<PAGE>

                                                                      EXHIBIT 13

SELECTED CONSOLIDATED
FINANCIAL AND OTHER
DATA OF R-G FINANCIAL

The following table presents selected consolidated financial and other data of
R-G Financial for each of the five years in the period ended December 31, 2003.
The selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements of R-G Financial, including the accompanying
Notes, presented elsewhere herein. In the opinion of management, this
information reflects all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation.

<TABLE>
<CAPTION>
                                                                       At or for the Year Ended December 31,
                                                                 (dollars in thousands, except for per share data)
                                                 ----------------------------------------------------------------------------------
                                                     2003              2002             2001              2000             1999
                                                 -------------     ------------     ------------     ------------     -------------
<S>                                              <C>               <C>              <C>              <C>              <C>
SELECTED BALANCE SHEET DATA:

Total assets                                      $  8,198,880     $  6,277,246     $  4,664,394     $  3,539,444     $   2,911,993
Loans receivable, net                                4,048,507        2,759,689        1,802,388        1,631,276         1,563,007
Mortgage loans held for sale                           315,691          258,738          236,434           95,668            77,277
Mortgage-backed securities held for trading             33,245           74,757           93,948           12,038            43,564
Mortgage-backed securities available for sale        2,398,278        1,982,250        1,482,947        1,150,100           712,705
Mortgage-backed securities held to maturity             34,301           45,408           51,946           19,818            23,249
Investment securities available for sale(1)            722,830          574,663          598,732          368,271           258,164
Investment securities held to maturity                  43,899           30,183           23,686            3,703             5,438
Servicing asset                                        119,610          142,334          105,147           95,079            84,253
Cash and cash equivalents(2)                           234,318          197,643          157,725           69,090            65,996
Deposits                                             3,555,764        2,802,324        2,061,224        1,676,062         1,330,506
Securities sold under agreements to repurchase       2,220,795        1,489,758        1,396,939          827,749           731,341
Notes payable                                          192,259          194,607          195,587          138,858           132,707
Other borrowings(3)                                  1,287,270          985,790          472,097          538,840           408,843
Stockholders' equity                                   750,353          662,218          459,121          308,836           269,535
Common stockholders' equity                            537,353          449,218          315,121          233,836           194,535
Common stockholders' equity per share(4)          $      10.52     $       8.81     $       6.71     $       5.44     $        4.53

SELECTED INCOME STATEMENT DATA:

Revenues:
 Net interest income after provision for loan     $    169,427     $    135,069     $     85,920     $     59,236     $      52,053
   losses
 Loan administration and servicing fees                 48,166           47,202           33,920           30,849            27,109
 Net gain on sale of loans                             146,893           85,538           62,512           41,230            37,098
 Other(5)                                               28,741           16,430           12,615            7,231             6,604
                                                 -------------     ------------     ------------     ------------     -------------
  Total revenue                                        393,227          284,239          194,967          138,546           122,864
                                                 -------------     ------------     ------------     ------------     -------------
Expenses:
 Employee compensation and benefits                     63,585           45,244           33,290           27,031            24,433
 Office occupancy and equipment                         24,761           19,631           16,649           13,436            11,289
 Other administrative and general                      131,486           94,363           57,133           40,325            33,568
                                                 -------------     ------------     ------------     ------------     -------------
  Total expenses                                       219,832          159,238          107,072           80,792            69,290
                                                 -------------     ------------     ------------     ------------     -------------
Income before income taxes and cumulative
  effect from change in accounting principle           173,395          125,001           87,895           57,754            53,574
Income taxes                                            42,372           28,659           21,601           14,121            12,239
Cumulative effect from change in accounting
  principle                                                  -                -             (323)               -                 -
                                                 -------------     ------------     ------------     ------------     -------------
Net income                                             131,023           96,342           65,971           43,633            41,335
                                                 -------------     ------------     ------------     ------------     -------------
Less: Dividends on preferred stock                     (15,884)         (14,955)          (9,920)          (5,638)           (3,754)
Net income available to common stockholders       $    115,139     $     81,387     $     56,051     $     37,995     $      37,581
                                                 =============     ============     ============     ============     =============
Diluted earnings per share (4)                    $       2.25     $       1.66     $       1.22     $       0.86     $        0.85
                                                 -------------     ------------     ------------     ------------     -------------
</TABLE>

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 33

<PAGE>

<TABLE>
<CAPTION>
                                           At or for the Year Ended December 31, (dollars in thousands, except for per share data)
                                           ---------------------------------------------------------------------------------------
                                                2003             2002              2001            2000                1999
                                           --------------    -----------       -----------      -----------        ------------
<S>                                        <C>               <C>               <C>              <C>                <C>
SELECTED OPERATING DATA(6):

Performance Ratios and Other Data:
 Loan production                           $    4,464,099    $ 2,942,684       $ 2,473,168      $ 1,729,373         $ 1,977,322
 Mortgage servicing portfolio                  10,942,821     10,991,944         7,224,571        6,634,059           6,177,511
 Return on average assets                            1.80%          1.76%             1.63%            1.34%               1.72%
 Return on average common equity                    23.45          21.77             20.77            18.00               20.23
 Equity to assets at end of period                   9.15          10.55              9.84             8.73                9.26
 Interest rate spread(7)                             2.62           2.78              2.33             1.96                2.40
 Net interest margin(7)                              2.78           2.98              2.59             2.16                2.60
 Average interest-earning assets to
   average interest-bearing liabilities            105.79         105.77            105.56           103.54              104.21
 Total non-interest expenses to average
   total assets                                      3.01           2.91              2.64             2.49                2.88
 Full-service Bank offices (8)                         45             44                25               23                  22
 Mortgage offices (9)                                  52             47                40               35                  31
 Cash dividends declared per common share
   (4)(10)                                          0.294          0.224             0.176            0.135               0.099
 Dividend payout ratio                              13.07          13.49             14.43            15.52               11.65

Asset Quality Ratios(11):
 Non-performing assets to total assets at
    end of period                                    1.29%          1.50%             1.78%            2.96%               2.26%
 Non-performing loans to total loans at
    end of period                                    1.98           2.66              3.79             5.52                3.66
 Allowance for loan losses to total loans
    at end of period                                 0.92           1.11              0.91             0.67                0.55
 Allowance for loan losses to total
    non-performing loans at end of period           46.38          41.79             24.05            12.21               15.11
 Net charge-offs to average loans
    outstanding                                      0.32           0.41              0.32             0.17                0.25

R-G Financial Regulatory Capital
 Ratios(12):
 Tier 1 risk-based capital ratio                    15.64%         16.81%            18.01%           16.01%              15.93%
 Total risk-based capital ratio                     16.40          17.72             18.37            16.65               16.47
 Tier 1 leverage capital ratio                      10.31           9.80              9.81             8.44                9.35

</TABLE>

(1) Includes FHLB stock.

(2) Comprised of cash and due from banks, securities purchased under agreements
to resell, time deposits with other banks and federal funds sold, all of which
had original maturities of 90 days or less.

(3) Comprised of long-term debt, advances from the Federal Home Loan Bank
("FHLB") and other borrowings.

(4) Per share information for all periods presented has been retroactively
adjusted to reflect a three-for-two stock split declared in November 2003 and
effected on January 29, 2004. See Note 13 of the Notes to the Consolidated
Financial Statements.

(5) Comprised of Bank service charges, fees and other income, and other
miscellaneous revenue sources.

(6) With the exception of end of period ratios, all ratios for mortgage
subsidiaries are based on the average of month end balances while all ratios for
banking subsidiaries are based on average daily balances.

(7) Interest rate spread represents the difference between R-G Financial's
weighted average yield on interest-earning assets and the weighted average rate
on interest-bearing liabilities. Net interest margin represents net interest
income as a percent of average interest-earning assets.

(8) Includes 14 bank branches of Crown Bank.

(9) Includes 10 branches of Mortgage Store of Puerto Rico, Inc., R-G Mortgage's
wholly owned mortgage banking subsidiary, one branch of Crown Bank's mortgage
lending division, and 4 branches of Continental Capital Corp., Crown Bank's
wholly-owned mortgage banking subsidiary. Also includes 25 R-G Mortgage
facilities which are located within R-G Premier's offices.

(10) Amount is based on weighted average number of shares of Common Stock (Class
A and Class B) outstanding.

(11) Non-performing loans consist of R-G Financial's non-accrual loans and
non-performing assets consist of R-G Financial's non-performing loans and real
estate acquired by foreclosure or deed-in-lieu thereof.

(12) All of such ratios were in excess of minimum capital requirements of the
Federal Reserve Board. In addition, each of Premier Bank and Crown Bank met its
applicable minimum capital requirements.

P. 34

<PAGE>

                                            MANAGEMENT DISCUSSION AND ANALYSIS
                                            OF FINANCIAL CONDITION AND RESULT OF
                                            OPERATIONS OF R-G FINANCIAL

GENERAL

R-G Financial Corporation (the "Company") is a Puerto Rico chartered diversified
financial holding company that, through its wholly-owned subsidiaries, is
engaged in banking, mortgage banking and securities and insurance brokerage
activities. The Company, currently in its 32nd year of operations, was organized
in 1972 as R-G Mortgage Corp. ("R-G Mortgage"), and completed its initial public
offering in 1996, following its reorganization as a bank holding company. As of
December 31, 2003, the Company had total assets of $8.2 billion, total deposits
of $3.6 billion and stockholders' equity of $750.4 million. The Company operates
31 bank branches mainly located in the northeastern section of Puerto Rico, 14
bank branches in the Orlando and Tampa/St. Petersburg Florida markets, 5
mortgage and 7 commercial lending offices in the United States, and 47 mortgage
offices in Puerto Rico including 25 facilities located within R-G Premier's
branches.

On June 7, 2002, the Company, through its Florida holding company, R-G
Acquisition Holdings Corporation ("RAC"), acquired The Crown Group, Inc., a
Florida corporation, and its wholly-owned federal savings bank subsidiary, Crown
Bank, F.S.B. (which has since been renamed R-G Crown Bank) for an aggregate of
$100.0 million in cash. RAC operates Crown Bank in the Orlando and Tampa/St.
Petersburg metropolitan areas through 14 full-service branches and seven
commercial lending offices.

The Orlando market is one of the fastest growing markets in Florida, both
generally and for Hispanics in particular, and provides the Company with what it
believes is a cost effective way to access the Hispanic markets in the United
States, while providing a strong platform for further expansion in Florida.
Crown Bank's balance sheet is complementary to the Company's, and is
predominantly secured by real estate.

The Company is engaged in providing a full range of banking services through R-G
Premier Bank of Puerto Rico ("R-G Premier"), a Puerto Rico commercial bank, and
Crown Bank. Banking activities include commercial banking services, corporate
and construction lending, consumer lending and credit cards, offering a variety
of deposit products and, to a lesser extent, trust investment services through
private banking.

The Company is also engaged in mortgage banking activities. Mortgage banking
activities are conducted through R-G Mortgage, Puerto Rico's second largest
mortgage banker, and its subsidiary, The Mortgage Store of Puerto Rico, Inc.,
also a Puerto Rico mortgage company, and Continental Capital Corporation, a
mortgage banking subsidiary of Crown Bank with offices in New York, North
Carolina and Florida. Mortgage banking activities include the origination,
purchase, sale and servicing of mortgage loans on single-family residences, the
issuance and sale of various types of mortgage-backed securities, the holding of
mortgage loans, mortgage-backed securities and other investment securities for
sale or investment, the purchase and sale of servicing rights associated with
such mortgage loans and, to a lesser extent, the origination of construction
loans and mortgage loans secured by income producing real estate and land (the
"mortgage banking business").

The Company began insurance operations in November 2000 with its acquisition of
Home & Property Insurance Corp., a Puerto Rico chartered insurance agency, and
securities brokerage in early 2002 through its newly created subsidiary, R-G
Investments Corporation, a Puerto Rico chartered licensed broker-dealer.

R-G Financial has generally sought to achieve long-term financial strength and
profitability by increasing the amount and stability of its net interest income
and other non-interest income. R-G Financial has sought to implement this
strategy by (i) establishing and emphasizing the growth of its mortgage banking
activities, including the origination and sale of loans and growing its loan
servicing operation; (ii) expanding its retail banking franchise in order to
achieve increased market presence and to increase core deposits; (iii) enhancing
R-G Financial's net interest income by increasing loans held for investment,
particularly single-family residential loans, and investment grade securities;
(iv) developing new business relationships through an increased emphasis on
commercial real estate and commercial business lending; (v) diversifying retail
products and services, including an increase in consumer loan originations (such
as credit cards); (vi) meeting the banking needs of its customers through, among
other things, the offering of trust and investment services and insurance
products; (vii) expanding its operations in the United States; and (viii)
emphasizing controlled growth, while pursuing a variety of acquisition
opportunities, when appropriate.

The Company is the second largest mortgage loan originator and servicer of
mortgage loans on single family residences in Puerto Rico. R-G Financial's
mortgage servicing portfolio decreased to approximately $10.9 billion as of
December 31, 2003, from $11.0 billion as of the same date a year ago, a decrease
of 0.45%. R-G Financial's servicing portfolio at December 31, 2003 includes $3.1
billion served by Crown Bank and its wholly owned subsidiary, Continental
Capital. R-G Financial's strategy is to increase the size of its mortgage
servicing portfolio by relying principally on internal loan originations.

A substantial portion of R-G Financial's total mortgage loan originations has
consistently been comprised of refinance loans. R-G Financial's future results
could be adversely affected by a significant increase in mortgage interest rates
that reduces refinancing activity. However, the Company believes that
refinancing activity is less sensitive to interest rate changes in Puerto Rico
than in the mainland United States because a significant amount of refinance
loans are made for debt consolidation purposes.

R-G Financial customarily sells or securitizes into mortgage-backed securities
substantially all the loans it originates, except for certain non-conforming
conventional mortgage loans and certain consumer, construction, land, and
commercial loans which are held for investment and classified as loans
receivable.

As part of its strategy to maximize net interest income, R-G Financial maintains
a substantial portfolio of mortgage-backed and investment securities. At
December 31, 2003, the Company held securities available for sale with a fair
market value of $3.1 billion. Of this amount, $2.4 billion consisted of
mortgage-backed securities, of which $349.5 million consisted primarily of
Puerto Rico GNMA securities, the interest on which is tax-exempt to the Company.
These securities are generally held by the Company for longer periods prior to
sale in order to maximize the tax-exempt interest received thereon.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 35

<PAGE>

CHANGES IN FINANCIAL CONDITION

GENERAL.

At December 31, 2003, R-G Financial's total assets amounted to $8.2 billion, as
compared to $6.3 billion at December 31, 2002. The $1.9 billion or 30.6%
increase in total assets during the year ended December 31, 2003 was primarily
the result of a $1.3 billion or 46.7% increase in loans receivable, net, and a
$564.2 million or 22.1% increase in mortgage-backed securities and investment
securities available for sale.

LOANS RECEIVABLE AND MORTGAGE LOANS HELD FOR SALE.

At December 31, 2003, R-G Financial's loans receivable, net amounted to $4.0
billion or 49.4% of total assets, as compared to $2.8 billion or 44.0% as of
December 31, 2002. Loans receivable at December 31, 2003 include $754.2 million
of loans held by Crown Bank. The growth in R-G Financial's loans receivable, net
reflects R-G Financial's strategy of increasing its loans held for investment,
concentrating on residential mortgage, construction, commercial real estate and
commercial business loans both in Puerto Rico and Central Florida. During the
years ended December 31, 2003, 2002 and 2001, total loans originated and
purchased by R-G Financial amounted to $4.5 billion, $2.9 billion and $2.5
billion, respectively.

At December 31, 2003, R-G Financial's allowance for loan losses totaled $39.6
million, which represented a $6.9 million or 21.2% increase from the level
maintained at December 31, 2002. At December 31, 2003, R-G Financial's allowance
represented approximately 0.92% of the total loan portfolio and 46.38% of total
non-performing loans, as compared to 1.11% and 41.79% at December 31, 2002.
During 2003, the Company made provisions for loan losses of $18.6 million, which
exceeded net charge-offs of approximately $11.6 million. The increase in the
allowance for loan losses reflected the increase in R-G Financial's commercial
real estate and construction loan portfolios, which have higher credit risk
compared to residential loans.

Non-performing loans amounted to $85.4 million at December 31, 2003, as compared
to $78.2 million at December 31, 2002. At December 31, 2003, $57.0 million or
66.8% of total non-performing loans consisted of residential mortgage loans.
Because of the nature of the collateral, R-G Financial has historically
recognized a low level of loan charge-offs. R-G Financial's aggregate
charge-offs amounted to 0.32% of average loans outstanding during 2003, as
compared to 0.41% during 2002. Although loan delinquencies have historically
been higher in Puerto Rico than in the United States, loan charge-offs have
historically been lower than in the United States. While the ratio of
non-performing loans to total loans decreased from 2.66% to 1.98% from December
31, 2002 to December 31, 2003, the ratio was nevertheless larger than it would
otherwise have been due to loan securitizations during 2001 and 2002, which
reduced the amount of loans held in portfolio considered in the calculation of
the ratio.

Management of R-G Financial believes that its allowance for loan losses at
December 31, 2003 was adequate, based upon, among other things, the significant
level of single-family residential loans within R-G Financial's portfolio (as
compared to commercial real estate, commercial business and consumer loans,
which are considered by management to carry a higher degree of credit risk) and
the low level of loan charge-offs normally experienced by the Company with
respect to its loan portfolio. However, there can be no assurances that
additions to such allowance will not be necessary in future periods, which could
adversely affect R-G Financial's results of operations.

At December 31, 2003 and 2002, mortgage loans held for sale amounted to $315.7
million and $258.7 million, respectively. Mortgage loans held for sale primarily
reflects loans which are in the process of being securitized and sold. The level
of mortgage banking activities is highly dependent upon market and economic
factors.

SECURITIES HELD FOR TRADING, AVAILABLE FOR SALE AND HELD FOR INVESTMENT.

R-G Financial maintains a substantial portion of its assets in mortgage-backed
and investment securities which are classified as either held for trading,
available for sale or held to maturity. At December 31, 2003, R-G Financial's
aggregate mortgage-backed and investment securities totaled $3.2 billion or
39.5% of total assets, as compared to $2.7 billion or 43.1% at December 31,
2002, respectively.

Securities held for trading consist primarily of conventional and FHA and VA
loans which have been securitized as FHLMC and GNMA pools, respectively, and are
being held for sale to institutions in the secondary market. Securities held for
trading are reported at fair value with unrealized gains and losses included in
earnings.

Securities available for sale consist of mortgage-backed and related securities
(tax exempt GNMA pools, FNMA and FHLMC certificates as well as CMOs and CMO
residuals), U.S. Government agency securities and interest only strips ("IO's").
At December 31, 2003 and 2002, securities available for sale totaled $3.1
billion and $2.6 billion, respectively. Securities available for sale are
reported at fair value with unrealized gains and losses excluded from earnings,
and reported in other comprehensive income, a separate component of
stockholders' equity.

Securities held to maturity consist of mortgage-backed securities (GNMA, FNMA
and FHLMC certificates), certain Puerto Rico Government obligations and other
Puerto Rico securities. At December 31, 2003 and 2002, securities held to
maturity totaled $78.2 million and $75.6 million, respectively. Securities held
to maturity are accounted for at amortized cost. At December 31, 2003 and 2002,
securities held to maturity had a market value of $80.2 million and $76.8
million, respectively.

MORTGAGE SERVICING ASSET.

As of December 31, 2003 and 2002, R-G Financial reported servicing assets of
$119.6 million and $142.3 million, respectively. R-G Financial recognizes both
purchased and originated mortgage servicing rights as assets in its consolidated
financial statements. R-G Financial evaluates the fair value of its servicing
asset on a quarterly basis to determine any potential impairment. Any future
decline in interest rates which results in an acceleration in mortgage loan
prepayments could have an adverse effect on the value of R-G Financial's
mortgage servicing rights.

DEPOSITS.

At December 31, 2003, deposits totaled $3.6 billion, as compared to $2.8 billion
at December 31, 2002. Deposits at December 31, 2003 include $761.6 million
deposits held by Crown Bank. The $753.4 million or 26.9% increase in deposits
during the year ended December 31, 2003 was primarily due to promotions in
connection with new accounts and

P. 36

<PAGE>
competitive pricing in certificates of deposit. One of the R-G Financial's
strategies is to increase its core deposits, which provide a source of fee
income and the ability to cross-sell other products and services. Consolidated
core deposits (consisting of passbook, NOW and Super NOW, and regular and
commercial checking accounts as well as certificates of deposit under $100,000)
increased from $1.8 billion or 64.5% of total deposits at December 31, 2002 to
$2.0 billion or 56.9% of total deposits at December 31, 2003.

BORROWINGS.

Other than deposits, R-G Financial's primary sources of funds consist of
securities sold under agreements to repurchase (consisting of agreements to
purchase on a specified later date the same or substantially identical
securities) ("repurchase agreements"). At December 31, 2003 and 2002, repurchase
agreements totaled $2.2 billion and $1.5 billion, respectively.

Notes payable consist primarily of warehouse lines of credit (which are used to
fund loan commitments of R-G Mortgage and Continental Capital). At December 31,
2003, notes payable amounted to $192.3 million, as compared to $194.6 million at
December 31, 2002.

Advances from the FHLB amounted to $1.1 billion and $940.7 million at December
31, 2003 and 2002, respectively. At December 31, 2003, FHLB advances were
scheduled to mature at various dates commencing on January 1, 2004 until March
2, 2011, with an average interest rate of 3.56%.

STOCKHOLDERS' EQUITY.

Stockholders' equity increased from $662.2 million at December 31, 2002 to
$750.4 million at December 31, 2003. The $88.1 million or 13.3% increase in
stockholders' equity during 2003 was primarily due to the $131.0 million net
income, partially offset by dividends paid during the year of $30.9 million on
common and preferred stock and a $12.2 million other comprehensive loss,
recognized during the year.

RESULTS OF  OPERATIONS

GENERAL.

R-G Financial's results of operations depend substantially on its net interest
income, which is the difference between interest income on interest-earning
assets, which consist primarily of loans, money market investments and
mortgage-backed and investment securities, and interest expense on
interest-bearing liabilities, which consist primarily of deposits and short and
long-term borrowings. R-G Financial's results of operations are also
significantly affected by its provisions for loan losses, resulting from R-G
Financial's assessment of the adequacy of its allowance for loan losses; the
level of its non-interest income, including net gain (loss) on sale of loans,
unrealized gain (loss) on trading securities and loan administration and
servicing fees; the level of its non-interest expenses, such as employee
compensation and benefits and office occupancy and equipment expense; and income
tax expense.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 37

<PAGE>

The following table reflects the principal revenue sources among banking and
mortgage banking operations, and the percentage contribution of each component
for the periods presented.

<TABLE>
<CAPTION>
                                                      Year Ended December 31, (Dollars in thousands)
                                       --------------------------------------------------------------------------------
                                                 2003                        2002                        2001
                                       ------------------------    ------------------------    ------------------------
                                         Amount        Percent       Amount        Percent       Amount       Percent
                                       ----------    ----------    ----------    ----------    ----------    ----------
<S>                                    <C>           <C>           <C>           <C>           <C>           <C>
BANKING:

Net interest income after
  provision for loan losses            $  152,470         38.77%   $  114,394         40.25%   $   71,696         36.77%
Net gain on origination and sale
  of loans                                 46,402         11.80        23,741          8.35        27,392         14.05
Other income(1)                            13,242          3.37         8,622          3.03         7,879          4.04
                                       ----------    ----------    ----------    ----------    ----------    ----------
                                          212,114         53.94       146,757         51.63       106,967         54.86
                                       ----------    ----------    ----------    ----------    ----------    ----------
MORTGAGE BANKING:

Net interest income                        14,485          3.68        18,429          6.49        13,583          6.97
Loan administration and servicing
  fees                                     51,108         13.00        49,039         17.25        35,120         18.01
Net gain on origination and
   sale of loans                          101,952         25.93        61,796         21.74        35,935         18.43
Other income(1)                             1,303          0.33         1,993          0.70         2,656          1.36
                                       ----------    ----------    ----------    ----------    ----------    ----------
                                          168,848         42.94       131,257         46.18        87,294         44.77
                                       ----------    ----------    ----------    ----------    ----------    ----------
Corporate revenues (2)                      1,715          0.44         2,404          0.85         1,006          0.52

Other                                      16,705          4.25         8,282          2.91         4,820          2.47

Elimination of intersegment revenues       (6,155)        (1.57)       (4,461)        (1.57)       (5,120)        (2.62)

                                       $  393,227        100.00%   $  284,239        100.00%   $  194,967        100.00%
                                       ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

(1) Comprised of service charges, fees and other from banking subsidiaries and
other miscellaneous revenue sources from mortgage banking operations.

(2) Comprised of interest income earned on investment securities held by R-G
Financial at the parent company level.

R-G Financial reported net income of $131.0 million, $96.3 million and $66.0
million during the years ended December 31, 2003, 2002 and 2001, respectively.
Net income increased by $34.7 million or 36.0% during the year ended December
31, 2003, as compared to 2002, due to a $34.9 million increase in net interest
income and a $74.6 million increase in total other income, which were partially
offset by a $60.6 million increase in total operating expenses. Net income
increased by $30.4 million or 46.0% during the year ended December 31, 2002, as
compared to 2001, due to a $56.0 million increase in net interest income and a
$40.1 million increase in total other income, which were partially offset by a
$52.2 million increase in total operating expenses.

Net Interest Income.

Net interest income is determined by R-G Financial's interest rate spread (i.e.,
the difference between the yields earned on its interest-earning assets and the
rates paid on its interest-bearing liabilities) and the relative amounts of
interest-earning assets and interest-bearing liabilities.

Net interest income totaled $188.0 million, $153.1 million and $97.0 million
during the years ended December 31, 2003, 2002 and 2001, respectively. Net
interest income increased by $34.9 million or 22.8% during the year ended
December 31, 2003 due to significant increases in the average balance of
interest-earning assets, partially offset by a decrease in interest rate-spread
from 2.78% in 2002 to 2.62% in 2003. Net interest income increased by $56.0
million or 57.8% during the year ended December 31, 2002, as compared to the
year ended December 31, 2001, due to significant increases in the average
balance of interest-earning assets together with an increase in the Company's
interest rate spread from 2.33% in 2001 to 2.78% in 2002, and an increase in the
ratio of average interest-earning assets to average interest-bearing liabilities
from 105.56% in 2001 to 105.77% in 2002.

P. 38

<PAGE>
The following table presents for the periods indicated R-G Financial's total
dollar amount of interest from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities
expressed both in dollars and rates, and the net interest margin. The table does
not reflect any effect of income taxes. All average balances are based on the
average of month-end balances for mortgage operations and average daily balances
for the banking operations in each case during the periods presented.

<TABLE>
<CAPTION>
                                                            Year Ended December 31, (Dollars in Thousands)
                                  -------------------------------------------------------------------------------------------------
                                                2003                             2002                             2001
                                  --------------------------------  ------------------------------  -------------------------------
                                    Average                Yield/     Average               Yield/    Average               Yield/
                                    Balance    Interest   Rate (1)    Balance    Interest  Rate (1)   Balance    Interest  Rate (1)
                                  -----------  ---------  --------  -----------  --------  -------  -----------  --------  --------
<S>                               <C>          <C>        <C>       <C>          <C>       <C>      <C>          <C>       <C>
INTEREST-EARNING ASSETS:

Cash and cash equivalents(2)      $   130,791  $   1,635      1.25% $   109,532  $  1,530     1.40% $    31,412  $  1,627      5.18%
Investment securities held for
 trading                                4,012        120      2.99            -         -        -           -         -         -
Investment securities available
 for sale                             593,174     24,761      4.17      544,429    30,469     5.60      409,553    26,826      6.55
Investment securities held to
 maturity                              32,698      1,643      5.02       25,746     1,395     5.42        9,200       537      5.84
Mortgage-backed securities held
 for trading                           51,956      3,403      6.55       81,635     4,473     5.48      105,526     6,581      6.24
Mortgage-backed securities
 available for sale                 2,186,184    109,430      5.01    1,740,698   105,849     6.08    1,201,370    77,725      6.47
Mortgage-backed securities held
 to maturity                           40,066      2,272      5.67       46,447     2,861     6.16       34,769     2,055      5.91
Loans receivable, net(3)(4)         3,632,572    231,225      6.37    2,507,945   180,786     7.21    1,894,837   152,251      8.04
FHLB stock                             99,209      3,689      3.72       80,106     3,498     4.37       53,108     2,969      5.59
                                  -----------  ---------            -----------  --------           -----------  --------
  Total interest-earning assets   $ 6,770,662  $ 378,178      5.59  $ 5,136,538  $330,861     6.44  $ 3,739,775  $270,571      7.23
                                  -----------  ---------            -----------  --------           -----------  --------
Non-interest-earning assets           520,817                           330,582                         320,474

  Total assets                    $ 7,291,479                       $ 5,467,120                     $ 4,060,249
                                  ===========                       ===========                     ===========
INTEREST-BEARING LIABILITIES:

Deposits                          $ 3,248,745  $  91,823      2.83% $ 2,471,037  $ 88,349     3.58% $ 1,818,629  $ 88,854      4.89%
Securities sold under agreements
  to repurchase(5)                  1,899,199     51,013      2.69    1,437,253    51,121     3.56    1,037,756    49,476      4.77
Notes payable                         217,750      6,856      3.15      241,346     6,790     2.81      233,462    11,395      4.88
Other borrowings(6)                 1,034,179     40,503      3.92      706,490    31,512     4.46      452,957    23,801      5.25
                                  -----------  ---------            -----------  --------           -----------  --------
  Total interest-bearing
    liabilities                   $6,399,873   $190,195       2.97  $ 4,856,126  $177,772     3.66  $ 3,542,804  $173,526      4.90
                                  -----------  ---------            -----------  --------           -----------  --------
Non-interest-bearing liabilities      187,621                            37,870                         115,844

  Total liabilities                 6,587,494                         4,893,996                       3,658,648

Stockholders' equity                  703,985                           573,124                         401,601
                                  -----------                       -----------                     -----------
  Total liabilities and
    stockholders' equity          $ 7,291,479                       $ 5,467,120                     $ 4,060,249
                                  ===========                       ===========                     ===========
Net interest income; interest
 rate spread(7)                                $ 187,983      2.62%              $153,089     2.78%              $ 97,045      2.33%
                                               =========  ========               ========  =======               ========  ========
Net interest margin(7)                                        2.78%                           2.98%                            2.59%
                                                          ========                         =======                         ========
Average interest-earning assets
 to average interest-bearing
    liabilities                                             105.79%                         105.77%                          105.56%
                                                          ========                         =======                         ========
</TABLE>

(1) At December 31, 2003, the yields earned and rates paid were as follows: cash
and cash equivalents, 1.33%; investment securities held to maturity, 4.51%;
investment securities available for sale, 3.77%; mortgage-backed securities held
for trading, 7.64%; mortgage-backed securities available for sale, 5.45%;
mortgage-backed securities held to maturity, 6.49%; mortgage loans held for
sale, 6.25%; loans receivable, net, 6.27% FHLB stock, 1.69%; total
interest-earning assets, 5.71%; deposits, 2.58%; securities sold under
agreements to repurchase, 2.25%; notes payable, 2.29%; other borrowings, 3.55%;
total interest-bearing liabilities, 2.62%; interest rate spread, 3.09%.

(2) Comprised of cash and due from banks, securities purchased under agreements
to resell, time deposits with other banks and federal funds sold.

(3) Includes mortgage loans held for sale and non-accrual loans.

(4) Interest income on loans include loan fees amounting to $105,000, $308,000
and $297,000 during the years ended December 31, 2003, 2002 and 2001,
respectively, or .05%, .17% and .21% of interest income on loans during such
respective periods.

(footnotes continue on following page)

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 39

<PAGE>

(5) Includes federal funds purchased.

(6) Comprised of advances from the FHLB and other borrowings.

(7) Interest rate spread represents the difference between R-G Financial's
weighted average yield on interest-earning assets and the weighted average rate
on interest-bearing liabilities. Net interest margin represents net interest
income as a percent of average interest-earning assets.

The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected R-G
Financial's interest income and interest expense during the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume), and (iii) total change in rate and volume. The
combined effect of changes in both rate and volume has been allocated in
proportion to the absolute dollar amounts of the changes due to rate and volume.

<TABLE>
<CAPTION>
                                        Year Ended December 31, (Dollars in Thousands)
                                  -------------------------------------------------------------
                                       2003 vs. 2002                         2002 vs. 2001
                                   Increase / (Decrease)                 Increase / (Decrease)
                                          Due to            Total               Due to               Total
                                  ----------------------   Increase   -------------------------     Increase
                                     Rate       Volume    (Decrease)     Rate          Volume      (Decrease)
                                  ----------  ----------  ----------  -----------   -----------   ------------
<S>                               <C>         <C>         <C>         <C>           <C>           <C>
INTEREST-EARNING ASSETS:

Cash and cash equivalents(1)      $     (192) $      297  $      105  $    (4,143)  $     4,046   $        (97)
Investment securities held for
 trading                                   -         120         120            -             -              -
Investment securities available
 for sale                             (8,436)      2,728      (5,708)      (5,191)        8,834          3,643
Investment securities held to
 maturity                               (129)        377         248         (108)          966            858
Mortgage-backed securities
  held for trading                       556      (1,626)     (1,070)        (618)       (1,490)        (2,108)
Mortgage-backed securities
  available for sale                 (23,508)     27,089       3,581       (6,769)       34,893         28,124
Mortgage-backed securities
  held to maturity                      (196)       (393)       (589)         116           690            806
Loans receivable, net(2)             (30,630)     81,069      50,439      (20,729)       49,264         28,535
FHLB stock                              (643)        834         191         (980)        1,509            529
                                  ----------  ----------  ----------  -----------   -----------   ------------
   Total interest-earning assets  $  (63,178) $  110,495  $   47,317  $   (38,422)  $    98,712   $     60,290
                                  ----------  ----------  ----------  -----------   -----------   ------------
INTEREST-BEARING LIABILITIES:

Deposits                          $  (24,332) $   27,806  $    3,474  $   (32,380)  $    31,875   $       (505)
Securities sold under agreements
  to repurchase                      (16,539)     16,431        (108)     (17,401)       19,046          1,645
Notes payable                            730        (664)         66       (5,713)        1,108         (4,605)
Other borrowings(3)                   (5,625)     14,616       8,991       (5,611)       13,322          7,711
                                  ----------  ----------  ----------  -----------   -----------   ------------
   Total interest-bearing
     liabilities                  $  (45,766) $   58,189  $   12,423  $   (61,105)  $    65,351   $      4,246
                                  ----------  ----------  ----------  ------------  -----------   ------------
Increase in net interest income                           $   34,894                              $     56,044
                                                          ==========                              ============
</TABLE>

(1) Comprised of cash and due from banks, securities purchased under agreements
to resell, time deposits with other banks and federal funds sold.

(2) Includes mortgage loans held for sale.

(3) Comprised of long-term debt, advances from the FHLB and other borrowings.

P. 40

<PAGE>

INTEREST INCOME.

Total interest income increased by $47.3 million or 14.3% during the year ended
December 31, 2003 as compared to the year ended December 31, 2002, and increased
by $60.3 million or 22.3% during the year ended December 31, 2002 over the year
ended December 31, 2001. Interest income on loans, the largest component of R-G
Financial's interest-earning assets, increased by $50.4 million or 27.9% during
the year ended December 31, 2003 as compared to the year ended December 31,
2002, and increased by $28.5 million or 18.7% during 2002 over the year ended
December 31, 2001. The increase in 2003 was primarily the result of a $1.1
billion increase in the average balance of loans receivable, partially offset by
a decrease in the yield earned thereon from 7.21% in 2002 to 6.37% in 2003. The
increase in interest income on loans during the year ended December 31, 2002 was
primarily caused by a $613.1 million increase in the average balance of loans
receivable, partially offset by a decrease in the yield earned thereon from
8.04% in 2001 to 7.21% in 2002.

Interest income on mortgage-backed and investment securities (which, for
purposes of this discussion, includes securities held for trading, available for
sale and held to maturity) decreased by $3.4 million or 2.4% during the year
ended December 31, 2003 as compared to the year ended December 31, 2002, and
increased by $31.3 million or 27.5% during the year ended December 31, 2002 over
the year ended December 31, 2001. The decrease during 2003 was due primarily to
a decrease in the yield earned thereon from 5.95% in 2002 to 4.87% in 2003,
partially offset by an increase in the average balance of mortgage-backed
securities of $409.4 million, together with a $59.7 million increase in the
average balance of investment securities. The increase during the year ended
December 31, 2002 was primarily due to a $527.1 million increase in the average
balance of mortgage-backed securities, together with a $151.4 million increase
in the average balance of investment securities during the period. The increase
in investment securities during 2003 and 2002 reflects purchases of
approximately $2.3 billion and $1.2 billion, respectively, during such periods,
net of maturities and sales.

Interest income on cash and cash equivalents increased by $105,000 or 6.9%
during the year ended December 31, 2003 as compared to the year ended December
31, 2002, and decreased by $97,000 or 6.0% during the year ended December 31,
2002. The increase in interest earned on money market investments during 2003
reflected an increase in their average balance of $21.3 million during the year.
The decrease during 2002 was caused by a decline in the yield earned thereon
from 5.18% in 2001 to 1.40% in 2002, partially offset by an increase in their
average balance of $78.1 million during the year. The fluctuations in yields
earned on money market investments reflect the general fluctuations in
short-term market rates of interest during the periods presented.

INTEREST EXPENSE.

Total interest expense increased by $12.4 million or 7.0% during the year ended
December 31, 2003, as compared to the year ended December 31, 2002, and
increased by $4.2 million or 2.4% during the year ended December 31, 2002.
Interest expense on deposits, the largest component of R-G Financial's
interest-bearing liabilities, increased by $3.5 million or 3.9% during the year
ended December 31, 2003, as compared to the year ended December 31, 2002, and
decreased by $505,000 or 0.6% during the year ended December 31, 2002. The
increase during 2003 was due primarily to an increase in the average balance of
deposits of $777.7 million, partially offset by a decrease in the average rate
paid thereon of 75 basis points during such period. The decrease during the year
ended December 31, 2002, as compared to the year ended December 31, 2001, was
due primarily to a decrease in the average rate paid thereon of 131 basis
points, partially offset by an increase in the average balance of deposits of
$652.4 million. The reduction in interest rates paid during 2003 and 2002 were
due to a reduction in market rates of interests as a result of consecutive
decreases by the Federal Reserve Board.

Interest expense on repurchase agreements decreased by $108,000 or 0.2% during
the year ended December 31, 2003, as compared to the year ended December 31,
2002, and increased by $1.6 million or 3.3% during the year ended December 31,
2002. The decrease during 2003 was due primarily to a decrease in the average
rate paid thereon of 87 basis points partially offset by an increase in the
average balance of repurchase agreements of $461.9 million. The increase during
the year ended December 31, 2002 was primarily due to an increase in the average
balance of repurchase agreements outstanding of $399.5 million, partially offset
by a decrease in the average rate paid thereon of 121 basis points. R-G
Financial generally uses repurchase agreements to fund part of its investment
securities portfolio. These repurchase agreements are collateralized by
investment and mortgage-backed securities available for sale. The fluctuations
in the average balance of repurchase agreements during the periods presented is
therefore mainly a function of the level of investment and mortgage-backed
securities which are available to collateralize such agreements.

Interest expense on notes payable (consisting of warehouse and other lines of
credit) increased by $66,000 or 1.0% during the year ended December 31, 2003, as
compared to the year ended December 31, 2002, and decreased by $4.6 million or
40.4% during the year ended December 31, 2002. The increase during the year
ended December 31, 2003, as compared to the year ended December 31, 2002, was
primarily due to an increase in the average rate paid thereon of 34 basis
points, partially offset by a decrease in the average balance outstanding of
$23.6 million. The decrease during the year ended December 31, 2002 was due
primarily to a decrease in the average rate paid thereon of 207 basis points,
partially offset by an increase in the average balance outstanding of $7.9
million, as the Company's mortgage banking subsidiaries made increased use of
lines of credit due to an increase in mortgage loan originations during such
period.

Interest expense on other borrowings (consisting principally of advances from
the FHLB) increased by $9.0 million or 28.5% during the year ended December 31,
2003, as compared to the year ended December 31, 2002, and increased by $7.7
million or 32.4% during the year ended December 31, 2002. The increase during
the year ended December 31, 2003, as compared to the year ended December 31,2002
was due primarily to a $327.7 million increase in the average balance of such
borrowings, partially offset by a decrease in the average rate paid thereon of
54 basis points. The increase during 2002 was due primarily to a $253.5 million
increase in the average balance of such borrowings, partially offset by a
decrease in the average rate paid thereon of 79 basis points. The increase in
the average balance of such borrowings during 2003 and 2002 is primarily due to
increased use of FHLB advances to fund growth in the loan portfolio of banking
subsidiaries.

PROVISION FOR LOAN LOSSES.

The provision for loan losses is charged to earnings to bring the total
allowance to a level considered appropriate by management based on R-G
Financial's loss experience, current delinquency data, known and inherent risks
in the portfolio, the estimated value of any underlying collateral and an
assessment of current economic conditions. While management endeavors to use the
best information available in making its evaluations, future allowance
adjustments may be necessary if economic conditions change substantially from
the assumptions used in making the initial evaluations.

R-G Financial made provisions to its allowance for loan losses of $18.6 million,
$18.0 million and $11.1 million during the years ended December 31, 2003, 2002
and 2001, respectively.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 41

<PAGE>
The increase in the provision for loan losses taken by the Company during 2003
and 2002 reflects the increase in the Company's commercial real estate and
construction loan portfolios, due to increased emphasis in the origination of
such loans by the Company, which have higher inherent credit risk compared to
residential loans.

Management believes that its allowance for loan losses at December 31, 2003, was
adequate based upon, among other things, the significant level of single-family
residential loans within R-G Financial's portfolio and the low level of loan
charge-offs normally experienced by the Company with respect to its loan
portfolio. Nevertheless, there can be no assurances that additions to such
allowance will not be necessary in future periods, particularly if the growth in
R-G Financial's real estate lending, including commercial lending, continues.

NON-INTEREST INCOME.

The following table sets forth information regarding non-interest income for the
periods shown.

<TABLE>
<CAPTION>
                                               Year Ended December 31, (Dollars in Thousands)
                                              ------------------------------------------------
                                                  2003            2002                2001
                                              ------------    ------------        ------------
<S>                                           <C>             <C>                 <C>
Net gain on origination and sale of loans     $    146,893    $     85,538        $     62,512
Loan administration and servicing fees              48,166          47,202              33,920
Service charges, fees and other                     28,741          16,431              12,615
                                              ------------    ------------        ------------
   Total other income                         $    223,800    $    149,171        $    109,047
                                              ============    ============        ============
</TABLE>

Total non-interest income increased by $74.6 million or 50.0% during the year
ended December 31, 2003, as compared to the prior year and increased by $40.1
million or 36.8% during the year ended December 31, 2002. Net gain on sale of
loans amounted to $146.9 million, $85.5 million and $62.5 million during the
years ended December 31, 2003, 2002 and 2001, respectively. Net gain on sale of
loans reflects the income generated from the origination and purchase of
single-family residential real estate loans and the subsequent securitization
and sale of such loans. During the years ended December 31, 2003, 2002 and 2001,
R-G Financial originated and purchased $3.2 billion, $2.2 billion and $1.9
billion, respectively, including $333.1 million, $221.0 million and $90.1
million, respectively, of loan purchases, and sold $1.9 billion, $1.2 billion
and $1.2 billion (excluding loans securitized and retained as mortgage-backed
securities) of mortgage loans, respectively. Since 2000, the Company has
emphasized internal loan originations and reduced its dependence on loan
purchases, as a means of achieving higher volume of mortgage loan production
through its branch network and increased profitability across its product lines.
As a result of this strategy, loan purchases decreased from $583.6
million in 1999 to $274.0 million in 2000, $90.1 million in 2001, $221.0 million
in 2002 and $333.1 million in 2003 while its internal loan originations amounted
to $1.1 billion in 1999 and 2000, $1.8 billion in 2001, $2.0 billion in 2002 and
$2.9 billion in 2003. R-G Financial's mortgage banking operations are highly
dependent upon market and economic conditions.

During the years ended December 31, 2003, 2002 and 2001, R-G Financial
recognized net (loss) profit on trading securities of $(1.3) million, $989,000
and $2.0 million, respectively, which are included in net gains on sale of
loans. Such gains and losses primarily reflect fluctuations in the market value
of loans which have been securitized into mortgage-backed securities and are
being held for trading.

During the years ended December 31, 2003, 2002 and 2001, R-G Financial
recognized loan administration and servicing fees of $48.2 million, $47.2
million and $33.9 million, respectively. The increase in loan administration and
servicing fees over the periods reflects the increase in R-G Financial's loan
servicing portfolio from 110,874 loans with an aggregate principal balance of
$6.6 billion at January 1, 2001 to 147,981 loans with an aggregate principal
balance of $10.9 billion at December 31, 2003. The growth in the Company's
servicing portfolio during such period includes approximately $2.6 billion
acquired in the acquisition of Crown Bank in June 2002.

Service charges, fees and other amounted to $28.7 million, $16.4 million and
$12.6 million during the years ended December 31, 2003, 2002 and 2001,
respectively. The $12.3 million or 74.9% and the $3.8 million or 30.2% increase
during the years ended December 31, 2003 and 2002, respectively, were primarily
due to the continued growth of the Company's fee-based insurance and
broker-dealer operations which commenced in late 2000, and early 2002,
respectively, as well as increased fee income associated with new deposit
products and an increasing deposit base.

P. 42
<PAGE>
NON-INTEREST EXPENSES.

The following table sets forth certain information regarding non-interest
expenses for the periods shown.

<TABLE>
<CAPTION>
                                                Year Ended December 31, (Dollars in Thousands)
                                              --------------------------------------------------
                                                2003                 2002                 2001
                                              --------             --------             --------
<S>                                           <C>                  <C>                  <C>
Employee compensation and benefits            $ 63,585             $ 45,244             $ 33,290

Office occupancy and equipment                  24,761               19,631               16,649

Other administrative and general               131,486               94,363               57,133
                                              --------             --------             --------
 Total non-interest expenses                  $219,832             $159,238             $107,072
                                              ========             ========             ========
</TABLE>

Total non-interest expense increased by $60.6 million or 38.1% during the year
ended December 31, 2003, as compared to the year ended December 31, 2002, and
increased by $52.2 million or 48.7% during the years ended December 31, 2002
over 2001. The increase in total non-interest expense during the years ended
December 31, 2003 and 2002 reflect general growth in the Company's operations,
as well as increased costs associated with the opening of new branch offices.

The operations of Crown Bank, acquired by the Company in June 2002, were a
significant reason for the increase in expenses during the years ended December
31, 2003 and 2002. Total operating expenses of Crown Bank for 2003 were $49.8
million, and $27.0 million for 2002 since its acquisition. Excluding expenses
related to Crown Bank during 2002, total non-interest expenses increased by
$25.2 million or 23.5% during the year ended December 31, 2002.

Employee compensation and benefits expense amounted to $63.6 million, $45.2
million and $33.3 million during the years ended December 31, 2003, 2002 and
2001, respectively. The $18.3 million or 40.5% increase in such expenses during
the year ended December 31, 2003 is primarily due to an increase in the number
of employees as well as increased bonus payments. The $12.0 million or 35.9%
increase in such expenses during the year ended December 31, 2002 is primarily
associated with an increase in the number of employees and increased bonus
payments associated with increased loan production during the year, as well as
employee expenses related to the operations of Crown Bank totaling $5.4
million.

Office occupancy and equipment expense amounted to $24.8 million, $19.6 million
and $16.6 million during the years ended December 31, 2003, 2002 and 2001,
respectively. The $5.1 million or 26.1% increase in office occupancy and
equipment expenses during the year ended December 31, 2003 is primarily related
to the operation of additional bank branches and additional office space to
accomodate growth in the operations of the Company in Puerto Rico. The $3.0
million or 17.9% increase in office occupancy and equipment expenses during the
year ended December 31, 2002 is primarily related to the operation of additional
bank branches and additional office space to accomodate general growth in the
operations of R-G Financial, as well as $1.3 million additional expenses
associated with the operations of Crown Bank.

Other administrative and general expenses, which consist primarily of
advertising, license and property taxes, amortization of servicing asset,
insurance, telephone, printing and supplies and other miscellaneous expenses,
amounted to $131.5 million, $94.4 million and $57.1 million during the years
ended December 31, 2003, 2002 and 2001, respectively. The $37.1 million or 39.3%
increase in such expenses during the year ended December 31 2003, is primarily
associated with additional expenses associated with the Company's servicing
asset of $20.6 million, including impairment charges, as well as additional
expenses associated with the operations of Crown Bank and general growth in the
operations of R-G Financial. The $37.2 million or 65.2% increase in other
administrative and general expenses during the year ended December 31, 2002 was
primarily due to a $22.8 million increase in expenses associated with the
Company's servicing asset, including impairment charges, as well as additional
expenses related to the operations of Crown Bank and general growth in the
operations of R-G Financial in Puerto Rico.

Unscheduled amortization amounts are a result of higher prepayment speeds in the
Company's servicing portfolio. The increases in prepayments reflect decreases in
interest rates for new mortgage loans, which reached historically low levels
during the second quarter of 2003. During the second half of 2003, however,
interest rates for mortgage loans increased compared to the first half of 2003,
and prepayment speeds have declined as a result. The value of the Company's
servicing portfolio is expected to increase if rates continue to increase due to
lower prepayment speeds. Unscheduled amortization amounts are expected to
continue, however, although at a lower pace compared to 2003, as a result
presently lower prepayment speeds.

INCOME TAXES.

R-G Financial's income tax provision amounted to $42.4 million during the year
ended December 31, 2003, as compared to income tax expense of $28.7 million and
$21.6 million during the years ended December 31, 2002 and 2001, respectively.
R-G Financial's effective tax rate amounted to 24.4%, 22.9% and 24.6% during the
years ended December 31, 2003, 2002 and 2001, respectively. The lower effective
tax rates experienced by R-G Financial compared to the maximum statutory rates
reflect the exemption under Puerto Rico law of the net interest income derived
from certain FHA and VA mortgage loans secured by properties located in Puerto
Rico and on GNMA securities backed by such loans. The Company also invests in
certain U.S. agency securities that are exempt from Puerto Rico taxation and are
not subject to federal income taxation because the Company is entitled to rely
on the portfolio interest deduction. Finally, R-G Financial's international
banking entities may invest in various U.S. securities the income on which is
exempt from Puerto Rico income taxation and are also not subject to federal
income taxation on the basis of the portfolio interest deduction.

In December 2003, the Puerto Rico Legislature passed legislation to modify the
taxation of international banking entities organized under the Puerto Rico
Banking Law. Under the new legislation, which affects only those entities
organized as divisions (as opposed to those organized as separate subsidiaries),
the income generated by international bank divisions will be subject to the
regular Puerto Rico statutory tax rate to the extent it exceeds 40% of the
combined taxable income of the corporation and its divisions for the period
January 1, 2004 to June 30, 2004, 30% for the period July 1, 2004 to December
31, 2004, and 20% thereafter.

Based on presently available information, management believes that the impact of
the new legislation should not have a significant impact on future results of
operations of the Company.

                                       R-G FINANCIAL 2003 ANNUAL REPORT    P. 43

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY.

Liquidity refers to R-G Financial's ability to generate sufficient cash to meet
the funding needs of current loan demand, deposit withdrawals, principal and
interest payments with respect to outstanding borrowings and to pay operating
expenses. It is management's policy to maintain greater liquidity than required
in order to be in a position to fund loan purchases and originations, to meet
withdrawals from deposit accounts, to make principal and interest payments with
respect to outstanding borrowings and to make investments that take advantage of
interest rate spreads. R-G Financial monitors its liquidity in accordance with
guidelines established by R-G Financial and applicable regulatory requirements.
R-G Financial's need for liquidity is affected by loan demand, net changes in
deposit levels and the scheduled maturities of its borrowings. R-G Financial can
minimize the cash required during times of heavy loan demand by modifying its
credit policies or reducing its marketing efforts. Liquidity demand caused by
net reductions in deposits are usually caused by factors over which R-G
Financial has limited control. R-G Financial derives its liquidity from both its
assets and liabilities. Liquidity is derived from assets by receipt of interest
and principal payments and prepayments, by the ability to sell assets at market
prices and by utilizing unpledged assets as collateral for borrowings. Liquidity
is derived from liabilities by maintaining a variety of funding sources,
including deposits, advances from the FHLB and other short and long-term
borrowings.

R-G Financial's liquidity management is both a daily and long-term function of
funds management. Liquid assets are generally invested in short-term investments
such as securities purchased under agreements to resell, federal funds sold and
certificates of deposit in other financial institutions. If R-G Financial
requires funds beyond its ability to generate them internally, various forms of
both short and long-term borrowings provide an additional source of funds. At
December 31, 2003, R-G Financial had $147.2 million in borrowing capacity under
unused warehouse and other lines of credit, $1.1 billion in borrowing capacity
under unused lines of credit with the FHLB and $19.0 million available unused
fed funds lines of credit.

At December 31, 2003, R-G Financial had outstanding commitments (including
unused lines of credit) to originate and/or purchase mortgage and non-mortgage
loans of $605.3 million. The Company also has agreements with developers to
facilitate the mortgage loans to qualified buyers of new housing units on
residential projects amounting to $905.8 million. All such agreements are
subject to prevailing market rates at time of closing with no market risk
exposure to the Company or with firm back-to-back commitments in favor of the
mortgagee. Finally, the Company had certificates of deposit which are scheduled
to mature within one year totaling $1.1 billion at December 31, 2003, and
borrowings that are scheduled to mature within the same period amounting to $1.7
billion. R-G Financial anticipates that it will have sufficient funds available
to meet its current loan commitments.

CAPITAL RESOURCES.

Applicable capital regulations establish a minimum 3.0% Tier I leverage capital
requirement for the most highly-rated state-chartered, non-member banks, with an
additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively increases the minimum
Tier I leverage ratio for such other banks from 4.0% to 5.0% or more. Under the
regulations, the highest-rated banks are those that the FDIC determines are not
anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and, in general, which are considered a strong banking
organization and are rated composite 1 under the Uniform Financial
Institutions Rating System. Leverage or core capital is defined as the sum of
common stockholders' equity (including retained earnings), noncumulative
perpetual preferred stock and related surplus, and minority interests in
consolidated subsidiaries, minus all intangible assets other than certain
qualifying supervisory goodwill and certain purchased mortgage servicing rights.

Regulators also require that banks meet a risk-based capital standard. The
risk-based capital standard for banks requires the maintenance of total capital
(which is defined as Tier I capital and supplementary (Tier 2) capital) to risk
weighted assets of 8%. In determining the amount of risk-weighted assets, all
assets, plus certain off-balance sheet assets, are multiplied by a risk-weight
of 0% to 100%, based on the risks the FDIC believes are inherent in the type of
asset or item. The components of Tier I capital are equivalent to those
discussed above under the 3% leverage capital standard. The components of
supplementary capital include certain perpetual preferred stock, certain
mandatory convertible securities, certain subordinated debt and intermediate
preferred stock and general allowances for loan and lease losses. Allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward supplementary capital cannot exceed 100% of core capital.

At December 31, 2003, R-G Premier met each of its capital requirements, with
Tier I leverage capital, Tier I risk-based capital and total risk-based capital
ratios of 6.97%, 12.50% and 13.46%, respectively. At December 31, 2003 Crown
Bank also met each of its capital requirements, with Tier I leverage capital,
Tier I risk-based capital and total risk-based capital ratios of 7.32%, 11.12%
and 11.89%, respectively.

In addition, the Federal Reserve Board has promulgated capital adequacy
guidelines for bank holding companies which are substantially similar to those
adopted by the FDIC regarding state-chartered banks, as described above. R-G
Financial is currently in compliance with such regulatory capital requirements,
with Tier I leverage capital, Tier I risk-based capital and total risk-based
capital ratios of 10.31%, 15.64% and 16.40%, respectively.

ASSET AND LIABILITY MANAGEMENT

GENERAL.

Changes in interest rates can have a variety of effects on R-G Financial's
business. In particular, changes in interest rates affect the volume of mortgage
loan originations, the interest rate spread on loans held for sale, the amount
of gain on the sale of loans, the value of R-G Financial's loan servicing
portfolio and the Company's net interest income. A substantial increase in
interest rates could also affect the volume of R-G Financial's loan originations
by reducing the demand for mortgages for home purchases, as well as the demand
for refinancings of existing mortgages. Conversely, a substantial decrease in
interest rates will generally increase the demand for mortgages.

The principal objective of R-G Financial's asset and liability management
function is to evaluate the interest-rate risk included in certain balance sheet
accounts and off-balance sheet commitments, determine the appropriate level of
risk given R-G Financial's business focus, operating environment, capital and
liquidity requirements and performance objectives, establish prudent asset
concentration guidelines and manage the risk consistent with Board approved
guidelines. Through such management, R-G Financial seeks to reduce the
vulnerability of its operations to changes in interest rates and to manage the
ratio of interest rate sensitive assets to interest rate sensitive liabilities
within specified maturities or repricing dates.

The asset and liability management function for each banking operation is under
the guidance of its Interest Rate Risk, Budget and Investments

P. 44

<PAGE>

Committee ("IRRBICO"), which is chaired by the Chief Executive Officer and
comprised principally of members of each bank's senior management and at least
three members of each bank's Board of Directors. The IRRBICO meets once a month
to review, among other things, the sensitivity of each bank's assets and
liabilities to interest rate changes, the book and market values of assets and
liabilities, unrealized gains and losses, purchase and sale activity and
maturities of investments and borrowings. In connection therewith, the IRRBICO
generally reviews each bank's liquidity, cash flow needs, maturities of
investments, deposits and borrowings and current market conditions and interest
rates.

The primary IRRBICO monitoring tool is asset/liability simulation models, which
are prepared on a monthly basis and are designed to capture the dynamics of
balance sheet, rate and spread movements and to quantify variations in net
interest income under different interest rate environments. The Company also
utilizes market-value analysis, which addresses the change in equity value
resulting from movements in interest rates. The market value of equity is
estimated by valuing banking assets and liabilities. The extent to which assets
have gained or lost value in relation to the gains or losses of liabilities
determines the appreciation or depreciation in equity on a market-value basis.
Market value analysis is intended to evaluate the impact of immediate and
sustained interest-rate shifts of the current yield curve upon the market value
of the current balance sheet.

A more conventional but limited IRRBICO monitoring tool involves an analysis of
the extent to which assets and liabilities are "interest rate sensitive" and
measuring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
"gap" is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds interest
rate sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. During a period of falling
interest rates, a negative gap would tend to result in an increase in net
interest income, while a positive gap would tend to affect net interest income
adversely. At December 31, 2003, R-G Financial's interest-bearing liabilities
which mature or reprice within one year exceeded R-G Financial's
interest-earning assets with similar characteristics. During 2003, R-G
Financial's fixed rate residential loan portfolio increased significantly as a
result of strong loan production during the year. As a result, R-G Financial had
a one year negative gap at December 31, 2003 of $116.2 million, or 1.4% of total
assets, compared to a positive gap of approximately $498.1 million or 7.9% of
total assets at December 31, 2002. R-G Financial's gap position within one year
at December 31, 2003 was only 1.4% of total assets at such date, due primarily
to a continuous increase in the amount of adjustable rate loans resulting from
greater emphasis in commercial and construction lending, as well as to the
extension during 2002 and 2003 of the maturity dates of certain borrowings into
longer-term maturities at very attractive rates, taking advantage of reduced
interest rates during such periods. At December 31, 2003 $2.0 billion or 54.4%
of borrowings of the Company mature after one year. While in computing its gap
position the Company presents its fixed-rate residential mortgage loans
receivable portfolio held for investment purposes according to its maturity
date, from time to time the Company may negotiate special transactions with
FHLMC and/or FNMA or other third party investors for the sale of such loans.
There can be no assurance, however, that the Company will be successful in
consummating any such transactions. While a conventional gap measure may be
useful, it is limited in its ability to predict trends in future earnings. It
makes no presumptions about changes in prepayment tendencies, deposit or loan
maturity preferences or repricing time lags that may occur in response to a
change in the interest rate environment.

MORTGAGE BANKING OPERATIONS.

The profitability to R-G Financial of its mortgage loan originations for sale is
in part a function of the difference between long-term interest rates, which is
the rate at which R-G Financial originates mortgage loans for third parties, and
short-term interest rates, which is the rate at which R-G Financial finances
such loans until they are sold. Generally, short-term interest rates are lower
than long-term interest rates and R-G Financial benefits from the difference, or
the spread, during the time the mortgage loans are held by R-G Financial pending
sale. A decrease in this spread would have a negative effect on R-G Financial's
net interest income and profitability, and there can be no assurance that the
spread will not decrease. R-G Financial generally attempts to reduce this risk
by attempting to limit the amount of mortgage loans held pending sale and, as
market conditions permit and as discussed below, entering into forward
commitments with respect to a portion of its mortgage loan originations. As a
general matter, R-G Financial attempts to limit its exposure to this interest
rate risk through the sale of substantially all loans within 180 days of
origination.

A mortgage-banking company is generally exposed to interest rate risk from the
time the interest rate on the customer's mortgage loan application is
established through the time the mortgage loan closes, and until the time the
company commits to sell the mortgage loan. In order to limit R-G Financial's
exposure to interest rate risk through the time the mortgage loan closes, the
Company generally does not lock-in or guarantee the customer a specific interest
rate on such loans through the closing date but rather offers customers an
interest rate that will be based on a prevailing market rate that adjusts
weekly. Moreover, in order to limit R-G Financial's exposure to interest rate
risk through the time the loan is sold or committed to be sold, R-G Financial
may, depending upon market conditions, enter into forward commitments to sell a
portion of its mortgage loans to investors for delivery at a future time. At
December 31, 2003, R-G Financial had $312.9 million of pre-existing commitments
by third-party investors to purchase mortgage loans. To the extent that R-G
Financial originates or commits to originate loans without pre-existing
commitments by investors to purchase such loans or is not otherwise hedged
against changes in interest rates ("unhedged loans"), R-G Financial will be
subject to the risk of gains or losses through adjustments to the carrying value
of loans held for sale or on the actual sale of such loans (the value of
unhedged loans fluctuates inversely with changes in interest rates).

Finally, R-G Financial carries an inventory of mortgage-backed and related
securities (primarily fixed-rate U.S. Agencies CMO's and GNMA and FHLMC
certificates) classified as available for sale of $2.4 billion or 29.3% of its
total assets which are reported at fair value, with unrealized gains and losses
excluded from earnings and reported net of taxes in other comprehensive income,
a separate component of stockholders' equity. Because such interest-earning
assets have longer effective maturities than R-G Financial's interest bearing
liabilities, the yield of such assets will adjust more slowly than the cost of
its interest-bearing liabilities and, as a result, R-G Financial's net interest
income generally would be adversely affected by increases in interest rates and
positively affected by comparable declines in interest rates.

In order to hedge the interest rate risk with respect to R-G Financial's
mortgage-backed and related securities portfolio, R-G Financial may utilize a
variety of interest rate contracts such as interest rate swaps, collars, caps,
options or futures (primarily Eurodollar certificates of deposit and U.S.
Treasury note contracts). R-G Financial will use such hedging instruments based
upon market conditions as well as the level of market rates of interest. In
determining the amount of its portfolio to hedge, R-G Financial will consider
the volatility of prices of its mortgage-backed and related securities (Puerto
Rican tax-exempt GNMAs are generally less volatile than their U.S.
counterparts). For taxable GNMAs, R-G Financial enters into forward sales
commitments for 30, 60 and 90 days to reduce its interest rate risk.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 45

<PAGE>

R-G Financial may also use interest rate swaps, caps, collars, options and
futures to effectively fix the cost of short-term funding sources which are used
to originate and or purchase interest-earning assets with longer effective
maturities, such as mortgage-backed securities and fixed rate residential
mortgage loans held prior to sale in the secondary market. Such agreements thus
reduce the impact of increases in interest rates by preventing R-G Financial
from having to replace funding sources at a higher cost prior to the time that
the interest-earning asset which was originated or purchased with such source
matures, reprices or is sold, and thus can be replaced with a higher-yielding
asset.

At December 31, 2003 R-G Mortgage was a party to two interest rate swap
agreements. An interest rate swap is an agreement where one party (generally the
Company) agrees to pay a fixed-rate of interest on a notional principal amount
to a second party (generally a broker) in exchange for receiving from the second
party a variable-rate of interest on the same notional amount for a
predetermined period of time. No actual assets are exchanged in a swap of this
type and interest payments are generally netted. R-G Mortgage's existing
interest rate swap agreements have a notional amount of approximately $85.0
million and expire between February 2006 and December 2009. With respect to such
agreements, R-G Mortgage makes fixed interest payments ranging from 4.80% to
5.60%, and receives payments based upon the three-month London Interbank Offer
Rate ("Libor"). The net interest paid relating to R-G Mortgage's fixed-pay
interest rate swaps amounted to approximately $3,318,000, $2,835,000 and
$858,000 during the year ended December 31, 2003, 2002 and 2001, respectively.
Such interest rate contracts have reduced the imbalance between R-G Financial's
interest-earning assets and interest-bearing liabilities within shorter
maturities, thus reducing R-G Financial's exposure to increases in interest
rates that may occur in the future.

BANKING OPERATIONS.

The results of operations of R-G Financial are substantially dependent on its
net interest income, which is the difference between the interest income earned
on its interest-earning assets and the interest expense paid on its
interest-bearing liabilities. At December 31, 2003, R-G Financial's
interest-earning assets included a portfolio of loans receivable, net of $4.0
billion and a portfolio of investment securities and mortgage-backed securities
(including held to maturity, available for sale and held for trading) of $3.2
billion. Because R-G Financial's interest-earning assets have longer effective
maturities than its interest-bearing liabilities, the yield on R-G Financial's
interest-earning assets generally will adjust more slowly than the cost of its
interest-bearing liabilities and, as a result, R-G Financial's net interest
income generally would be adversely affected by increases in interest rates and
positively affected by comparable declines in interest rates. In addition to
affecting net interest income, changes in interest rates also can affect the
value of R-G Financial's interest-earning assets, which are comprised of fixed
and adjustable-rate instruments. At December 31, 2003, $3.1 billion or 96.4% of
R-G Financial's mortgage-backed and investment securities were classified as
available for sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported net of taxes in other comprehensive income,
a separate component of stockholders' equity.

In addition to affecting net interest income, changes in interest rates also can
affect the value of R-G Financial's mortgage-backed and related securities.
Generally, the value of fixed-rate mortgage-backed securities declines when
interest rates rise and, conversely, increases when interest rates fall. At
December 31, 2003, R-G Financial held $33.2 million of mortgage-backed and
related securities (all of which carried fixed interest rates) which were
classified as held for trading and reported at fair value, with unrealized gains
and losses included in earnings. Accordingly, declines in the value of R-G
Financial's securities held for trading would have a negative impact on the
Company's earnings regardless of whether any securities were actually sold.

The Company has sought to limit its exposure to interest rate risk both
internally through the management of the composition of its assets and
liabilities and externally through the use of a variety of hedging instruments.
Internal hedging through balance sheet restructuring generally involves the
attraction of longer-term funds (i.e., certificates of deposit or FHLB
advances), the origination of adjustable-rate and/or shorter-term loans (such as
commercial real estate, commercial business and consumer loans) or the
investment in certain types of mortgage-backed derivative securities such as
CMOs and mortgage-backed residuals (which often exhibit elasticity and convexity
characteristics which the Company can utilize to hedge other components of its
portfolio).

External hedging involves the use of interest rate swaps, collars, caps, options
and futures to reduce interest rate risk on all mortgage-backed securities
(excluding CMOs) which are available for sale. At December 31, 2003,
mortgage-backed securities available for sale had a fair value of $2.4 billion.

The Company generally uses interest rate swaps, collars, caps, options and
futures to effectively fix the cost of short-term funding sources which are used
to purchase interest-earning assets with longer effective maturities, such as
mortgage-backed securities and fixed-rate residential mortgage loans. Such
agreements reduce the impact of increases in interest rates by preventing the
Company from having to replace funding sources at a higher cost prior to the
time that the interest-earning asset which was acquired with such source matures
or reprices and thus can be replaced with a higher-yielding asset.

At December 31, 2003, R-G Premier was a party to two interest rate swap
agreements with an aggregate notional amount of approximately $60 million and
expire between February 2006 and December 2009. With respect to such agreements,
R-G Premier makes fixed interest payments ranging from 4.67% to 5.69% and
receives payments based upon the three-month Libor. The net interest paid
relating to the R-G Premier's fixed-pay interest rate swaps amounted to
approximately $2,404,000, $2,318,000 and $868,000 during the years ended
December 31, 2003, 2002 and 2001, respectively. Such interest rate contracts
have reduced the imbalance between R-G Financial's interest-earning assets and
interest-bearing liabilities within shorter maturities, thus, reducing R-G
Financial's exposure to increases in interest rates that may occur in the
future.

In addition, at December 31, 2003 RAC was a party to an interest rate swap
agreement with a notional amount of $25.0 million which expires in April 2007 to
hedge debt issued for the same amount in April 2002. With respect to such
agreement, RAC makes fixed interest payments of 8.77% and receives payments
based upon the six-month Libor. Net interest paid during the year ended December
31, 2003 and 2002 amounted to $855,000 and $532,000, respectively.

P. 46

<PAGE>

The following table summarizes the anticipated maturities or repricing of R-G
Financial's interest-earning assets and interest-bearing liabilities as of
December 31, 2003, based on the information and assumptions set forth in the
notes below. For purposes of this presentation, the interest earning components
of loans held for sale and mortgage-backed securities held in connection with
the Company's mortgage banking business are assumed to mature within one year.
In addition, investments held by the Company which have call features are
presented according to their expected callable date or contractual maturity
date, as the case may be, based on the actual interest rate environment.

<TABLE>
<CAPTION>
                                                              Four to       More Than       More Than
                                              Within Three     Twelve      One Year to     Three Years    Over Five
                                                 Months        Months      Three Years    to Five Years     Years         Total
                                              ------------   -----------   -----------    -------------  -----------   -----------
<S>                                           <C>            <C>           <C>            <C>            <C>           <C>
Interest-earning assets(1):
Loans receivable                              $ 1,145,148    $   424,911   $   755,206    $   469,962    $ 1,291,344   $ 4,086,571
Mortgage loans held for sale                       99,671         46,694        66,954         54,108         48,264       315,691
Mortgage-backed securities(2)(3)                  145,992        413,556       504,721        290,485      1,111,070     2,465,824
Investment securities(3)                          194,907        112,652       327,371        133,709          3,201       771,840
Other interest-earning assets(4)                  119,402              -             -              -              -       119,402

Total                                         $ 1,705,120    $   997,813   $ 1,654,252    $   948,264    $ 2,453,879   $ 7,759,328

Interest-bearing liabilities:
Deposits:
    NOW and Super NOW accounts(5)             $    28,061    $    78,297   $    86,068    $    69,715    $   297,206   $   559,347
    Passbook savings accounts(5)                    8,436         24,468        60,912         48,730        194,918       337,464
    Regular and commercial checking(5)             19,714         55,197        60,678         49,149        209,533       394,271
    Certificates of deposit                       347,747        717,739       703,393        488,367          1,988     2,259,234
FHLB advances                                     194,000          5,000       530,600        235,000        165,000     1,129,600
Securities sold under agreements to
    repurchase(6)                                 998,131        312,443       743,021         50,000        138,200     2,241,795
Other borrowings(7)                                53,432        146,497             -              -              -       199,929

Total                                           1,649,521      1,339,641     2,184,672        940,961      1,006,845     7,121,640

Effect of hedging instruments                     170,000              -       (65,000)       (25,000)       (80,000)            -
                                              -----------    -----------   -----------    -----------    -----------   -----------
Excess (deficiency) of interest-earning
    assets over interest-bearing liabilities  $   225,599    $  (341,828)  $  (595,420)   $   (17,697)   $ 1,367,034   $   637,688
                                              -----------    -----------   -----------    -----------    -----------   -----------
Cumulative excess (deficiency) of
    interest-earning assets over
    interest-bearing liabilities              $   225,599    $  (116,229)  $  (711,649)   $  (729,346)   $   637,688
                                              -----------    -----------   -----------    -----------    -----------
Cumulative excess (deficiency) of
    interest-earning assets over
    interest-bearing liabilities as a
    percent of total assets                          2.75%         (1.42)%       (8.68)%        (8.90)%         7.78%
                                              ------------   -----------   -----------    -----------    -----------
</TABLE>


(1)  Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are due,
and fixed-rate loans are included in the periods in which they are scheduled to
be repaid, based on scheduled amortization, in each case as adjusted to take
into account estimated prepayments.

(2)  Reflects estimated prepayments in the current interest rate environment.

(3)  Includes securities held for trading, available for sale and held to
maturity.

(4)  Includes securities purchased under agreement to resell, time deposits with
other banks and federal funds sold.

(5)  Although the Bank's negotiable order of withdrawal ("NOW") and Super NOW
accounts, passbook savings accounts and checking accounts are subject to
immediate withdrawal, management considers a substantial amount of such accounts
to be core deposits having significantly longer effective maturities based on
the Bank's retention of such deposits in changing interest rate environments.
The table assumes that funds will be withdrawn from the Bank at

 (footnotes continue on following page)

                                       R-G FINANCIAL 2003 ANNUAL REPORT    P. 47

<PAGE>

annual rates for NOW accounts and for regular and commercial checking accounts,
ranging from 10% for 0-12 months, 19% for 1-5 years, 41% for 5-10 years, 65% for
10-20 years and 100% thereafter; and, for passbook savings accounts, ranging
from 5% for 0-12 months, 20% for 1-5 years, 40% for 5-10 years, 65% for 10-20
years and 100% thereafter. The percentages used were computed based on actual
experience for new accounts and the percentage retained over time.

(6)  Includes federal funds purchased.

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

Although "gap" analysis is a useful measurement device available to management
in determining the existence of interest rate exposure, its static focus as of a
particular date makes it necessary to utilize other techniques in measuring
exposure to changes in interest rates. For example, gap analysis is limited in
its ability to predict trends in future earnings and makes no assumptions about
changes in prepayment tendencies, deposit or loan maturity preferences or
repricing time lags that may occur in response to a change in the interest rate
environment. As a result, R-G Financial, through simulation models, also
analyzes on a monthly basis the estimated effects on net interest income under
multiple rate scenarios, including increases and decreases in interest rates
amounting to 200 and 100 basis points. The IRRBICO regularly reviews interest
rate risk by forecasting the impact of alternative interest rate scenarios on
net interest income and by evaluating such impact against the maximum potential
changes in net interest income.

The following table sets forth at December 31, 2003 the estimated percentage
change in R-G Financial's net interest income based on the indicated changes in
interest rates.

NET INTEREST INCOME

<TABLE>
<CAPTION>
                          (Dollars in Thousands)
-------------------------------------------------------------------------
     Change in               Expected
   Interest Rates           Net Interest          Amount       Percentage
(in basis points)(1)         Income(2)          of Change        Change
--------------------       -------------       -----------     ----------
<S>                        <C>                 <C>             <C>
     +200                  $  206,059          $  (3,015)         (1.4)%
     +100                     207,783             (1,291)         (0.6)
 Base Scenario                209,074                  -             -
     -100                     208,261               (813)         (0.4)
</TABLE>

(1)  Assumes an instantaneous uniform change in interest rates at all
maturities.

(2)  Net interest income amounts exclude amortization of deferred loan fees.

Management of R-G Financial believes that all of the assumptions used in the
foregoing analysis to evaluate the vulnerability of its operations to changes in
interest rates approximate actual experience and considers them reasonable;
however, the interest rate sensitivity of R-G Financial's assets and liabilities
and the estimated effects of changes in interest rates on R-G Financial's net
interest income indicated in the above table could vary substantially if
different assumptions were used or if actual experience differs from the
projections on which they are based.

INFLATION AND CHANGING PRICES.

R-G Financial's Consolidated Financial Statements and related data presented in
this Annual Report have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars (except with respect to
securities which are carried at market value), without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of R-G
Financial are monetary in nature. As a result, interest rates have a more
significant impact on R-G Financial's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.

P. 48

<PAGE>

CONTRACTUAL OBLIGATIONS, COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET
ARRANGEMENTS

The following tables present contractual obligations, commercial commitments
and off-balance sheet arrangements of the Company as of December 31,
2003. See notes 9, 10 and 19 of the Notes to the Consolidated Financial
Statements (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                    Payment due period
                                                                 ---------------------------------------------------------
                                                                    Less than      One to        Four to         After
CONTRACTUAL OBLIGATIONS                               Total         One Year     Three Years    Five Years     Five Years
-----------------------                           -----------    ------------   ------------   -----------    ------------
<S>                                               <C>            <C>            <C>            <C>            <C>
Deposits                                          $ 3,555,764    $  2,353,318   $   706,559    $   493,944    $     1,943
FHLB advances                                       1,129,600         199,000       530,600        235,000        165,000
Lines of credit                                       192,259         192,259             -              -              -
Other borrowings                                      157,670           7,670             -              -        150,000
Repurchase agreements                               2,220,795       1,289,574       743,021         50,000        138,200
Non-cancellable leases                                 39,249           6,237         9,724          7,543         15,745
                                                  -----------    ------------   ------------   -----------    ------------
    Total contractual cash obligations            $ 7,295,337    $  4,048,058   $ 1,989,904    $   786,487    $   470,888
                                                  ===========    ============   ============   ===========    ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                           Expiring-by period
                                                                           ---------------------------------------------------
OTHER COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET                         Less than      One to      Four to        After
   ARRANGEMENTS                                                  Total       One Year    Three Years   Five Years   Five Years
---------------------------------------------------------    ----------    ----------   -----------   ----------   -----------
<S>                                                          <C>           <C>          <C>           <C>          <C>
Lines of credit                                              $  194,509    $  185,263   $    3,395    $    136    $    5,715
Commitments to originate mortgage and
  nonmortgage loans                                             109,691       109,691            -           -             -
Standby letters of credit                                        15,270         7,770        7,500           -             -
Undisbursed portion of loans in process                         224,960       156,115       68,845           -             -
Forward commitments to sell loans                               312,894       312,894            -           -             -
Loans sold with recourse                                      1,075,794             -            -           -     1,075,794
                                                             ----------    ----------   ----------    --------    ----------
     Total commercial commitments                            $1,933,118    $  771,733   $   79,740    $    136    $1,081,509
       and off-balance sheet arrangements                    ==========    ==========   ==========    ========    ==========

</TABLE>

As part of its loan servicing activities, the Company is committed to advance
from its own funds any shortage of moneys required to complete timely payments
to investors in the Company's GNMA, FNMA and FHLMC servicing portfolio, as well
as certain private investors. See Note 5 of the Notes to the Consolidated
Financial Statements for further information regarding the Company's commitments
under various servicing agreements.

The Company is contingently liable under limited recourse provisions resulting
from the sale of residential mortgage loans to several investors, principally
FHLMC, as part of its mortgage banking activities. On certain sales, the Company
is also contingently liable for any losses sustained in the disposition of any
future repossessed properties that may result from such loans. All loans subject
to these provisions are presently being serviced by the Company, and provisions
for loan losses, based on loss experience of the Company, are made at the time
the loans are sold. Management estimates that the future liability under these
provisions is insignificant at December 31, 2003, as losses upon the completion
of the foreclosure process have been minimal to the Company. See Note 19 of the
Notes to the Consolidated Financial Statements for further information regarding
the Company's commitments under loans sold subject to recourse provisions.

Finally, in April 2002, RAC formed R-G Capital Trust I, a Delaware business
trust, which issued $25 million of trust preferred securities. In August 2003,
RAC formed R&G Capital Trust IV which issued $15 million of trust preferred
securities. Each of these transactions were sold in private placements. In
October 2003, the Company formed R&G Capital Trust III, which issued $100
million of trust preferred securities in a public offering. The Company has
guaranteed certain obligations of RAC to R-G Capital Trust I and IV, mainly
related to the payment of interest by RAC on the trust preferred securities and
the eventual redemption of the trust preferred securities at maturity. The
Company has also guaranteed certain obligations to R-G Capital III. See Note 19
of the Notes to the Consolidated Financial Statements for further information
regarding the Company's commitments under trust preferred securities.

CRITICAL ACCOUNTING POLICIES.

The Company considers its Allowance for Loan Losses policy as a policy critical
to the sound operations of the Company. The Company provides for loan losses
each period by an amount resulting from both (a) an estimate by management of
loan losses that occurred during the period and (b) the ongoing adjustment of
prior estimates of losses occurring in prior periods. The provision for loan
losses increases the allowance for loan losses which is netted against loans on
the consolidated statements of financial condition. As losses are confirmed, the
loan is written down, reducing the allowance for loan losses. See Note 1 of the
Notes to the Consolidated Financial Statements for further information regarding
the Company's provision and allowance for loan losses policy.

                                       R-G FINANCIAL 2003 ANNUAL REPORT    P. 49

<PAGE>

The Company also considers, as critical to the sound operations of the Company,
its policy for the measurement and periodic evaluation for impairment of its
servicing asset and retained interests resulting from the sale or securitization
of residential mortgage loans and/or financial asset transfers of mortgage loans
accounted for as sales.

As of December 31, 2003 the Company had a servicing asset of $119.6 million, and
retained interests (CMO residuals and interest only strips) resulting from
financial asset transfers accounted for as sales totaling $108.0 million. Such
assets are initially recorded at their fair value at the time of sale or
securitization. Once recorded, such assets are periodically evaluated and
adjusted accordingly using discounted future cash flows techniques, via Company
simulation models and through external consultants. Generally, the value of such
assets decline with decreases in interest rates and conversely increases when
interest rates increase. An impairment is recognized on the Company's servicing
asset whenever the prepayment pattern of the underlying mortgage loans indicates
that the fair value of such asset is lower than its carrying amount, or that
faster amortization of the asset is required. Retained interests are adjusted
periodically to their estimated fair value, and are included within
mortgage-backed securities available for sale on the consolidated statements of
financial condition with changes in fair value reported as other comprehensive
income. See Notes 1 and 3 of the Notes to the Consolidated Financial Statements
for further information regarding the Company's servicing asset and retained
interests policy.

RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On April 30, 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 or
Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivatives instruments embedded in other contracts, and for hedging activities
under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for contracts entered into or modified
after June 30, 2003. The adoption of this Statement on July 1, 2003 had no
significant effect on the consolidated financial condition or results of
operations of the Company.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." FAS 150
represents phase 1 of the FASB's broader project on (1) distinguishing between
liability and equity instruments and (2) accounting for instruments that have
characteristics of both types of instruments (the "liabilities and equity
project"). SFAS No. 150 covers a limited number of instruments that are to be
classified as liabilities and specifies that such instruments embody obligations
of the issuer and that, therefore, the issuer must classify them as liabilities.
It is expected that phase 2 of the project will address (1) separating compound
financial instruments (including convertible debt and conditionally redeemable
stock) that have characteristics of liabilities and equity into their liability
and equity components, (2) the definition of an ownership relationship, and (3)
the definition of liabilities in FASB Concepts Statement No. 6 (CON 6),
"Elements of Financial Statements."

Under the provisions of this Statement, SFAS No. 150 was effective July 1, 2003
for the Company. Among the instruments specified by SFAS No. 150, mandatorily
redeemable financial instruments must be classified as liabilities. The Company
has $35 million of guaranteed preferred beneficial interest in company junior
subordinated deferrable interest debentures ("trust preferred securities") that
had already been classified as other borrowings in its consolidated statements
of financial condition as of June 30, 2003 and accordingly, the adoption of this
Statement did not have any effect on the Company's consolidated financial
statements.

ACCOUNTING FOR CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51" ("FIN 46"). Under FIN 46 entities
that would be assessed for consolidation are typically referred to as
Special-Purposed Entities ("SPEs"), although non-SPE-type entities may also be
subject to the guidance. FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entities residual returns, or both. FIN 46 was effective
immediately for variable interest entities created after January 31, 2003. For
variable interest entities created prior to February 1, 2003, the provisions of
FIN 46 became effective July 1, 2003. On October 9, 2003 the FASB opted to defer
to October 1, 2003 the effective date for variable interest entities created
prior to February 1, 2003. The provisions of FIN 46 continue to apply to
variable interest entities created after January 31, 2003.

Under the provisions of FIN 46, effective July 1, 2003, the Company
deconsolidated R&G Capital Trust I and II which had issued trust preferred
securities. As discussed above, the Company had classified its $35 million trust
preferred securities as borrowings in its consolidated statements of financial
condition prior to such deconsolidation. The primary effect of deconsolidating
these trusts was to change the balance sheet classification of the liabilities
from guaranteed preferred beneficial interest in company junior subordinated
deferrable interest debentures to long-term debt.

The Company did not consolidate R&G Capital Trust IV, created by the Company in
August 2003, which issued $15 million in trust preferred securities in a private
placement, and R&G Capital Trust III which in October 2003 issued $100 million
of trust preferred securities in a public offering. Based on interim guidance
issued by the Federal Reserve Board, the deconsolidation of these vehicles
pursuant to FIN 46 would not impact the Tier 1 capital treatment of the
liabilities to the extent permitted under current regulations until notice is
given to the contrary.

On December 24, 2003, the FASB issued a revision to Fin 46 ("Fin 46R") to modify
and clarify certain of the provisions of FIN 46. The provisions of Fin 46R did
not affect the accounting treatment of the Company's previously deconsolidated
wholly-owned Delaware statutory business trust.

Accounting for Certain Loans and or Debt Securities Acquired in a Transfer In
November 2003, the Accounting Standards Executive Committee issued Statement of
Position (SOP) No. 03-3, "Accounting for Certain Loans and or Debt Securities
Acquired in a Transfer". This statement addresses accounting for differences
between contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities acquired in a transfer
if those differences are attributable to credit quality. This SOP does not apply
to loans originated by the entity and it prohibits both the creation and carry
over of valuation allowances in the initial accounting of all loans acquired in
a transfer within the scope of this SOP. The prohibition of the carry over
applies to purchase of an individual loan, a pool of loans, a group of loans,
and loans acquired in a purchase business combination. This SOP is effective for
loans acquired in fiscal years beginning after December 15, 2004. Based on
presently available information, management believes that the adoption of this
SOP will not have a significant effect on its consolidated financial statements.

P. 50

<PAGE>

Report of Independent Auditors

[PRICEWATERHOUSECOOPERS LOGO]

To the Board of Directors and Stockholders of R&G Financial Corporation:

In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income, of comprehensive income, of
changes in stockholders' equity, and of cash flows present fairly, in all
material respects, the financial position of R&G Financial Corporation (the
Company) and its subsidiaries at December 31, 2003 and 2002, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP

PricewaterhouseCoopers, LLP
San Juan, Puerto Rico

March 5, 2004

Certified Public Accountants (of Puerto Rico) License No. 216 expires on
December 1, 2004 Stamp 1935654 of the P.R. Society of Certified Public
Accountants has been affixed to the file copy of this report.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 51

<PAGE>

                                          R-G Financial Corporation Consolidated
                                          Statements of Financial Condition
                                          December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                                     2003              2002
                                                                                --------------   --------------
<S>                                                                             <C>              <C>
ASSETS
Cash and due from banks                                                         $  114,915,916   $  128,085,571
Money market investments:
    Securities purchased under agreements to resell                                 85,052,435                -
    Time deposits with other banks                                                  34,349,235       65,400,717
    Short-term investments                                                                   -        4,156,894
Mortgage loans held for sale, at lower of cost or market                           315,690,821      258,737,736
Mortgage - backed and investment securities held for trading, at fair value         31,797,046       48,650,844
Trading securities pledged on repurchase agreements, at fair value                   6,558,434       26,106,340
Mortgage - backed and investment securities available for sale, at fair value    1,805,359,525    1,734,920,317
Securities available for sale pledged on repurchase agreements, at fair value    1,215,287,511      737,655,921
Mortgage - backed and investment securities held to maturity, at amortized
    cost (estimated market value: 2003 - $14,940,275; 2002 -$30,884,691)            14,883,237       30,660,525
Securities held to maturity pledged on repurchase agreements, at amortized
    cost (estimated market value: 2003 - $65,248,072; 2002 - $45,925,695)           63,317,155       44,930,272

FHLB stock, at cost                                                                100,461,112       84,336,667
Loans receivable, net                                                            4,048,507,214    2,759,688,983
Accounts receivable, including advances to investors, net                           38,194,429       32,100,002
Accrued interest receivable                                                         42,527,079       40,400,720
Servicing asset, net                                                               119,610,359      142,334,128
Premises and equipment, net                                                         42,781,589       38,665,444
Other assets                                                                       119,586,410      100,414,600
                                                                                --------------   --------------
                                                                                $8,198,879,507   $6,277,245,681
                                                                                ==============   ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Deposits                                                                    $3,555,763,630   $2,802,324,012
    Federal funds purchased                                                         21,000,000                -
    Securities sold under agreements to repurchase                               2,220,795,000    1,489,758,391
    Notes payable                                                                  192,258,942      194,607,115
    Advances from FHLB                                                           1,129,600,000      940,725,000
    Other borrowings                                                               157,670,451       45,065,406
    Accounts payable and accrued liabilities                                       158,006,101      134,426,467
    Other liabilities                                                               13,432,756        8,121,112
                                                                                --------------   --------------
                                                                                 7,448,526,880    5,615,027,503
                                                                                --------------   --------------
Commitments and contingencies (see Note 19)

Stockholders' equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized:
    Non-cumulative perpetual monthly income preferred stock, $25 liquidation
       value:
    7.40% Series A, 2,000,000 shares issued and outstanding                         50,000,000       50,000,000
    7.75% Series B, 1,000,000 shares issued and outstanding                         25,000,000       25,000,000
    7.60% Series C, 2,760,000 shares issued and outstanding                         69,000,000       69,000,000
    7.25% Series D, 2,760,000 shares issued and outstanding                         69,000,000       69,000,000
Common stock:
    Class A - $.01 par value, 40,000,000 shares authorized,
       21,559,584 issued and outstanding (2002 - 14,553,056)                           215,596          145,531
    Class B - $.01 par value, 60,000,000 shares authorized,
       29,506,715 issued and outstanding (2002 - 19,440,206)                           295,067          194,402
    Additional paid-in capital (as adjusted to reflect stock split on
       January 29, 2004 - see Note 13)                                             115,017,394      114,950,629
    Retained earnings                                                              387,035,684      294,591,859
    Capital reserves                                                                25,102,630       17,418,760
    Accumulated other comprehensive income, net of tax                               9,686,256       21,916,997
                                                                                --------------   --------------
                                                                                   750,352,627      662,218,178
                                                                                --------------   --------------
                                                                                $8,198,879,507   $6,277,245,681
                                                                                ==============   ==============
</TABLE>

The accompanying notes are an integral part of these financial statements.

P. 52
<PAGE>

                                    R-G FINANCIAL CORPORATION
                                    CONSOLIDATED STATEMENTS OF INCOME

                                    Years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                 2003                 2002              2001
                                                            --------------       --------------    --------------
<S>                                                         <C>                  <C>               <C>
Interest income:

      Loans                                                 $  231,225,163       $  180,786,462    $  152,250,689
      Money market and other investments                        31,847,509           36,890,942        31,959,284
      Mortgage-backed securities                               115,105,740          113,183,192        86,361,159
                                                            --------------       --------------    --------------
           Total interest income                               378,178,412          330,860,596       270,571,132
                                                            --------------       --------------    --------------

Interest expense:
      Deposits                                                  91,822,797           88,349,204        88,853,997
      Securities sold under agreements to repurchase            51,012,915           51,121,320        49,476,045
      Notes payable                                              6,855,872            6,789,480        11,395,214
      Other                                                     40,503,463           31,511,813        23,800,847
                                                            --------------       --------------    --------------
                                                               190,195,047          177,771,817       173,526,103
                                                            --------------       --------------    --------------

Net interest income                                            187,983,365          153,088,779        97,045,029
Provision for loan losses                                      (18,556,442)         (18,020,000)      (11,125,000)
                                                            --------------       --------------    --------------
Net interest income after provision for loan losses            169,426,923          135,068,779        85,920,029
                                                            --------------       --------------    --------------

Non-interest income:
      Net gain on origination and sale of loans                146,892,927           85,538,132        62,511,929
      Loan administration and servicing fees                    48,165,802           47,201,833        33,920,016
      Service charges, fees and other                           28,741,203           16,430,656        12,615,157
                                                            --------------       --------------    --------------
                                                               223,799,932          149,170,621       109,047,102
                                                            --------------       --------------    --------------
           Total revenues                                      393,226,855          284,239,400       194,967,131
                                                            --------------       --------------    --------------

Non-interest expenses:
      Employee compensation and benefits                        63,584,878           45,244,376        33,290,372
      Office occupancy and equipment                            24,760,933           19,630,898        16,648,510
      Other administrative and general                         131,485,741           94,362,611        57,133,173
                                                            --------------       --------------    --------------
                                                               219,831,552          159,237,885       107,072,055
                                                            --------------       --------------    --------------

Income before income taxes and cumulative
      effect of change in accounting principle                 173,395,303          125,001,515        87,895,076
                                                            --------------       --------------    --------------

Income tax expense:
      Current                                                   30,222,730           22,804,814        20,465,327
      Deferred                                                  12,149,008            5,854,545         1,136,178
                                                            --------------       --------------    --------------
                                                                42,371,738           28,659,359        21,601,505
                                                            --------------       --------------    --------------

Income before cumulative effect from change
      in accounting principle                                  131,023,565           96,342,156        66,293,571
Cumulative effect from change in accounting
      principle, net of income tax benefit of $206,334                   -                    -          (322,728)
                                                            --------------       --------------    --------------

      Net income                                            $  131,023,565       $   96,342,156    $   65,970,843

      Less: Preferred stock dividends                          (15,884,000)         (14,954,911)       (9,920,100)
                                                            --------------       --------------    --------------

      Net income available to common stockholders           $  115,139,565       $   81,387,245    $   56,050,743
                                                            ==============       ==============    ==============

Earnings per common share before cumulative
      effect from change in accounting principle
      Basic                                                 $         2.26       $         1.67    $         1.26
                                                            --------------       --------------    --------------

      Diluted                                               $         2.25       $         1.66    $         1.23
                                                            --------------       --------------    --------------
Earnings per common share:
      Basic                                                 $         2.26       $         1.67    $         1.25
                                                            --------------       --------------    --------------

      Diluted                                               $         2.25       $         1.66    $         1.22
                                                            --------------       --------------    --------------
Cash dividends declared per common share                    $        0.294       $        0.224    $        0.176
                                                            --------------       --------------    --------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 53

<PAGE>

                                    R-G FINANCIAL CORPORATION CONSOLIDATED
                                    STATEMENTS OF COMPREHENSIVE INCOME

                                    Years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                          2003                 2002              2001
                                                                     --------------       --------------    --------------
<S>                                                                  <C>                  <C>               <C>
Net income                                                           $  131,023,565       $   96,342,156    $   65,970,843
                                                                     --------------       --------------    --------------
Other comprehensive (loss) income, before tax:
Unrealized gains (losses):

      Cash flow hedges                                                    3,637,570           (9,975,109)       (9,947,245)
                                                                     --------------       --------------    --------------
      Investment securities:
      Arising during period                                             (22,776,208)          43,792,471        14,724,483
      Less: Reclassification adjustments for
           gains included in net income                                    (885,390)            (982,404)       (2,341,676)
                                                                     --------------       --------------    --------------
                                                                        (23,661,598)          42,810,067        12,382,807
                                                                     --------------       --------------    --------------
Other comprehensive (loss) income before income taxes and
      cumulative effect from change in accounting principle             (20,024,028)          32,834,958         2,435,562

Income tax benefit (expense) related to items of other
      comprehensive income                                                7,793,287          (12,845,180)         (949,869)
                                                                     --------------       --------------    --------------
Other comprehensive (loss) income before cumulative effect
      from change in accounting principle                               (12,230,741)          19,989,778         1,485,693
Cumulative effect from change in accounting
      principle, net of income taxes of $745,446                                  -                    -         1,165,953
                                                                     --------------       --------------    --------------
Other comprehensive (loss) income, net of tax                           (12,230,741)          19,989,778         2,651,646
                                                                     --------------       --------------    --------------
Comprehensive income, net of tax                                     $  118,792,824       $  116,331,934    $   68,622,489
                                                                     ==============       ==============    ==============
</TABLE>

                                    R-G FINANCIAL CORPORATION
                                    CONSOLIDATED STATEMENTS OF CHANGES
                                    IN STOCKHOLDERS' EQUITY

                                    Years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                       Common Stock
                                                                     Preferred Stock                     Class A
                                                                  Shares        Amount             Shares         Amount
                                                                ---------   --------------       ----------   --------------
<S>                                                             <C>         <C>                  <C>          <C>
Balance at December 31, 2000                                    3,000,000   $   75,000,000       18,440,556   $      184,406

Issuance of common stock:
      Secondary offering                                                                         (2,207,500)         (22,075)
      Other                                                                                        (180,000)          (1,800)
Issuance of Series C Preferred Stock                            2,760,000       69,000,000
Cash dividends declared:
      Common stock
      Preferred stock
Net income
Transfer to capital reserves
Other comprehensive income, net of tax
                                                                ---------   --------------       ----------   --------------
Balance at December 31, 2001                                    5,760,000      144,000,000       16,053,056          160,531

Issuance of common stock:
      Secondary offering                                                                         (1,500,000)         (15,000)
      Other
Issuance of Series D Preferred Stock                            2,760,000       69,000,000
Cash dividends declared:
      Common stock
      Preferred stock
Net income
Transfer to capital reserves
Other comprehensive income, net of tax
                                                                ---------   --------------       ----------   --------------
Balance at December 31, 2002                                    8,520,000      213,000,000       14,553,056          145,531
                                                                ---------   --------------       ----------   --------------
Issuance of common stock                                                                           (180,000)          (1,800)
Common stock split on January 29, 2004 retroactively
      recorded as of December 31, 2003 (see note 13):                                             7,186,528           71,865
      Stock split
      Cash paid in lieu of fractional shares
Cash dividends declared:
      Common stock
      Preferred stock
Net income
Transfer to capital reserves
Other comprehensive loss, net of tax
                                                                ---------   --------------       ----------   --------------
Balance at December 31, 2003                                    8,520,000   $  213,000,000       21,559,584   $      215,596
                                                                =========   ==============       ==========   ==============
</Table>

The accompanying notes are an integral part of these financial statements.


P. 54
<PAGE>
<Table>
<CAPTION>
                                                                    Common Stock
                                                                       Class B                 Additional        Retained
                                                                 Shares         Amount       paid-in capital     earnings
                                                               ----------   --------------   --------------   --------------
<S>                                                            <C>          <C>              <C>              <C>
Balance at December 31, 2000                                   10,230,029   $      102,300   $   40,800,652   $  186,028,611

Issuance of common stock:
      Secondary offering                                        4,415,000           44,150       31,053,535
      Other                                                       596,293            5,963        1,797,972
Issuance of Series C Preferred Stock                                                             (2,398,075)
Cash dividends declared:
      Common stock                                                                                                (7,897,122)
      Preferred stock                                                                                             (9,920,100)
Net income                                                                                                        65,970,843
Transfer to capital reserves                                                                                      (4,185,220)
Other comprehensive income, net of tax
                                                               ----------   --------------   --------------   --------------
Balance at December 31, 2001                                   15,241,322          152,413       71,254,084      229,997,012

Issuance of common stock:
      Secondary offering                                        4,025,000           40,250       45,212,131
      Other                                                       173,884            1,739          893,667
Issuance of Series D Preferred Stock                                                             (2,409,253)
Cash dividends declared:
      Common stock                                                                                               (11,002,966)
      Preferred stock                                                                                            (14,954,911)
Net income                                                                                                        96,342,156
Transfer to capital reserves                                                                                      (5,789,432)
Other comprehensive income, net of tax
                                                               ----------   --------------   --------------   --------------
Balance at December 31, 2002                                   19,440,206          194,402      114,950,629      294,591,859
                                                               ----------   --------------   --------------   --------------
Issuance of common stock                                          230,960            2,310          236,985
Common stock split on January 29, 2004 retroactively
      recorded as of December 31, 2003 (see note 13):           9,835,549           98,355         (170,220)
      Stock split                                                                                                       (750)
      Cash paid in lieu of fractional shares
Cash dividends declared:
      Common stock                                                                                               (15,011,120)
      Preferred stock                                                                                            (15,884,000)
Net income                                                                                                       131,023,565
Transfer to capital reserves                                                                                      (7,683,870)
Other comprehensive loss, net of tax
                                                               ----------   --------------   --------------   --------------
Balance at December 31, 2003                                   29,506,715   $      295,067   $  115,017,394   $  387,035,684
                                                               ==========   ==============   ==============   ==============

<CAPTION>
                                                                                     Accumulated
                                                              Capital           other comprehensive
                                                              reserves             income (loss)                Total
                                                           --------------       --------------------       --------------
<S>                                                        <C>                     <C>                     <C>
Balance at December 31, 2000                               $    7,444,108          $     (724,427)         $  308,835,650

Issuance of common stock:
      Secondary offering                                                                                       31,075,610
      Other                                                                                                     1,802,135
Issuance of Series C Preferred Stock                                                                           66,601,925
Cash dividends declared:
      Common stock                                                                                             (7,897,122)
      Preferred stock                                                                                          (9,920,100)
Net income                                                                                                     65,970,843
Transfer to capital reserves                                    4,185,220                                               -
Other comprehensive income, net of tax                                                  2,651,646               2,651,646
                                                           --------------          --------------          --------------
Balance at December 31, 2001                                   11,629,328               1,927,219             459,120,587

Issuance of common stock:
      Secondary offering                                                                                       45,237,381
      Other                                                                                                       895,406
Issuance of Series D Preferred Stock                                                                           66,590,747
Cash dividends declared:
      Common stock                                                                                            (11,002,966)
      Preferred stock                                                                                         (14,954,911)
Net income                                                                                                     96,342,156
Transfer to capital reserves                                    5,789,432                                               -
Other comprehensive income, net of tax                                                 19,989,778              19,989,778
                                                           --------------          --------------          --------------
Balance at December 31, 2002                                   17,418,760              21,916,997             662,218,178
                                                           --------------          --------------          --------------
Issuance of common stock                                                                                          237,495
Common stock split on January 29, 2004 retroactively
      recorded as of December 31, 2003 (see note 13):                                                                  -
      Stock split                                                                                                    (750)
      Cash paid in lieu of fractional shares
Cash dividends declared:
      Common stock                                                                                            (15,011,120)
      Preferred stock                                                                                         (15,884,000)
Net income                                                                                                    131,023,565
Transfer to capital reserves                                    7,683,870                                               -
Other comprehensive loss, net of tax                                                  (12,230,741)            (12,230,741)
                                                           --------------          --------------          --------------
Balance at December 31, 2003                               $   25,102,630               9,686,256          $  750,352,627
                                                           ==============          ==============          ==============
</TABLE>

The accompanying notes are an integral part of these financial statements.

R-G FINANCIAL 2003 ANNUAL REPORT P. 55
<PAGE>

                                    R-G FINANCIAL CORPORATION
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    Years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                 2003               2002               2001
                                                                           ----------------   ----------------   ----------------
<S>                                                                        <C>                <C>                <C>
Cash flows from operating activities:
      Net income                                                           $    131,023,565   $     96,342,156   $     65,970,843
                                                                           ----------------   ----------------   ----------------
      Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
           Depreciation and amortization                                          9,392,639          7,422,814          5,952,962
           Amortization of premium on investments and
                mortgage - backed securities, net                                13,450,995          5,150,535            628,832
           Scheduled amortization of servicing asset                             22,462,153         18,502,491         11,303,856
           Impairment charges on servicing asset                                 37,689,863         21,018,039          5,367,000
           Provision for loan losses                                             18,556,442         18,020,000         11,125,000
           Provision for bad debts in
                accounts receivable                                                       -                  -            450,000
           Gain on sale of mortgage loans                                                 -                  -           (792,384)
           Gain on sales of mortgage-backed and investment
                securities available for sale                                      (885,390)          (982,404)        (2,341,676)
           Unrealized loss (profit) on trading securities
                and derivative instruments, net                                   1,099,180           (812,768)            17,109
           Increase in mortgage loans held for sale                             (23,658,264)      (103,131,833)      (216,392,433)
           Net decrease (increase) in mortgage-backed
                securities held for trading                                      35,131,229         20,179,510         (3,969,362)
           Increase in receivables                                               (8,220,786)       (11,271,762)       (13,100,635)
           (Increase) decrease in other assets                                  (16,150,236)           502,446         (2,504,983)
           (Decrease) increase in notes payable and other borrowings             (4,743,128)         1,113,778         91,361,411
           Increase in accounts payable
                and accrued liabilities                                          35,519,705         31,848,023         17,113,470
           Increase (decrease) in other liabilities                               5,311,644           (198,064)         2,074,360
                                                                           ----------------   ----------------   ----------------
           Total adjustments                                                    124,956,046          7,360,805        (93,707,473)
                                                                           ----------------   ----------------   ----------------
Net cash provided by (used in) operating activities                             255,979,611        103,702,961        (27,736,630)
                                                                           ----------------   ----------------   ----------------
Cash flows from investing activities:
          Purchases of investment securities available for
                sale and held to maturity                                    (2,311,058,241)    (1,226,498,149)      (933,955,383)
          Proceeds from sales of investment securities
                available for sale and redemptions of
                investment securities available for sale
                and held to maturity                                            699,671,057      1,004,165,419        653,307,375
          Principal repayments on mortgage-backed
                securities                                                    1,062,424,108        507,601,305        120,775,229
          Proceeds from sale of loans                                           253,976,907                  -        131,508,175
          Net originations of loans                                          (1,633,490,920)    (1,045,202,416)      (735,404,345)
          Purchases of FHLB stock, net                                          (16,124,445)       (11,030,100)       (20,103,400)
          Net assets acquired, net of cash received                                       -        (63,679,367)                 -
          Acquisition of premises and equipment                                 (12,348,578)        (9,772,883)        (7,655,624)
          Purchases of servicing rights                                         (37,428,247)       (44,230,234)       (26,739,228)
                                                                           ----------------   ----------------   ----------------
          Net cash used in investing activities                              (1,994,378,359)      (888,646,425)      (818,267,201)
                                                                           ----------------   ----------------   ----------------
</TABLE>

(continued)

P. 56

<PAGE>

                                    R-G FINANCIAL CORPORATION
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    Years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                 2003               2002               2001
                                                                           ----------------   ----------------   ----------------
<S>                                                                        <C>                <C>                <C>
Cash flows from financing activities:
      Payments on term notes                                               $              -   $              -   $    (35,500,000)
      Increase (decrease) in federal funds purchased                             21,000,000                  -        (25,000,000)
      Increase in deposits, net                                                 753,439,618        272,961,736        385,161,662
      Increase in securities sold under agreements
           to repurchase, net                                                   731,036,609         72,716,542        569,189,355
      Advances (repayments) from FHLB, net                                      188,875,000        358,500,000        (40,875,000)
      Net proceeds from issuance of long-term
           debt                                                                 111,379,550         33,918,113                  -
      Net proceeds from issuance of preferred stock                                       -         66,590,747         66,601,925
      Net proceeds from issuance of common stock                                    237,495         46,132,787         32,877,745
      Cash dividends - common stock                                             (15,011,120)       (11,002,966)        (7,897,122)
                     - preferred stock                                          (15,884,000)       (14,954,911)        (9,920,100)
                                                                           ----------------   ----------------   ----------------

Net cash provided by financing activities                                     1,775,073,152        824,862,048        934,638,465
                                                                           ----------------   ----------------   ----------------

Net increase in cash and cash equivalents                                        36,674,404         39,918,584         88,634,634

Cash and cash equivalents at beginning of year                                  197,643,182        157,724,598         69,089,964

                                                                           ----------------   ----------------   ----------------
Cash and cash equivalents at end of year                                   $    234,317,586   $    197,643,182   $    157,724,598
                                                                           ================   ================   ================

Cash and cash equivalents include:
      Cash and due from banks                                              $    114,915,916   $    128,085,571   $     79,223,030
      Securities purchased under agreements to resell                            85,052,435                  -         15,023,590
      Time deposits with other banks                                             34,349,235         65,400,717         63,477,978
      Short-term investments                                                              -          4,156,894                  -
                                                                           ----------------   ----------------   ----------------
                                                                           $    234,317,586   $    197,643,182   $    157,724,598
                                                                           ================   ================   ================
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 57



<PAGE>

                                               R-G FINANCIAL CORPORATION
                                               CONSOLIDATED FINANCIAL STATEMENTS

                                               December 31, 2003, 2002 and 2001

1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES

REPORTING ENTITY

     The accompanying consolidated financial statements of R-G Financial
Corporation (the "Company") include the accounts of R-G Premier Bank of Puerto
Rico ("R-G Premier"), a commercial bank chartered under the laws of the
Commonwealth of Puerto Rico, R-G Crown Bank (formerly Crown Bank, F.S.B.)
("Crown Bank"), a federal savings bank, R-G Mortgage Corp. ("R-G Mortgage"), a
Puerto Rico mortgage banking corporation, R-G Investments Corporation, a Puerto
Rico corporation licensed broker-dealer, and Home & Property Insurance Corp., a
Puerto Rico corporation insurance agency. The Company has elected to operate as
a financial holding Company, pursuant to the provisions of the
Gramm-Leach-Bliley Act of 1999, and is primarily engaged in banking, mortgage
banking, and insurance and securities brokerage through its subsidiaries.

On June 7, 2002, the Company, through its Florida holding company, R-G
Acquisition Holdings Corporation ("RAC"), acquired 100% of the common stock of
The Crown Group, Inc., a Florida Corporation, and its wholly-owned federal
savings bank subsidiary, Crown Bank for an aggregate of $100.0 million in cash.
The acquisition resulted in goodwill totaling approximately $48.5 million which
is included in other assets in the accompanying consolidated statement of
financial condition. The purchase price was paid based on premiums paid in
similar transactions. The acquisition was made pursuant to the Company's
expansion strategy of targeting growth in Hispanic (particularly Puerto Rican)
markets in the continental United States, and permits the consolidation of the
Company's banking and mortgage banking operations in the continental United
States to emulate its business model in Puerto Rico.

R-G Premier and Crown Bank provide a full range of banking services, including
residential, commercial and personal loans and a variety of deposit products.
R-G Premier operates through thirty-one branches located mainly in the
northeastern part of the Commonwealth of Puerto Rico. Crown Bank operates in the
Orlando and Tampa/St. Petersburg metropolitan areas through fourteen full
service branches and six commercial lending offices. R-G Premier also provides
private banking, trust and other financial services to its customers. As
discussed in Note 16 to the Consolidated Financial Statements, R-G Premier and
Crown Bank are subject to the regulations of certain federal and local agencies,
and undergo periodic examinations by those regulatory agencies.

Crown Bank also is engaged in the business of originating FHA-insured,
VA-guaranteed and privately insured first and second mortgage loans on
residential real estate (1 to 4 families) in the State of New York and Florida
through its wholly-owned mortgage-banking subsidiary Continental Capital
Corporation.

R-G Mortgage is engaged primarily in the business of originating FHA insured, VA
guaranteed, and privately insured first and second mortgage loans on residential
real estate (1 to 4 families), directly and through its wholly-owned subsidiary,
Mortgage Store of Puerto Rico, Inc. R-G Mortgage pools FHA and VA loans into
Government National Mortgage Association (GNMA) mortgage-backed securities and
collateralized mortgage obligation (CMO) certificates for sale to permanent
investors. Upon selling the loans, it retains the rights to service the loans.
R-G Mortgage is also a Federal National Mortgage Association (FNMA) and Federal
Home Loan Mortgage Corporation (FHLMC) seller-servicer of conventional loans.

In April 2002 RAC, a Florida corporation and savings and loan holding company
which is the parent of Crown Bank, formed R-G Capital Trust I, a Delaware
statutory business trust, which issued $25 million of trust preferred securities
in a private placement. In December 2002, RAC formed also R-G Capital Trust II,
a Delaware statutory business trust, which issued $10 million of trust preferred
securities in a private placement. In August 2003, RAC also formed R&G Capital
Trust IV, a Delaware statutory business trust, which issued $15 million of trust
preferred securities in a private placement. In addition, in October 2003, the
Company formed R&G Capital Trust III, a Delaware statutory business trust, which
issued $100 million of trust preferred securities in a public offering. Such
securities are redeemable beginning in 2007 and are included within other
borrowings in the accompanying Consolidated Statements of Financial Condition.

Effective July 12, 2002, the Company began trading of its Class B Common Stock
on the New York Stock Exchange ("NYSE") under the new symbol "RGF." At such
time, the Company voluntarily delisted its Class B Common Stock from trading on
the NASDAQ National Market under the symbol "RGFC."

SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform with accounting
principles generally accepted in the United States of America. The following is
a description of the significant accounting policies:

BASIS OF CONSOLIDATION

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

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

The Company purchases securities under agreements to resell the same or
substantially the same securities. Amounts advanced under these agreements
represent short-term loans and are reflected as assets in the consolidated
statement of financial condition. It is the Company's policy to take possession
over the securities that guarantee such loans. However, the counterparties to
these agreements retain effective control over such collateral.

INVESTMENT SECURITIES

Investments in debt and equity securities are classified at the time of purchase
into one of three categories and accounted for as follows:

Held to maturity - debt securities which the Company has a positive intent and
ability to hold to maturity. These securities are carried at amortized cost.

Trading - debt and equity securities that are bought by the Company and held
principally for the purpose of selling them in the near term. These securities
are carried at fair value, with unrealized gains and losses included in
earnings.

Available for sale - debt and equity securities not classified as either
held-to-maturity or trading. These securities are reported at fair value, with
unrealized gains and losses excluded from earnings and reported net of taxes in
other comprehensive income.

Premiums are amortized and discounts are accreted as an adjustment to interest
income over the life of the related securities using a method that approximates
the interest method. Realized gains or losses on securities are reported in
earnings. Cost of securities sold is determined on the specific identification
method.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their outstanding principal balance, less unearned interest,
deferred loan origination fees and allowance for loan losses. Loan origination
and commitment fees and costs incurred in the origination of

P. 58

<PAGE>

new loans are deferred and amortized over the term of the loans as an adjustment
of interest yield using the interest method. Unearned interest on installment
loans is recognized as income under a method which approximates the interest
method.

It is the policy of the Bank to increase its allowance for estimated losses on
loans when, based on management's evaluation, a loss becomes both probable and
estimable. Major loans and major lending areas are reviewed periodically to
determine potential problems at an early date. Also, management's periodic
evaluation considers factors such as loss experience, current delinquency data,
known and inherent risks in the portfolio, identification of adverse situations
which may affect the ability of debtors to repay, the estimated value of any
underlying collateral and assessment of current economic conditions. Additions
to allowances are charged to income. Any recoveries are credited to the
allowance.

The Company measures impairment of individual loans, except for loans that are
valued at fair value or at the lower of cost or fair value, based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or, as a practical method, at the observable market price of the loan, or
the fair value of the collateral if the loan is collateral dependent. The
Company considers loans over $500,000 for individual impairment evaluation. The
Company collectively performs impairment evaluations for large groups of small -
balance homogeneous loans. Loans are considered impaired when, based on
management's evaluation, a borrower will not be able to fulfill its obligation
under the original terms of the loan.

INTEREST INCOME

Interest on loans not made on a discounted basis is credited to income based on
the loan principal outstanding at stated interest rates. Recognition of interest
on mortgage, consumer and other loans is discontinued when loans are 90 days or
more in arrears on payment of principal or interest or when other factors
indicate that collection of interest or principal is doubtful. Loans for which
the recognition of interest income has been discontinued are designated as
non-accruing. Such loans are not reinstated to accrual status until interest is
received currently and no other factors indicative of doubtful collection exist.

Loan origination fees and costs are deferred as an adjustment to the carrying
basis of the loans until sold or securitized, and are amortized as an adjustment
to interest income over the related life of the loans.

Discounts and premiums on purchased mortgage loans are accreted (amortized) to
income over the remaining term of the loans.

MORTGAGE LOANS HELD FOR SALE

Mortgage loans intended for sale in the secondary market are carried at the
lower of cost or estimated market value, computed in the aggregate. The amount
by which cost exceeds market value is accounted for as a valuation allowance.
Changes in the valuation allowance are included in the determination of income
in the period in which the change occurs.

LOAN SERVICING FEES

Loan servicing fees, which are based on a percentage of the principal balance of
the mortgage loans serviced, are credited to income as mortgage payments are
collected. Late charges and miscellaneous other fees collected from mortgagors
are credited to income when earned, adjusted for estimated amounts not expected
to be collected. Loan servicing costs are charged to expense when incurred.

SERVICING ASSET

The Company capitalizes servicing rights acquired through loan origination
activities by allocating a portion of the cost of originating mortgage loans to
the mortgage servicing right at the time of sale or securitization based on the
relative fair values at such date. To determine the fair value of the servicing
rights, the Company uses the market prices of comparable servicing sale
contracts, ranging from 1.50% to 2.25% depending on the type of loan.

Servicing assets and liabilities are subsequently adjusted by (a) amortization
in proportion to and over the period of estimated net servicing income or loss
and (b) assessment for asset impairment or increased obligation based on their
fair values.

Servicing rights are periodically evaluated for impairment given their
sensitivity to prepayment risk. For purposes of measuring impairment, mortgage
servicing rights are stratified by loan on the basis of certain risk
characteristics, including loan type. An impairment is recognized whenever the
prepayment pattern of the mortgage loan indicates that the fair value of the
related mortgage servicing rights is less than its carrying amount. An
impairment is recognized by charging such excess to expense. In determining fair
value, the Company considers the fair value of servicing rights with similar
risk characteristics.

Impairment charges are composed of unscheduled amortization and reserves for
impairments. Unscheduled amortization refers to that amortization taken in
addition to scheduled amortization amounts due to higher prepayment speeds in
the servicing portfolio. Scheduled amortization is determined based on
prepayment speeds of the portfolio in a normalized rate environment based on
historical experience. The Company determines unscheduled amortization amounts
based on actual payoffs of the portfolio using the same stratas of its portfolio
to determine valuation impairments. If actual payoffs dictate increased
amortization, such amounts are recorded as unscheduled amortization. Reserves
for valuation impairments are recorded for temporary decreases in the fair value
of the servicing portfolio due to higher prepayment speeds or other factors. The
reserves are determined on a stratified basis based on their amortization cost
after consideration of scheduled and unscheduled amortization amounts.

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES

The Company recognizes on its financial statements financial assets and
servicing assets controlled by the Company, and derecognizes financial assets
when control has been surrendered. Until March 31, 2001, the Company followed
the specific criteria established in SFAS No.125 -"Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," to determine
when control had been surrendered in a transfer of financial assets. Liabilities
are derecognized when they are extinguished. Liabilities and derivatives
incurred or obtained by the Company as part of a transfer of financial assets
are initially measured at fair value, if practicable. Servicing assets and other
retained interests in the transferred assets are measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of the
transfer.

Mortgage loans held for sale securitized by the Company into mortgage-backed
securities are accounted for as sales, with gains or losses recognized based on
readily available quoted market prices at the time of securitization. Such
securities are generally subsequently sold to third parties. Sales of
non-conforming loans to local financial institutions and FHLMC and FNMA are on
recourse basis. The Company establishes a reserve for recourse using the same
reserve analysis it would have performed if the loans were still in its
portfolio. Generally, the Company retains the right to service all loans sold to
third parties.

In certain financial asset transfers, interest-only strips are recognized which
can be contractually prepaid or settled in such a way that the Company may not
recover substantially all of its recorded investment (prepayment risks). The
Company recognizes as interest-only strips the right to cash flows remaining
over the life of the loans sold after the payment of the related servicing fees
and the contractual payments to the buyer of the loans. Interest-only strips are
initially, and subsequently periodically, measured based on different valuation
techniques, principally the present value of estimated future cash flows. Such
techniques incorporate reasonable and supportable assumptions related to the
financial assets transferred, including future revenues and expenses, defaults,
prepayment speeds and interest rates. All available evidence is considered in
developing estimates of expected future cash flows. Gains from the sale of
financial assets in securitizations totaled approximately $2.0 million, $20.8
million and $14.1 million during the years ended December 31, 2003, 2002 and
2001, respectively. In addition, interest only strips recognized in
securitizations totaled $86,125,000, $16,793,000 and $2,334,000 in 2003, 2002
and 2001, respectively.

On April 1, 2001 the Company adopted SFAS No.140, "Accounting for Transfers and
Servicing of Financial Assets and Liabilities - A Replacement of SFAS 125." This
Statement revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 59

<PAGE>

requires certain disclosures, but it carries over most of the provisions of SFAS
125 without reconsideration. This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. The adoption of the new standard had no significant
effect on the financial statements of the Company.

TRANSFERS OF RECEIVABLES WITH RECOURSE

Transfers of receivables with recourse are recognized as a sale if the Company
surrenders control of the future economic benefits embodied in the receivables,
its obligation under the recourse provisions can be reasonably estimated and the
transferee cannot require the Company to repurchase the receivables except
pursuant to the recourse provisions. Any transfers of receivables with recourse
not meeting all of these conditions are recognized as a liability in the
consolidated financial statements.

Gains and losses realized on the sale of loans are recognized at the time of the
sale of the loans or pools to investors, based upon the difference between the
selling price and the carrying value of the related loans sold as adjusted for
any estimated liability under recourse provisions. In most sales, the right to
service the loans sold is retained by the Company.

SALE OF SERVICING RIGHTS

The sale of servicing rights is recognized upon executing the contract and title
and all risks and rewards have irrevocably passed to the buyer. Gains and losses
realized on such sales are recognized based upon the difference between the
selling price and the carrying value of the related servicing rights sold.

FORECLOSED REAL ESTATE HELD FOR SALE

Other real estate owned comprises properties acquired in settlement of loans and
recorded at fair value less estimated costs to sell at the date of acquisition.
Costs relating to the development and improvement of the property are
capitalized, whereas those relating to holding the property are expensed as
incurred.

Valuations are periodically performed by management, and an allowance for losses
is established by a charge to operations if the carrying value of a property
exceeds its estimated net realizable value. In providing allowances for losses,
the cost of holding real estate, including interest costs, are considered. Gains
or losses resulting from the sale of these properties are credited or charged to
income.

ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

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

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful life of each type of asset. Major additions and
improvements which extend the life of the assets are capitalized, while repairs
and maintenance are charged to expense.

The Company evaluates for impairment long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, an estimate of the
future cash flows expected to result from the use of the asset and its eventual
disposition must be made. If the sum of the future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized for the difference, if any, between the discounted
future cash flows and the carrying value of the asset.

GOODWILL AND OTHER INTANGIBLES

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

In connection with the acquisition of Crown in June 2002, the Company recognized
goodwill totaling $48.5 million as of December 31, 2002, and as a deposit
intangible the premium paid over the value of the deposits acquired as a result
of the acquisition. The premium paid, totaling $2,276,000, is being amortized
over a 10 year period. In addition, the Company has recorded as a deposit
intangible the premium paid over the value of deposits acquired resulting from
the purchase of certain branches from a commercial bank in 1995. The premium
paid is being amortized over a 10 year period. Accumulated amortization related
to deposit intangibles of the Company amounted to approximately $2,026,000 and
$1,449,000 at December 31, 2003 and 2002, respectively; amortization expense
during 2003, 2002 and 2001 was $577,000, $477,000 and $165,000, respectively.

Goodwill also resulted from the acquisition of the R-G Premier, a mortgage
banking institution and a savings institution in prior years. Goodwill
amortization during 2001 was $436,000.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions." SFAS No. 147 removes financial acquisitions of
financial institutions from the scope of both SFAS No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions," and FASB Interpretation
No. 9, "Applying APB Opinions No. 16 and 17, When a Savings and Loan Association
or a Similar Institution is Acquired in a Business Combination Accounted for by
the Purchase Method," and requires that those transactions be accounted for in
accordance with FASB Statements No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." In addition, SFAS No. 147 amends FASB
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," to include in its scope long-term customer-relationship intangible
assets of financial institutions such as depositor-and borrower-relationship
intangible assets and credit cardholder intangible assets. SFAS No. 147's
transition provisions require affected institutions to reclassify their SFAS No.
72 goodwill as SFAS No. 142 goodwill as of the date the company initially
applied SFAS No. 142 in its entirety. The adoption of SFAS No. 147 did not have
an impact on the Company's financial condition or results of operations.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company sells securities under agreements to repurchase the same or similar
securities. The Company retains effective control over the securities pledged as
collateral on these agreements. The securities underlying such agreements were
delivered to, and are being held by, the dealers with whom the securities sold
under agreement to repurchase were transacted. The dealers may have lent or
otherwise disposed of such securities to other parties in the normal course of
their operations, but have agreed to resell the Company the same or
substantially the same securities at the maturities of the agreements.
Accordingly, amounts received under these agreements represent short-term
borrowings and the securities underlying the agreements remain in the asset
accounts as pledged assets.

INTEREST RATE RISK MANAGEMENT

The Company enters into interest rate caps and swaps to manage its interest rate
exposure. Generally interest rate swaps are designated as

P. 60

<PAGE>

hedges against future fluctuations in the interest rates of specifically
identified assets or liabilities. Net interest settlements on interest rate
swaps are recorded as adjustments to interest income or expense.

For financial reporting purposes, the Company's designates as cash flow hedges
only those derivative transactions that qualify for the shortcut method for
measuring effectiveness under SFAS 133, and presents related gains or losses as
other comprehensive income in stockholders' equity. If it is determined that the
derivative instrument does not meet the shortcut method, the Company designates
such instruments as trading derivatives, and adjustment in the fair value of the
derivative instrument are recorded in the Company's consolidated statements of
income.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Effective January 1, 2001 the Company adopted SFAS No. 133 -"Accounting for
Derivative Instruments and Hedging Activities." This Statement, as amended,
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
accounted for as a hedge. The accounting for changes in fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation.

Upon adoption, the Company designated an interest rate SWAP agreement with a
notional amount of $70 million which was tied against specifically identified
liabilities as cash flow hedges in accordance with the provisions of SFAS
No. 133. All other interest rate SWAP agreements held by the Company at such
date, with an aggregate notional amount of $60 million, as well as certain
interest rate cap agreements with an aggregate notional amount of $200 million,
did not qualify for hedge accounting under the provisions of SFAS 133. Upon the
adoption of this Statement, the Company recognized an unrealized gain of
approximately $1.9 million as other comprehensive income in stockholders' equity
related to derivative instruments that were designated as cash flow hedges, and
a loss of approximately $529,000 in the income statement related to derivative
instruments that did not qualify for hedge accounting.

INCOME TAXES

The Company follows an asset and liability approach to the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. A valuation allowance is recognized for any deferred tax asset
for which, based on management's evaluation, it is more likely than not (a
likelihood of more than 50%) that some portion or all of the deferred tax asset
will not be realized.

CAPITAL RESERVE

The Banking Act of the Commonwealth of Puerto Rico, as amended, requires that a
minimum of 10% of net income of the Bank be transferred to capital surplus until
such surplus equals the sum of the Bank's common and preferred stock and paid-in
capital. Amounts transferred to the legal surplus account from the retained
earnings are not available for distribution to stockholders.

STOCK OPTION PLAN

As discussed in Note 17 to the consolidated financial statements, the Company
adopted a Stock Option Plan in June 1996 and granted stock options thereunder to
certain employees in conjunction with the Company's initial public offering.
Compensation cost on employee stock option plans is measured and recognized for
any excess of the quoted market price of the Company's stock at the grant date
over the amount an employee must pay to acquire the stock (intrinsic value-based
method of accounting). Generally, stock options are granted with an exercise
price equal to the face value of the stock at the date of the grant and,
accordingly, no compensation cost is recognized.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The reported fair values of financial instruments are based on a variety of
factors. For a substantial portion of financial instruments, fair values
represent quoted market prices for identical or comparable instruments. In a few
other cases, fair values have been estimated based on assumptions concerning the
amount and timing of estimated future cash flows and assumed discount rates
reflecting varying degrees of risk. Accordingly, the fair values may not
represent actual values of the financial instruments that could have been
realized as of year end or that will be realized in the future.

EARNINGS PER SHARE

Basic earnings per common share are computed by dividing net income for the year
by the weighted average number of shares outstanding during the period.
Outstanding stock options granted under the Company's Stock Option Plan are
included in the weighted average number of shares for purposes of the diluted
earnings per share computation. No other adjustments are made to the computation
of basic earnings per share to arrive to diluted earnings per share.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks, short-term investments and other highly liquid
securities with an original maturity of three months or less.

Cash and cash equivalents at December 31, 2003 include non-restricted cash of
$8,968,000 pledged as collateral on interest rate SWAP agreements.

COMPREHENSIVE INCOME

Comprehensive income includes net income and other transactions, except those
with stockholders that are recorded directly in equity. In the Company's case,
in addition to net income, other comprehensive income results mainly from the
changes in the unrealized gains and losses of swaps designated as cash flow
hedges, and on securities that are classified as available for sale.

SEGMENTS INFORMATION

The Company reports financial information about its reportable segments.
Operating segments are components of a business about which separate financial
information is available and evaluated regularly by management in deciding how
to assess performance. The segregation that best fulfills the segment definition
described above is by line of business.

RECLASSIFICATIONS

Certain reclassifications have been made to the 2002 and 2001 consolidated
financial statements to conform with 2003 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

In June 2002, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The adoption
of this Statement did not have a significant effect on the consolidated
financial statements of R-G Financial.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. The provisions of this Statement are effective for exit
or disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of this Statement did not have a
significant effect on the consolidated financial statements of R-G Financial.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." This Statement provides the
alternative methods of transition for a voluntary change to a fair-value method
of accounting for stock-based employee compensation. Management estimates that
the compensation costs that would be recognizable had they been determined based
on the fair-value method of accounting are insignificant, and accordingly, the
Company continues to follow the disclosure only provisions of SFAS No. 123 and
thus, does not recognize compensation costs for the Company's Stock Option Plan.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 61

<PAGE>

ACCOUNTING FOR GUARANTEES OF INDEBTEDNESS OF OTHERS

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

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On April 30, 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 or
Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivatives instruments embedded in other contracts, and for hedging activities
under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for contracts entered into or modified
after June 30, 2003. The adoption of this Statement on July 1, 2003 had no
significant effect on the consolidated financial condition or results of
operations of the Company.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." FAS 150
represents phase 1 of the FASB's broader project on (1) distinguishing between
liability and equity instruments and (2) accounting for instruments that have
characteristics of both types of instruments (the "liabilities and equity
project"). SFAS No. 150 covers a limited number of instruments that are to be
classified as liabilities and specifies that such instruments embody obligations
of the issuer and that, therefore, the issuer must classify them as liabilities.
It is expected that phase 2 of the project will address (1) separating compound
financial instruments (including convertible debt and conditionally redeemable
stock) that have characteristics of liabilities and equity into their liability
and equity components, (2) the definition of an ownership relationship, and (3)
the definition of liabilities in FASB Concepts Statement No. 6 (CON 6),
"Elements of Financial Statements."

Under the provisions of this Statement, SFAS No. 150 was effective July 1, 2003
for the Company. Among the instruments specified by SFAS No. 150, mandatorily
redeemable financial instruments must be classified as liabilities. The Company
has $35 million of guaranteed preferred beneficial interest in company junior
subordinated deferrable interest debentures ("trust preferred securities") that
had already been classified as other borrowings in its consolidated statements
of financial condition as of June 30, 2003 and accordingly, the adoption of this
Statement did not have any effect on the Company's consolidated financial
statements.

ACCOUNTING FOR CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51" ("FIN 46"). Under FIN 46 entities
that would be assessed for consolidation are typically referred to as
Special-Purposed Entities ("SPEs"), although non-SPE-type entities may also be
subject to the guidance. FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entities residual returns, or both. FIN 46 was effective
immediately for variable interest entities created after January 31, 2003. For
variable interest entities created prior to February 1, 2003, the provisions of
FIN 46 became effective July 1, 2003. On October 9, 2003 the FASB opted to defer
to October 1, 2003 the effective date for variable interest entities created
prior to February 1, 2003. The provisions of FIN 46 continue to apply to
variable interest entities created after January 31, 2003.

Under the provisions of FIN 46, effective July 1, 2003, the Company
deconsolidated R&G Capital Trust I and II which had issued trust preferred
securities. As discussed above, the Company had classified its $35 million trust
preferred securities as borrowings in its consolidated statements of financial
condition prior to such deconsolidation. The primary effect of deconsolidating
these trusts was to change the balance sheet classification of the liabilities
from guaranteed preferred beneficial interest in company junior subordinated
deferrable interest debentures to long-term debt.

The Company did not consolidate R&G Capital Trust IV created by the Company in
August 2003, which issued $15 million in trust preferred securities in a private
placement, and R&G Capital Trust III which in October 2003 issued $100 million
of trust preferred securities in a public offering. Based on interim guidance
issued by the Federal Reserve Board, the deconsolidation of these vehicles
pursuant to FIN 46 would not impact the Tier 1 capital treatment of the
liabilities to the extent permitted under current regulations until notice is
given to the contrary.

On December 24, 2003, the FASB issued a revision to FIN 46 ("FIN 46R") to modify
and clarify certain of the provisions of FIN 46. The provisions of FIN 46R did
not affect the accounting treatment of the Company's previously deconsolidated
wholly-owned Delaware statutory business trusts.

ACCOUNTING FOR CERTAIN LOANS AND OR DEBT SECURITIES ACQUIRED IN A TRANSFER

In November 2003, the Accounting Standards Executive Committee issued Statement
of Position (SOP) No. 03-3, "Accounting for Certain Loans and or Debt Securities
Acquired in a Transfer". This statement addresses accounting for differences
between contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities acquired in a transfer
if those differences are attributable to credit quality. This SOP does not apply
to loans originated by the entity and it prohibits both the creation and carry
over of valuation allowances in the initial accounting of all loans acquired in
a transfer within the scope of this SOP. The prohibition of the carry over
applies to purchase of an individual loan, a pool of loans, a group of loans,
and loans acquired in a purchase business combination. This SOP is effective for
loans acquired in fiscal years beginning after December 15, 2004. Based on
presently available information, management believes that the adoption of this
SOP will not have a significant effect on its consolidated financial statements.

2. MORTGAGE LOANS HELD FOR SALE

Mortgage loans held for sale consist of:

<TABLE>
<CAPTION>
                                                                       December 31,
                                                            -----------------------------------
                                                                 2003                 2002
                                                            --------------       --------------
<S>                                                         <C>                  <C>
Conventional loans                                          $  222,841,842       $  191,411,106
FHA/VA loans                                                    92,848,979           67,326,630
                                                            --------------       --------------
                                                            $  315,690,821       $  258,737,736
                                                            ==============       ==============
</TABLE>

P. 62

<PAGE>

The aggregate amortized cost and approximate market value of loans held for sale
as of December 31, 2003 are as follows:

<TABLE>
<CAPTION>
  Amortized        Gross unrealized      Gross unrealized          Approximate
    cost                gains                 losses               market value
    ----                -----                 ------               ------------
<S>                <C>                   <C>                      <C>
$ 315,690,821      $   9,206,168         $    (310,595)           $  324,586,394
</TABLE>

Substantially all of the loans are pledged to secure various borrowings from
lenders under mortgage warehousing lines of credit (see Note 9).

The following table summarizes the components of gain on sale of mortgage loans
held for sale and mortgage-backed securities held for trading:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                      -----------------------------------------------------
                                                           2003                2002               2001
                                                     ----------------     --------------    ---------------
<S>                                                   <C>                <C>                <C>
Proceeds from sales of mortgage loans
  and mortgage-backed securities                      $ 1,854,364,707    $ 1,186,489,878    $ 1,223,894,857

Mortgage loans and mortgage-
  backed securities sold                               (1,721,697,639)    (1,113,708,287)    (1,180,049,738)
                                                      ---------------    ---------------    ---------------
Gain on sale, net                                         132,667,068         72,781,591         43,845,119

Deferred fees earned, net of loan origination costs
  and commitment fees paid                                 14,366,911         11,106,643         14,868,692
                                                      ---------------    ---------------    ---------------
                                                          147,033,979         83,888,234         58,713,811

Net unrealized (loss) profit on trading securities         (1,270,475)           988,863          2,014,471

Net gain (loss) on trading derivative instruments             171,295           (176,095)        (1,502,518)
                                                      ---------------    ---------------    ---------------
Net gain on origination and sale of mortgage loans        145,934,799         84,701,002         59,225,764

Gains on sales of investment securities available
  for sale from banking activities                            958,128            837,130          3,286,165
                                                      ---------------    ---------------    ---------------
                                                      $   146,892,927    $    85,538,132    $    62,511,929
                                                      ===============    ===============    ===============
</TABLE>

Total gross loan origination fees totaled approximately $46,014,000, $40,990,000
and $41,476,000 during the years ended December 31, 2003, 2002 and 2001,
respectively. Gross gains of $136,387,000, $80,463,000 and $51,918,000, and
gross losses of $3,720,000, $7,681,000 and $8,073,000 were realized on the above
sales during the years ended December 31, 2003, 2002 and 2001, respectively.

3. INVESTMENT SECURITIES

<TABLE>
<CAPTION>
                                                                  December 31,
                                                          ---------------------------
                                                             2003             2002
                                                         ------------    ------------
<S>                                                       <C>             <C>
MORTGAGE-BACKED SECURITIES HELD FOR TRADING

GNMA certificates                                         $         -     $ 9,740,818
FHLMC certificates                                         33,245,405      65,016,366
                                                          -----------     -----------
                                                           33,245,405      74,757,184
                                                          -----------     -----------
INVESTMENT SECURITIES HELD FOR TRADING

Municipal securities                                          445,578               -
Bank issued trust preferred securities                      4,649,975               -
Other                                                          14,522               -
                                                          -----------     -----------
                                                            5,110,075               -
                                                          -----------     -----------
                                                          $38,355,480     $74,757,184
                                                          ===========     ===========
</TABLE>

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 63
<PAGE>

The carrying value and estimated fair value of investment securities available
for sale and held to maturity by category and contractual maturities are shown
below. The fair value of investment securities is based on quoted market prices
and dealer quotes. Expected maturities on debt securities will differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                         -----------------------------------------------------------------------
                                                                       2003                                 2002
                                                         ---------------------------------     ---------------------------------
                                                           Amortized             Fair            Amortized             Fair
                                                             cost                value             cost                value
                                                        --------------     ---------------     --------------     --------------
<S>                                                      <C>                <C>                <C>                <C>
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

Collateralized mortgage obligations (CMO):
  Due within one year                                    $            -     $            -     $      112,459     $      112,459
  Due from one to five years                                  5,939,277          6,019,280         17,177,828         17,288,292
  Due from five to ten years                                 20,888,916         20,872,549         31,570,670         32,219,306
  Due over ten years                                        941,970,133        939,756,594        404,980,787        409,830,246
                                                         --------------     --------------     --------------     --------------
                                                            968,798,326        966,648,423        453,841,744        459,450,303
                                                         --------------     --------------     --------------     --------------
CMO residuals (interest only) and interest
only strips (IO's)                                          107,057,827        107,956,631         30,964,055         32,759,469
                                                         --------------     --------------     --------------     --------------

FNMA certificates:
  Due from one to five years                                     70,675             71,865                  -                  -
  Due from five to ten years                                 87,989,097         87,101,256            369,939            390,054
  Due over ten years                                        388,686,912        405,193,148        258,805,230        269,367,159
                                                         --------------     --------------     --------------     --------------
                                                            476,746,684        492,366,269        259,175,169        269,757,213
                                                         --------------     --------------     --------------     --------------

FHLMC certificates:
  Due within one year                                                 -                  -              1,765              1,828
  Due from one to five years                                      3,052              2,924             19,827             20,577
  Due from five to ten years                                 20,307,666         19,955,444            889,484            935,452
  Due over ten years                                        439,876,493        448,160,557        738,041,227        756,227,808
                                                         --------------     --------------     --------------     --------------
                                                            460,187,211        468,118,925        738,952,303        757,185,665
                                                         --------------     --------------     --------------     --------------

GNMA certificates:
  Due from one to five years                                     50,032             52,032                  -                  -
  Due from five to ten years                                 12,562,630         12,918,169         16,515,283         16,758,845
  Due over ten years                                        346,568,210        350,217,311        440,767,086        446,338,879
                                                         --------------     --------------     --------------     --------------
                                                            359,180,872        363,187,512        457,282,369        463,097,724
                                                         --------------     --------------     --------------     --------------
                                                          2,371,970,920      2,398,277,760      1,940,215,640      1,982,250,374
                                                         --------------     --------------     --------------     --------------
INVESTMENT SECURITIES AVAILABLE FOR SALE

Mortgage securities portfolio mutual fund                             -                  -          3,266,474          2,964,395
                                                         --------------     --------------     --------------     --------------
U.S. Government and Agencies securities:
  Due within one year                                        62,519,172         63,113,250                  -                  -
  Due from one to five years                                399,274,688        398,027,502        263,631,848        267,895,747
  Due from five to ten years                                 79,388,327         81,042,400        137,755,838        143,695,233
                                                         --------------     --------------     --------------     --------------
                                                            541,182,187        542,183,152        401,387,686        411,590,980
                                                         --------------     --------------     --------------     --------------

Corporate debt obligations:
  Due within one year                                        14,246,853         14,362,305          3,204,892          3,366,952
  Due from one to five years                                 48,578,331         51,375,624         52,779,254         55,282,686
  Due from five to ten years                                  2,122,437          2,109,094          2,978,807          2,384,737
  Due over ten years                                                  -                  -          9,805,140          9,808,587
                                                         --------------     --------------     --------------     --------------
                                                             64,947,621         67,847,023         68,768,093         70,842,962
                                                         --------------     --------------     --------------     --------------

U.S. Municipal debt obligations - Due over ten years         12,208,908         12,339,101          4,884,443          4,878,910
                                                         --------------     --------------     --------------     --------------
Other                                                                 -                  -             48,617             48,617
                                                         --------------     --------------     --------------     --------------
                                                            618,338,716        622,369,276        478,355,313        490,325,864
                                                         --------------     --------------     --------------     --------------
                                                         $2,990,309,636     $3,020,647,036     $2,418,570,953     $2,472,576,238
                                                         ==============     ==============     ==============     ==============
</TABLE>

P. 64
<PAGE>

Mortgage-backed securities available for sale include CMO residuals and interest
only strips (IO's) resulting from financial asset transfers accounted for as
sales. The key assumptions used in determining the fair values of such
securities as of December 31, 2003 and the sensitivity analysis on the fair
value of such retained interests as of such date follows:

<TABLE>
<CAPTION>
                                                                     December 31, 2003 (Dollars in thousands)
                        --------------------------------------------------------------------------------------
                                                                               Effect on fair value
                                                                    PSA increase           Discount rate increase
                                                                   (basis points)              (basis points)
                                                              -------------------------   -----------------------
                        Assumptions         Fair value           50             133         100            200
                        -----------         ----------        ---------       --------    --------      ---------
<S>                       <C>                <C>              <C>             <C>         <C>            <C>
CMO RESIDUALS

  PSA                       200              $  7,110         $   (108)       $   (270)   $  (175)       $  (339)
  Discount rate            10-15%

IO'S STRIPS

  PSA                     200-333             100,847          (10,112)        (20,210)    (3,135)        (6,276)
  Discount rate            12-15%
                                             --------         ---------       ---------   --------       --------

                                             $107,957         $(10,220)       $(20,480)   $(3,310)       $(6,615)
                                             ========         =========       =========   ========       ========
</TABLE>

Anticipated credit losses as of December 31, 2003, as well as credit losses, net
of recoveries, during 2003, 2002 and 2001 were insignificant.

The fair values presented above were estimated based on a computer model used to
structure mortgage-backed securities. The model estimates the present value of
the projected excess servicing fees net of normal servicing fees, and projects
scheduled and unscheduled principal payments, mortgage interest, servicing fees
and excess servicing fees for each mortgage loan on a monthly basis. Values for
the excess servicing cash flows are calculated under various scenarios based on
different prepayment and internal rate of return assumptions, depending on the
type of loan of the underlying mortgages, the coupon rate and seasoning (loan
age). Prepayment speed assumptions ("PSA") are based on actual Public Securities
Association Dealer Prepayment Estimates in the continental United States as
published by Bloomberg Financial News, as adjusted to reflect prepayment speeds
in Puerto Rico, which historically have been lower.

The following table shows the Company's gross unrealized losses and fair value,
aggregated by investment category and length of time, of securities available
for sale and held to maturity that have been in a continuous unrealized loss
position up to December 31, 2003.

<TABLE>
<CAPTION>
                                             Less than 12 months            12 months or more                   Total
                                     ------------------------------   -----------------------------  -------------------------------
                                     Fair Value   Unrealized Losses   Fair Value  Unrealized Losses  Fair Value    Unrealized Losses
                                     ----------   -----------------   ----------  -----------------  ----------    -----------------
<S>                                 <C>           <C>                <C>          <C>                <C>           <C>
U.S. Government obligations         $155,985,706   $  2,606,305      $         -    $          -     $155,985,706    $  2,606,305

Corporate debt obligations             2,465,584         34,415        2,109,094          13,344        4,574,678          47,759

Mortgage-backed securities           712,674,354     11,265,629        6,427,228       1,079,728      719,101,582      12,345,357

Puerto Rico Government obligations     5,229,522        168,831                -               -        5,229,522         168,831

US Municipal debt obligations          3,476,876         41,319                -               -        3,476,876          41,319
                                    ------------   ------------      -----------    ------------     ------------    ------------

                                    $879,832,042   $ 14,116,499      $ 8,536,322    $  1,093,072     $888,368,364    $ 15,209,571
                                    ============   ============      ===========    ============     ============    ============
</TABLE>

The securities held by the Company are mainly mortgage-backed securities, US
Treasury and agency securities. Since a significant portion of such instruments
is guaranteed by mortgages and/or the full faith and credit of the US
Government, the related principal and interest are deemed recoverable.

The Company has the ability to hold these securities until maturity or until the
unrealized losses are recovered. As such, no losses have been recognized.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 65
<PAGE>

<TABLE>
<CAPTION>
                                                                        December 31,
                                                    ------------------------------------------------------
                                                                2003                       2002
                                                    --------------------------   -------------------------
                                                      Amortized       Fair        Amortized       Fair
                                                        cost          value         cost          value
                                                    ------------   -----------   -----------   -----------
<S>                                                  <C>           <C>           <C>           <C>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY

GNMA certificates:
  Due from one to five years                         $ 3,496,422   $ 3,581,361   $         -   $         -
  Due from five to ten years                             462,590       468,626     5,456,784     5,513,200
  Due over ten years                                  25,475,414    26,078,602    33,521,322    34,090,974
                                                     -----------   -----------   -----------   -----------
                                                      29,434,426    30,128,589    38,978,106    39,604,174
                                                     -----------   -----------   -----------   -----------
FNMA certificates- Due over ten years                  4,785,291     4,998,749     6,327,353     6,697,814
                                                     -----------   -----------   -----------   -----------
FHLMC certificates- Due over ten years                    81,296        79,621       102,162       102,380
                                                     -----------   -----------   -----------   -----------
                                                      34,301,013    35,206,959    45,407,621    46,404,368
                                                     -----------   -----------   -----------   -----------
INVESTMENT SECURITIES HELD TO MATURITY

United States Government and Agencies obligations:
  Due within one year                                          -             -       997,176       997,176
  Due from one to five years                           1,997,026     1,997,026     1,500,000     1,500,000
                                                     -----------   -----------   -----------   -----------
                                                       1,997,026     1,997,026     2,497,176     2,497,176
                                                     -----------   -----------   -----------   -----------

Puerto Rico Government and Agencies obligations:
  Due within one year                                    558,000       566,727             -             -
  Due from one to five years                          31,846,000    33,088,113    26,586,000    26,803,842
  Due from five to ten years                           9,398,353     9,229,522     1,000,000     1,005,000
                                                     -----------   -----------   -----------   -----------
                                                      41,802,353    42,884,362    27,586,000    27,808,842
                                                     -----------   -----------   -----------   -----------
Other - Due from one to five years                       100,000       100,000       100,000       100,000
                                                     -----------   -----------   -----------   -----------
                                                      43,899,379    44,981,388    30,183,176    30,406,018
                                                     -----------   -----------   -----------   -----------
                                                     $78,200,392   $80,188,347   $75,590,797   $76,810,386
                                                     ===========   ===========   ===========   ===========
</TABLE>

Unrealized gains and losses on securities held to maturity and available for
sale follows:

<TABLE>
<CAPTION>
                                                                    December 31,
                                          ---------------------------------------------------------------------
                                                      2003                                   2002
                                                 Gross unrealized                      Gross unrealized
                                          -------------------------------       -------------------------------
                                              Gains              Losses            Gains              Losses
                                          ------------       ------------       ------------       ------------
<S>                                       <C>                <C>                <C>                <C>
Securities held to maturity:
  Puerto Rico Government obligations      $  1,250,840       $   (168,831)      $    222,842       $          -
  Mortgage-backed securities                   907,621             (1,675)         1,000,285             (3,538)
                                          ------------       ------------       ------------       ------------
                                          $  2,158,461       $   (170,506)      $  1,223,127       $     (3,538)
                                          ============       ============       ============       ============

Securities available for sale:
  Mutual funds                            $          -       $          -       $          -       $   (302,079)
  U.S. Government obligations                3,607,270         (2,606,305)        10,203,294                  -
  Corporate debt obligations                 2,947,161            (47,759)         2,704,172           (629,303)
  Mortgage-backed securities                38,650,522        (12,343,682)        43,186,551         (1,151,817)
  U.S. Municipal debt obligations              171,512            (41,319)            42,649            (48,182)
                                          ------------       ------------       ------------       ------------
                                          $ 45,376,465       $(15,039,065)      $ 56,136,666       $ (2,131,381)
                                          ============       ============       ============       ============
</TABLE>

P. 66
<PAGE>
During the years ended December 31, 2003, 2002 and 2001, proceeds from the sale
of securities available for sale totaled approximately $165,561,000,
$552,732,000 and $372,615,000, respectively; gross gains realized on such sales
totaled approximately $1,087,000, $1,208,000 and $3,538,000 during 2003, 2002
and 2001 respectively; gross losses realized in 2003, 2002 and 2001 were
approximately $201,000, $225,000 and $1,196,000, respectively.

During 2001, the Company reclassified $75.9 million securities available for
sale to held for trading, recognizing a gain of $833,000.

As discussed in Notes 7, 8 and 10 to the consolidated financial statements, as
of December 31, 2003 the Company had investment and mortgage-backed securities
amounting to approximately $2.7 billion pledged as collateral of certain
deposits, securities sold under agreements to repurchase, and advances from the
FHLB and other lines of credit.

In addition to the investment and mortgage-backed securities pledged on
repurchase agreements and reported as pledged assets in the statements of
financial condition, at December 31, 2003 and 2002 the carrying amount of
investment securities pledged as collateral on repurchase agreements where the
counterparties do not have the right to sell or repledge the assets are as
follows:

<TABLE>
<CAPTION>
                                                              December 31,
                                                  ----------------------------------
                                                       2003                 2002
                                                  --------------      --------------
<S>                                               <C>                 <C>
Mortgage-backed securities held for trading,
  at fair value                                   $            -      $   17,338,648

Mortgage-backed and investment securities
  available for sale, at fair value                1,021,265,988         770,372,102

Mortgage-backed securities held to maturity,
  at amortized cost                                      300,895             372,812
                                                  --------------      --------------
                                                  $1,021,566,883      $  788,083,562
                                                  ==============      ==============
</TABLE>

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 67
<PAGE>

4. LOANS AND ALLOWANCES FOR LOAN LOSSES

Loans consist of the following:

<TABLE>
<CAPTION>
                                                           December 31,
                                             -------------------------------------
                                                    2003                  2002
                                             ---------------       ---------------
<S>                                          <C>                   <C>
Real estate loans:
  Residential - first mortgage               $ 2,384,278,520       $ 1,473,051,302
  Residential - second mortgage                   34,999,410            40,429,091
  Land                                            96,795,666            27,520,746
  Construction                                   603,866,951           411,045,539
  Commercial                                     792,950,355           633,233,584
                                             ---------------       ---------------
                                               3,912,890,902         2,585,280,262

Undisbursed portion of loans in process         (224,960,384)         (146,110,837)
Net deferred loan costs (fees)                     1,369,205               (45,387)
                                             ---------------       ---------------
                                               3,689,299,723         2,439,124,038
                                             ---------------       ---------------

Other loans:
  Commercial                                     188,689,656           152,742,927
  Consumer:
    Loans secured by deposits                     24,713,355            28,070,245
    Loans secured by real estate                  53,709,551            68,155,929
    Other                                        131,710,626           104,714,757
  Unearned interest                                   (1,095)             (443,411)
                                             ---------------       ---------------
                                                 398,822,093           353,240,447
                                             ---------------       ---------------

  Total loans                                  4,088,121,816         2,792,364,485
Allowance for loan losses                        (39,614,602)          (32,675,502)
                                             ---------------       ---------------
                                             $ 4,048,507,214       $ 2,759,688,983
                                             ===============       ===============
</TABLE>

The changes in the allowance for loan losses follow:

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                    --------------------------------------------------
                                        2003                2002               2001
                                    ------------       ------------       ------------
<S>                                 <C>                <C>                <C>
Balance, beginning of year          $ 32,675,502       $ 17,427,698       $ 11,599,634
Provision for loan losses             18,556,442         18,020,000         11,125,000
Acquired reserves - Crown Bank                 -          7,463,000                  -
Transferred reserves                           -                  -            806,176
Loans charged-off                    (13,941,589)       (11,692,808)        (6,627,063)
Recoveries                             2,324,247          1,457,612            523,951
                                    ------------       ------------       ------------
Balance, end of year                $ 39,614,602       $ 32,675,502       $ 17,427,698
                                    ============       ============       ============
</TABLE>

As of December 31, 2003 and 2002 the Company had commercial loans classified as
impaired totaling $20,614,000 and $16,684,000, respectively. At December 31,
2003 and 2002, an impairment reserve of approximately $2,923,000 and $3,598,000,
respectively, was allocated to certain impaired loans.

As of December 31, 2003, 2002 and 2001, loans on which the accrual of interest
income had been discontinued amounted to approximately $84,609,000, $77,167,000
and $71,582,000, respectively. The additional interest income that would have
been recognized during 2003, 2002 and 2001 had these loans been accruing
interest amounted to approximately $2,227,000, $1,589,000 and $3,254,000,
respectively. The Company has no material commitments to lend additional funds
to borrowers whose loans were in non-accruing status at December 31, 2003.

P. 68
<PAGE>

5. SERVICING ASSET

The Company's fees for servicing mortgage loans generally range from .25% to
..50% on the declining outstanding principal balances of the mortgage loans
serviced. Servicing fees are collected on a monthly basis out of payments from
mortgagors. The servicing agreements are cancelable by permanent investors for
cause without penalty or after payment of a termination fee ranging from .5% to
1% of the outstanding principal balance of the loans. At December 31, 2003 and
2002, the mortgage loans servicing portfolio amounted to approximately
$10,942,821,000 and $10,991,944,000, respectively, including approximately
$1,904,797,000 and $1,084,859,000, respectively, serviced for R-G Premier, and
$553,009,000 and $470,100,000, respectively, under sub-servicing contracts with
an outside party. In addition, the servicing portfolio at December 31, 2003 and
2002 includes $227,466,000 and $100,876,000 serviced for Crown Bank.

The changes in the servicing asset of the Company follows:

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                  -----------------------------------------------------
                                        2003               2002                 2001
                                  -------------       -------------       -------------
<S>                               <C>                 <C>                 <C>
Balance at beginning of year      $ 142,334,128       $ 105,146,902       $  95,078,530
  Rights originated                  27,676,910          24,814,918          25,088,857
  Crown Bank acquired                         -          32,477,522                   -
  Rights purchased                    9,990,554          23,850,824           1,650,371
  Scheduled amortization            (22,462,153)        (18,502,491)        (11,303,856)
  Impairment charges:
    Unscheduled amortization        (23,677,265)        (14,201,749)         (3,908,690)
    Valuation reserves              (14,012,598)         (6,816,290)         (1,458,310)
  Other adjustments                    (239,217)         (4,435,508)                  -
                                  -------------       -------------       -------------
Balance at end of year            $ 119,610,359       $ 142,334,128       $ 105,146,902
                                  =============       =============       =============
</TABLE>

The changes in the reserve for valuation impairment follows:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                    --------------------------------------------------
                                         2003               2002                2001
                                    ------------       ------------       ------------
<S>                                 <C>                <C>                <C>
Balance at beginning of year        $  8,274,600       $  1,458,310       $          -
Additions charged to expense          22,366,807          7,274,923          1,458,310
Reductions credited to expense        (8,354,209)          (458,633)                 -
Direct write-downs                             -                  -                  -
                                    ------------       ------------       ------------
Balance at end of year              $ 22,287,198       $  8,274,600       $  1,458,310
                                    ============       ============       ============
</TABLE>

As of December 31, 2003 and 2002, the fair value of capitalized mortgage
servicing rights was $126,016,000 and $146,855,000, respectively. The major
assumptions for the estimated fair value at December 31, 2003 were discount
rates ranging from 9% to 13% and a PSA of 122 to 1,266, depending on the type
and coupon of the loan, with a weighted average life of 7.19 years.

Among the conditions established in its various servicing agreements, the
Company is committed to advance from its own funds any shortage of moneys
required to complete timely payments to investors in GNMA mortgage-backed
securities issued and in its FNMA and FHLMC portfolio, as well as certain
private investors. At December 31, 2003, the mortgage loan portfolio serviced
for GNMA, FNMA, FHLMC and private investors subject to the timely payment
commitment amounted to approximately $2,311,172,000, $2,140,657,000,
$2,752,169,000 and $710,020,000, respectively (2002- $2,642,096,000,
$2,752,680,000, $2,905,752,000 and $209,083,000, respectively).

Total funds advanced as of December 31, 2003 in relation to such commitments
amount to $7,047,000, $18,123,000 and $2,890,000 for escrow advances, principal
and interest advances and foreclosure advances, respectively (2002 - $6,628,000,
$15,719,000 and $2,034,000, respectively).

In connection with mortgage servicing activities, the Company holds funds in
trust for investors representing amounts collected primarily for the payment of
principal, interest, real estate taxes and insurance premiums. Such funds are
deposited in separate custodial bank accounts, some of which are deposited in
R-G Premier and Crown Bank. At December 31, 2003 and 2002, the related escrow
funds include approximately $158,984,000 and $220,024,000, respectively,
deposited in banking subsidiaries of the Company; these funds are included in
the Company's consolidated financial statements. Escrow funds also include
approximately $4,209,000 and $4,347,000 at December 31, 2003 and 2002,
respectively, deposited with other banks and excluded from the Company's assets
and liabilities.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 69
<PAGE>

6. PREMISES AND EQUIPMENT

Premises and equipment consist of:

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                    --------------------------------------------------------------
                                                    Estimated useful life
                                                         (years)                     2003                  2002
                                                    ---------------------       -------------         ------------
<S>                                                 <C>                         <C>                   <C>
Buildings                                                  20                   $  18,638,796         $ 17,534,574
Furniture, fixtures and equipment                           5                      33,618,459           34,733,140
Leasehold improvements                                     10                      25,066,914           18,495,157
Autos                                                       5                         896,072              846,504
                                                           --                   -------------         ------------
                                                                                   78,220,241           71,609,375
Less - Accumulated depreciation and amortization                                  (35,438,652)         (32,943,931)
                                                                                -------------         ------------
                                                                                $  42,781,589         $ 38,665,444
                                                                                =============         ============
</TABLE>

7. DEPOSITS

Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                              December 31,
                                  ----------------------------------
                                        2003                  2002
                                  --------------      --------------
<S>                               <C>                 <C>
Passbook savings                  $  337,463,058      $  329,488,781
                                  --------------      --------------

NOW accounts                         133,200,837         100,030,784
Super NOW accounts                   426,144,626         335,014,899
Regular checking accounts
  (non-interest bearing)             134,658,770         107,585,787
Commercial checking accounts
  (non-interest bearing)             259,613,789         282,769,165
                                  --------------      --------------
                                     953,618,022         825,400,635
                                  --------------      --------------

Certificates of deposit:
  Under $ 100,000                    731,655,252         652,064,940
  $100,000 and over                1,527,580,536         991,504,220
                                  --------------      --------------
                                   2,259,235,788       1,643,569,160
                                  --------------      --------------

Accrued interest payable               5,446,762           3,865,436
                                  --------------      --------------
                                  $3,555,763,630      $2,802,324,012
                                  ==============      ==============
</TABLE>

The weighted average stated interest rate on all deposits at December 31, 2003
and 2002 was 2.58% and 3.06%, respectively.

As of December 31, 2003, the Company had delivered investment securities held to
maturity and available for sale with a carrying value of approximately $5.9
million as collateral for public funds' deposits.

At December 31, 2003 scheduled maturities of certificates of deposit are as
follows:

<TABLE>
<S>             <C>
2004            $1,056,790,320
2005               505,066,197
2006               201,492,952
2007               216,269,828
2008               277,673,806
Thereafter           1,942,685
                --------------
                $2,259,235,788
                ==============
</TABLE>

P. 70
<PAGE>
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                     ------------------------------------------------------------------------------
                                                               2003                                       2002
                                                     ------------------------------------       -----------------------------------
                                                                     Approximate market                        Approximate market
                                                     Repurchase          value of               Repurchase          value of
                                                     liability      underlying securities       liability     underlying securities
                                                     ---------      ---------------------       ---------     ---------------------
<S>                                               <C>               <C>                      <C>              <C>
TYPE OF SECURITY

U.S. Government and Agencies securities
  available for sale                              $  454,239,000      $  467,060,588         $  219,828,000      $  252,916,640
GNMA:
  Held for trading                                             -                   -              9,448,600           9,740,818
  Available for sale                                 342,986,000         359,559,175            421,184,020         434,446,308
  Held to maturity                                    27,725,000          30,126,251             38,184,000          39,601,693
CMO and CMO residuals available for sale             722,644,000         798,117,946            269,045,271         285,272,762
FHLMC:
  Held for trading                                     6,375,000           6,375,209             31,584,500          33,704,170
  Available for sale                                 247,980,000         261,033,462            424,279,000         458,818,162
FNMA:
  Available for sale                                 240,652,000         287,721,649             17,401,000          20,424,513
  Held to maturity                                     4,999,000           4,998,749              6,622,000           6,697,814
Corporate debt obligations available for sale         60,196,000          63,272,345             52,182,000          56,149,638
Puerto Rico Government and Agencies securities:
  Held for trading                                       165,000             183,225                      -                   -
  Held to maturity                                    26,640,000          30,427,892                      -                   -
Repledged securities obtained from agreements
  to resell                                           86,194,000          92,758,592                      -                   -
                                                  --------------      --------------         --------------      --------------
                                                  $2,220,795,000      $2,401,635,083         $1,489,758,391      $1,597,772,518
                                                  ==============      ==============         ==============      ==============
</TABLE>

At December 31, 2003, repurchase agreements mature within ninety days, except
for repurchase agreements totaling $1,329,351,000 maturing in various dates
commencing on April 26, 2004 until February 28, 2011. Expected maturities may
differ from contractual maturities because counterparties to the agreements may
have call options. At December 31, 2003 repurchase agreements amounting to
$424.7 million had call options.

Maximum amount of borrowings outstanding at any month-end during 2003 and 2002
under the agreements to repurchase were $2,220,795,000 and $1,602,394,000,
respectively. The approximate average aggregate borrowings outstanding during
2003 and 2002 were $1,884,191,000 and $1,437,089,000, respectively. The weighted
average interest rate of such agreements was 2.26% and 3.16% at December 31,
2003 and 2002, respectively; the weighted average rate during 2003 and 2002 was
2.71% and 3.56%, respectively.

9. NOTES PAYABLE

Notes payable consist of:

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                         --------------------------------
                                                                                              2003              2002
                                                                                         -------------      -------------
<S>                                                                                      <C>                <C>
Warehousing lines, bearing interest at floating rates ranging from .875% to
  1.75% over the applicable Libor rate (2.26% in 2003 and 2.51% in 2002)                 $ 170,508,942      $ 167,957,115

Lines of credit with banks for an aggregate of $27.8 million bearing interest at
  floating rates ranging from 1.50% to 1.75% over the applicable Libor rate (2.57%
  at December 31, 2003 and 2.82% at December 31, 2002), collateralized by
  mortgage servicing rights with a fair value of approximately $29.6 million in             21,750,000         26,650,000
  2003
                                                                                         -------------      -------------
                                                                                         $ 192,258,942      $ 194,607,115
                                                                                         =============      =============
</TABLE>

As of December 31, 2003, the Company had various credit line agreements
permitting the Company to borrow up to $309.9 million in warehousing lines with
banks; the unused portion of warehousing lines totaled approximately $139.4
million. Warehousing lines at December 31, 2003 are collateralized by
approximately $186.4 million in mortgage loans, mortgage servicing rights with a
fair value of $8 million, and a general assignment of mortgage payments
receivable. These borrowings bear interest at rates related to the respective
counterparty's cost of funds. Several credit line agreements impose certain
requirements on the Company, primarily related to maintaining net worth and debt
service over certain defined minimums, and limitations on indebtedness and
declaration of dividends.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 71
<PAGE>

The following information relates to borrowings of the Company under the credit
line agreements:

<TABLE>
<CAPTION>
                                                                               December 31, (Dollars in thousands)
                                                                               -----------------------------------
                                                                                    2003                  2002
                                                                               ------------            -----------
<S>                                                                             <C>                    <C>
Maximum aggregate borrowings outstanding at any month-end                       $   218,052            $   194,607

Approximate average aggregate borrowings outstanding during the year            $   217,750            $   241,346

Weighted average interest rate during the year computed on a monthly basis             3.15%                  2.81%

Weighted average interest rate at end of year                                          2.29%                  2.55%
</TABLE>

10. ADVANCES FROM THE FEDERAL HOME LOAN BANK

At December 31, 2003 advances from the FHLB mature on various dates commencing
on January 1, 2004 until March 2, 2011, and bear interest at various rates
ranging from 1.04% to 6.31%. The weighted average stated interest rate on
advances from the FHLB was 3.56% and 4.23% at December 31, 2003 and 2002,
respectively.

Scheduled maturities of FHLB advances were as follows as of December 31, 2003:

<TABLE>
<CAPTION>
                     (in thousands)
                     --------------
<S>                <C>
2004               $   224,000
2005                   265,100
2006                   265,500
2007                   159,000
2008                    76,000
Thereafter             140,000
                   -----------
                   $ 1,129,600
                   ===========
</TABLE>

Expected maturities may differ from contractual maturities because some of the
advances may have call options. At December 31, 2003 FHLB advances amounting to
$265.5 million had call options.

The Company, through its banking subsidiaries, receives advances from the FHLB
under Advances, Collateral Pledge and Security Agreements (the "Agreements"),
which allow the Company to borrow up to $2.2 billion as of December 31, 2003.
The unused portion under such line of credit was approximately $1.1 billion.
Under the Agreements, the Company is required to maintain a minimum amount of
qualifying collateral with a market value of at least 110% of the outstanding
advances. At December 31, 2003 the Company maintains collateral (principally in
the form of first mortgage notes and investment securities) amounting to
approximately $1.4 billion with the FHLB as part of the Agreements. At December
31, 2003, the market value of the collateral indicated above was sufficient to
comply with the collateral requirements of the FHLB.

11. OTHER BORROWINGS

Other borrowings include the following:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                -----------------------------------
                                                                                      2003                 2002
                                                                                --------------       --------------
<S>                                                                             <C>                  <C>
Subordinated notes due in 2032, bearing interest at floating rates
  ranging from 3.25% to 3.70% over the applicable libor rate
  (4.77% in 2003 and 4.95% in 2002)                                             $    35,000,00       $   35,000,000
Subordinated notes due in 2033, bearing interest at a floating rate
  of 3.10% over three month libor (4.25% in 2003)                                   15,000,000                    -
Subordinated notes due in 2033, bearing interest at a fixed rate
  of 6.95%                                                                         100,000,000                    -
Working capital lines of credit bearing interest ranging from
  1.50% to 1.75% over the applicable libor rate (2.82% in 2003                       7,670,451           10,065,406
  and 3.03% in 2002)                                                            --------------       --------------
                                                                                $  157,670,451       $   45,065,406
                                                                                ==============       ==============
</TABLE>

Interest expense during 2003 and 2002 totaled approximately $4,004,000 and
$1,604,000, respectively.

P. 72
<PAGE>

12. INCOME TAXES

The Company is subject to Puerto Rico income tax on its income derived from all
sources within and outside Puerto Rico. R-G Premier is also subject to United
States income taxes on certain types of income from such source. However, any
United States income tax paid by the Bank is, subject to certain conditions and
limitations, creditable as a foreign tax credit against its Puerto Rico income
tax liability. Under the Puerto Rico Income Tax Law, entities are not entitled
to file consolidated tax returns.

Under the Puerto Rico tax law a company's tax liability will be the greater of
the tax computed under the regular tax system or the alternative minimum tax
(AMT) system. The AMT is imposed based on 22% of regular taxable income after
certain adjustments for preference items. An AMT credit may be claimed in future
years for tax paid on an AMT basis in excess of the regular tax basis.

Crown Bank is subject to United States federal and state income tax on its
income derived from all sources within and outside the United States.

A portion of the Company's interest income arises from mortgage loans,
mortgage-backed securities and other investment securities which are exempt for
Puerto Rico income tax purposes. The elimination of exempt income, net of
related expenses, from the determination of taxable income results in a
reduction of its income tax liability.

Deferred tax liabilities (assets) consist of the following:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                ------------------------------
                                                                   2003               2002
                                                                ------------      ------------
<S>                                                             <C>               <C>
DEFERRED TAX LIABILITIES:

Unrealized gain on securities held for trading                  $    406,219      $  1,141,378
Deferred expenses                                                    240,515           240,515
CMO residuals (IOs)                                               31,530,668         7,760,841
Net deferred loan origination costs                                2,186,619           509,198
Servicing asset                                                    7,783,231        14,584,689
Securitization gains on mortgage-backed securities                 8,436,989         9,265,347
Unrealized gains on securities available for sale                 11,859,563        21,068,038
Leases                                                               822,019           822,019
Core deposit intangible                                              584,907           755,795
Other                                                                      -           338,161
                                                                ------------      ------------
                                                                  63,850,730        56,485,981
                                                                ------------      ------------
DEFERRED TAX ASSETS:

Net operating loss carryforward                                   (2,727,353)       (1,198,676)
Allowance for loan losses                                        (15,384,307)      (12,727,926)
AMT and other tax credits                                         (2,284,537)       (2,632,675)
Other foreclosed property reserve                                 (1,035,617)         (894,152)
Unrealized losses on cash flow hedges                             (5,579,919)       (6,993,451)
Unrealized losses on derivative instruments
   held for trading                                                 (515,887)         (673,116)
Deferred gains on sale of investment securities and loans           (422,257)         (208,785)
Recourse reserve                                                  (1,554,150)         (702,000)
Other                                                               (439,007)                -
                                                                ------------      ------------
                                                                 (29,943,034)      (26,030,781)
                                                                ------------      ------------
Net deferred tax liability                                      $ 33,907,696      $ 30,455,200
                                                                ============      ============
</TABLE>

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 73

<PAGE>

The provision for income taxes of the Company varies from amounts computed by
applying the Puerto Rico statutory tax rate to income before taxes as follows:

<TABLE>
<CAPTION>
                                                           Year Ended December 31, (Dollars in thousands)
                                               -------------------------------------------------------------------------
                                                        2003                     2002                     2001
                                               -----------------------   ----------------------   ----------------------
                                                           % of pretax              % of pretax              % of pretax
                                                Amount       Income       Amount      Income       Amount       Income
                                               --------    -----------   --------   -----------   --------   -----------
<S>                                            <C>         <C>           <C>        <C>           <C>        <C>
Computed income tax at Puerto Rico's
   statutory rate                              $ 67,624        39%       $ 48,751       39%       $ 34,073        39%
Effect on provision of:
   Tax-exempt interest                          (24,263)      (14)        (19,603)     (15)        (11,968)      (14)
   Amounts expected to reverse at tax
     rates lower than the statutory rate           (508)       (1)              -        -            (576)       (1)
   Other (non-taxable) / non-deductible
     items, net                                    (481)        -            (488)      (1)             73         1
                                               --------    -----------   --------   -----------   --------   -----------
                                               $ 42,372        24%       $ 28,660       23%       $ 21,602        25%
                                               ========    ===========   ========   ===========   ========   ===========
</TABLE>

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

During the first quarter of 2004, the Puerto Rico Treasury Department ("PRTD")
began an income tax examination of the income tax returns for the year 2001 of
R-G Financial (parent only) and R-G Mortgage. Management believes that this
examination should not result in any significant adverse effect on the Company's
financial condition or results of operations.

13. STOCKHOLDERS' EQUITY

On November 21, 2003, the Company's Board of Directors authorized a
three-for-two stock split on the Company's Class A and Class B common stock (the
"common stock"). The split was effected on January 29, 2004 in the form of stock
dividend of one additional share of common stock for each two shares of common
stock held of record as of January 16, 2004. Prior to the stock split, the
Company had 34,044,222 shares of common stock outstanding (comprised of
14,373,056 Class A non-registered common shares and 19,671,166 Class B publicly
traded common shares). As a result of the split, 17,022,077 shares (comprised of
7,186,528 Class A non-registered common shares and 9,835,549 Class B publicly
traded common shares) were issued and $170,220 was transferred from additional
paid-in-capital to common stock. The stock split did not dilute shareholders'
voting rights or their proportionate interest in the Company. The split has been
retroactively reflected on the Company consolidated financial statements as of
December 31, 2003 as if the split had been effected prior to such date.
Accordingly, all share and per share data included herein has been retroactively
adjusted to reflect the stock split.

After giving effect to the Company's January 29, 2004 stock split on the
Company's Consolidated Financial Statements, the Company's average number of
common shares outstanding used in the computation of basic earnings per common
share was 51,057,651 in 2003 (2002 - 48,631,316; 2001 - 44,807,958); the
weighted average number of shares outstanding for the computation of diluted
earnings per share was 51,281,379 in 2003 (2002 - 49,059,698; 2001 -45,828,605)
after giving effect to outstanding stock options granted under the Company's
Stock Option Plan. During 2003, cash dividends were paid of $0.294 (2002
-$0.224; 2001 - $0.176) per common share amounting to $15,011,000 (2002 -
$11,003,000; 2001 - $7,897,000).

Non-cumulative perpetual preferred stocks at December 31, 2003 may be redeemed
in whole or in part at various redemption prices ranging from $26.00 to $25.00
at the Company's sole option as follows:

<TABLE>
<CAPTION>
                            Redemption date
                            ---------------
<S>                         <C>
Series A                    October 1, 2003

Series B                    January 1, 2005

Series C                    April 1, 2006

Series D                    March 1, 2007
</TABLE>

No redemptions have been made as of December 31, 2003.

P. 74

<PAGE>

14. NON-INTEREST EXPENSES

Non-interest expenses consist of the following:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                          ------------------------------------------
                                             2003            2002           2001
                                          ------------   ------------   ------------
<S>                                       <C>            <C>            <C>
Stationery and supplies                   $  4,966,158   $  4,064,341   $  2,304,214
Advertising and promotion                   15,460,959     11,662,034      8,559,121
Telephone                                    2,626,751      2,226,061      1,767,115
License and other taxes                      5,393,707      4,915,995      4,282,639
Deposit insurance                              733,796        569,730        318,790
Other insurance                              1,939,287      1,186,844        858,572
Legal and other professional services        5,068,298      3,752,660      2,527,347
Amortization and impairment of
   mortgage servicing asset                 60,152,016     39,520,530     16,670,856
Goodwill amortization                                -              -        435,626
Guaranty fees                                2,426,110      2,813,167      3,218,576
Other                                       32,718,389     23,651,249     16,190,317
                                          ------------   ------------   ------------
                                          $131,485,741   $ 94,362,611   $ 57,133,173
                                          ============   ============   ============
</TABLE>

15. RELATED PARTY TRANSACTIONS

The Company leases some of its facilities from an affiliate, mostly on a
month-to-month basis. The annual rentals under these agreements during 2003 were
approximately $3,588,000 (2002 - $3,006,000; 2001 - $2,352,000).

Loans to directors, officers and employees of the Company were made in the
ordinary course of business. Interest rates on such loans were substantially the
same as those prevailing at the time for comparable transactions with unrelated
parties and did not involve more than a normal risk of collectibility. At
December 31, 2003 the aggregate amount of loans outstanding to officers,
directors, and principal stockholders' of the Company and its subsidiaries was
insignificant.

16. REGULATORY REQUIREMENTS

The Company is approved by the Board of Governors of the Federal Reserve System
(Federal Reserve Board) as a registered bank holding company pursuant to the
Bank Holding Company Act of 1956, as amended.

The Company, as a bank holding company, is subject to regulation and supervision
by the Federal Reserve Board. The Federal Reserve Board has established
guidelines regarding the capital adequacy of bank holding companies, such as the
Company. These requirements are substantially similar to those adopted by the
FDIC for depository institutions, as set forth below.

R-G Premier is organized under the Puerto Rico Banking Act, as amended, and is
subject to extensive regulation and examination by the Commission (the
"Commissioner") of the Officer of Financial Institutions of the Commonwealth of
Puerto Rico, the FDIC and certain requirements established by the Federal
Reserve Board.

Crown Bank is a federal savings bank organized under the laws of the State of
Florida, and is subject to extensive regulation and examination by the Banking
Department of Florida, the Office of Thrift Supervision ("OTS") and certain
requirements established by the Federal Reserve Board.

The mortgage banking business conducted by R-G Mortgage is subject to the rules
and regulations of FHA, VA, FNMA, FHLMC, GNMA and the Commissioner with respect
to originating, processing, selling and servicing mortgage loans and the
issuance and sale of mortgage-backed securities. R-G Mortgage's affairs are also
subject to supervision and examination by FNMA, FHA, FHLMC, GNMA, HUD and VA at
all times to assure compliance with the applicable regulations, policies and
procedures. Mortgage origination activities are subject to, among others, the
Equal Credit Opportunity Act, Federal Truth-in-Lending Act and the Real Estate
Settlement Procedures Act and the regulations promulgated thereunder. R-G
Mortgage is a U.S. Department of Housing and Urban Development (HUD) approved
non-supervised mortgagee.

The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the Company and the
Bank to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier I capital to average assets (as defined). Failure to
meet capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. As of December 31, 2003,
the Company meets all capital adequacy requirements to which it is subject.

As of December 31, 2003, the most recent notifications from the FDIC and the OTS
categorized R-G Premier and Crown Bank, respectively, as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized R-G Premier and Crown Bank must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed R-G Premier's or Crown Bank's category.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 75

<PAGE>

The following table reflects the Company's, R-G Premier's and Crown Bank's
actual capital amounts and ratios, and applicable regulatory capital
requirements at December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                   (Dollars in thousands)
                                             ------------------------------------------------------------------------
                                                                                              to be well capitalized
                                                                            for capital       under prompt corrective
                                                     actual              adequacy purposes       action provisions
                                             --------------------     ----------------------   ----------------------
                                              amount        ratio      amount          ratio    amount      ratio
                                             --------       -----     --------         -----   --------    --------
<S>                                          <C>            <C>       <C>              <C>     <C>         <C>
As of December 31, 2003
Total capital (to risk weighted assets):
     Consolidated                            $858,525       16.40%    $418,812           8%         N/A         N/A
     R-G Premier Bank only                   $453,160       13.46%    $269,298           8%    $336,623          10%
     Crown Bank only                         $ 95,108       11.89%    $ 63,974           8%    $ 79,967          10%
Tier I capital (to risk weighted assets):
   Consolidated                              $818,911       15.64%    $209,406           4%         N/A         N/A
   R-G Premier Bank only                     $420,613       12.50%    $134,649           4%    $201,974           6%
   Crown Bank only                           $ 90,454       11.12%    $ 31,987           4%    $ 47,980           6%
Tier I capital (to average assets):
   Consolidated                              $818,911       10.31%    $317,807           4%         N/A         N/A
   R-G Premier Bank only                     $420,613        6.97%    $241,337           4%    $301,671           5%
   Crown Bank only                           $ 90,454        7.32%    $ 49,457           4%    $ 61,822           5%

As of December 31, 2002
Total capital (to risk weighted assets):
     Consolidated                            $635,263       17.72%    $286,857           8%         N/A         N/A
     R-G Premier Bank only                   $339,127       13.94%    $194,582           8%    $243,227          10%
     Crown Bank only                         $ 79,293       14.09%    $ 45,031           8%    $ 56,289          10%
Tier I capital (to risk weighted assets):
   Consolidated                              $602,587       16.81%    $143,429           4%         N/A         N/A
   R-G Premier Bank only                     $313,764       12.90%    $ 97,291           4%    $145,936           6%
   Crown Bank only                           $ 73,006       12.97%    $ 22,515           4%    $ 33,773           6%
Tier I capital (to average assets):
   Consolidated                              $602,587        9.80%    $246,061           4%         N/A         N/A
   R-G Premier Bank only                     $313,764        6.79%    $184,823           4%    $231,029           5%
   Crown Bank only                           $ 73,006        9.08%    $ 32,159           4%    $ 40,199           5%
</TABLE>

Effective December 31, 2002, the federal banking regulatory agencies imposed a
new dollar for dollar capital requirement on residual interests retained in sale
or securitization transactions and a 25% limit on Tier 1 Capital that may
consist of credit enhancing IO's. The capital ratios set forth above as of
December 31, 2003 and 2002 include the impact of this capital rule.

17. STOCK OPTION PLAN

The Company has a Stock Option Plan designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company, and reward key employees for outstanding performance and the
attainment of targeted goals. An amount of Company common stock equal to 10% of
the aggregate number of Class B Shares sold in the Company's initial public
offering (241,500 shares, equivalent to 1,304,100 shares after giving effect to
stock splits) was authorized under the Stock Option Plan, which may be filled by
authorized but unissued shares, treasury shares or shares purchased by the
Company on the open market or from private sources. The Stock Option Plan
provides for the grant of stock options at an exercise price equal to the fair
market value of the Class B shares at the date of the grant. Stock options are
available for grant to key employees of the Company and any subsidiaries. No
options were issued prior to the public offering. The maximum term of the
options granted are ten years. Under the provisions of the Stock Option Plan,
options can be exercised as follows: 20% after one year, 40% after two years,
60% after three years, 80% after four years and 100% after five years.

P.76
<PAGE>

Stock options granted, cancelled and exercised during 2001, 2002 and 2003 were
as follows (as adjusted to reflect stock split on January 29, 2004):

<TABLE>
<CAPTION>
                                                                   weighted
                                                                 average price
                                                                 -------------
<S>                                                  <C>         <C>
Outstanding stock options, January 1, 2001           1,105,200    $  3.83

   Granted                                              75,000    $ 10.00

   Exercised                                          (622,080)   $  2.81

   Cancelled                                           (18,000)   $ 10.83

Outstanding stock options, December 31, 2001           540,120    $  5.64

   Exercised                                          (258,900)   $  2.75

   Cancelled                                                 -    $     -

Outstanding stock options, December 31, 2002           281,220    $  8.02

   Granted                                              18,750    $ 14.57

   Exercised                                           (74,520)   $  2.68

   Cancelled                                                 -    $     -

Outstanding stock options, December 31, 2003           225,450    $ 10.33
</TABLE>

Outstanding stock options excercisable at December 31, 2003 amount to 108,600 at
prices ranging from $2.68 to $10.75. Outstanding stock options at December 31,
2003 have a remaining weighted average contractual life of 6.25 years.

The Company follows the disclosure only provisions of SFAS No. 123 - "Accounting
for Stock-Based Compensation" (SFAS 123) and thus, no compensation cost has been
recognized for the Company's Stock Option Plan. Had compensation cost for the
Company's Stock Option Plan been determined based on the fair value of the
options at the grant date consistent with the provisions of SFAS 123, the
Company's net earnings and earnings per share for the years ended December 31,
2003, 2002 and 2001 would have been reduced to the pro-forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                        2003            2002            2001
                                                   -------------    ------------    ------------
<S>                                                <C>              <C>             <C>
Net earnings - as reported                         $ 131,023,565    $ 96,342,156    $ 65,970,843

Net earnings - pro forma                           $ 130,921,253    $ 96,187,642    $ 65,816,329

Basic earnings per share - as reported             $        2.26    $       1.67    $       1.25

Basic earnings per share - pro forma               $        2.25    $       1.67    $       1.25

Diluted earnings per share - as reported           $        2.25    $       1.66    $       1.22

Diluted earnings per share - pro forma             $        2.24    $       1.65    $       1.22
</TABLE>

18. PROFIT SHARING PLAN

The Company has a profit sharing plan (the Plan) which covers substantially all
regular employees. Annual contributions to the Plan are based on matching
percentages up to 5% of employee salaries, based on the employee's years of
service and on operational income, as defined by the Plan, and are deposited in
a trust. Contributions to the Plan during the years ended December 31, 2003,
2002 and 2001 amounted to approximately $382,000, $288,000 and $257,000,
respectively.

The Company and its subsidiaries have no post retirement benefit plans for its
employees.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 77
<PAGE>

19. COMMITMENTS AND CONTINGENCIES

Commitments to buy and sell GNMA certificates and mortgage loans As of December
31, 2003, the Company had open commitments to issue GNMA certificates in the
amount of approximately $75.3 million. In addition, the Company had commitments
to sell mortgage loans to third party investors amounting to approximately
$312.9 million.

Unrealized gains and losses are recorded in trading activities in the
accompanying consolidated statements of income related to these forward sales
commitments, for the difference between committed prices and market prices at
the balance sheet date. Unrealized trading gains or losses were not significant
during the year ended December 31, 2003.

LEASE COMMITMENTS

The Company is obligated under several noncancellable leases for office space
and equipment rentals, all of which are accounted for as operating leases. The
leases expire at various dates with options for renewals.

As of December 31, 2003, minimum annual rental commitments under noncancellable
operating leases for certain office space and equipment, including leases with
an affiliate, were as follows:

<TABLE>
<CAPTION>
   Year               Amount
   ----               ------
<S>                <C>
   2004            $  6,237,148
   2005               5,142,081
   2006               4,581,945
   2007               4,226,277
   2008               3,316,337
Later years          15,744,778
                   ------------
                   $ 39,248,566
                   ============
</TABLE>

Rent expense amounted to approximately $8,829,000 in 2003, $7,185,000 in 2002
and $5,752,000 in 2001.

LITIGATION

The Company is a defendant in legal proceedings arising from normal business
activities. Management believes, based on the opinion of legal counsel, that the
final disposition of these matters will not have a material adverse effect on
the Company's financial position or results of operations.

OTHERS

At December 31, 2003, the Company is liable under limited recourse provisions
resulting from the sale of residential mortgage loans to several third party
investors, principally FHLMC. The principal balance of these loans, which are
serviced by the Company, amounts to approximately $1.1 billion at December 31,
2003. As of December 31, 2003 the Company has an allowance for recourse
provisions of $4.0 million included under accounts payable and accrued
liabilities in its Consolidated Statements of Financial Condition. Historical
losses on recourse obligations have not been significant.

In April 2002, R&G Acquisition Holdings Corporation (a wholly-owned subsidiary
of R&G Financial) ("RAC"), a Florida corporation and the holding company of
Crown Bank, formed R&G Capital Trust I. R&G Capital Trust I issued $25 million
of trust preferred securities in a private placement. In addition, in August
2003, RAC also formed R&G Capital Trust IV which issued $15 million of trust
preferred securities in a private placement and in October 2003, the Company
formed R&G Capital Trust III, which issued $100 million of trust preferred
securities in a public offering (see Note 1). The Company has guaranteed certain
obligations of RAC to R&G Capital Trust I and IV, and has guaranteed certain
obligations of R&G Capital Trust III.

20. SUPPLEMENTAL DISCLOSURE ON THE STATEMENTS OF CASH FLOWS

During 2003, 2002 and 2001, the Company paid interest amounting to approximately
$189,491,000, $183,704,000 and $177,254,000, respectively, and income taxes of
approximately $24,860,000, $13,348,000 and $7,409,000, respectively.

21. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK

In the normal course of business, the Company uses various off-balance sheet
financial instruments to satisfy the financing needs of its customers, mostly
loan commitments. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statements of financial condition. The contract or notional amounts of these
instruments, which are not included in the statements of financial condition,
are an indicator of the Company's activities in particular classes of financial
instruments. Unused lines of credit and commitments to extend financial standby
letters of credit totaled $194.5 million and $15.3 million, respectively, as of
December 31, 2003.

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments as it does for on-balance
sheet instruments.

Contractual commitments to extend credit are legally binding agreements to lend
money to customers at predetermined interest rates for a specified period of
time. Since many of the loan commitments may expire without

P.78
<PAGE>

being drawn upon, the total commitment amount does not necessarily represent
future cash requirements.

To extend credit the Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit evaluation
of the counterparty. A geographic concentration exists within the Company's
mortgage loans portfolio since most of the Company's business activity is with
customers located in Puerto Rico.

22. INTEREST RATE RISK MANAGEMENT

As part of its interest rate risk management, the Company enters into interest
rate caps and swaps. Interest rate swap agreements involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the
underlying principal. Entering into interest rate agreements involves the risk
of dealing with counterparties and their ability to meet the terms of the
contracts, and also the interest rate risk associated with unmatched positions.
For interest rate swaps, the contract or notional amounts do not represent
exposure to credit loss. Instead, the amount potentially subject to credit loss
is substantially less.

A detail of interest rate swaps by contractual maturity at December 31, 2003
follows. Expected maturities will differ from contractual maturities because
counterparties to the agreements may have the right to call the swaps.

<TABLE>
<CAPTION>
                         notional                    pay fixed    receive        designation/                   Call
Hedged item               amount       maturity         rate   rate floating     description                   option
-----------            ----------- ----------------- --------- -------------  ------------------  ---------------------------------
<S>                    <C>         <C>               <C>       <C>            <C>                 <C>
Repurchase agreements  $15,000,000 February 6, 2006    4.80%   3 month Libor  cash flow hedge     callable quarterly after one year
FHLB Advance            50,000,000 February 6, 2006    4.67    3 month Libor  cash flow hedge     callable quarterly after one year
Long-term debt          25,000,000 April 22, 2007      8.77    6 month Libor  cash flow hedge                    N/A
Repurchase agreements   70,000,000 December 8, 2009    5.60    3 month Libor  cash flow hedge     callable quarterly after one year
N/A                     10,000,000 December 15, 2009   5.69    3 month Libor  trading derivative  callable quarterly after one year
</TABLE>

The following table summarizes the changes in notional amounts of swaps
outstanding during 2003:

<TABLE>
<S>                <C>
Beginning balance  $ 180,000,000
New swaps                      -
Maturities           (10,000,000)
                   -------------
Ending balance     $ 170,000,000
                   -------------
</TABLE>

As of December 31, 2003, interest rate swap maturities are as follows:

<TABLE>
<S>          <C>
2006         $ 65,000,000
2007           25,000,000
2009           80,000,000
             ------------
             $170,000,000
             ------------
</TABLE>

Net interest settlements on swap agreements are recorded as an adjustment to
interest expense on notes payable and repurchase agreements. Net interest paid
during 2003, 2002 and 2001 amounted to approximately $6,576,000, $5,685,000 and
$1,727,000, respectively.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 79
<PAGE>

At December 31, 2003 and 2002, swap agreement designated as cash flow hedges had
a negative fair value of $14,373,000 and $18,011,000, respectively, that has
been recorded as a liability in the accompanying consolidated statements of
financial condition. For the years ended December 31, 2003, 2002 and 2001,
mark-to-market gains (losses) of $307,000, ($176,000) and ($1,503,000)
respectively, were recorded in the accompanying consolidated statements of
income related to swaps designated as trading.

Also, unrealized gains (losses) related to the fair value of swaps designated as
cash flow hedges amounting to approximately $3,638,000, ($9,975,000) and
($9,947,000) were recorded as part of other comprehensive income in the
consolidated statements of stockholders' equity at December 31, 2003, 2002 and
2001, respectively. The Company had no contemplated transactions or other events
that could result in the reclassification into earnings of gains or losses that
are reported in other comprehensive income.

The Company purchases various interest rate caps to limit its exposure to rising
interest rates. Under these agreements, the Company pays an up front premium or
fee for the right to receive cash flow payments in excess of the predetermined
cap rate; thus, effectively capping its interest rate cost for the duration of
the agreement.

The following table summarizes interest rate caps outstanding at December 31,
2003 (dollars in thousands).

<TABLE>
<CAPTION>
Notional
 Amount        Maturity Date         Corridor      Fair Value
--------       -------------         --------      ----------
<S>            <C>                   <C>           <C>
$ 50,000       May 2008               4%-7%         $ 1,079

  25,000       July 2008              4%-7%             579

  25,000       September 2008         4%-7%             626

  50,000       September 2008         4%-6%           1,013
</TABLE>

As of December 31, 2003, the Company has designated these interest rate cap
agreements as trading derivatives. The fair value of the interest rate caps,
totaling approximately $3,297,000, has been recorded as other assets in the
accompanying consolidated statements of financial condition; changes in the fair
value of the interest rate caps are reported as trading gains or losses in the
consolidated statements of income. Trading losses during 2003 related to
interest rate cap agreements amounted to approximately $135,000; no gains or
losses were recorded in 2002 or 2001.

23. SUPPLEMENTAL INFORMATION ON BUSINESS COMBINATION

As discussed on Note 1 to the consolidated financial statements, on June 7, 2002
the Company acquired 100% of the common stock of The Crown Group, Inc. and its
wholly-owned federal savings bank subsidiary, Crown Bank, F.S.B., for an
aggregate of $100 million in cash. The condensed balance sheet of the acquired
entity detailing the amounts assigned to each major asset and liability at the
time of acquisition follows:

<TABLE>
<CAPTION>
                                           (Dollars in thousands)
                                           ----------------------
<S>                                        <C>
ASSETS

Cash                                           $  36,321
Loans held for sale                               14,721
Investment securities                             80,585
Loans receivable, net                            464,774
Premises and equipment                            12,899
Other assets                                     103,045
                                               ---------
                                               $ 712,345
                                               =========
LIABILITIES AND STOCKHOLDER'S EQUITY

Deposits                                       $ 468,138
Borrowings                                       138,203
Other liabilities and accrued expenses             6,004
Stockholder's equity                             100,000
                                               ---------
                                               $ 712,345
                                               =========
</TABLE>

P. 80
<PAGE>

The supplemental pro forma consolidated income statement information as though
the business combination had been completed as of January 1, 2001 follows:

<TABLE>
<CAPTION>
                                                      Year ended December 31, (dollars in thousands except for per share data)
                                                      ------------------------------------------------------------------------
                                                                           2002                    2001
                                                                  ----------------------  ----------------------
                                                                  As reported  Pro forma  As reported  Pro forma
                                                                  -----------  ---------  -----------  ---------
<S>                                                               <C>          <C>        <C>          <C>
Net interest income after provision for loan losses                $135,069    $141,206    $ 85,920    $ 98,126
Non-interest income                                                 149,170     153,567     109,047     120,396
                                                                   --------    --------    --------    --------
Total revenues                                                     $284,239    $294,773    $194,967    $218,522
                                                                   --------    --------    --------    --------
Non-interest expenses                                              $159,238    $170,784    $107,072    $130,559
                                                                   --------    --------    --------    --------
Income before extraordinary items and cumulative
   effect of change in accounting principle                        $ 96,342    $ 95,678    $ 66,294    $ 66,351
                                                                   --------    --------    --------    --------
Net income                                                         $ 96,342    $ 95,678    $ 65,971    $ 66,028
                                                                   --------    --------    --------    --------
Earnings per common share before cumulative
   effect of change in accounting principle:
   Basic                                                           $   1.67    $   1.66    $   1.26    $   1.26

   Diluted                                                         $   1.66    $   1.65    $   1.23    $   1.23

Earnings per common share:
   Basic                                                           $   1.67    $   1.66    $   1.25    $   1.25

   Diluted                                                         $   1.66    $   1.65    $   1.22    $   1.23
</TABLE>

24. SUPPLEMENTAL INCOME STATEMENT INFORMATION

Employee costs and other administrative and general expenses are shown in the
Consolidated Statements of Income net of direct loan origination costs. Direct
loan origination costs are capitalized as part of the carrying cost of mortgage
loans and are offset against mortgage loan sales and fees when the loans are
sold, or amortized as a yield adjustment to interest income on loans held for
investment.

Total employee costs and other expenses before capitalization follow:

<TABLE>
<CAPTION>
                                                            Year Ended December  31,
                                              --------------------------------------------------------
                                                  2003                 2002                   2001
                                              ------------         ------------           ------------
<S>                                           <C>                  <C>                    <C>
Employee costs                                $  99,385,815        $ 71,829,758           $ 56,181,507
                                              -------------        ------------           ------------
Other administrative and general expenses     $ 138,350,638        $ 99,785,058           $ 62,000,927
                                              -------------        ------------           ------------
</TABLE>

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 81
<PAGE>

Set forth below are the direct loan origination costs that were capitalized as
part of the carrying cost of mortgage loans inventory or offset against mortgage
loan sales and fees and interest income.

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                     ------------------------------------------
                                                         2003           2002            2001
                                                     ------------   ------------   ------------
<S>                                                  <C>                  <C>            <C>
Offset against mortgage loan sales and fees          $ 10,099,266   $ 11,072,074   $  6,263,810
                                                     -----------    ------------   ------------
Offset against interest income on loans              $  7,097,732   $  4,603,135   $  4,243,213
                                                     ------------   ------------   ------------
Capitalized as part of loans held for sale and
loans held for investment                            $ 25,468,836   $ 16,332,620   $ 17,251,866
                                                     ------------   ------------   ------------
</TABLE>

25. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments is the amount at which the instruments
may be exchanged in a current transaction between willing parties. The estimated
fair value of the Company's financial instruments as of December 31 are as
follows:

<TABLE>
<CAPTION>
                                                           December 31, (dollars in thousands)
                                                   ----------------------------------------------------
                                                             2003                       2002
                                                   ------------------------    ------------------------
                                                   Amortized       Fair        Amortized       Fair
                                                     cost          value          cost         value
                                                   ----------    ----------    ----------    ----------
<S>                                                <C>           <C>           <C>           <C>
FINANCIAL ASSETS

Cash and due from banks                            $  114,916    $  114,916    $  128,086    $  128,086
Time deposits with other banks                         34,349        34,349        65,401        65,401
Securities purchased under agreements to resell        85,052        85,052             -             -
Mortgage loans held for sale                          315,691       324,586       258,738       265,502
Mortgage-backed securities held for trading            38,355        38,355        74,757        74,757
Investment and mortgage-backed securities
     available for sale                             3,020,647     3,020,647     2,472,576     2,472,576
Investment in Federal Home Loan Bank stock            100,461       100,461        84,337        84,337
Investment and mortgage-backed securities
     held to maturity                                  78,200        80,188        75,591        76,810
Loans, net                                          4,048,507     4,180,796     2,759,689     2,928,281
Accounts receivable and accrued interest               80,722        80,722        72,501        72,501
Trading derivative instruments                          3,297         3,297             -             -

FINANCIAL LIABILITIES

   Deposits:
     Non-interest bearing demand                   $  394,273    $  394,273    $  390,355    $  390,355
     Savings and NOW accounts                         896,809       848,176       764,534       768,926
     Certificates of deposit                        2,264,683     2,272,114     1,647,435     1,669,561
Securities sold under agreements to repurchase      2,220,795     2,213,759     1,489,758     1,513,860
Notes payable                                         192,259       192,259       194,607       194,607
Advances from FHLB                                  1,129,600     1,132,664       940,725       977,339
Other borrowings                                      157,670       158,098        45,065        45,343
Accounts payable and accrued liabilities              158,006       158,006       134,426       134,426
Trading derivative instruments                          1,278         1,278         1,584         1,584
Derivative instruments accounted for as cash
     flow hedges                                       14,373        14,373        18,011        18,011
Forward sales commitments                                  12            12             -             -
</TABLE>

P.82

<PAGE>

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

SHORT-TERM FINANCIAL INSTRUMENTS

Short-term financial instruments, which include cash and due from banks, money
market investments, securities purchased under agreements to resell, accounts
receivable and accrued interest, a portion of securities sold under agreements
to repurchase, warehousing lines included in notes payable and accounts payable
and accrued interest, have been valued at their carrying amounts reflected in
the Consolidated Statements of Financial Condition as these are reasonable
estimates of fair value given the relatively short period of time between
origination of the instruments and their expected realization.

INVESTMENT SECURITIES

The fair value of investment securities is based on quoted market prices or
dealer quotes except for the investments in FHLB stock which is valued at its
redemption value.

LOANS

The fair value for loans has been estimated for groups of loans with similar
financial characteristics. Loans were classified by type such as commercial,
commercial real estate, residential mortgage, and consumer. These asset
categories were further segmented into various maturity groups, and by accruing
and non-accruing groups. The fair value of accruing loans was calculated by
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. Prepayment experienced in previous periods when interest rates were at
levels similar to current levels was assumed to occur for mortgage loans,
adjusted for any differences in the outlook of interest rates. Other loans
assume little or no prepayments.

Non-accruing loans were assumed to be repaid after one year. Presumably this
would occur either because the loan is repaid or collateral has been sold to
satisfy the loan. The value of non-accruing loans was therefore discounted for
one year at the going rate for new loans.

Mortgage loans held for sale have been valued based on market quotations or
committed selling prices in the secondary market. Loans held for sale from the
Bank have been valued using the same methodology described in the first
paragraph above.

DEPOSITS

The fair value of deposits with no stated maturity, such as non-interest bearing
checking accounts, is equal to the amount payable on demand. The fair value of
savings, money market and NOW accounts, as well as certificates of deposit, is
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities.

The fair value estimates of deposits do not include the fair value of core
deposits intangible.

BORROWINGS

The fair value of non short-term securities sold under agreements to repurchase,
notes payable, advances from FHLB, trust preferred securities and other
borrowings, was determined using discounted cash flow analysis over the
remaining term of the obligations using market rates for similar instruments.

INTEREST RATE SWAP AND CAP AGREEMENTS

The fair value of interest rate swap and cap agreements was determined taking
into account interest rates at December 31, 2003 and 2002. This value represents
the estimated amount the Company would pay to terminate the contract or
agreement taking into account current interest rates and, when appropriate, the
current credit worthiness of the counterparties.

LIMITATIONS

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.

In addition, the fair values presented do not attempt to estimate the value of
the Company's fee generating businesses and anticipated future business
activities, that is, they do not represent the Company's value as a going
concern. Furthermore, the differences between the carrying amounts and the fair
values presented may not be realized since, in many cases, the Company generally
intends to hold these financial instruments to maturity and realize the recorded
values.

Reasonable comparability of fair values among financial institutions is not
likely due to the wide range of permitted valuation techniques and numerous
estimates that must be made in the absence of secondary market prices. This lack
of objective pricing standards introduces a greater degree of subjectivity to
these derived or estimated fair values. Therefore, while disclosure of estimated
fair values of financial instruments is required, readers are cautioned in using
this data for purposes of evaluating the financial condition of the Company.

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 83

<PAGE>

26. R-G FINANCIAL CORPORATION (HOLDING COMPANY ONLY) FINANCIAL INFORMATION

The following condensed financial information presents the financial position of
R-G Financial Corporation (the "Holding Company") only as of December 31, 2003
and 2002 and the results of its operations and its cash flows for each of the
three years ended on December 31, 2003:

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                 ----------------------------
STATEMENTS OF FINANCIAL CONDITION                                                    2003           2002
---------------------------------                                                ------------    ------------
<S>                                                                              <C>             <C>
ASSETS

Cash                                                                             $ 25,923,299    $ 16,213,087
Mortgage-backed and investment securities held to maturity, at amortized cost
   (market value: 2003 - $27,372,667; 2002 - $35,739,706)                          26,773,215      35,166,516
Investment securities available for sale, at fair value                                     -          48,617
Investment in preferred stocks of subsidiaries                                    100,000,000               -
Investment in R-G Premier Bank, at equity                                         359,136,821     341,344,348
Investment in R-G Acquisition Holdings Corporation, at equity                     103,320,713      87,441,650
Investment in R-G Mortgage, at equity                                             226,365,947     188,519,169
Investment in Home & Property Insurance Corp., at equity                           13,715,386       8,221,475
Investment in R-G Investment Corporation, at equity                                 5,523,089       4,439,908
Investment in R-G International Corp., at equity                                    1,496,450         500,000
Investment in R-G Portfolio Management Corporation, at equity                       1,000,000               -
Investment in R-G Capital Trust III common stock                                    3,092,783               -
Accrued interest receivable                                                           257,465         174,029
Accounts receivable - subsidiaries                                                  9,038,109      11,219,953
Other assets                                                                        4,928,411         148,371
                                                                                 ------------    ------------
   Total assets                                                                  $880,571,688    $693,437,123
                                                                                 ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY

Advances from subsidiaries                                                       $ 26,492,245    $ 30,381,040
Other liabilities and accrued expenses                                                634,033         837,905
Long-term debt                                                                    103,092,783               -
Stockholders' equity                                                              750,352,627     662,218,178
                                                                                 ------------    ------------
   Total liabilities and stockholders' equity                                    $880,571,688    $693,437,123
                                                                                 ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                             Year Ended December  31,
                                                  --------------------------------------------
STATEMENTS OF INCOME                                  2003            2002            2001
--------------------                              ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Income:
   Interest income                                $  1,735,106    $  2,428,039    $  1,006,040
   Dividend income on preferred stock
     from subsidiaries                               1,544,444               -               -
   Other                                             1,157,956         902,558         549,382
                                                  ------------    ------------    ------------
                                                     4,437,506       3,330,597       1,555,422

Operating expenses                                   2,595,194         820,507         503,496
                                                  ------------    ------------    ------------
Income before income taxes and equity
   earnings in unconsolidated subsidiaries           1,842,312       2,510,090       1,051,926
Income taxes                                            41,867          25,000          17,803
                                                  ------------    ------------    ------------
Income before equity earnings
   in unconsolidated subsidiaries                    1,800,445       2,485,090       1,034,123
Equity earnings in unconsolidated subsidiaries:
   Bank                                             73,659,269      49,768,507      37,653,767
   Non-bank                                         55,563,851      44,088,559      27,282,953
                                                  ------------    ------------    ------------
Net income                                        $131,023,565    $ 96,342,156    $ 65,970,843
                                                  ============    ============    ============
</TABLE>

The Holding Company had no operations during the years ended December 31, 2003,
2002 and 2001.

The principal source of income for the Holding Company consists of dividends
from R-G Premier Bank of Puerto Rico and R-G Mortgage Corp.

The payment of dividends by the Bank to the Holding Company may be affected by
certain regulatory requirements and policies, such as the maintenance of certain
minimum capital levels.

P.84

<PAGE>

<TABLE>
<CAPTION>
                                                                       Year Ended December   31,
                                                            -------------------------------------------------
STATEMENTS OF CASH FLOWS                                        2003               2002              2001
------------------------                                    -------------     -------------     -------------
<S>                                                         <C>               <C>               <C>
Cash flows from operating activities:

   Net income                                               $ 131,023,565     $  96,342,156     $  65,970,843
   Adjustments to reconcile net income to cash
   (used in) provided by operating activities:
   Amortization of premium on investment securities               140,029           136,376                 -
   Equity earnings in unconsolidated subsidiaries            (129,223,120)      (93,857,066)      (64,936,720)
   (Increase) decrease in accounts
     receivable - subsidiaries                                  2,181,844         4,039,289       (15,241,378)
   (Increase) decrease in other assets                         (1,243,026)          197,226          (353,839)
   (Decrease) increase in other liabilities and
     accrued expenses                                            (204,623)          665,656            41,237
                                                            -------------     -------------     -------------
   Total adjustments                                         (128,348,896)      (88,818,519)      (80,490,700)
                                                            -------------     -------------     -------------
   Net cash provided by (used in)
     operating activities                                       2,674,669         7,523,637       (14,519,857)
                                                            -------------     -------------     -------------
Cash flows from investing activities:
   Purchase of investment securities                          (10,446,728)      (25,613,272)      (36,382,555)
   Proceeds from sales of investment securities
     available for sale                                            48,617        21,599,255                 -
   Principal repayments on and redemptions of
     investment securities                                     18,700,000         4,750,000           295,063
   Investment in R-G Portfolio Management Corporation          (1,000,000)                -                 -
   Investments in R-G Acquisition Holdings
     Corporation common stock                                 (15,794,596)      (94,551,561)                -
   Investments in Home & Property common stock                          -                 -        (1,500,000)
   Investments in R-G Premier common stock                    (15,000,000)      (31,199,569)      (35,000,000)
   Investments in R-G Investment Corporation
     common stock                                              (1,200,000)       (5,000,000)       (1,500,000)
   Investments in R-G International Corp. common stock         (1,000,000)                -          (500,000)
   Investment in preferred stocks of subsidiaries            (100,000,000)                -                 -
   Dividends on common stock from subsidiaries                 70,895,120        25,957,877        17,817,222
                                                            -------------     -------------     -------------
   Cash used in investing activities                          (54,797,587)     (104,057,270)      (56,770,270)
                                                            -------------     -------------     -------------
Cash flows from financing activities:
   Issuance of common stock                                       237,495        46,132,787        32,877,745
   Net proceeds from issuance of long-term debt                96,379,550                 -                 -
   Net proceeds from issuance of preferred stock                        -        66,590,747        66,601,925
   Cash dividends                                             (30,895,120)      (25,957,877)      (17,817,222)
   Net (repayments) advances from subsidiaries                 (3,888,795)       (3,795,960)       19,177,000
                                                            -------------     -------------     -------------
   Net cash provided by financing activities                   61,833,130        82,969,697       100,839,448
                                                            -------------     -------------     -------------
Net increase (decrease) in cash                                 9,710,212       (13,563,936)       29,549,321
Cash at beginning of year                                      16,213,087        29,777,023           227,702
                                                            -------------     -------------     -------------
Cash at end of year                                         $  25,923,299     $  16,213,087     $  29,777,023
                                                            =============     =============     =============
</TABLE>

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 85


<PAGE>

27. INDUSTRY SEGMENTS

The following summarized financial information presents the results of the
Company's operations for each of the three years ended December 31, 2003 for its
traditional banking and mortgage banking activities:

<TABLE>
<CAPTION>
                                                                             2003
                                                ------------------------------------------------------------
                                                                  Mortgage                         Segment
                                                   Banking        Banking          Other           Totals
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
REVENUES:
Net interest income after provision for
   loan losses                                  $152,469,668    $ 14,485,254    $    757,332    $167,712,254
Non-interest income:
   Net gain on origination and sale of loans      46,402,174     101,952,232               -     148,354,406
   Loan administration and servicing fees                  -      51,107,371               -      51,107,371
   Service charges, fees and other                13,242,460       1,303,029      15,947,343      30,492,832
                                                ------------    ------------    ------------    ------------
                                                 212,114,302     168,847,886      16,704,675     397,666,863
                                                ------------    ------------    ------------    ------------
NON-INTEREST EXPENSES:
Employee compensation and benefits                37,114,036      23,325,742       3,145,100      63,584,878
Office occupancy and equipment                    17,034,918       7,336,946         389,069      24,760,933
Other                                             41,512,287      90,086,039       2,357,101     133,955,427
                                                ------------    ------------    ------------    ------------
                                                  95,661,241     120,748,727       5,891,270     222,301,238
                                                ------------    ------------    ------------    ------------
Income before income taxes                      $116,453,061    $ 48,099,159    $ 10,813,405    $175,365,625
                                                ============    ============    ============    ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                          -------------------------------------------------
                                              2003              2002             2001
                                          -------------     -------------     -------------
<S>                                       <C>               <C>               <C>
Revenues:
Total revenues for reportable segments    $ 397,666,863     $ 286,296,191     $ 199,081,343
Elimination of intersegment revenues         (6,154,677)       (4,460,799)       (5,120,252)
Corporate revenues                            1,714,669         2,404,008         1,006,040
                                          -------------     -------------     -------------
Total consolidated revenues               $ 393,226,855     $ 284,239,400     $ 194,967,131
                                          =============     =============     =============
</TABLE>

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                ------------------------------------------------
                                                    2003              2002             2001
                                                -------------     -------------    -------------
<S>                                             <C>               <C>              <C>
Income before income taxes:
Total income before income taxes for
   reportable segments                          $ 175,365,625     $ 123,258,403    $  88,484,896
Elimination of intersegment (profits) costs        (1,106,751)          159,611       (1,092,364)
Unallocated corporate (expenses) income, net         (863,571)        1,583,501          502,544
                                                -------------     -------------    -------------
Income before income taxes, consolidated        $ 173,395,303     $ 125,001,515    $  87,895,076
                                                =============     =============    =============
</TABLE>

P.86


<PAGE>

<TABLE>
<CAPTION>
                                                                        2002
                                              ------------------------------------------------------
                                                              Mortgage                    Segment
                                                 Banking      Banking        Other         Totals
                                              ------------  ------------  ------------  ------------
<S>                                           <C>           <C>           <C>           <C>
REVENUES:
Net interest income after provision for
   loan losses                                $114,393,807  $ 18,428,547  $      9,290  $132,831,644
Non-interest income:
   Net gain on origination and sale of loans    23,741,648    61,796,484             -    85,538,132
   Loan administration and servicing fees                -    49,038,894             -    49,038,894
   Service charges, fees and other               8,621,984     1,993,029     8,272,508    18,887,521
                                              ------------  ------------  ------------  ------------
                                               146,757,439   131,256,954     8,281,798   286,296,191
                                              ------------  ------------  ------------  ------------
NON-INTEREST EXPENSES:
Employee compensation and benefits              25,887,852    17,723,778     1,632,746    45,244,376
Office occupancy and equipment                  12,900,045     6,372,644       358,209    19,630,898
Other                                           28,997,949    67,804,660     1,359,905    98,162,514
                                              ------------  ------------  ------------  ------------
                                                67,785,846    91,901,082     3,350,860   163,037,788
                                              ------------  ------------  ------------  ------------
Income before income taxes                    $ 78,971,593  $ 39,355,872  $  4,930,938  $123,258,403
                                              ============  ============  ============  ============
<CAPTION>
                                                                      2001
                                              ------------------------------------------------------
                                                              Mortgage                    Segment
                                                Banking       Banking       Other         Totals
                                              ------------  ------------  ------------  ------------
<S>                                           <C>           <C>           <C>           <C>
REVENUES:
Net interest income after provision for
   loan losses                                $ 71,695,814  $ 13,582,462  $          -  $ 85,278,276
Non-interest income:
   Net gain on origination and sale of loans    27,391,951    35,119,978             -    62,511,929
   Loan administration and servicing fees                -    35,935,370             -    35,935,370
   Service charges, fees and other               7,879,251     2,655,998     4,820,519    15,355,768
                                              ------------  ------------  ------------  ------------
                                               106,967,016    87,293,808     4,820,519   199,081,343
                                              ------------  ------------  ------------  ------------
NON-INTEREST EXPENSES:
Employee compensation and benefits              16,514,946    16,071,621       703,805    33,290,372
Office occupancy and equipment                  10,654,129     5,848,499       145,882    16,648,510
Other                                           20,516,364    39,540,600       600,601    60,657,565
                                              ------------  ------------  ------------  ------------
                                                47,685,439    61,460,720     1,450,288   110,596,447
                                              ------------  ------------  ------------  ------------
Income before income taxes                    $ 59,281,577  $ 25,833,088  $  3,370,231  $ 88,484,896
                                              ============  ============  ============  ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                    December 31,
                                        -----------------------------------
                                             2003               2002
                                        ---------------     ---------------
<S>                                     <C>                 <C>
Assets:

Banking                                 $ 7,387,475,155     $ 5,453,320,931
Mortgage Banking                            890,022,358         908,660,313
Other                                       168,294,162         111,004,542

Total assets for reportable segments      8,445,791,675       6,472,985,786
Parent company assets                        66,920,499          62,970,573
Elimination of intersegment balances       (313,832,667)       (258,710,678)
                                        ---------------     ---------------
Consolidated total assets               $ 8,198,879,507     $ 6,277,245,681
                                        ===============     ===============
</TABLE>

                                          R-G FINANCIAL 2003 ANNUAL REPORT P. 87

<PAGE>

28. QUARTERLY FINANCIAL DATA (UNAUDITED):

Following is a summary of selected financial information of the unaudited
quarterly results of operations. In the opinion of management, all adjustments
necessary for a fair presentation have been made.

<TABLE>
<CAPTION>
                                           (dollars in thousands, except for per share data)
                                        ------------------------------------------------------
                                                                 2003
                                         March 31       June 30        Sept. 30       Dec. 31
                                         --------       -------        --------       -------
<S>                                     <C>            <C>            <C>            <C>
Interest income                         $  88,256      $  92,558      $  95,347      $ 102,017
Interest expense                          (46,035)       (47,989)       (47,604)       (48,567)
                                        ---------      ---------      ---------      ---------
Net interest income                        42,221         44,569         47,743         53,450
Provision for loan losses                  (4,220)        (4,444)        (4,292)        (5,600)
                                        ---------      ---------      ---------      ---------
Income before income taxes                 38,548         42,052         45,644         47,151
Income tax expense                         (9,407)       (10,602)       (11,352)       (11,011)
                                        ---------      ---------      ---------      ---------
Net income                                 29,141         31,450         34,292         36,140
                                        =========      =========      =========      =========
Earnings per common share - Basic       $    0.49      $    0.54      $    0.59      $    0.64
Earnings per common share - Diluted     $    0.49      $    0.54      $    0.59      $    0.63
</TABLE>

<TABLE>
<CAPTION>
                                         (dollars in thousands, except for per share data)
                                        ---------------------------------------------------
                                                                2002
                                         March 31      June 30       Sept. 30      Dec. 31
                                         --------      -------       --------      -------
<S>                                     <C>           <C>           <C>           <C>
Interest income                         $ 72,719      $ 77,615      $ 88,912      $ 91,615
Interest expense                         (40,714)      (41,566)      (47,602)      (47,890)
                                        --------      --------      --------      --------
Net interest income                       32,005        36,049        41,310        43,725
Provision for loan losses                 (5,000)       (4,550)       (3,970)       (4,500)
                                        --------      --------      --------      --------
Income before income taxes                27,695        29,337        32,067        35,903
Income tax expense                        (6,162)       (6,718)       (7,019)       (8,761)
                                        --------      --------      --------      --------
Net income                                21,533        22,619        25,048        27,142
                                        ========      ========      ========      ========
Earnings per common share - Basic       $   0.39      $   0.40      $   0.43      $   0.45
Earnings per common share - Diluted     $   0.39      $   0.39      $   0.42      $   0.45
</TABLE>

P. 88
<PAGE>
GENERAL INQUIRIES & REPORTS

R-G Financial is required to file an annual report on Form 10K for its fiscal
year ended December 31, 2003 with the Securities and Exchange Commission. Copies
of its Annual Report and Quarterly Reports may be obtained without charge
through our investors relations page in our website or by contacting our
Investor Relations Department, Attention Ms. Llamara Cruz at 787-756-2801.

STOCK LISTINGS

Common
  RGF-NYSE

Preferred
  RGFCP-NASDAQ
  RGFCO-NASDAQ
  RGFCN-NASDAQ
  RGFCM-NASDAQ

At December 31, 2003, the Company had 149 stockholders of record, which does
not take into consideration approximately 6,000 investors who hold their stock
through brokerage and other firms. The high and low prices and dividends paid
per share for the Company's Class B common stock during each quarter of the last
two fiscal years, adjusted for our 3 for 2 stock split paid in January 2004,
were as follows:


<TABLE>
<CAPTION>
                    MAR 31       JUN 30    SEPT 30     DEC 31    MAR 31    JUN 30      SEPT 30    DEC 31
                     2003         2003       2003       2003      2002      2002         2002       2002
                    ------       ------    -------     ------    ------    ------      -------    ------
<S>                 <C>          <C>        <C>        <C>       <C>       <C>          <C>        <C>
High                 15.46        20.23      21.85      26.73     14.77     16.83        15.93      16.62
Low                  14.43        14.82      18.10      19.93     10.93     12.55        12.73      13.00
Dividends Paid      0.0657       0.0707     0.0760     0.0817    0.0510    0.0542       0.0576     0.0613
</TABLE>
                                                                     P. 90