director
Eduardo McCormack......................... 73 Director
Gilberto Rivera-Arreaga................... 52 Director
Benigno R. Fernandez...................... 61 Director
Ileana M. Colon-Carlo..................... 53 Director
Roberto Gorbea............................ 60 Director
Mario Ruiz................................ 39 Executive Vice President -- R-G Premier
Bank
Steven Velez.............................. 44 Executive Vice President -- R&G Mortgage
Victor M. Irizarry........................ 53 Senior Vice President and Chief Lending
Officer -- R-G Premier Bank
Pedro J. Serralles, IV.................... 53 Principal -- R&G Investments Corporation
Jean Francois Dumazet..................... 36 President -- Home and Property Insurance
Corporation
Michael Wallace, Jr....................... 40 Chief Executive Officer -- Continental
Capital Corporation
John A. Koegel............................ 55 President -- Crown Bank

---------------

(1) As of June 18, 2002

Information concerning the principal occupation of directors of R&G Financial
and executive officers of R&G Financial and its subsidiaries during the past
five years is set forth below.

VICTOR J. GALAN
Mr. Galan is Chairman of the Board and Chief Executive Officer of R&G Financial,
positions he has held since R&G Financial's incorporation in March 1996. Mr.
Galan also served as R&G Financial's President from its incorporation until
January 2001. Mr. Galan is the founder and Chairman of the Board of R&G
Mortgage, a position he has held since 1972. Mr. Galan is also the Chairman of
the Board and Chief Executive Officer of R-G Premier Bank, a position he has
held since R-G Premier Bank was first acquired by R&G Mortgage in February 1990,
Chairman of the Board of The Mortgage Store of Puerto Rico, Inc., a subsidiary
of R&G Mortgage, since the inception of its predecessor in October 1997
(Mortgage Store of Puerto Rico, Inc. and its predecessor, "The Mortgage Store"),
Chairman of the Board of Continental since its acquisition in October 1999 and
Chairman of the Board of Crown Bank since its acquisition in June 2002. During
the first full year following the acquisition of Crown Bank, Mr. Galan intends
to spend a substantial amount of his working time in Florida assisting with the
integration of Crown Bank.

21
MANAGEMENT

RAMON PRATS
Mr. Prats has been the Vice Chairman of the Board of Directors of R&G Financial
since April 1996 and served as its Executive Vice President from such date until
January 2001. In January 2001, Mr. Prats became President of R&G Financial, R&G
Mortgage and R-G Premier Bank. Mr. Prats has served as a Director of R&G
Mortgage since April 1985 and has been Executive Vice President of R&G Mortgage
and The Mortgage Store since February 1980 and October 1997, respectively. Mr.
Prats also currently serves as Vice Chairman of the Board of Directors of R-G
Premier Bank, a position he has held since February 1990, and as a director of
Continental since October 1999 and Crown Bank since June 2002.

JOSEPH R. SANDOVAL
Mr. Sandoval joined R&G Financial as its Chief Financial Officer in January
1997, and has been a Director and the Secretary of Continental and R&G
Acquisition Holdings Corporation since October 1999 and June 2002, respectively.
Prior thereto, Mr. Sandoval was an accountant with PriceWaterhouse LLP (a
predecessor firm to PricewaterhouseCoopers LLP) in San Juan, Puerto Rico from
August 1987 to January 1997 and had attained the position of Senior Manager with
such firm.

ANA M. ARMENDARIZ
Ms. Armendariz has been a Director and Treasurer of R&G Financial since April
1996, and Secretary of R&G Mortgage since January 1984. Ms. Armendariz had been
the Senior Vice President and Controller of The Mortgage Store since October
1997, until her retirement in June 2002.

ENRIQUE UMPIERRE-SUAREZ
Mr. Umpierre-Suarez has been a Director of R&G Financial and its Secretary since
April 1996, a Director of R-G Premier Bank since January 1996 and a Director of
The Mortgage Store since October 1997. Mr. Umpierre-Suarez has also served as
Secretary of R-G Premier Bank since April 1996 and of The Mortgage Store since
October 1997. Mr. Umpierre-Suarez is an attorney in private practice in Hato
Rey, Puerto Rico and is also engaged in the private practice of engineering in
Hato Rey, Puerto Rico.

VICTOR L. GALAN
Mr. Galan has been a Director of R&G Financial since April 1996, a Director of
R&G Mortgage since June 1996, a Director of R-G Premier Bank since 1995 and a
Director of The Mortgage Store since October 1997. In January 2001, Mr. Galan
became the Vice President of Loan Production Marketing and Business Development
of R&G Mortgage. Mr. Galan was the Vice President of The Mortgage Store from
October 1998 until January 2001. Previously, Mr. Galan was the Vice President of
Branch Administration of R&G Mortgage from June 1997 to October 1998, and prior
thereto was the Marketing Manager and Vice President of R&G Mortgage from
February 1996 to June 1997. Mr. Galan, the son of Victor J. Galan, the Chairman
of the Board and Chief Executive Officer of R&G Financial, has been associated
with R&G Mortgage since 1982, having served as Branch Manager at various
locations since 1992.

PEDRO RAMIREZ
Mr. Ramirez has been a Director of R&G Financial since April 1996, a Director of
R&G Mortgage since June 1996 and a Director of R-G Premier Bank since 1990. Mr.
Ramirez has been President and Chief Executive Officer of Empresas Nativas,
Inc., a real estate development company, in Hato Rey, Puerto Rico, since 1983.
Mr. Ramirez also currently serves as Vice President of Inverdec, Inc., a real
estate development company in Hato Rey, Puerto Rico, a position he has held
since April 1992, and has been the Managing Partner of Ramirez & Co., S.E., a
real estate development company located in Hato Rey, since April 1986.

LAURENO CARUS ABARCA
Mr. Carus has been a Director of R&G Financial since April 1996, a director of
R&G Mortgage since June 1996 and a Director of R-G Premier Bank (and its
predecessor) since 1983. Mr. Carus has been the Chairman of the Board of Alonso
and Carus Iron Works, Inc. in Catano, Puerto Rico, which is engaged in the
production and fabrication of metal products and in the construction of
commercial buildings, since September 1977, and he has been with the firm since
1960. Mr. Carus has also been President of Petroleum Chemical Corp., a petroleum
processing corporation in Catano, Puerto Rico, since April 1994.

22
MANAGEMENT

EDUARDO MCCORMACK
Mr. McCormack has been a Director of R&G Financial since April 1996, a Director
of R&G Mortgage since June 1996 and a Director of R-G Premier Bank since 1990.
Mr. McCormack has been the President of EMP Omega Corporation in San Juan,
Puerto Rico, a fructose importer and distributor, since June 1999. During 1994
and 1995, he served as a consultant to Bacardi Corporation, a rum manufacturer
based in Catano, Puerto Rico. Prior thereto, Mr. McCormack was a Vice President
of Bacardi Corporation from 1981 to 1993.

GILBERTO RIVERA-ARREAGA
Mr. Rivera-Arreaga has been a Director of R&G financial since April 1996, a
Director of R&G Mortgage and R-G Premier Bank since June 1996 and a Director of
Crown Bank since May 2002. Mr. Rivera-Arreaga has been Executive Vice President
of the National College of Business & Technology, Inc., a post-secondary
institution with campuses in Bayamon and Arecibo, Puerto Rico, since 1993. Prior
thereto, Mr. Rivera-Arreaga engaged in the private practice of law in Bayamon,
Puerto Rico.

BENIGNO R. FERNANDEZ
Mr. Fernandez has been a Director of R&G Financial since April 1996 and a
Director of R&G Mortgage and R-G Premier Bank since June 1996. Mr. Fernandez is
Senior Partner of Fernandez, Perez Villarini & Co., a certified public
accounting firm in Hato Rey, Puerto Rico. Mr. Fernandez has been a certified
public accountant since 1969.

ILEANA M. COLON-CARLO
Ms. Colon-Carlo has been a Director of R&G Financial since July 1998. Ms.
Colon-Carlo has been a member of the Board of Trustees of Central University of
Bayamon, Puerto Rico, and an Accounting Professor in the Graduate School of
Business Administration since January 1998. Prior thereto, Ms. Colon-Carlo
served as Comptroller of the Commonwealth of Puerto Rico from 1987 to 1997. Ms.
Colon-Carlo is a past President of the Puerto Rico Certified Public Accountants
State Society and past member of the Commonwealth of Puerto Rico Board of
Accountancy. Additionally, Ms. Colon-Carlo is a past member of the board of
directors of the Puerto Rico Chamber of Commerce.

ROBERTO GORBEA
Mr. Gorbea has been a Director of R&G Financial since July 1998. Mr. Gorbea has
been President, Chief Executive Officer and member of the board of directors of
Lord Electric Company of Puerto Rico, Inc., San Juan, Puerto Rico, which
constructs industrial, electrical and mechanical systems, since 1984.

MARIO RUIZ
In January 2001, Mr. Ruiz became Executive Vice President of R-G Premier Bank.
Mr. Ruiz previously had been Senior Vice President of Secondary Markets of R&G
Mortgage since December 1996 and Director and Senior Vice President of The
Mortgage Store since October 1997. Mr. Ruiz served as Vice
President -- Secondary Market of R&G Mortgage from 1990 to December 1996.

STEVEN VELEZ
In January 2001, Mr. Velez became Executive Vice President of R&G Mortgage. Mr.
Velez previously had been Senior Vice President of Underwriting and Technology
of R&G Mortgage since June 1997. Previously, Mr. Velez served as Vice President
of Underwriting and Technology of R&G Mortgage. Mr. Velez has been with R&G
Mortgage since October 1989.

VICTOR M. IRIZARRY
In January 2001, Mr. Irizarry became the Chief Lending Officer of R-G Premier
Bank. Mr. Irizarry previously had been Senior Vice President of Corporate and
Construction Lending since joining R-G Premier Bank in May 1999. Prior to that,
Mr. Irizarry was Senior Vice President -- Commercial Banking at another
financial institution from September 1992 to April 1999.

23
MANAGEMENT

PEDRO J. SERRALLES, IV
Mr. Serralles is Principal of R&G Investments Corporation, a position he assumed
in April 2001. Previously, Mr. Serralles worked for Morgan Stanley Dean Witter &
Co. and its predecessor Dean Witter Reynolds, Inc. since 1990, most recently as
Senior Vice President. Mr. Serralles has over 26 years of brokerage experience.

JEAN FRANCOIS DUMAZET
Mr. Dumazet joined R&G Financial as President of Home & Property Insurance
Corporation in connection with R&G Financial's acquisition of Home & Property
Insurance Corporation in November 2000. Mr. Dumazet was the owner and President
of Home and Property Insurance Corporation since 1999, and President of Cosmair
Caribe, Inc., Loreal Group's marketing and distribution subsidiary in the
Caribbean, from 1993 to 1999.

MICHAEL WALLACE, JR.
Mr. Wallace joined R&G Financial as Chief Executive Officer of Continental in
connection with the acquisition of Continental in October 1999. Mr. Wallace
co-founded Continental in 1984 and served as its Chairman and Chief Executive
Officer since its formation.

JOHN A. KOEGEL
Mr. Koegel joined R&G Financial as the President of Crown Bank in connection
with the acquisition of Crown Bank in June 2002. Mr. Koegel served as President
and Chief Executive Officer and as a director of Crown Bank since its inception
in 1985.

Description of capital stock

GENERAL

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 Corporations Law of Puerto Rico.

COMMON STOCK

R&G Financial's common stock is divided into 40,000,000 shares of Class A common
stock, of which as of March 31, 2002, 16,053,056 shares were owned by Victor J.
Galan, Chairman of the Board and Chief Executive Officer of R&G Financial, and
60,000,000 shares of Class B common stock, of which as of such date, 15,245,249
shares of Class B common stock were outstanding and held primarily by members of
the general public.

R&G Financial's shares of Class B common stock are listed on the New York Stock
Exchange under the symbol "RGF." From the time of its initial public offering in
1996 until July 11, 2002, R&G Financial's Class B common stock was traded 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 shares of Class A common stock and shares of Class
B common stock generally vote as a single class on all matters submitted to a
vote of the stockholders, including the election of directors. Holders of shares
of Class A common stock are entitled to two votes per share and holders of
shares of Class B common stock are entitled to one vote per share.

Each record holder of Class A common stock is entitled to convert any or all of
the shares of Class A common stock held by such holder into shares of Class B
common stock at the rate of one share of Class B common stock for each share of
Class A common stock so converted. The shares of Class B common stock do not
carry any conversion rights.

Subject to any dividend preferences which may be established with respect to any
series of preferred stock, holders of shares of Class A common stock and Class B
common stock 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.

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 holders of R&G Financial's Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D preferred
stock 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

R&G Financial has authorized 20,000,000 shares of preferred stock, par value
$0.01 per share. R&G Financial has issued 2,000,000 shares of Series A Preferred
Stock, 1,000,000 shares of Series B Preferred Stock, 2,760,000 shares of Series
C Preferred Stock and 2,760,000 shares of Series D Preferred Stock, each of
which ranks pari passu with respect to each other series of preferred stock.
Each outstanding series

25
DESCRIPTION OF CAPITAL STOCK

of Preferred Stock trades on the Nasdaq Stock Market. Except with respect to the
dividend rate and redemption and maturity dates, each series of preferred stock
has terms which are substantially the same. 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 90
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 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 Corporations 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,

26
DESCRIPTION OF CAPITAL STOCK

employee or agent of R&G Financial in defending any civil or 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 only 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
our 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 to, 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 then, to the extent required by law, 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 as set
forth in the certificate of incorporation, as described in the prior sentence.

OTHER RESTRICTIONS ON ACQUISITION OF R&G FINANCIAL
Under the Change in Bank Control Act, or 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 of 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 R&G Financial
and its banks, 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
is generally 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 stockholders and any public interest
considerations.

Taxation

GENERAL

The following is a summary of the material United States federal income tax and
Puerto Rico tax considerations relating to the purchase, ownership and
disposition of the Class B common stock. This summary is not a comprehensive
description of all the tax considerations that may be relevant to a decision to
purchase the Class B common stock and does not describe any tax consequences
arising under the laws of any state, locality or taxing jurisdiction other than
the United States and Puerto Rico.

This summary is based on the tax laws of the United States, including the
Internal Revenue Code of 1986, as amended (the "Code"), and of Puerto Rico,
including the Internal Revenue Code of 1994, as amended 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 (the "U.S. Treasury
Regulations"), of the Puerto Rico Treasury Department, 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.

Prospective purchasers of the Class B common stock should consult their own tax
advisors as to the United States, Puerto Rico or other tax consequences of the
purchase, ownership and disposition of the Class B common stock, including
special rules applicable to particular taxpayers, such as life insurance
companies, partnerships, registered investment companies, certain pension
trusts, tax-exempt entities, dealers in securities, traders in securities that
elect to use a mark-to-market method of accounting for their securities
holdings, financial institutions, persons liable for the alternative minimum
tax, persons who hold Class B common stock as part of a straddle or hedging, or
a conversion transaction; or to persons whose functional currency is not the
U.S. dollar or who own actually or constructively 10% or more of R&G Financial's
voting stock. Prospective purchasers should also consult their own tax advisors
with respect to the application of any state, local, foreign or other taxes.

UNITED STATES TAXATION

The following discussion addresses only Class B common stock held by initial
purchasers as a capital asset within the meaning of Section 1221 of the Code. As
used herein, the term "U.S. Holder" means a beneficial owner of Class B common
stock that is, for United States federal income tax purposes, an individual who
is a citizen or resident of the United States, a corporation organized under the
laws of the United States, any state thereof or 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 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 or residents of the United States nor does it include a corporation
organized under the laws of Puerto Rico (a "PR Corporation"). 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 within the meaning
of Section 933 of the Code and U.S. Treasury Regulations thereunder.

OWNERSHIP AND DISPOSITION OF CLASS B COMMON STOCK

TAXATION OF DIVIDENDS

General
Dividends on the Class B common 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 was or was treated as
effectively connected with a trade or business within the United States. Since
its incorporation in 1996, less than 25% of R&G Financial's gross income has
been effectively connected with the conduct of a trade or business in the United
States, and R&G Financial expects to satisfy such gross income test on an
ongoing basis. Accordingly, dividends on the Class B common stock distributed by
R&G Financial will

28
TAXATION

constitute gross income from sources outside the United States so long as R&G
Financial continues to meet such gross income test.

U.S. Holders other than Puerto Rico U.S. Holders
Subject to the passive foreign investment company ("PFIC") rules discussed
below, distributions made in respect of Class B common 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 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. The amount received as a
distribution, the dividend, is ordinary income that a U.S. Holder must include
in income when a U.S. Holder receives the dividend, actually or constructively.
These dividends will not be eligible for the dividends received deduction
generally allowed to U.S. Holders that are corporations. To the extent, if any,
that the amount of any 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 capital
to the extent of the U.S. Holder's tax basis in the Class B common stock and
thereafter as capital gain, which capital gain will be treated as long-term gain
if the U.S. Holder has held the Class B common stock for more than one year.

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. For purposes of
calculating a U.S. Holder's United States foreign tax credit limitation,
dividends distributed by R&G Financial will, except as noted below, generally
constitute foreign source "passive income" or foreign source "financial services
income," which is treated separately from other types of income for purposes of
these rules. Under a special rule, certain types of foreign source income,
including certain dividends, derived by United States persons from a United
States-owned foreign corporation (a "USOFC"), as defined in Section 904(g)(6) of
the Code, are recharacterized as United States source income for purposes of the
foreign tax credit limitation rules. A foreign corporation, including a PR
Corporation, will be considered a USOFC if United States persons own 50% or more
of the total voting power or value of the stock of the foreign corporation.
Dividends received from a USOFC are considered United States source dividends to
the extent such dividends are paid from the USOFC's United States source
earnings and profits determined under Section 904(g)(4) of the Code, unless less
than 10% of the USOFC's earnings and profits for the taxable year is
attributable to sources within the United States. R&G Financial is currently a
USOFC, and therefore dividends paid by it to a U.S. Holder will be
recharacterized as United States source income for purposes of calculating the
U.S. Holder's foreign tax credit limitation, as determined under Section
904(g)(4) of the Code, to the extent that such dividends are paid out of R&G
Financial's United States source earnings and profits and provided 10% or more
of R&G Financial's earnings and profits is attributable to sources within the
United States. Although there can be no certainty, R&G Financial believes that
less than 10% of its earnings and profits for the current taxable year will be
attributable to United States sources. However, there can be no assurances that
for future taxable years less than 10% of R&G Financial's earnings and profits
will be attributable to United States sources.

Puerto Rico U.S. Holders
Subject to the PFIC rules discussed below, in general, dividends paid in respect
of the Class B common stock will constitute gross income from sources within
Puerto Rico under the Code and therefore, when received by a Puerto Rico U.S.
Holder, will not be includable in the stockholder's gross income and will be
exempt from United States federal income taxation. In addition, for United
States federal income tax purposes, no deduction or credit that is allocable to
or chargeable against amounts so excluded from the Puerto Rico U.S. Holder's
gross income will be allowed.

PR Corporations
In general, distributions of dividends made by R&G Financial in respect of the
Class B common stock to a PR Corporation will not, in the hands of the PR
Corporation, be subject to United States federal income tax if the dividends are
not effectively connected with a United States trade or business of the PR
Corporation. Special rules apply to foreign corporations, including a PR
Corporation, and, in certain cases, their

29
TAXATION

U.S. shareholders, to the extent the corporation is a "controlled foreign
corporation," "personal holding company," "foreign personal holding company," or
PFIC, each as defined in the Code.

TAXATION OF SALES OR OTHER DISPOSITIONS

U.S. Holders other than Puerto Rico U.S. Holders
Subject to the PFIC rules discussed below, and certain other rules applicable to
U.S. shareholders of foreign corporations, a U.S. Holder, other than a Puerto
Rico U.S. Holder, will generally recognize capital gain or loss on the sale or
other disposition of Class B common stock, in an amount equal to the difference
between the U.S. Holder's adjusted tax basis in the Class B common stock and the
amount realized on the sale or other disposition. Such gain will be treated as
long-term capital gain if the U.S. Holder has held the Class B common stock for
more than one year.

Gain or loss recognized by a U.S. Holder on the sale or other disposition of
Class B common stock generally will be treated as United States source income or
loss for foreign tax credit limitation purposes.

Puerto Rico U.S. Holders
Subject to the PFIC rules discussed below, in general, gain from the sale or
exchange of the Class B common stock by a Puerto Rico U.S. Holder with a tax
home in Puerto Rico will constitute income from sources within Puerto Rico, will
not be includable in the stockholder's gross income for United States federal
income tax purposes, and will be exempt from United States federal income
taxation. 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 will be allowed. If a Puerto Rico U.S. Holder does not have a tax home in
Puerto Rico or another foreign country, he generally will be subject to U.S.
federal income tax as an individual U.S. Holder.

PR Corporations
In general, any gain derived by a PR Corporation from the sale or exchange of
the Class B common stock will not, in the hands of the PR Corporation, be
subject to United States federal income tax if the gain is not effectively
connected with a United States trade or business of the PR Corporation. The Code
provides special rules for foreign corporations, including a PR Corporation and,
in certain cases, their U.S. shareholders to the extent that such foreign
corporation is a "controlled foreign corporation," "personal holding company,"
"foreign personal holding company," or "PFIC," each as defined in the Code.

INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain noncorporate U.S. Holders other than Puerto Rico U.S. Holders generally
will be subject to information reporting requirements on IRS Form 1099 and may
be subject to backup withholding on dividends paid on or the proceeds of a sale
or exchange of Class B common stock effected at a U.S. office of a broker or at
an office of a broker who is a United States payor, as such term is defined in
U.S. Treasury Regulations. Generally, backup withholding applies only when the
taxpayer fails to furnish or certify a proper taxpayer identification number or
when the taxpayer is notified by the IRS that the taxpayer has failed to report
payments of interest and dividends properly.

Generally, a Puerto Rico U.S. Holder will not be subject to information
reporting requirements or backup withholding on such payments provided that the
payor or broker reasonably believes on the basis of documentary or other
evidence provided by the recipient that the recipient is a bona fide resident of
Puerto Rico during the entire taxable year in which the payment is received.
U.S. Holders and Puerto Rico U.S. Holders should consult their own tax advisors
regarding their qualification for exemption from backup withholding and
procedures for obtaining any applicable exemption.

Any amounts withheld under the backup withholding rules from a payment to a
taxpayer will be allowed as a refund or credit against the taxpayer's United
States federal income tax liability, provided that the required information is
furnished to the IRS.

30
TAXATION

PASSIVE FOREIGN INVESTMENT COMPANY RULES

The Code provides special rules for distributions received by U.S. Holders in
respect of stock of a PFIC, as well as amounts received from the sale or other
disposition of PFIC stock. A foreign corporation is a PFIC 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 the foregoing, 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 expectations, the Class B common 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 any (1)
"excess distribution" by R&G Financial to the U.S. Holder and (2) gain realized
on the sale, pledge or other direct or indirect disposition of Class B common
stock. An "excess distribution" is generally any distribution received by the
U.S. Holder on the Class B common 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 Class
B common 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
Class B common 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 Class B common stock, provided that the Class B common stock
will constitute "marketable stock" for purposes of these rules. The alternative
rules applicable to a qualifying electing fund (a "QEF") (which generally permit
shareholders of a PFIC to currently include in income their 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) 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.

Proposed U.S. Treasury Regulations under the PFIC provisions of the Code provide
that Puerto Rico U.S. Holders will 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 Class B common stock and was
not a bona fide resident of Puerto Rico during the entire taxable year or, in
certain cases, a portion thereof.

PUERTO RICO TAXATION

For purposes of the following discussion, a "foreign corporation" is a
corporation organized under the laws of a jurisdiction other than Puerto Rico.

OWNERSHIP AND DISPOSITION OF CLASS B COMMON STOCK

TAXATION OF DIVIDENDS

General
Distributions of cash or other property made by R&G Financial on the Class B
common 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 first applied against and reduce the adjusted tax basis of
the Class B common stock in the hands of the holder and then be treated as gain
on the sale or exchange of the Class B common stock as described below.

31
TAXATION

The following discussion regarding the income taxation of dividends on Class B
common 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 PR 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 PR 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 Class B
Common Stock. This tax is required to be withheld by R&G Financial unless an
individual elects for this withholding not to apply, and is therefore required
to include the amount of the dividend as ordinary income taxable at the normal
income tax rates, which may be up to 33%.

PR Corporations will be subject to income tax on dividends paid on the Class B
common stock at the normal corporate income tax rates, subject to the dividend
received deduction discussed below, and will not be subject to withholding. The
dividend received deduction will be equal to 85% of the dividend received, not
in excess of 85% of the corporate stockholder's net taxable income.

As a practical matter, dividends on the Class B common stock held in street name
through foreign financial institutions or other securities intermediaries not
engaged in trade or business in Puerto Rico will generally be subject to a
separate 10% withholding tax imposed on foreign corporations. See "-- Foreign
corporations."

United States citizens not residents of Puerto Rico
Dividends paid on the Class B common 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 will be taxed thereon at the normal income tax rates. 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.

Individuals not citizens of the United States and not residents of Puerto Rico
Dividends paid on the Class B common 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 Class B common 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 PR
Corporations on its 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 Class B
common 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 PR 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 Class B common 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 Class B
common stock.

32
TAXATION

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.

TAXATION OF GAINS UPON SALES OR EXCHANGES

General
The sale or exchange of Class B common 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 Class B common 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
Class B common 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 Class
B common stock exceeds six months.

Individual residents of Puerto Rico and PR Corporations
Gain on the sale or exchange of Class B common stock by an individual resident
of Puerto Rico or a PR 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 PR 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 Class B common stock if the
gain resulting therefrom constitutes income from sources outside Puerto Rico.
Generally, gain on the sale or exchange of Class B common stock will be
considered to be income from sources outside Puerto Rico if all rights, title
and interest in or to the Class B common stock are transferred outside Puerto
Rico, and if the delivery or surrender of the instruments that evidence the
Class B common 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 with respect to transactions effected in taxable years commencing after
December 31, 2000 will be withheld at the source (the withholding rate will be
20% with respect to payments related to transactions effected in taxable years
beginning before January 1, 2001); and if the gain constitutes a long-term
capital gain, it will be subject to a tax at a maximum rate of 10% or 20%, as
previously described for individuals who are residents of Puerto Rico. The
amount of tax withheld at source will be creditable against the stockholder'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 Class B common 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
stockholder'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 Class B common 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

33
TAXATION

sale or exchange of Class B common 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.

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 Class B common stock if the gain is
from sources within 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 stockholder'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. 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 stockholder'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.

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 Class B common stock or on any gain realized on the sale, exchange or
redemption of the Class B common 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 Class B common stock and on the gain realized on the sale,
exchange or redemption of the Class B common stock if the dividends or gain are
attributable to said corporation or partnership's trade or business. The
municipal license tax is imposed on the volume of business of the taxpayer, and
the tax rates range from a minimum of 1.5% for financial businesses to a maximum
of 0.5% for other businesses.

PROPERTY TAXATION

The Class B common stock will not be subject to property tax.

Selling stockholder

Victor J. Galan, the Chairman of the Board and Chief Executive Officer of R&G
Financial, owns 16,053,056 shares of Class A common stock. In connection with
the offering, Mr. Galan intends to convert 1,500,000 shares of his Class A
common stock into an equal number of shares of Class B common stock. Mr. Galan
intends to sell in the offering for his own account all of the shares of Class B
common stock so converted. Upon completion of the offering, Mr. Galan will own
14,553,056 shares of Class A common stock, which will represent 43.71% of our
outstanding common stock (or 43.03%, if the underwriters' over-allotment option
is exercised in full).

Underwriting

We, the Selling Stockholder and the underwriters for this offering named below
have entered into an underwriting agreement concerning the shares of Class B
common stock being offered. Subject to certain conditions, each underwriter
listed below has severally agreed to purchase the number of shares of Class B
common stock indicated in the following table. UBS Warburg LLC and Keefe,
Bruyette & Woods, Inc. are the representatives of the several underwriters.

NUMBER OF
UNDERWRITERS SHARES
-----------------------------------------------------------------------

UBS Warburg LLC............................................. 1,487,500
Keefe, Bruyette & Woods, Inc. .............................. 1,225,000
Friedman Billings Ramsey & Co., Inc. ....................... 437,500
Sandler O'Neill & Partners, L.P. ........................... 350,000
---------
Total.................................................. 3,500,000
=========

If the underwriters sell more shares of Class B common stock than the total
number set forth in the table above, the underwriters have a 30-day option to
buy on a pro rata basis up to an additional 525,000 shares of Class B common
stock from us at the public offering price less the underwriting discounts and
commissions to cover these sales. If any shares of Class B common stock are
purchased under this option, the underwriters will severally purchase shares of
Class B common stock in approximately the same proportion as set forth in the
table above.

The following table provides information regarding the amount of the discount to
be paid to the underwriters by us and the Selling Stockholder:

PAID BY US PAID BY SELLING STOCKHOLDER
--------------------------------- ---------------------------------
NO EXERCISE OF FULL EXERCISE OF NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
OPTION OPTION OPTION OPTION
-------------------------------------------------------------------------------------------------------------

Per share............................. $ 0.9975 $ 0.9975 $ 0.9975 $ 0.9975
Total....................... $1,995,000 $2,518,688 $1,496,250 $1,496,250

We estimate that the total expenses of this offering payable by us and the
Selling Stockholder, excluding underwriting discounts and commissions, will be
about $500,000.

Shares of Class B common stock sold by the underwriters to the public will
initially be offered at the public offering price set forth on the cover of this
prospectus. Any shares of Class B common stock sold by the underwriters to
securities dealers may be sold at a discount of up to $0.59 per share from the
public offering price. Any of these securities dealers may resell any shares of
Class B common stock purchased from the underwriters to other brokers or dealers
at a discount of up to $0.10 per share from the public offering price. If all of
the shares of Class B common stock are not sold at the public offering price,
the representatives of the underwriters may change the offering price and the
other selling terms.

We and each of our senior executive officers and directors, including the
Selling Stockholder, have agreed with the underwriters not to sell, offer or
agree to sell, hypothecate, contract to sell, grant any option to sell or
otherwise dispose of, directly or indirectly, or enter into any agreement or
arrangement that has the effect of transferring the economic effects of holding,
any shares of our common stock or securities convertible into or exchangeable
for our common stock or warrants or other rights to purchase our common stock or
any of our other securities that are substantially similar to our common stock
or permit the registration under the Securities Act of 1933, as amended, of any
shares of our common stock during the period from the date of this prospectus
continuing through the date 90 days after the date of the closing of this
offering, without the prior written consent of UBS Warburg LLC.

In connection with this offering, the underwriters may purchase and sell shares
of our Class B common stock in the open market. These transactions may include
stabilizing transactions, short sales and

35
UNDERWRITING

purchases to cover positions created by short sales. Stabilizing transactions
consist of bids or purchases made for the purpose of preventing or retarding a
decline in the market price of our Class B common stock while this offering is
in progress. Short sales involve the sale by the underwriters of a greater
number of shares of Class B common stock than they are required to purchase in
this offering. Short sales may be either "covered short sales" or "naked short
sales." Covered short sales are sales made in an amount not greater than the
underwriters' over-allotment option to purchase additional shares in this
offering. The underwriters may close out any covered short position by either
exercising their over-allotment option or purchasing shares of Class B common
stock in the open market. In determining the source of shares of Class B common
stock to close out the covered short position, the underwriters will consider,
among other things, the price of shares of Class B common stock available for
purchase in the open market as compared to the price at which they may purchase
shares of Class B common stock through the over-allotment option. Naked short
sales are sales in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares of Class B common stock
in the open market. A naked short position is more likely to be created if the
underwriters are concerned there may be downward pressure on the price of shares
in the open market after pricing that could adversely affect investors who
purchase in this offering.

The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives of the underwriters have repurchased
shares of Class B common stock sold by or for the account of that underwriter in
stabilizing or short covering transactions.

These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of our Class B common stock. As a result, the price of our
Class B common stock may be higher than the price that otherwise might exist in
the open market. If these activities are commenced, they may be discontinued by
the underwriters at any time. These transactions may be effected on the New York
Stock Exchange or otherwise.

The underwriters and their affiliates have engaged in transactions with, and
have performed services for, us, including investment banking, for which they
have received customary fees and expenses. The underwriters and their affiliates
may, from time to time, engage in transactions with and perform services for us
in the normal course of their business.

We and the Selling Stockholder have agreed to indemnify the several underwriters
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payments that the underwriters may be required to make in
respect thereof.

Incorporation of certain documents by reference

The SEC allows us to "incorporate by reference" the information we file with
them, which means we 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 we file with the SEC automatically updates and
supersedes previously filed information. We have previously filed the following
documents with the SEC and are incorporating them by reference into this
prospectus:

- Annual report on Form 10-K for the year ended December 31, 2001;

- Quarterly report on Form 10-Q for the quarter ended March 31, 2002;

- Current report on Form 8-K, dated February 28, 2002, with respect to the
second amendment to the Agreement and Plan of Reorganization concerning the
acquisition of The Crown Group;

- Current report on Form 8-K, dated March 7, 2002, with respect to the
certificate of designation for the Series D preferred stock;

- Current report on Form 8-K, dated April 15, 2002, announcing the completion of
the sale by R&G Capital Trust I of $25.0 million of trust preferred securities
in a private placement;

- Current report on Form 8-K, dated April 23, 2002, with respect to our first
quarter earnings release;

- Current report on Form 8-K, dated June 7, 2002, announcing the closing of our
acquisition of The Crown Group and filing the third amendment to the Agreement
and Plan of Reorganization concerning the acquisition of The Crown Group;

- Current report on Form 8-K, dated June 18, 2002, filing the Certificate of
Amendment to the Amended and Restated Certificate of Incorporation of R&G
Financial Corporation filed May 9, 2002;

- Current report on Form 8-K, dated July 2, 2002, announcing the filing of our
application to list our Class B common stock on the New York Stock Exchange;

- Current report on Form 8-K, dated July 11, 2002, announcing the approval of
our listing application and the commencement of trading of the Class B common
stock on the New York Stock Exchange; and

- Current report on Form 8-K, dated July 17, 2002, with respect to our second
quarter earnings release.

We also incorporate by reference all documents filed by us 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.

We 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) 758-2424.

Where you can find more information

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-3 to register the Class B common stock being offered by 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 Class B common
stock offered in this prospectus, you should refer to the registration statement
and its exhibits.

You may read and copy any document filed by us with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. R&G Financial files its SEC materials electronically with the
SEC, so you can also review our filings by accessing the web site maintained by
the SEC at http://www.sec.gov. This site contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.

Legal matters

The validity of the Class B common stock offered hereby will be passed upon for
R&G Financial by Kelley Drye & Warren LLP, Vienna, Virginia, and for the
underwriters by Sullivan & Cromwell, New York, New York. The validity of the
Class B common 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 and Sullivan & Cromwell will rely as to all matters of the laws of the
Commonwealth of Puerto Rico upon the opinion of McConnell Valdes. As of the date
of this prospectus, certain members of Kelley Drye & Warren LLP owned in the
aggregate approximately 12,663 shares of Class B common stock.

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, 2001 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.

(R&G FINANCIAL CORPORATION LOGO)