<PAGE>
                                                                    EXHIBIT 13.0

                                    [PHOTO]

2002:

A year that will stand out in the history of R-G Financial Corporation. This is
the year in which we celebrated 30 years of successful financial services in
Puerto Rico; expanded and consolidated operations in the US mainland; and
entered the New York Stock Exchange.

These key elements confirm that there are no limitations to what we can do. They
set the stage for future growth, solid relationships and value to each of our
shareholders.


                                                                               1
<PAGE>

                  Table of Contents


Financial Highlights                                           3
Mission                                                        6
Letter to Stockholders                                         7
Business Profile                                              12
Economic Outlook                                              15
The Value of Performance                                      16
The Value Ahead                                               20
The Value of Products                                         22
The Value of Expansion                                        24
Affordable Housing and Community Involvement                  27
Board of Directors                                            30
Management Team                                               32
Selected Consolidated Financial                               33
  and other data of R-G Financial
Report of Independent Accountants                             57
Stockholder Information                                       97

                                    [PHOTO]


2
<PAGE>

Financial highlights


<TABLE>
<CAPTION>
                                             % increase               (Dollars in Thousands, except for per Share Data)
                                             (decrease)      ----------------------------------------------------------------
                                               vs 2001           2002             2001              2000               1999
                                             ----------      ----------         ---------         ---------         ---------
<S>                                          <C>             <C>                <C>               <C>               <C>
Loan Production                                  19%          2,942,684         2,473,168         1,729,373         1,977,322
Gross Revenues                                   26             480,032           379,618           314,911           233,953
Net Earnings                                     46              96,342            65,971            43,633            41,335
Total Assets                                     35           6,277,246         4,664,394         3,539,444         2,911,993
Return on Assets                                  8                1.76%             1.63%             1.34%             1.72%
Servicing Portfolio                              52          10,991,944         7,224,571         6,634,059         6,177,511
Efficiency Ratio                                 (1)               52.7%             52.0%             56.0%             54.4%
Spread Income                                    58             153,089            97,045            64,987            56,578
Fee Income                                       37             149,171           109,047            79,310            70,811
Shareholders' Equity                             44             662,218           459,121           308,836           269,535
Common Shareholders' Equity per Share            31               13.21             10.07              8.16              6.79
Return on Common Equity                           5               21.77%            20.77%            18.00%            20.23%
Diluted Earnings per Common Share                36                2.49              1.83              1.30              1.28
Cash Dividends Declared per Common Share         27               0.336             0.264             0.203             0.149
Market Value per Share                           36               23.25             17.14             14.25             11.50
</TABLE>

                                                                         [PHOTO]


                                                                               3

<PAGE>

[PHOTO]

[BAR CHARTS]



REVENUES (000'S)

2002                           $   480,032
2001                           $   379,618
2000                           $   314,911
1999                           $   233,953
1998                           $   180,767

NET INCOME (000'S)

2002                           $    96,342
2001                           $    65,971
2000                           $    43,633
1999                           $    41,034
1998                           $    34,034

LOAN PORTFOLIO (000'S)

2002                           $2,759,689
2001                           $1,802,388
2000                           $1,631,276
1999                           $1,563,007
1998                           $1,073,668


4

<PAGE>
[BAR CHARTS]

STOCKHOLDERS EQUITY (000'S)

2002                           $   662,218
2001                           $   459,121
2000                           $   308,836
1999                           $   269,535
1998                           $   221,162


ASSETS (000'S)

2002                           $ 6,277,246
2001                           $ 4,664,394
2000                           $ 3,539,444
1999                           $ 2,911,993
1998                           $ 2,044,782


DEPOSITS (000'S)

2002                           $ 2,802,324
2001                           $ 2,061,224
2000                           $ 1,676,062
1999                           $ 1,330,506
1998                           $ 1,007,297


o "Core"     o "Non-core"


                                                                               5

<PAGE>

MISSION

We will strive for long-term financial strength and profitability by centering
our strategy on customer satisfaction, being our customers' first choice for
service and solutions.

We will provide competitive prices, a variety of loan programs and service which
is prompt, courteous and responsive to the unique characteristics of every
customer.

The key to our success is effective execution, every day,everywhere.By everyone.


6

<PAGE>

TO OUR STOCKHOLDERS                                                      [PHOTO]

In 2002 R-G Financial celebrated 30 years of service, fulfilling the financial
needs of the people of Puerto Rico. Three decades of uninterrupted dedication,
providing innovative products and advanced technology, through a workforce of
outstanding people who provide excellent quality services to our clientele. No
matter the economic cycle which we encounter, either with high or low interest
rates, either with a booming or a stagnant economy, R-G has always been present,
committed to providing the best financial alternative to our clients on a
consistent basis. It has been a road filled with challenges and opportunities.
One we have traveled with a commitment to grow, focused on the high quality
products, services and people that today's consumers need and expect.

But 2002 was much more than our 30th anniversary. It marked our entry to the New
York Stock Exchange. This move was a fundamental element in our goal to excel in
every aspect of our corporate existence. It gives us the best access to the
world's capital markets, added visibility to our shares, plus credibility and
confidence. Our entrance to the NYSE added value, in many ways, to the stock of
R-G.

Our day-to-day commitment to grow continues with the same intensity and strength
that we had the first day that we organized R-G Financial, in which we commenced
with a small office and five employees, and a nominal amount of capital. Today
R-G Financial has a market cap in excess of $800 million, and the valuation
consensus of our stock analysts estimate values close to a billion dollars in
the near future. With about 2,000 employees in Puerto Rico and the United
States, all our staff is imbued with the same working ethics that we had on that
opening day of February 1972. We are still the same, and nothing has changed
despite our substantial growth. We have been Creating Stockholder Value during
the past 30 years and we will use our best efforts to continue to do so in the
future.

This total dedication to provide the best quality services has allowed us to
increase our profitability and improve the value of our stock. Our stock has now
returned 478% to any stockholder who participated in our initial public offering
in August 1996, and has provided excellent returns for those shareholders who
participated in our two subsequent secondary issues as well.


                                                                               7

<PAGE>

In 2002, we reaffirmed our position as one of the top performers in the Puerto
Rico banking market, and developed the strategies for continued growth while
increasing earnings. True to providing the best value to our stockholders, we
maintained our emphasis on strong asset quality, high-income earning products
and record mortgage production, combined with a strategy designed to control
costs and heighten efficiency. Even though the economy experienced a slow down,
it favored financial institutions like ours, as interest rates went down to
levels not seen during the last 40 years.

This market situation together with our substantial growth in commercial,
consumer and construction lending, increased our total organic loan production
to about $3 billion, while our total assets grew to more than $6.2 billion.

The Company's recurring earnings in creased 46% against our prior year with
total net profits after taxes in the amount of $96 million. Our total assets
increased 35% to $6.3 billion, while our return on assets improved to 1.76%. Our
total capitalization increased to $662 million, returning a record yield of 22%
to our common equity despite a tier 1 capital ratio of 9.80%, well above the
minimum required by our regulators. Our fee income increased 37% to $150 million
due mainly to a record servicing portfolio of $11 billion, and our spread income
increased 58% to $153 million.

About three years ago we decided to replicate our successful business model in
Puerto Rico in the continental United States. We targeted Central Florida as the
best area to enter the US market due to their economic fundamentals and strong
demographics, together with a significant presence of Hispanic (predominantly
Puerto Rican) communities living in the area. The economic corridor going from
Cape Canaveral, to Central Orlando, to Tampa and the West Coast of Florida, is a
magnet that attracts newcomers to the area, with expanding economic activity
around the recreational business in which Disney, combined with tourism and
migration, is the revolving center. Florida is among the three largest
residential markets in the United States. The acquisition of Crown Bank during
the second quarter of 2002, a Florida federally-chartered financial institution
(which allows us to do banking in any part of the United States), represented
not only the addition of $700 million in assets, but also a presence across the
Central Florida territory with 15 branches and a significant number of clients.
The ultimate goal of this acquisition is to expand our operation in the
continental United States to the same level and asset size that we have in
Puerto Rico, creating another significant source of profits for our operation.


8

<PAGE>

We have combined our mortgage banking operation in New York with our Florida
bank, replicating the same organizational structure that we have in Puerto Rico,
where we have established a niche market in residential lending while offering
financial services to our clients with a diversity of products delivered with
very strong service quality.

[PHOTO]

Subsequent to the acquisition, we opened additional mortgage lending offices in
Orlando and Daytona, and expanded our commercial offices to Tampa, the Volusia
County and New York, and will continue opening new mortgage lending branches
while we continue doing business in our existing commercial and mortgage centers
located in Tennessee, Phoenix, Los Angeles, North Carolina, and New York. We
have established Florida as the core center of our banking business in the
continental United States, poised for continued expansion. We believe that this
market offers the best growth opportunities for real estate lending in the
continental United States. From Central Florida, we can expand either North to
Jacksonville, Daytona, and the Panhandle, or along the Eastern Coast of the US,
or South to West Palm Beach, Fort Lauderdale and Miami, all areas with strong
availability of low-cost deposits also, that will help us finance our growth
across these markets. Other strategic initiatives added strength and depth to
the Company. These include our expansion in commercial and construction lending,
in which our total portfolio now exceeds $1.1 billion, and our growth in
fee-based operations, like insurance and securities brokerage, which represent
today about 5% of our total profits. At the same time, we expanded our
residential mortgage lending to record levels, allowing us to continue
increasing the size of our servicing portfolio. The servicing portfolio is a
source for cross-selling banking and other products. A good portion of our
mortgagors normally become permanent clients of R-G, by providing them their
other financial needs under the same roof.

We have expanded our tax-free securities to more than $1.9 billion, allowing us
to reduce our effective tax rate to 23%. At the same time, we grew the Company's
residential mortgage portfolio to $1.5 billion and increased our core deposits,
which now account for 65% of our total deposits. We continue to maintain a
minimum amount of brokered CDs, and have achieved a perfect match in our
asset-liability position, with no material imbalances or exposure to possible
interest rate changes. This is the result of our continued expansion in
commercial lending


                                                                               9

<PAGE>

(mostly through adjustable rate loans) and core deposits, which eliminated the
need to enter into new synthetic hedges during 2002, something that is expensive
at this time and sometimes does not work as intended. At the same time, we
extended the maturities of our advances from the FHL Bank and other borrowings
to longer periods, fixing our cost of funds and protecting our expanded net
interest margin for future periods, even if interest rates begin to rise,
minimizing our asset-liability imbalance and our exposure to interest rate risk.

Despite these increases in consumer and commercial lending, we continue being a
secured lender with close to 90% of our total loans collateralized with real
estate, reducing the credit exposure of our loan portfolio to a minimum. Our
loan loss reserves stand at $32.7 million, equivalent to 1.13% of total loans
(2.39% if we exclude residential loans in which losses continue to be minimal).

We foresee continued low interest rates for the remaining part of 2003 and very
strong demand for housing. The origination volumes for the first three months of
2003 already confirm our vision. The Government of Puerto Rico continues to
facilitate housing to a significant portion of the population, sponsoring
various programs such as Law 124, a subsidized interest rate mortgage program,
"The Key to your Home," a subsidy program to cover down payments and certain
other expenses related to the purchase of a house, and a new "Special
Communities Assistance Program" to improve the quality of life of more than 200
low-income communities in Puerto Rico, investing more than $ 1 billion dollars
in improving the infrastructure of their residences. R-G Financial is strongly
participating in many of these programs, providing residential lending to the
most needed families in Puerto Rico. I invite you to look at the section of our
report that covers all the different initiatives sponsored by R-G Financial to
this end, including participation in social interest programs. The projected
increases in new construction will result in additional future growth of the
Puerto Rico residential mortgage market, that is estimated exceeded $9 billion
in 2002.

Complementing customer value is customers' choice - making it easy for customers
to do business with R-G in the manner they prefer. During the year, we increased
the amount of banking branches in Puerto Rico to 29 with the opening of 4 new
locations, and have plans for 5 additional branches in 2003. We also increased
mortgage branches to 42. We have increased our Multichannel distribution for a
diverse customer base, tech-savvy or not. You can either visit our brick and
mortar branches, call our telephone center, or with a click of a bottom "enter"
into our


10

<PAGE>

Internet services - it is the customer's choice. We have all the different
channels of delivery available to our customers.

This fourth decade provides us with the opportunity to reaffirm our commitment
to R-G and all it represents, to build solid relationships toward the future,
and to continue creating an institution recognized for its integrity, growth and
value, and for the quality of its associates.

My strong ownership of the Company is fully dedicated and aligned with the
interest of other stockholders, seeking to increase profits, dividends and
return on capital, and continuously seeking new sources of future growth by
developing strategies and tactics to manage risk, improve earnings, capitalize
on growth opportunities, use the right technology and continuously build the
team that will grow the operation for the future. We understand this is the
winning formula to Create Stockholder Value.

We look forward to the beginning of our fourth decade of service with the same
energy, passion and commitment that has been our guiding light in the past,
elements that will lead to continue the expansion of our operation and Creating
Stockholder Value.



                                             /s/ Victor Galan
                                             ----------------------------
                                             Victor Galan
                                             Chairman of the Board and CEO

[PHOTO]


                                                                              11

<PAGE>

BUSINESS PROFILE


R-G Financial Group was organized in 1972 as R-G Mortgage Corp. In 1996 R-G
Financial was organized as a bank holding company, becoming public on August 22,
1996. As of December 31, 2002, R-G Financial had $6.3 billion in assets, and
operated banking and mortgage banking offices in 42 locations in Puerto Rico and
20 locations across New York, North Carolina and Florida, and six commercial
lending offices across the United States.

R-G Financial, as a holding company, is the fourth largest locally owned
financial institution in Puerto Rico. R-G Financial has the following financial
services companies: In Puerto Rico, R-G Premier Bank of Puerto Rico, R-G
Mortgage Corp., The Mortgage Store of Puerto Rico Inc., Home & Property
Insurance Corp. and R-G Investments Corporation; and in the continental United
States, Crown Bank, F.S.B. and Continental Capital Corporation, with operations
in Florida, North Carolina and New York.

R-G Financial manages the following portfolios:

-        $11.0 billion in servicing

-        $1.5 billion in residential mortgage loans

-        $1.0 billion in commercial real estate and construction loans

-        $152.7 million in commercial business loans and leases

-        $200.9 million in personal loans and credit cards.

Its $2.7 billion investment portfolio consists primarily of tax-exempt
mortgage-backed securities and US Government agency securities. Approximately
2,000 professionals and a state-of-the-art computer center support the
activities of the operations.

R-G Financial common stock is publicly traded on the NYSE under the symbol
"RGF," and its preferred stocks are in the NASDAQ Stock Market under the symbols
"RGFCP," "RGFCO," "RGFCN" and "RGFCM," respectively.

[PHOTO]


12

<PAGE>
[PHOTO]

SECURITIES BROKERAGE:               R-G Investments

BRANCH BANKING:                     R-G Premier Bank
                                    R-G International Bank
                                    Crown Bank

MORTGAGE BANKING:                   R-G Mortgage
                                    Mortgage Store of Puerto Rico
                                    Continental Capital

INSURANCE:                          Home & Property



                                                                              13

<PAGE>
[PHOTO]

[BAR CHARTS]

TOTAL LOAN PRODUCTION (000'S)

2002              $2,942,684
2001              $2,473,168
2000              $1,977,322
1999              $1,729,373
1998              $1,426,069


o Internal Originations    o Wholesale



MORTGAGE SERVICING
PORTFOLIO (000'S)

2002              $10,991,944
2001              $ 7,224,571
2000              $ 6,634,059
1999              $ 6,177,511
1998              $ 4,827,798

o Conventional and other loans    o FHA/VA loans


14

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ECONOMIC OUTLOOK


Even though the US economy remained stagnant and influenced the Puerto Rico
market, 2002 was a great year for most banks, who took advantage of low interest
rates, leading to record mortgage production, strong capital market activity and
the diversification of income producing sources. Assets held by 11 local banks
that serve Puerto Rico reached the $66.3 billion mark on June 30, 2002, a 19%
increase from $55.7 billion in 2001.

"...local financial stocks are one of the financial markets' best-kept secrets".
-Dick Grasso, NYSE Chairman & CEO

[PHOTO]

The third and fourth quarters of 2002 saw the first signs of an economic
recovery, with an increase in the number of construction permits approved and an
increase in the employment market. Favorable interest rates, a shortage in the
Island's housing market and affordable housing programs promoted strong activity
in the mortgage banking sector throughout 2002. According to the Planning Board
statistics, the number and value of construction permits issued in July through
October 2002 were up 15% and 21%, respectively, over the same period the year
before.

However, in 2002 the Puerto Rico economy had still not seen a solid recovery,
and geopolitical situations across the world, particularly in the Middle East,
continue to influence the markets.

Florida's economy is set to have a 3.5% increase in 2003, and a decrease in
unemployment to 3.5%, which should favorably influence our standing in this
market.


                                                                              15

<PAGE>

THE VALUE OF PERFORMANCE


When service, products and the commitment of expert people combine, we achieve
outstanding results and value for our Company:

-        $96.3 million net income

-        21.8% return on equity

-        $6.3 billion in total assets

-        1.8% return on assets

-        Record internal residential mortgage loan production of $2.0 billion;
         total loan production of $2.9 billion

-        $11.0 billion servicing portfolio

[PHOTO]

RESULTS IN EARNINGS & REVENUES

Earnings for 2002 rose to a record of $96.3 million, increasing 46% from 2001
earnings of $66.0 million.

-        On a per share basis (diluted), R-G Financial earned $2.49 in 2002,
         compared to $1.83 in 2001, an increase of 36%.

-        Total gross revenues amounted to $480.0 million, compared to $379.6
         million for 2001.

-        Net revenues (after deducting the cost of interest) were $302.3
         million, compared to $206.1 million in 2001.

-        Net interest income, totaling $153.1 million for 2002, was up by 58%
         from the 2001 level.

-        Servicing income increased to $47.2 million in 2002 from $33.9 million
         in 2001.

RESULTS IN DEPOSITS & ASSETS

-        Deposits increased by 36% to $2.8 billion, from $2.1 billion in 2001.

-        Total assets grew to a record $6.3 billion and our servicing portfolio
         increased to a record $11.0 billion. As a result, total assets under
         administration, including our servicing portfolio, increased to a
         record $17.3 billion during 2002, rising 45% from the prior year.


16

<PAGE>
[PHOTO]

30 YEARS OF R-G HISTORY

1972              1987               1990

Founded           Acquisition of     Acquisition of Guaynabo Federal
R-G Mortgage      United Mortgage    (today R-G Premier Bank)
                                     $52 million in assets at the time

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





-        New deposits with our Private Banking Group rose substantially, and
         will lead to additional business in 2003 as we provided other products
         and services to these customers, such as sale of investments, mutual
         funds, and savings and retirement products such as IRA's and Keogh
         plans, as we integrate the Group with our new securities broker-dealer.

-        R-G Premier's average per branch deposit size (retail) was $73.7
         million in 2002, exceeding the average per branch deposits in Puerto
         Rico.

-        Core deposits, primarily consisting of saving and direct deposit
         accounts, represented 65% of our total deposits (also above the average
         for the banking industry in Puerto Rico). Brokered deposits were only
         6% of our total deposits.

GROWTH & DIVIDENDS

-        Compounded annual growth rate for the period 1982-2002 was 35.3%, and
         33.1% for the period since August 22, 1996 when we became a public
         company. Since our initial public offering, we have generated
         additional capital for our shareholders of $312 million and increased
         assets by $5.2 billion, representing a total growth of 300% in capital
         and 500% in assets, while paying dividends to our common stockholders
         in the amount of $35.5 million.

-        We increased dividends to $0.34 per share from $0.26 in 2001. For the
         quarter ended December 31, 2002, the dividend was increased to $0.0985
         per share on an annual basis, a 28% annualized increase from the prior
         quarterly dividend.

-        Shareholders' equity of $662.2 million as of December 31, 2002 was up
         44% from $459.1 million in 2001.

-        Core capital represented 9.80% of our total assets, and risk-based
         capital represented 16.81% (on a consolidated basis), in each case,
         substantially exceeding the minimums required by our regulators.

-        We strengthened our credit loss reserves during the year, increasing
         the reserve for loan losses to $32.7 million, a 31% increase from the
         previous year. Reserves approximate 93.86% of total non-performing
         loans as of December 31, 2002,


                                                                              17

<PAGE>
30 YEARS OF R-G HISTORY

1993                    1995                          1996

Acquisition of          Acquisition of 7 branches     IPO - R-G Financial
Caribbean Federal       from another financial        Corporation
                        institution                   (NASDAQ listed)

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


         excluding our residential loan portfolio where losses have historically
         been minimal.

-        Charge-offs to total average loans outstanding were 0.41% in 2002.

-        At year-end, our unused lines of credit (including lines of credit with
         the Federal Home Loan Bank) totaled $724.2 million.

PRODUCT PORTFOLIO

Strategic planning and vision have allowed us to stay on top of financial
trends, and ahead of our competitors. We believe we have the right products and
services, which have resulted in increased earnings and a significant growth in
our portfolios.

R-G's loan production includes the areas of residential and commercial mortgage
lending, consumer and business lending. In 2002 we increased our portfolio of
loans and our earnings in every one of these areas:

-        Loan production reached $2.9 billion in 2002.

-        Our residential, commercial and construction mortgage internal loan
         originations constituted approximately 20% of the market in 2002 and
         2001.

-        Residential portfolio at the end of 2002 totaled $ 1.5 billion, a 47%
         increase from $1.0 billion in 2001. This portfolio included $1.5
         billion of residential first mortgages and $40.4 million of second
         mortgages.

-        Outstanding construction loans grew 97% to $264.9 million at year-end
         from $134.3 million in 2001. Commitments for future funding were $90.4
         million at December 31, 2002.

-        Commercial loan portfolio, including commercial mortgages and leases,
         increased to $786.0 million at year-end, an increase of 69% from the
         previous year. Most of this portfolio is designed with interest rate
         floors and generates yields that adjust with fluctuations in the Prime
         Rate or LIBOR.

-        Consumer portfolio, which includes collateralized consumer loans and
         credit cards, increased 11% to $200.9 million at the end of 2002.

-        We expanded our servicing portfolio to 159,000 loans with a total
         balance of


18

<PAGE>
[PHOTO]


1997                         1998                       1999

- R-G Financial employs      - Acquisition of           Acquisition of
  1,000 people                 Fajardo Federal          Continental Capital
- 9 X 5 stock split          - 2 X 1 stock split

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


         $11.0 billion, an increase of $3.8 billion from 2001.

-        Our securities portfolio increased by 20% in 2002, growing to $2.7
         billion from $2.3 billion in 2001. These investments represented 43% of
         total assets as of December 31, 2002. Most of these securities are
         tax-free federally guaranteed fixed-income securities and GNMA's.

[PHOTO]


                                                                              19

<PAGE>

[PHOTOS]

2001                          2002

Common Stock                  - Crown Bank Acquisition
Offering $60.0 mm             - Listing in NYSE (RGF)
                              - Stock Offering $66.5 mm
                              - R-G employs 2,000 people

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


THE VALUE AHEAD


The success of our operation has four key-ingredients: strategic branding, smart
technology, innovative products, and maintaining key relationships. For us
change is good and customer is king. Many in the industry believe that brand
does not matter because mortgages and financial services are a commodity, but we
have achieved brand recognition under the R-G logo, equal to service and
efficiency in attending the financial needs of the families in Puerto Rico. Also
the slogan in our banking operation, "More bank in less time," is equal to the
best banking services possible, provided in a timely manner and in accordance
with the needs of our customers, available through the different channels of
choice selected by them, and provided by a cadre of young banking officers that
are attentive to the needs of our clientele, or via our electronic systems.

[PHOTO]

The Company will continue to emphasize strong capital ratios, good asset
quality, expense control, and increased spread and fee income as key financial
sources of future success, and the formula to Create Stockholder Value, while
geographically diversifying our operation and expanding into new markets for our
products.

                                             /s/ Ramon Prats
                                             ---------------
                                             Ramon Prats
                                             President


20
<PAGE>


                                    [PHOTOS]


                                                                              21
<PAGE>


THE VALUE OF PRODUCTS


[PHOTO]


CROSS-SELLING

As a diversified financial services company providing banking, mortgage,
insurance and investment products, we know the winning combination for growth is
good products and great service. One of our most important goals is to increase
the number of banking relationships a customer has with us. If we strengthen
this cross-selling technique, we will increase relationships, add value and
increase our earnings. We aim to increase our customers' average banking
relationship with us by 50% in 2003, providing a growth pattern that is
sustainable.

To help us achieve this goal, during 2002 we completed our aggregation program,
providing clients with an integrated statement of account, detailing all
relationships with R-G Financial, including investments, checking, CD's, loans,
credit cards, GNMA's, etc.

TECHNOLOGY

As the internet and other technologies continue to influence the way we do
banking, our industry faces a challenging landscape. State-of-the-art technology
and commitment to innovation continue to be a moving force. During 2002, R-G
registered over 4.7 million electronic transactions, including transactions over
the internet, a 20% increase over 2001, proof of the value of change and
adaptation. During 2002 R-G Financial remained at the fore-front in virtual
banking, with its customer base for internet banking increasing 18% during 2002.

Also we expanded our Operations Center with the addition of a new building,
adding 20,000 square feet, and completed our Emergency Back-up Center in which
we replicate all our operational data, with a start-up time of about only 1
hour, something indispensable after the events of September 11.

R-G has continued to provide the most advanced, user-friendly and efficient
on-line banking system in Puerto Rico, providing all products and services
through the internet 24 hours a day, 7 days a week. This banking method also
provides us with the potential to increase revenues, by attracting new clients
while retaining our existing ones, and decrease operating and transactional
costs. Point of sale transactions, banking by phone (Phono-Banca), ATM's,
internet and platform branch automation are areas which continue to grow,
providing customers with faster transactions and better service.


22


<PAGE>



[PHOTOS]


                                                                              23


<PAGE>


THE VALUE OF EXPANSION




R-G's internet and on-line banking continued to grow in 2002, but location
continues to be a determining factor when consumers decide where to bank.
Customers continue to value the availability of products, services and location
when they choose their financial institution. Beyond the availability provided
by our state-of-the-art technology, our customers look for location. R-G
Financial continues to add physical branches, enhancing ATM's, phone bank
centers, and the Internet.

Our goal is to provide "more banking in less time," something our customers
already perceive as a reality.


[PHOTO]

-        5 new bank branches where openend in 2002, for a total of 29 branches
         of R-G Premier Bank, 15 branches of Crown Bank, 34 branches of R-G
         Mortgage, and 8 branches of The Mortgage Store.

-        New branches in Puerto Rico generated incremental deposits in the
         amount of $60 million, a record for R-G.

-        5 offices of Continental Capital located in New York, North Carolina
         and Florida.


[PHOTOS]


24
<PAGE>

Branches in Puerto Rico


[MAP]


-   R-G PREMIER BANK
-   R-G MORTGAGE
-   MORTGAGE STORE
-   FUTURE BRANCHES


LOCATIONS

Aguadilla
Altamira
Arecibo
Bayamon
Bayamon Este
Bayamon Plaza del Sol
Caguas
Caguas I
Caguas II
Carolina
Cayey
Fajardo I
Fajardo II
Guayama
Guaynabo
Hatillo
Hato Rey
Humacao
Laguna Gardens
Manati
Mayagiiez I
Mayagiiez II
Norte Shopping Center
Plaza Carolina
Plaza Carolina II
Plaza Interamericana
Plaza las Americas
Plaza las Americas II
Ponce
Rio Grande
Rio Piedras
San Patricio
Santurce
Trujillo Alto
Vega Baja


Future Branches:
  Arecibo*
  Bayamon
  Cupey
  Guayama
  Humacao
  Isla Verde
  Mayagiiez III
  Ponce II


 *Opened January 2003.

                                                                              25
<PAGE>


Branches in the US


[MAP]

-   CONTINENTAL CAPITAL
-   CROWN BANK


LOCATIONS


CROWN BANK
Altamonte Springs
Bayonet Point
Cape Coral
Casselberry
Clearwater
Dunedin
Englewood
Holiday
Lake Worth
Ocoee
Orlando
Oviedo
St. Petersburg
Sarasota
Winter Park

CONTINENTAL CAPITAL
New York:
Bayshore
Huntington Station
Woodhaven
North Carolina:
Charlotte
Florida:
Daytona*
Orlando

 *Opened January 2003.


[PHOTOS]


26
<PAGE>


AFFORDABLE HOUSING


In response to community needs, R-G Financial has given strong emphasis to make
affordable mortgage products available to low and moderate communities. We have
established collaborative efforts to facilitate financing under government
programs such as Law 124, The Key for your Home, and Section 8, among
others, pursuant to the Puerto Rico Government Public Policy.

Our Affordable Housing division facilitates access to credit and products to
these communities. Some of the results under such government programs are:

-        Under the program "The Key for your Home," R-G Financial has closed
         over 200 affordable mortgage loans with an investment of $17.5 million,
         and originated $45 million in construction loans for the acquisition,
         construction and improvement of units.

-        Under the Affordable Housing Permanent Financing Program, R-G Financial
         has committed over $300 million to develop more than 4,142 units.

-        In a collaborative effort with the Puerto Rico Housing Department and
         the Puerto Rico Housing Financing Authority, R-G facilitated permanent
         financing to 200 families in Toa Baja (Campanula Development), with an
         investment of $14 million.

-        Under the Affordable Housing Program of the Federal Home Loan Bank of
         New York, R-G Financial obtained the approval of a $2.1 million grant
         from the FHLB for four housing projects in different areas of Puerto
         Rico. This is the highest amount ever approved by the Federal Home Loan
         Bank of New York in Puerto Rico, contributing to the development of 258
         units in four municipalities with an estimated investment of $17.2
         million.


[PHOTO]


                                                                              27


<PAGE>


R-G also grants loans to private developers for the construction of affordable
housing, providing loans to low and moderate income families for the
construction or rehabilitation of their homes. During 2002 alone, R-G approved
12 interim construction-financing facilities for affordable housing amounting to
$61.8 million to private developers.

THE VALUE OF COMMUNITY INVOLVEMENT

R-G Financial has developed different Community Service Programs, including
educational seminars on financial services, credit insurance, homeownership
products and loss mitigation assistance programs. Through this effort, R-G has
developed the Community Outreach program as an alternative service delivery
component.

R-G Financial and its affiliates sponsor activities addressed to financial
literacy, homeownership, small business, education, technical assistance on
project development and fund raising. We also promote and sponsor seminars,
conferences, and educational activities in the community through non-profit
organizations that serve low and moderate-income families.

Some examples are:

-        Conferences for first homebuyers with over 900 clients served.

-        Loss Mitigation program designed to provide temporary relief to
         families who experience financial difficulties. Over 600 cases were
         serviced, becoming the first in Puerto Rico and the fifth in the United
         States in the effectiveness preventing delinquencies and foreclosures
         under such program.

-        The acquisition of a fully-equipped camper to reach people without
         access to transportation, allowing us to provide mortgage offerings and
         loan originations to people in remote locations, becoming the only
         financial institution to provide these services.

R-G Financial has made a strong effort in the education and financing literacy
in disadvantaged sectors providing the tools to help them play an active role in
the economy, through scholarship programs such as:

-        ENTREPRENEURIAL PROGRAM to Elementary School students - Semester
         program addressed to children with high vocational skills about the
         importance of saving money and developing micro enterprises.


[PHOTO]


The R-G Mortgage Camper provides mortgage offering and loan originations to
people in remote locations.


28
<PAGE>
-        BASIC COURSE IN MORTGAGE AND BANKING FINANCING through the Mortgage
         Bankers School to community leaders.

-        INDIVIDUAL DEVELOPMENT ACCOUNTS (IDA'S) TRAINING COURSE - Basic
         training to develop skills, acquire knowledge and expand networks
         necessary to create, manage and support effective and efficient IDA
         programs and initiatives.

-        EDUCATIONAL MATINEES - Social Theatre musical play that teaches
         students from low-moderate income ("LMI") sector schools about the
         importance of saving, recycling, environmental safety, drug and sexual
         preventions, ethics, and values, among others. Over 5,000 students
         attended.

-        BANKING AND HEALTH FAIRS - R-G Financial has celebrated four Banking
         and Health Fairs providing counseling, service and orientation in all
         health issues as well as banking products and services in LMI sectors,
         serving more than 4,000 residents.

-        FIRST TIME HOME BUYERS - Seminars to first time home buyers from LMI
         communities on a monthly basis, providing resources to Community
         Housing Development Organizations ("CHDO's").

-        HOUSING AND JOBS FAIRS - R-G Financial has collaborated with certain
         non-profit organizations and Municipal and State local Government
         agencies in housing and jobs fairs serving over 5,000 residents.

-        FINANCING AND CONSTRUCTION OF AFFORDABLE HOUSING SEMINAR - R-G
         Financial has designed a seminar addressed exclusively to CHDO's
         regarding all elements and requirements for the financing and
         construction of affordable housing.

-        R-G has hosted the certification of Support Groups in Socio-Economic
         Development Net, a unique effort in Puerto Rico that brings together
         over 17 community-based organizations in different industry areas,
         demonstrating R-G's commitment to the development of community-based
         organizations to assist and counsel in several social and economic
         development issues.

As one of the leaders in residential financing in Puerto Rico, R-G is seriously
involved in providing affordable housing to Puerto Rico families with limited
resources, and in doing so, we are not only Creating Value for our Stockholders,
but also for our communities.


[PHOTOS]

1.  $2.1 million grant from the FHLB for affordable housing.

2.  Social theatre musical plays sponsored by R-G, attended by over 5,000
    children.

3.  One of R-G's Banking and Health Fairs during 2002.


                                                                              29




<PAGE>

R-G BOARD OF DIRECTORS


[PHOTO]

Ramon Prats
Vice Chairman of the Board
and President

Victor J. Galan
Chairman of the Board
and Chief Executive Officer

Roberto Gorbea
President & CEO of Lord Electric
Company of Puerto Rico, Inc.

Ileana Colon Carlo
Former Comptroller General
of the Commonwealth of Puerto Rico

Enrique Umpierre Suarez
Secretary of the Board and
Attorney in Private practice

Gilberto Rivera Arreaga
CPA/Esq., Executive Vice President
of the National College of Business &
Technology, post secondary institution
with campuses in Bayamon and
Arecibo, Puerto Rico


30

<PAGE>

[PHOTO]

Laureano Carus Abarca
Chairman of Alonso Carus Iron Works
in Catano, Puerto Rico, manufacturers
of metal products

Ana M. Armendariz
Treasurer of the Board
and former Senior
Vice President of Finance
R&G Mortgage

Benigno R. Fernandez
Senior Partner of Fernandez,
Perez, Villariny & Co., CPA firm
in Hato Rey, Puerto Rico

Victor L. Galan
Vice President Loan Production
Marketing and Business
Development - R&G Mortgage

Eduardo McCormack
President EMP Omega Corporation
fructose importers and distributors
in Puerto Rico
Former Vice President
Bacardi Corporation


                                                                              31


<PAGE>
MANAGEMENT TEAM

Joseph Sandoval
Chief Financial Officer
Executive Vice President

Steven Velez, Mortgage Banking
Executive Vice President

Ricardo Agudo, New Housing
Vice President

Victor Irizarry
Corporate and Chief Lending Officer
Senior Vice President

Felipe Franco, Consumer Lending
Senior Vice President

Maria M. Rosales, Construction Lending
Vice President

Mario Ruiz, Banking
Executive Vice President

Francisco Cortez, Loan Administration
Vice President

Ramiro Colon, Securities Brokerage
President R-G Investments

Jack Koegel
President, Crown Bank

Jean Francois Dumazet
President, Home & Property

Mike McHugh
President, Continental Capital

Mike Wallace
CEO, Continental Capital

[Photos]


32
<PAGE>


SELECTED CONSOLIDATED FINANCIAL DATA

CONSOLIDATED FINANCIAL STATEMENTS


[PHOTO]


                                                                              33
<PAGE>


34
<PAGE>
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, 2002.
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)
                                             ---------------------------------------------------------------------------------------
                                                   2002             2001              2000             1999            1998
                                                -----------      -----------      -----------      -----------      -----------
<S>                                             <C>              <C>              <C>              <C>              <C>
SELECTED BALANCE SHEET DATA:

Total assets                                    $ 6,277,246      $ 4,664,394      $ 3,539,444      $ 2,911,993      $ 2,044,782
Loans receivable, net                             2,759,689        1,802,388        1,631,276        1,563,007        1,073,668
Mortgage loans held for sale                        258,738          236,434           95,668           77,277          117,126
Mortgage-backed securities held for trading          74,757           93,948           12,038           43,564          450,546
Mortgage-backed securities available for          1,982,250        1,482,947        1,150,100          712,705           95,040
  sale
Mortgage-backed securities held to maturity          45,408           51,946           19,818           23,249           28,255
Investment securities available for sale            574,663          598,732          368,271          258,164           59,502
Investment securities held to maturity               30,183           23,686            3,703            5,438            6,344
Servicing asset                                     142,334          105,147           95,079           84,253           58,221
Cash and cash equivalents(1)                        197,643          157,725           69,090           65,996          103,728
Deposits                                          2,802,324        2,061,224        1,676,062        1,330,506        1,007,297
Securities sold under agreements to               1,489,758        1,396,939          827,749          731,341          471,422
  repurchase
Notes payable                                       194,607          195,587          138,858          132,707          182,748
Other borrowings(2)                                 985,790          472,097          538,840          408,843          130,000
Stockholders' equity                                662,218          459,121          308,836          269,535          221,162
Common stockholders' equity per share(3)        $     13.21      $     10.07      $      8.16      $      6.79      $      5.99

SELECTED INCOME STATEMENT DATA:

Revenues:
  Net interest income after provision for
  loan losses                                   $   135,069      $    85,920      $    59,236      $    52,053      $    37,373
  Loan administration and servicing fees             47,202           33,920           30,849           27,109           15,987
  Net gain on sale of loans                          85,538           62,512           41,230           37,098           34,955
  Other(4)                                           16,430           12,615            7,231            6,604            5,528
                                                -----------      -----------      -----------      -----------      -----------
   Total revenue                                    284,239          194,967          138,546          122,864           93,843
                                                -----------      -----------      -----------      -----------      -----------
Expenses:
  Employee compensation and benefits                 45,244           33,290           27,031           24,433           17,095
  Office occupancy and equipment                     19,631           16,649           13,436           11,289            8,987
  Other administrative and general                   94,363           57,133           40,325           33,568           22,687
                                                -----------      -----------      -----------      -----------      -----------
   Total expenses                                   159,238          107,072           80,792           69,290           48,769
                                                -----------      -----------      -----------      -----------      -----------
Income before income taxes and cumulative
  effect from change in accounting principle        125,001           87,895           57,754           53,574           45,074
Income taxes                                         28,659           21,601           14,121           12,239           11,040
Cumulative effect from change in
  accounting principle                                   --             (323)              --               --               --
                                                -----------      -----------      -----------      -----------      -----------
Net income                                           96,342           65,971           43,633           41,335           34,034
                                                -----------      -----------      -----------      -----------      -----------
Less: Dividends on preferred stock                  (14,955)          (9,920)          (5,638)          (3,754)          (1,234)
Net income available to common stockholders     $    81,387      $    56,051      $    37,995      $    37,581      $    32,800
                                                ===========      ===========      ===========      ===========      ===========
Diluted earnings per share (3)                  $      2.49      $      1.83      $      1.30      $      1.28      $      1.12
                                                -----------      -----------      -----------      -----------      -----------
</TABLE>


                                                                              35
<PAGE>

<TABLE>
<CAPTION>

                                             At or For the Year Ended December 31, (Dollars in Thousands, except for per share data)
                                             ---------------------------------------------------------------------------------------
                                                    2002                2001             2000            1999            1998
                                               ---------------    ---------------    ------------    ------------    ------------
<S>                                            <C>                <C>                <C>             <C>             <C>
SELECTED OPERATING DATA(5):

Performance Ratios and Other Data:
 Loan production                               $     2,942,684    $     2,473,168    $  1,729,373    $  1,977,322    $  1,426,069
 Mortgage servicing portfolio                       10,991,944          7,224,571       6,634,059       6,177,511       4,827,798
 Return on average assets                                 1.76%              1.63%           1.34%           1.72%           1.95%
 Return on average common equity                         21.77              20.77           18.00           20.23           21.32
 Equity to assets at end of period                       10.55               9.84            8.73            9.26           10.82
 Interest rate spread(6)                                  2.79               2.33            1.96            2.40            2.43
 Net interest margin(6)                                   2.98               2.59            2.16            2.60            2.72
 Average interest-earning assets to average
   interest-bearing liabilities                         105.45             105.56          103.54          104.21          105.93
 Total non-interest expenses to average                   2.91               2.64            2.49            2.88            2.80
 total assets
 Full-service Bank offices (7)                              44                 25              23              22              20
 Mortgage offices (8)                                       47                 40              35              31              23
 Cash dividends declared per common
 share(3)(9)                                              .336               .264            .203            .149            .111

Asset Quality Ratios(10):
 Non-performing assets to total assets at
 end of period                                            1.50%              1.78%           2.96%           2.26%           2.41%
 Non-performing loans to total loans at end
 of period                                                2.71               3.79            5.52            3.66            4.08
 Allowance for loan losses to total loans at
 end of period                                            1.13               0.91            0.67            0.55            0.74
 Allowance for loan losses to total
    non-performing loans at end of period                41.79              24.05           12.21           15.11           17.92
 Net charge-offs to average loans
    outstanding                                           0.41               0.32            0.17            0.25            0.55

R-G Premier Regulatory Capital Ratios (11):
 Tier 1 risk-based capital ratio                         13.14%             11.35%          11.37%          12.36%          13.41%
 Total risk-based capital ratio                          14.17              12.11           12.15           13.08           14.46
 Tier 1 leverage capital ratio                            6.84               6.44            6.04            7.07            8.04
                                               ---------------    ---------------    ------------    ------------    ------------
</TABLE>

(1)      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.

(2)      Comprised of long-term debt, advances from the Federal Home Loan Bank
         ("FHLB") of New York, trust-preferred securities and other borrowings.

(3)      Per share information for all periods presented takes into
         consideration a 2 for 1 stock split paid in June 1998.

(4)      Comprised of change in provision for cost in excess of market value of
         loans held for sale, and other miscellaneous revenue sources, including
         Bank service charges, fees and other income.

(5)      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.

(6)      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.

(7)      Includes 15 bank branches of Crown Bank.

(8)      Includes 8 branches of Mortgage Store of Puerto Rico, Inc., R-G
         Mortgage's wholly owned mortgage banking subsidiary, and 5 branches of
         Continental Capital Corp., Crown Bank's wholly-owned mortgage banking
         subsidiary. Also includes 23 R-G Mortgage facilities which are located
         within R-G Premier's offices.

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

(10)     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.

(11)     All of such ratios were in excess of minimum capital requirements of
         the FDIC.


36
<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 30th 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, 2002, the Company had total assets of $6.3 billion, total deposits
of $2.8 billion and stockholders' equity of $662.2 million. The Company operates
29 bank branches mainly located in the northeastern section of Puerto Rico, 15
bank branches in the Orlando and Tampa/St. Petersburg Florida markets, 5
mortgage and 6 commercial lending offices in the United States, and 42 mortgage
offices in Puerto Rico including 23 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. ("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 15 full-service branches and six 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 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.


                                                                              37


<PAGE>

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 increased to approximately $11.0 billion as of
December 31, 2002, from $7.2 billion as of the same date a year ago, an increase
of 52.1%. R-G Financial's servicing portfolio at December 31, 2002 includes $2.6
billion acquired in connection with the acquisition of Crown Bank. R-G
Financial's strategy is to increase the size of its mortgage servicing portfolio
by relying principally on internal loan originations.

As part of its strategy to maximize net interest income, R-G Financial maintains
a substantial portfolio of mortgage-backed and investment securities. At
December 31, 2002, the Company held securities available for sale with a fair
market value of $2.6 billion. Of this amount, $2.0 billion consisted of
mortgage-backed securities, of which $455.6 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.

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.

Changes in Financial Condition

General.

At December 31, 2002, R-G Financial's total assets amounted to $6.3 billion, as
compared to $4.7 billion at December 31, 2001. On June 7, 2002 the Company
completed the acquisition of Florida-based The Crown Group, Inc., with total
assets and deposits of $712.3 million and $468.1 million, respectively, at the
time of acquisition. Excluding the increase in assets due to the acquisition,
total assets increased by $900.5 million or 19.3% from December 31, 2001. The
$900.5 million or 19.3% increase in total assets during the year ended December
31, 2002 was primarily the result of a $492.5 million or 27.3% increase in loans
receivable, net, and a $394.6 million or 19.0% increase in mortgage-backed
securities and investment securities available for sale.

Loans receivable and mortgage loans held for sale.

At December 31, 2002, R-G Financial's loans receivable, net amounted to $2.8
billion or 44.0% of total assets, as compared to $1.8 billion or 38.6% as of
December 31, 2001. During the year ended December 31, 2002, R-G Premier made
$534.7 million loan securitizations (retained as mortgage-backed securities)
which reduced the amount of loans held in portfolio at December 31,2002. Without
such securitizations, the loan portfolio at December 31, 2002 would have been
$3.2 billion. In addition, loans receivable at December 31, 2002 include $464.8
million of loans obtained in connection with the acquisition of 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. During the years ended December 31, 2002, 2001 and 2000, total
loans originated and purchased by R-G Financial amounted to $2.9 billion, $2.5
billion and $1.7 billion, respectively.

At December 31, 2002, R-G Financial's allowance for loan losses totalled $32.7
million, which represented a $15.2 million or 87.5% increase from the level
maintained at December 31, 2001. The allowance for loan losses at December 31,
2002 include $7.5 million of acquired reserves in connection with the
acquisition of Crown Bank in June 2002. At December 31, 2002, R-G Financial's
allowance represented approximately 1.13% of the total loan portfolio and 41.79%
of total non-performing loans, as compared to 0.91% and 24.05% at December 31,
2001. During 2002, the Company made provisions for loan losses of $18.0 million,
which exceeded net charge-offs of approximately $10.2 million. The increase in
the allowance for loan losses reflected the increase in R-G Financial's
commercial real estate and construction loan portfolio.

Non-performing loans amounted to $78.2 million at December 31, 2002, as compared
to $72.5 million at December 31, 2001. Non-performing loans of December 31, 2002
exclude $45.9 million non-performing residential mortgage loans sold during
2002. In addition, non-performing loans at December 31, 2002 include $13.2
million non-performing loans acquired in connection with the acquisition of
Crown Bank in June 2002. At December 31, 2002, $43.4 million or 55.5% 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


38
<PAGE>
charge-offs amounted to 0.41% of average loans outstanding during 2002, as
compared to 0.32% during 2001. 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 3.79% to 2.71% from December
31, 2001 to December 31, 2002, the ratio was nevertheless larger than it would
otherwise have been due to loan securitizations during 2000, 2001 and 2002,
which reduced the amount of loans held in portfolio considered in the
calculation of the ratio. Without giving effect to loan securitizations, as of
December 31, 2002 and 2001, the ratio of non-performing loans to total loans
would have been 1.98% and 2.75%, respectively.

Management of R-G Financial believes that its allowance for loan losses at
December 31, 2002 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, 2002 and 2001, mortgage loans held for sale amounted to $258.7
million and $236.4 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, 2002, R-G Financial's
aggregate mortgage-backed and investment securities totaled $2.7 billion or
43.1% of total assets, as compared to $2.3 billion or 48.3% at December 31,
2001, 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 CMC
residuals) and U.S. Government agency securities. At December 31, 2002 and 2001,
securities available for sale totalled $2.6 billion and $2.1 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), Puerto Rico Government obligations and other Puerto
Rico securities. At December 31, 2002 and 2001, securities held to maturity
totaled $75.6 million and $75.6 million, respectively. Securities held to
maturity are accounted for at amortized cost. At December 31, 2002 and 2001,
securities held to maturity had a market value of $76.8 million and $76.1
million, respectively.

Mortgage servicing asset.

As of December 31, 2002 and 2001, R-G Financial reported servicing assets of
$142.3 million and $105.1 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, which is dependent upon the cash flows from the
underlying mortgage loans.

Deposits.

At December 31, 2002, deposits totaled $2.8 billion, as compared to $2.1 billion
at December 31, 2001. Deposits at December 31, 2002 include $468.1 million
deposits obtained as a result of the Crown Bank acquisition in June 2002.
Excluding the increase in deposits due to the acquisition, deposits increased
$273.0 million. The $273.0 million or 13.2% increase in deposits during the year
ended December 31, 2002 was primarily due to promotions in connection with new
accounts and competitive pricing. 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 $1.2
million or 57.3% of total deposits at December 31, 2001 to $1.8 billion or 64.5%
of total 39 deposits at December 31, 2002.


                                                                              39
<PAGE>
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, 2002 and 2001, repurchase
agreements totalled $1.5 billion and $1.4 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,
2002, notes payable amounted to $194.6 million, as compared to $195.6 million at
December 31, 2001.

Advances from the FHLB amounted to $940.7 million and $464.1 million at December
31, 2002 and 2001, respectively. At December 31, 2002, FHLB advances were
scheduled to mature at various dates commencing on January 1, 2003 until March
2, 2011, with an average interest rate of 4.23%.

Stockholders' equity.

Stockholders' equity increased from $459.1 million at December 31, 2001 to
$662.2 million at December 31,2002. The $203.1 million or 44.2% increase in
stockholders' equity during 2002 was primarily due to the issuance of 2,525,000
shares of Class B common stock in August, 2002 for aggregate net proceeds of
$45.2 million, the issuance of 2,760,000 shares of the Company's 7.25% Monthly
Income Preferred Stock, Series D, in March 2002 for aggregate net proceeds of
$66.6 million, and the $96.3 million net income, together with the $20.0 million
other comprehensive income, recognized for the year. The increases in
stockholders' equity were partially offset by dividends paid during the year of
$26.0 million on common and preferred stock.

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.

40
<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)
                                             ----------------------------------------------------------------------------
                                                      2002                       2001                       2000
                                             ---------------------      ---------------------      ----------------------

                                               Amount       Percent       Amount       Percent       Amount       Percent
                                             ---------      -------     ---------      -------     ---------      -------
<S>                                          <C>            <C>         <C>            <C>         <C>            <C>
Banking:
Net interest income after
  provision for loan losses                  $ 114,394       40.25%     $  71,696       36.77%     $  55,935       40.37%
Net gain on origination and sale of loans       23,741        8.35         27,392       14.05         15,170       10.95
Other income(1)                                  8,622        3.03          7,879        4.04          7,045        5.09
                                             ---------       -----      ---------       -----      ---------       -----
                                               146,757       51.63        106,967       54.86         78,150       56.41
                                             ---------       -----      ---------       -----      ---------       -----
Mortgage Banking:
Net interest income                             18,429        6.49         13,583        6.97          3,301        2.38
Loan administration and servicing fees          49,039       17.25         35,120       18.01         26,060       18.81
Net gain on origination and sale of loans       61,796       21.74         35,935       18.43         33,324       24.05
Other income(1)                                  1,993        0.70          2,656        1.36          1,813        1.31
                                             ---------       -----      ---------       -----      ---------       -----
                                               131,257       46.18         87,294       44.77         64,498       46.55
                                             ---------       -----      ---------       -----      ---------       -----
Corporate revenues (2)                           2,404        0.85          1,006        0.52             --          --
Other                                            8,282        2.91          4,820        2.47            182        0.13
Elimination of intersegment revenues            (4,461)      (1.57)        (5,120)      (2.62)        (4,284)      (3.09)
                                             $ 284,239      100.00%     $ 194,967      100.00%     $ 138,546      100.00%
                                             =========      ======      =========      ======      =========      ======
</TABLE>

(1) Comprised of service charges, fees and other from banking subsidiaries and
other miscellaneous revenue sources for 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 $96.3 million, $66.0 million and $43.6
million during the years ended December 31, 2002, 2001 and 2000, respectively.
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 income
increased by $22.3 million or 51.2% during the year ended December 31, 2001, as
compared to 2000, due to a $32.1 million increase in net interest income and a
$29.7 million increase in total other income, which were partially offset by a
$26.3 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 $153.1 million, $97.0 million and $65.0 million
during the years ended December 31, 2002, 2001 and 2000, respectively. 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
2.79% in 2002, partially offset by a decrease in the ratio of average
interest-earning assets to average interest-bearing liabilities from 105.56% in
2001 to 105.45% in 2002. Net interest income increased by $32.1 million or 49.3%
during the year ended December 31, 2001 due to significant increases in the
average balance of interest-earning assets, together with an increase in the
ratio of average interest-earning assets to average interest-bearing liabilities
from 103.54% for 2000 to 105.56% in 2001, as well as an increase in interest
rate-spread from 1.96% in 2000 to 2.33% in 2001.


                                                                              41
<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)
                                                   ------------------------------------------------------------------------------
                                                                       2002                                  2001
                                                    Average                       Yield/     Average                      Yield/
                                                    Balance          Interest     Rate(1)    Balance        Interest      Rate(1)
                                                    -------          --------     -------    -------        --------      -------
<S>                                                <C>              <C>            <C>     <C>              <C>            <C>
INTEREST-EARNING ASSETS:

Cash and cash equivalents(2)                       $  109,532       $    1,530     1.40%   $   31,412       $  1,627       5.18%
Investment securities available for sale              544,429           30,469     5.60       409,553         26,826       6.55
Investment securities held to maturity                 25,746            1,395     5.42         9,200            537       5.84
Mortgage-backed securities held for trading            81,635            4,473     5.48       105,526          6,581       6.24
Mortgage-backed securities available for sale       1,740,698          105,849     6.08     1,201,370         77,725       6.47
Mortgage-backed securities held to maturity            46,447            2,861     6.16        34,769          2,055       5.91
Loans receivable, net(3)(4)                         2,507,945          180,786     7.21     1,894,837        152,251       8.04
FHLB of New York stock                                 80,106            3,498     4.37        53,108          2,969       5.59
                                                   ----------       ----------             ----------       --------

  Total interest-earning assets                    $5,136,538       $  330,861     6.44    $3,739,775       $270,571       7.23
                                                   ----------       ----------             ----------       --------

Non-interest-earning assets                           330,582                                 320,474

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

Deposits                                           $2,471,037       $   88,349     3.58%   $1,818,629       $ 88,854       4.89%
Securities sold under agreements
  to repurchase(5)                                  1,437,253           51,121     3.56     1,037,756         49,476       4.77
Notes payable                                         256,158            6,790     2.65       233,462         11,395       4.88
Other borrowings(6)                                   706,490           31,512     4.46       452,957         23,801       5.25
                                                   ----------       ----------             ----------       --------

  Total interest-bearing liabilities                4,870,938          177,772     3.65     3,542,804        173,526       4.90
                                                   ----------       ----------             ----------       --------

Non-interest-bearing liabilities                       21,858                                 115,844
                                                   ----------                              ----------

  Total liabilities                                 4,892,796                               3,658,648

Stockholders' equity                                  574,324                                 401,601

  Total liabilities and stockholders' equity       $5,467,120                              $4,060,249
                                                   ==========                              ----------

Net interest income; interest rate spread(7)                        $  153,089     2.79%                    $97,045        2.33%
                                                                    ==========   ======                     =======      ======

Net interest margin(7)                                                             2.98%                                   2.59%
                                                                                 ======                                  ======

Average interest-earning assets to average
  interest-bearing liabilities                                                   105.45%                                 105.56%
                                                                                 ======                                  ======

<CAPTION>
                                                Year Ended December 31, (Dollars in Thousands)
                                                ----------------------------------------------
                                                                    2000
                                                    Average                    Yield/
                                                    Balance       Interest     Rate(1)
                                                    -------       --------     -------
INTEREST-EARNING ASSETS:

Cash and cash equivalents(2)                      $   14,708      $    969     6.59%
Investment securities available for sale             298,480        20,914     7.01
Investment securities held to maturity                 5,330           307     5.76
Mortgage-backed securities held for trading           18,801         1,370     7.29
Mortgage-backed securities available for sale        761,166        47,986     6.30
Mortgage-backed securities held to maturity           21,437         1,431     6.68
Loans receivable, net(3)(4)                        1,853,559       160,093     8.64
FHLB of New York stock                                38,432         2,531     6.59
                                                  ----------      --------
  Total interest-earning assets                   $3,011,913      $235,601     7.82
                                                  ----------      --------

Non-interest-earning assets                          238,722

  Total assets                                    $3,250,635

INTEREST-BEARING LIABILITIES:

Deposits                                          $1,505,919      $ 80,659     5.36%
Securities sold under agreements
  to repurchase(5)                                   768,582        50,542     6.58
Notes payable                                        186,748        11,629     6.23
Other borrowings(6)                                  447,666        27,784     6.21
                                                  ----------      --------
  Total interest-bearing liabilities               2,908,915       170,614     5.86
                                                  ----------      --------

Non-interest-bearing liabilities                      55,671
                                                  ----------

  Total liabilities                                2,964,586

Stockholders' equity                                 286,049

  Total liabilities and stockholders' equity      $3,250,635
                                                  ==========

Net interest income; interest rate spread(7)                      $ 64,987     1.96%
                                                                  ========   ======

Net interest margin(7)                                                         2.16%
                                                                             ======

Average interest-earning assets to average
  interest-bearing liabilities                                               103.54%
                                                                             ======
</TABLE>



(1) At December 31, 2002, the yields earned and rates paid were as follows: cash
and cash equivalents, 1.08%; investment securities held to maturity, 5.04%;
investment securities available for sale, 5.01%; mortgage-backed securities held
for trading, 7.03%; mortgage-backed securities available for sale, 5.96%;
mortgage-backed securities held to maturity, 6.49%; mortgage loans held for
sale, 7.58%; loans receivable, net, 6.98% FHLB of New York stock, 5.42%; total
interest-earning assets, 6.43%; deposits, 2.06%; securities sold under
agreements to repurchase, 3.16%; notes payable, 2.55%; other borrowings, 4.22%;
total interest-bearing liabilities, 3.27%; interest rate spread, 3.16%.

(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.

(Footnotes continue on following page)


42
<PAGE>

(4) Interest income on loans include loan fees amounting to $308,000, $319,000
and $294,000 during the years ended December 31, 2002, 2001 and 2000,
respectively, or .17%, .21% and .18% of interest income on loans during such
respective periods.

(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)
                                                   -------------------------------------------------------------------------------
                                                         2002 vs. 2001                            2001 vs. 2000
                                                     Increase / (Decrease)       Total        Increase / (Decrease)       Total
                                                            Due to              Increase            Due to               Increase
                                                     Rate          Volume      (Decrease)      Rate         Volume      (Decrease)
                                                   --------      --------      ----------    --------      --------     ----------
<S>                                                <C>           <C>           <C>           <C>           <C>          <C>
INTEREST-EARNING ASSETS:

Cash and cash equivalents(1)                       $ (4,143)     $  4,046      $    (97)     $   (443)     $  1,101     $    658
Investment securities available for sale             (5,191)        8,834         3,643        (1,871)        7,783        5,912
Investment securities held to maturity                 (108)          966           858             7           223          230
Mortgage-backed securities held for trading            (618)       (1,490)       (2,108)       (1,109)        6,320        5,211
Mortgage-backed securities available for sale        (6,769)       34,893        28,124         1,987        27,752       29,739
Mortgage-backed securities held to maturity             116           690           806          (266)          890          624
Loans receivable, net(2)                            (20,729)       49,264        28,535       (11,407)        3,565       (7,842)
FHLB of New York stock                                 (980)        1,509           529          (529)          967          438
                                                   --------      --------      --------      --------      --------     --------
  Total interest-earning assets                    $(38,422)     $ 98,712      $ 60,290      $(13,631)     $ 48,601     $ 34,970
                                                   --------      --------      --------      --------      --------     --------

INTEREST-BEARING LIABILITIES:

Deposits                                           $(32,380)     $ 31,875      $   (505)     $ (8,554)     $ 16,749     $  8,195
Securities sold under agreements to repurchase      (17,401)       19,046         1,645       (18,767)       17,701       (1,066)
Notes payable                                        (5,713)        1,108        (4,605)       (3,143)        2,909         (234)
Other borrowings(3)                                  (5,611)       13,322         7,711        (4,311)          328       (3,983)
                                                   --------      --------      --------      --------      --------     --------
  Total interest-bearing liabilities               $(61,105)     $ 65,351      $  4,246      $(34,775)     $ 37,687     $  2,912
                                                   --------      --------      --------      --------      --------     --------
Increase in net interest income                                                $ 56,044                                 $ 32,058
                                                                               ========                                 ========
</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.

                                                                              43

<PAGE>


Interest Income.

Total interest income increased by $60.3 million or 22.3% during the year ended
December 31, 2002 as compared to the year ended December 31, 2001, and increased
by $35.0 million or 14.8% during the year ended December 31, 2001 over the year
ended December 31, 2000. Interest income on loans, the largest component of R-G
Financial's interest-earning assets, increased by $28.5 million or 18.7% during
the year ended December 31, 2002 as compared to the year ended December 31,
2001, and decreased by $7.8 million or 4.9% during 2001 over the year ended
December 31, 2000. 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. The decrease in 2001 was
primarily the result of a decrease in the yield earned thereon from 8.64% in
2000 to 8.04% in 2001.

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) increased by $31.3 million or 27.5% during the year
ended December 31, 2002 as compared to the year ended December 31, 2001, and
increased by $41.7 million or 57.9% during the year ended December 31, 2001 over
the year ended December 31, 2000. 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 during
2001 was due primarily to an increase in the average balance of mortgage-backed
securities of $540.3 million, together with a $114.9 million increase in the
average balance of investment securities. The increase in investment securities
during 2002 and 2001 reflects purchases of approximately $1.2 billion and $934.0
million, respectively, during such periods, net of maturities and sales.

Interest income on cash and cash equivalents decreased by $97,000 or 6.0% during
the year ended December 31, 2002 as compared to the year ended December 31,
2001, and increased by $658,000 or 67.9% during the year ended December 31,
2001. The decrease in interest earned on money market investments 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 increase during 2001 reflected an increase in their
average balance of $16.7 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 $4.2 million or 2.4% during the year ended
December 31, 2002, as compared to the year ended December 31, 2001, and
increased by $2.9 million or 1.7% during the year ended December 31, 2001.
Interest expense on deposits, the largest component of R-G Financial's
interest-bearing liabilities, decreased by $505,000 million or 0.6% during the
year ended December 31, 2002, as compared to the year ended December 31, 2001,
and increased by $8.2 million or 10.2% during the year ended December 31, 2001.
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 increase during 2001 was due
primarily to an increase in the average balance of deposits of $312.7 million,
partially offset by a decrease in the average rate paid thereon of 47 basis
points during such period. The reduction in interest rates paid during 2002 and
2001 were due to a reduction in market rates of interests as a result of
consecutive decrease by the Federal Reserve Board.

Interest expense on repurchase agreements increased by $1.6 million or 3.3%
during the year ended December 31, 2002, as compared to the year ended December
31, 2001, and decreased by $1.1 million or 2.1% during the year ended December
31, 2001. 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. The decrease during 2001 was due primarily to a decrease in
the average rate paid thereon of 181 basis points partially offset by an
increase in the average balance of repurchase agreements of $269.2 million. 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 44 balance of repurchase agreements during the periods presented
is therefore mainly a function of


44
<PAGE>


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 decreased by $4.6 million or 40.4% during the year ended December 31,
2002, as compared to the year ended December 31, 2001, and decreased by $234,000
or 2.0% during the year ended December 31, 2001. 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 223 basis
points, partially offset by an increase in the average balance outstanding of
$22.7 million, as the Company's mortgage banking subsidiaries made increased use
of lines of credit due to increased mortgage loan originations during such
period. The decrease during the year ended December 31, 2001 was primarily due
to a decrease in the average rate paid thereon of 135 basis points, partially
offset by an increase in the average balance outstanding of $46.7 million.

Interest expense on other borrowings (consisting principally of advances from
the FHLB of New York) increased by $7.7 million or 32.4% during the year ended
December 31, 2002, as compared to the year ended December 31, 2001, and
decreased by $4.0 million or 14.3% during the year ended December 31, 2001. The
increase during the year ended December 31, 2002, as compared to the year ended
December 31, 2001, was due primarily to a $253.5 million increase in the average
balance of such borrowings primarily due to an increased use of FHLB advances,
partially offset by a decrease in the average rate paid thereon of 79 basis
points. The decrease during 2001 was due primarily to a decrease in the average
rate paid thereon of 96 basis points.

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 $18.0 million,
$11.1 million and $5.8 million during the years ended December 31, 2002, 2001
and 2000, respectively.

The increase in the provision for loan losses taken by the Company during 2002
and 2001 was based primarily on 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.

Management believes that its allowance for loan losses at December 31, 2002, 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)
                                                        ------------------------------------------------------
                                                          2002                   2001                   2000
                                                        --------               --------               --------
<S>                                                     <C>                    <C>                    <C>
Net gain on origination and sale of loans               $ 85,538               $ 62,512               $ 41,230
Loan administration and servicing fees                    47,202                 33,920                 30,849
Service charges, fees and other                           16,431                 12,615                  7,231
                                                        --------               --------               --------
  Total other income                                    $149,171               $109,047               $ 79,310
                                                        ========               ========               ========
</TABLE>


Total non-interest income increased by $40.1 million or 36.8% during the year
ended December 31, 2002, as compared to the prior year and increased by $29.7
million or 37.5% during the year ended December 31, 2001. Net gain on sale of
loans amounted to $85.5 million, $62.5 million and $41.2 million during the
years ended December 31, 2002, 2001 and 2000, respectively. Net gain on sale

                                                                              45

<PAGE>


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, 2002, 2001 and 2000,
R-G Financial originated and purchased $2.2 billion, $1.9 billion and $1.3
billion, respectively, including $221.0 million, $90.1 million and $274.0
million, respectively, of loan purchases, and sold $1.2 billion, $1.2 billion
and $806.4 million (excluding loans securitized and retained as mortgage-backed
securities) of mortgage loans, respectively. Since 2000, the Company has
emphasized on 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 change in strategy, loan purchases decreased from
$583.6 million in 1999 to $274.0 million in 2000, $90.1 million in 2001 and
$221.0 million in 2002, while its internal loan originations amounted to $1.1
billion in 1999 and 2000, $1.8 billion in 2001 and $2.0 billion in 2002. R-G
Financial's mortgage banking operations are highly dependent upon market and
economic conditions.

During the years ended December 31, 2002, 2001 and 2000, R-G Financial
recognized net profit (loss) on trading securities of $989,000, $2.0 million and
($147,000), 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, 2002, 2001 and 2000, R-G Financial
recognized loan administration and servicing fees of $47.2 million, $33.9
million and $30.8 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 107,302 loans with an aggregate principal balance of
$6.2 billion at January 1, 2000 to 158,659 loans with an aggregate principal
balance of $11.0 billion at December 31, 2002. The Company's servicing portfolio
at December 31, 2002 includes approximately $2.6 billion acquired through the
Crown Bank acquisition in June 2002.

Service charges, fees and other amounted to $16.4 million, $12.6 million and
$7.2 million during the years ended December 31, 2002, 2001 and 2000,
respectively. The $3.8 million or 30.2% and the $5.4 million or 74.4% increase
during the years ended December 31, 2002 and 2001, respectively, were primarily
due to the continued growth of the Company's fee-based insurance operations
which commenced in late 2000, as well as increased fee income associated with
new deposit products and an increasing deposit base.

Non-Interest Expenses.

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

<TABLE>
<CAPTION>
                                                        Year Ended December 31,  (In Thousands)
                                                -------------------------------------------------------
                                                   2002                   2001                   2000
                                                 --------               --------               --------
<S>                                              <C>                    <C>                    <C>
Employee compensation and benefits               $ 45,244               $ 33,290               $ 27,031
Office occupancy and equipment                     19,631                 16,649                 13,436
Other administrative and general                   94,363                 57,133                 40,325
                                                 --------               --------               --------
  Total non-interest expenses                    $159,238               $107,072               $ 80,792
                                                 ========               ========               ========
</TABLE>

Total non-interest expense increased by $52.2 million or 48.7% during the year
ended December 31, 2002, as compared to the year ended December 31, 2001, and
increased by $26.3 million or 32.5% during the year ended December 31, 2001 over
2000. The increase in total non-interest expense during the years ended December
31, 2001 and 2000 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, was a
significant reason for the increase in expenses during the year ended December
31, 2002. Total operating expenses of Crown Bank during 2002 since its
acquisition were $27.0 million. 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.


46

<PAGE>


Employee compensation and benefits expense amounted to $45.2 million, $33.3
million and $27.0 million during the years ended December 31, 2002, 2001 and
2000, respectively. 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 totalling $5.4 million. The $6.3 million or 23.2%
increase in such expenses during the year ended December 31, 2001 is primarily
due to an increase in the number of employees as well as increased bonus
payments.

Office occupancy and equipment expense amounted to $19.6 million, $16.6 million
and $13.4 million during the years ended December 31, 2002, 2001 and 2000,
respectively. 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
accommodate general growth in the operations of R-G Financial, as well as $1.3
million additional expenses associated with the operations of Crown Bank. The
$3.2 million or 23.9% increase in office occupancy and equipment expenses during
the year ended December 31, 2001 is primarily related to the operation of
additional bank branches and additional office space to accommodate growth in
the operations of the Company in Puerto Rico.

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 $94.4 million, $57.1 million and $40.3 million during the years
ended December 31, 2002, 2001 and 2000, respectively. 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 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. The $16.8 million or 41.7% increase in such
expenses during the year ended December 31 2001, is also primarily associated
with additional expenses associated with the Company's servicing asset of $7.1
million as well as additional expenses associated with general growth in the
operations of R-G Financial.

Income Taxes.

R-G Financial's income tax provision amounted to $28.7 million during the year
ended December 31, 2002, as compared to income tax expense of $21.6 million and
$14.1 million during the years ended December 31, 2001 and 2000, respectively.
R-G Financial's effective tax rate amounted to 22.9%, 24.6% and 24.5% during the
years ended December 31, 2002, 2001 and 2000, 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.

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, savings deposit withdrawals, principal
and interest payments with respect to outstanding borrowings and to pay
operating expenses. It is management's policy to maintain greater liquidity than
required in order to be in a position to fund loan purchases and originations,
to meet withdrawals from deposit accounts, to make principal and interest
payments with respect to outstanding borrowings and to make investments that
take advantage of interest rate spreads. 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

                                                                              47

<PAGE>

principal payments and prepayments, by the ability to sell assets at market
prices and by utilizing unpledged assets as collateral for borrowings. Liquidity
is derived from liabilities by maintaining a variety of funding sources,
including deposits, advances from the FHLB of New York and 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, 2002, R-G Financial had $115.8 million in borrowing capacity under
unused warehouse and other lines of credit, $724.2 million in borrowing capacity
under unused lines of credit with the FHLB and $25 million available unused fed
funds lines of credit. R-G Financial has generally not relied upon brokered
deposits as a source of liquidity, and does not anticipate a change in this
practice in the foreseeable future.

At December 31, 2002, R-G Financial had outstanding commitments (including
unused lines of credit) to originate and/or purchase mortgage and non-mortgage
loans of $388.1 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 $1.1 billion. 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 $842.2 million at December 31, 2002, and borrowings
that are scheduled to mature within the same period amounting to $1.4 billion.
R-G Financial anticipates that it will have sufficient funds available to meet
its current loan commitments.

Capital Resources.

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

The FDIC also requires that banks meet a risk-based capital standard. The
risk-based capital standard for banks requires the maintenance of total capital
(which is defined as Tier I capital and supplementary (Tier 2) capital) to risk
weighted assets of 8%. In determining the amount of risk-weighted assets, all
assets, plus certain off-balance sheet assets, are multiplied by a risk-weight
of 0% to 100%, based on the risks the FDIC believes are inherent in the type of
asset or item. The components of Tier 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,
2002, 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 6.84%,
13.14% and 14.17%, respectively. At December 31, 2002 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 9.08%, 12.97% and 14.09%,
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 9.80%, 16.81% and 17.72%, respectively.

48

<PAGE>


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 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, 2002, R-G Financial's interest-earning assets which
mature or reprice within one year exceeded R-G Financial's interest-bearing
liabilities with similar characteristics. R-G Financial one year positive gap at
December 31, 2002 was $498.1 million, or 7.9% of total assets, compared to a
positive gap of approximately $462.6 million or 9.9% of total assets at December
31, 2001. R-G Financial's positive gap within one year at December 31, 2002 and
2001 is due primarily to an increasing amount of adjustable rate loans resulting
from greater emphasis in commercial and



                                                                              49

<PAGE>


construction lending as well as to the extension during 2001 and 2002 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, 2002 $1.3 billion or 48.8% 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, 2002, R-G Financial had $179.6 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) of $2.0 billion or 31.6% of its total assets 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. 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 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


50


<PAGE>


fall. At December 31, 2002, R-G Financial held $74.8 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 could have a negative impact on the
Company's earnings regardless of whether any securities were actually sold.

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 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, 2002 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 $2,835,000 and $858,000 during the
year ended December 31, 2002 and 2001, respectively; net interest received
amounted to $563,000 during the year ended December 31, 2000. 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, 2002, R-G Financial's
interest-earning assets included a portfolio of loans receivable, net of $2.8
billion and a portfolio of investment securities and mortgage-backed securities
(including held to maturity, available for sale and held for trading) of $2.7
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, 2002, $2.6 billion or 94.4% 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.


                                                                              51


<PAGE>


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, 2002,
mortgage-backed securities available for sale had a fair value of $2.0 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, 2002, R-G Premier was a party to three interest rate swap
agreements with an aggregate notional amount of approximately $70.0 million and
expire between June 2003 and December 2009. With respect to such agreements, R-G
Premier makes fixed interest payments ranging from 4.67% to 6.83% 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 $2,318,000
and $868,000 during the years ended December 31, 2002 and 2001, respectively;
net interest received totaled $323,000 during the year ended December 31, 2000.
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, 2002 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 a trust preferred issue in the same amount completed in April 2002. With
respect to such agreement, RAC makes fixed interest payments of 8.77% and
receives payments based upon the three-month Libor. Net interest paid during the
year ended December 31, 2002 amounted to $532,000.



52

<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, 2002, 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                             $1,189,123     $  253,696     $  385,716     $ 251,733     $  712,585     $2,792,853
Mortgage loans held for sale                     97,238        161,500             --            --             --        258,738
Mortgage-backed securities(2)(3)                187,504        451,456        315,464       258,477        887,497      2,100,398
Investment securities(3)                        202,791        134,945        216,675        52,103            349        606,863
Other interest-earning assets(4)                 69,258            300             --            --             --         69,558

  Total                                      $1,745,914     $1,001,897     $  917,855     $ 562,313     $1,600,431     $5,828,410

INTEREST-BEARING LIABILITIES:

Deposits:
  NOW and Super NOW accounts(5)              $   21,309     $   60,970     $   67,025     $  54,290     $  231,452     $  435,046
  Passbook savings accounts(5)                    8,238         23,888         59,473        47,578        190,312        329,489
  Regular and commercial checking(5)             19,518         54,650         60,075        48,661        207,451        390,355
  Certificates of deposit                       244,705        599,810        479,948       316,954          2,152      1,643,569
FHLB advances                                   157,000        142,125        245,100       256,500        140,000        940,725
Securities sold under agreements to
   repurchase(6)                                407,622        455,228        248,708       240,000        138,200      1,489,758
Other borrowings(7)                              69,760        134,913             --            --             --        204,673

  Total                                         928,152      1,471,584      1,160,329       963,983        909,567      5,433,615

Effect of hedging instruments                   160,000        (10,000)            --       (65,000)       (85,000)            --
                                             ----------     ----------     ----------     ---------     ----------     ----------
Excess (deficiency) of interest-earning
  assets over interest-bearing liabilities   $  977,762     $ (479,687)    $ (242,474)    $(466,670)    $  605,864     $  394,795
                                             ----------     ----------     ----------     ---------     ----------     ----------
Cumulative excess (deficiency) of
  interest-earning assets over
  interest-bearing liabilities               $  977,762     $  498,075     $  255,601     $(211,069)    $  394,795
                                             ----------     ----------     ----------     ---------     ----------
Cumulative excess (deficiency) of
  interest-earning assets over
  interest-bearing liabilities as a
  percent of total assets                         15.58%          7.93%          4.07%        (3.36)%         6.29%
                                             ----------     ----------     ----------     ---------     ----------
</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.

(Footnotes continue on following page)                                        53
<PAGE>


(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 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.

(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, 2002 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                   $168,914                $ 6,890                4.25%
                  +100                    165,827                  3,803                2.35
              Base Scenario               162,024                     --                  --
                  -100                    157,080                 (4,944)              (3.05)
</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.


54


<PAGE>


Contractual Obligations and Commercial Commitments

The following tables present contractual obligations and commercial commitments
of the Company as of December 31, 2002. See notes 9, 10 and 18 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                                   $2,802,324      $2,000,964      $  480,790      $  318,359      $    2,211
FHLB advances                                 940,725         299,125         245,100         256,500         140,000
Lines of credit                               194,607         194,607              --              --              --
Other borrowings                               45,065          10,065              --              --          35,000
Repurchase agreements                       1,489,758         862,850         438,708          50,000         138,200
Non-cancellable leases                         38,610           5,841           9,781           7,630          15,358
                                           ----------      ----------      -----------     ----------      ----------
   Total contractual cash obligations      $5,511,089      $3,373,452      $1,174,379      $  632,489      $  330,769
                                           ==========      ==========      ==========      ==========      ==========

</TABLE>

<TABLE>
<CAPTION>
                                                               Amount of Commitment Expiration Per Period
                                                           ----------------------------------------------------
                                                           Less than      One to        Four to        After
OTHER COMMERCIAL COMMITMENTS                  Total        One Year     Three Years    Five Years    Five Years
                                              -----        ---------    -----------    ----------    ----------

<S>                                          <C>           <C>           <C>           <C>           <C>
Lines of credit                              $208,482      $184,235      $ 21,071      $    132      $  3,044
Commitments to originate mortgage loans        89,203        89,203            --            --            --
Standby letters of credit                       9,559         2,059         7,500            --            --
Undisbursed portion of loans in process        90,432        49,533        40,899            --            --
                                             --------      ---------     --------      --------      --------
   Total commercial commitments              $397,676      $325,030      $ 69,470      $    132      $  3,044
                                             ========      ========      ========      ========      ========
</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, 2002, as losses upon the completion
of the foreclosure process have been minimal to the Company. See Note 18 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 ("R-G Capital Trust"), a
Delaware business trust, which issued $25.0 million of thirty-year trust
preferred securities. The Company has guaranteed certain obligations of RAC to
R-G Capital Trust, 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. See Note 18 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


                                                                              55
<PAGE>

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.

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, 2002 the Company had a servicing asset of $142.3 million, and
retained interests (CMO residuals and interest only strips) resulting from
financial asset transfers accounted for as sales totaling $32.8 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. 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. 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.

New 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. Management
believes that the adoption of this Statement will 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. Management believes that the adoption of this Statement
will 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. The Company has followed
the disclosure only provisions of SFAS No. 123 and thus, does not recognize
compensation costs for the Company's Stock Option Plan. 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 does not intend to adopt this Statement.

Accounting 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 are effective for guarantees issued or modified after
December 31, 2002. Managements believes that the adoption of FIN No. 45 will not
have a significant impact on the Company's consolidated financial statements.


56

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

[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 as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2002, 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.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2001 the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which effect was accounted for
as a cumulative effect of a change in accounting principle.

/s/ PricewaterhouseCoopers, LLP

PricewaterhouseCoopers, LLP
San Juan, Puerto Rico

February 28, 2003

Certified Public Accountants (of Puerto Rico)
License No. 216 expires on December 1, 2004
Stamp 1838448 of the P.R. Society of Certified
Public Accountants has been affixed to the file
copy of this report.

                                                                              57

<PAGE>


R-G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                        2002                2001
                                                                                   --------------      --------------
<S>                                                                                <C>                 <C>
ASSETS

Cash and due from banks                                                            $  128,085,571      $   79,223,030
Money market investments:
  Securities purchased under agreements to resell                                              --          15,023,590
  Time deposits with other banks                                                       65,400,717          63,477,978
  Short-term investments                                                                4,156,894                  --
Mortgage loans held for sale, at lower of cost or market                              258,737,736         236,434,204
Mortgage-backed securities held for trading, at fair value                             48,650,844          75,796,172
Trading securities pledged on repurchase agreements, at fair value                     26,106,340          18,151,659
Mortgage-backed and investment securities available for sale, at fair value         1,819,256,984       1,596,231,433
Securities available for sale pledged on repurchase agreements, at fair value         737,655,921         485,447,347
Mortgage-backed and investment securities held to maturity, at amortized
  cost (estimated market value: 2002 - $30,884,691; 2001 - $60,682,234)                30,660,525          60,425,371
Securities held to maturity pledged on repurchase agreements, at amortized
  cost (estimated market value: 2002 - $45,925,695; 2001 - $15,445,319)                44,930,272          15,206,183
Loans receivable, net                                                               2,759,688,983       1,802,388,064
Accounts receivable, including advances to investors, net                              32,100,002          23,056,424
Accrued interest receivable                                                            40,400,720          35,426,760
Servicing asset, net                                                                  142,334,128         105,146,902
Premises and equipment, net                                                            38,665,444          22,401,045
Other assets                                                                          100,414,600          30,557,544
                                                                                   --------------      --------------
                                                                                   $6,277,245,681      $4,664,393,706
                                                                                   ==============      ==============
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Deposits                                                                         $2,802,324,012      $2,061,223,825
  Securities sold under agreements to repurchase                                    1,489,758,391       1,396,938,849
  Notes payable                                                                       194,607,115         195,586,855
  Advances from FHLB                                                                  940,725,000         464,125,000
  Other borrowings                                                                     45,065,406           7,971,888
  Accounts payable and accrued liabilities                                            134,426,467          71,867,012
  Other liabilities                                                                     8,121,112           7,559,690
                                                                                   --------------       -------------
                                                                                    5,615,027,503       4,205,273,119
                                                                                   --------------       -------------
Commitments and contingencies

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                  --
Common stock:
  Class A - $.01 par value, 40,000,000 shares authorized,
    14,553,056 issued and outstanding (2001 - 16,053,056)                                 145,531             160,531
  Class B - $.01 par value, 60,000,000 shares authorized,
    19,440,206 issued and outstanding (2001 - 15,241,322)                                 194,402             152,413
  Additional paid-in capital                                                          114,950,629          71,254,084
  Retained earnings                                                                   294,591,859         229,997,012
  Capital reserves of the Bank                                                         17,418,760          11,629,328
  Accumulated other comprehensive income, net of tax                                   21,916,997           1,927,219
                                                                                   --------------      --------------
                                                                                      662,218,178         459,120,587
                                                                                   --------------      --------------
                                                                                   $6,277,245,681      $4,664,393,706
                                                                                   ==============      ==============
</TABLE>

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


58

<PAGE>

R-G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                              2002                2001                2000
                                                         -------------       -------------       -------------
<S>                                                      <C>                 <C>                 <C>
Interest income:
   Loans                                                 $ 180,786,462       $ 152,250,689       $ 160,092,642
   Money market and other investments                       36,890,942          31,959,284          24,720,794
   Mortgage-backed securities                              113,183,192          86,361,159          50,787,415
                                                         -------------        ------------       -------------
    Total interest income                                  330,860,596         270,571,132         235,600,851
                                                         -------------        ------------       -------------
Interest expense:
   Deposits                                                 88,349,204          88,853,997          80,658,716
   Securities sold under agreements to repurchase           51,121,320          49,476,045          50,542,190
   Notes payable                                             6,789,480          11,395,214          11,628,438
   Other                                                    31,511,813          23,800,847          27,784,370
                                                         -------------       -------------       -------------
                                                           177,771,817         173,526,103         170,613,714
                                                         -------------       -------------       -------------
Net interest income                                        153,088,779          97,045,029          64,987,137
Provision for loan losses                                  (18,020,000)        (11,125,000)         (5,751,325)
                                                         -------------       -------------       -------------
Net interest income after provision for loan losses        135,068,779          85,920,029          59,235,812
                                                         -------------       -------------       -------------
Non-interest income:
   Net gain on origination and sale of loans                85,538,132          62,511,929          41,230,234
   Loan administration and servicing fees                   47,201,833          33,920,016          30,848,557
   Service charges, fees and other                          16,430,656          12,615,157           7,231,178
                                                         -------------       -------------       -------------
                                                           149,170,621         109,047,102          79,309,969
                                                         -------------       -------------       -------------
    Total revenues                                         284,239,400         194,967,131         138,545,781
                                                         -------------       -------------       -------------
Non-interest expenses:
   Employee compensation and benefits                       45,244,376          33,290,372          27,031,340
   Office occupancy and equipment                           19,630,898          16,648,510          13,435,644
   Other administrative and general                         94,362,611          57,133,173          40,324,994
                                                         -------------       -------------       -------------
                                                           159,237,885         107,072,055          80,791,978
                                                         -------------       -------------       -------------
Income before income taxes and cumulative
   effect of change in accounting principle                125,001,515          87,895,076          57,753,803
                                                         -------------       -------------       -------------
Income tax expense:
   Current                                                  22,804,814          20,465,327          12,276,425
   Deferred                                                  5,854,545           1,136,178           1,844,583
                                                            28,659,359          21,601,505          14,121,008
Income before cumulative effect from change
   in accounting principle                                  96,342,156          66,293,571          43,632,795
Cumulative effect from change in accounting
   principle, net of income tax benefit of $206,334                 --            (322,728)                 --
                                                         -------------       -------------       -------------
   Net income                                            $  96,342,156       $  65,970,843       $  43,632,795
   Less: Preferred stock dividends                         (14,954,911)         (9,920,100)         (5,637,500)
                                                         -------------       -------------       -------------
   Net income available to common stockholders           $  81,387,245       $  56,050,743       $  37,995,295
                                                         =============       =============       =============
Earnings per common share before cumulative
   effect from change in accounting principle
   Basic                                                 $        2.51       $        1.89       $        1.33
                                                         -------------       -------------       -------------
   Diluted                                               $        2.49       $        1.85       $        1.30
                                                         -------------       -------------       -------------
Earnings per common share:
   Basic                                                 $        2.51       $        1.88       $        1.33
                                                         -------------       -------------       -------------
   Diluted                                               $        2.49       $        1.83       $        1.30
                                                         -------------       -------------       -------------
</TABLE>


The accompanying notes are an integral part of these financial statements


                                                                              59

<PAGE>


R-G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


<TABLE>
<CAPTION>
                                                       2002                2001                2000
                                                  -------------       -------------       -------------
<S>                                               <C>                 <C>                 <C>
Net income                                        $  96,342,156       $  65,970,843       $  43,632,795
Other comprehensive income, before tax:
Unrealized gains (losses):
  Cash flow hedges                                   (9,975,109)         (9,947,245)                 --
                                                  -------------       -------------       -------------
  Investment securities:
  Arising during period                              43,792,471          14,724,483          11,012,938
  Less: Reclassification adjustments for
    (gains) losses included in net income              (982,404)         (2,341,676)            576,446
                                                  -------------       -------------       -------------
                                                     42,810,067          12,382,807          11,589,384
                                                  -------------       -------------       -------------
Other comprehensive income before income
  taxes and cumulative effect from change in
  accounting principle                               32,834,958           2,435,562          11,589,384

Income tax expense related to items
    of other comprehensive income                   (12,845,180)           (949,869)         (4,519,860)
                                                  -------------       -------------       -------------
Other comprehensive income before
  cumulative effect from change in
  accounting principle                               19,989,778           1,485,693           7,069,524
Cumulative effect from change in accounting
  principle, net of income taxes of $745,446                 --           1,165,953                  --
                                                  -------------       -------------       -------------
Other comprehensive income, net of tax               19,989,778           2,651,646           7,069,524
                                                  -------------       -------------       -------------
Comprehensive income, net of tax                  $ 116,331,934       $  68,622,489       $  50,702,319
                                                  =============       =============       =============
</TABLE>


<TABLE>
<CAPTION>
                                                    Preferred Stock                      Common Stock
                                                                                            Class A
                                                Shares            Amount            Shares          Amount
                                               ---------      ------------        ----------       --------
<S>                                            <C>            <C>                 <C>              <C>
Balance at December 31, 1999                   3,000,000      $ 75,000,000        18,440,556       $184,406
Issuance of common stock
Cash dividends declared:
  Common stock
  Preferred stock
Net income
Transfer to capital reserves
Other comprehensive income, net of tax
                                               ---------      ------------        ----------       --------
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
                                               =========      ============        ==========       ========
</TABLE>


60


<PAGE>


R-G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>

                                                                        Accumulated
              Common Stock                                                 other
             Class B                Additional         Capital         comprehensive        Retained
      Shares          Amount      paid-in capital      reserves        income (loss)        earnings             Total
    ----------      ---------     ---------------    ------------      -------------     -------------       -------------
    <S>             <C>           <C>                <C>               <C>               <C>                 <C>
    10,217,731      $ 102,177      $ 40,753,856      $  5,095,658      $ (7,793,951)     $ 156,193,131       $ 269,535,277
        12,298            123            46,796                                                                     46,919

                                                                                            (5,811,365)         (5,811,365)
                                                                                            (5,637,500)         (5,637,500)
                                                                                            43,632,795          43,632,795
                                                        2,348,450                           (2,348,450)
                                                                          7,069,524                              7,069,524
    ----------      ---------     ---------------    ------------      -------------     -------------       -------------
    10,230,029        102,300        40,800,652         7,444,108          (724,427)       186,028,611         308,835,650

     4,415,000         44,150        31,053,535                                                                 31,075,610
       596,293          5,963         1,797,972                                                                  1,802,135
                                     (2,398,075)                                                                66,601,925

                                                                                            (7,897,122)         (7,897,122)
                                                                                            (9,920,100)         (9,920,100)
                                                                                            65,970,843          65,970,843
                                                        4,185,220                           (4,185,220)
                                                                          2,651,646                              2,651,646
    ----------      ---------     ---------------    ------------      -------------     -------------       -------------
    15,241,322        152,413        71,254,084        11,629,328         1,927,219        229,997,012         459,120,587

     4,025,000         40,250        45,212,131                                                                 45,237,381
       173,884          1,739           893,667                                                                    895,406
                                     (2,409,253)                                                                66,590,747

                                                                                           (11,002,966)        (11,002,966)
                                                                                           (14,954,911)        (14,954,911)
                                                                                            96,342,156          96,342,156
                                                        5,789,432                           (5,789,432)                 --
                                                                         19,989,778                             19,989,778
    19,440,206      $ 194,402      $114,950,629      $ 17,418,760      $ 21,916,997      $ 294,591,859       $ 662,218,178
    ==========      =========     =============      ============      ============      =============       =============
</TABLE>


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


                                                                              61
<PAGE>
R-G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                             2002                2001                 2000
                                                        ---------------     ---------------     ---------------
<S>                                                     <C>                 <C>                 <C>
Cash flows from operating activities:
  Net income                                            $    96,342,156     $    65,970,843     $    43,632,795
                                                        ---------------     ---------------     ---------------
  Adjustments to reconcile net income to
    net cash provided by (used in)
    operating activities:
      Depreciation and amortization                           7,422,814           5,952,962           5,055,761
      Amortization of premium on investments and
        mortgage - backed securities, net                     5,150,535             628,832             293,962
      Amortization of servicing asset                        32,704,240          15,212,546           9,524,077
      Net provision for impairment on                         6,816,290           1,458,310                  --
        servicing asset
      Provision for loan losses                              18,020,000          11,125,000           5,751,325
      Provision for bad debts in
        accounts receivable                                          --             450,000             520,000
      Gain on sale of mortgage loans                                 --            (792,384)         (1,909,670)
      (Gain) loss on sales of investment
        securities available for sale                          (982,404)         (2,341,676)            576,446
      Unrealized (profit) loss on trading securities
        and derivative instruments, net                        (812,768)             17,109            (147,108)
      Increase in mortgage loans held for sale             (103,131,833)       (216,392,433)       (148,713,248)
      Net decrease (increase) in mortgage-backed
        securities held for trading                          20,179,510          (3,969,362)         31,672,885
      Increase in interest and accounts                     (11,271,762)        (13,100,635)         (6,745,660)
        receivable
      Decrease (increase) in other assets                       502,446          (2,504,983)         (9,870,776)
      Increase in notes payable and other                     1,113,778          91,361,411          30,147,437
        borrowings
      Increase in accounts payable
        and accrued liabilities                              31,848,023          17,113,470           3,929,319
      (Decrease) increase in other liabilities                 (198,064)          2,074,360             342,703
                                                        ---------------     ---------------     ---------------

      Total adjustments                                       7,360,805         (93,707,473)        (79,572,547)
                                                        ---------------     ---------------     ---------------
Net cash provided by (used in) operating activities         103,702,961         (27,736,630)        (35,939,752)
                                                        ---------------     ---------------     ---------------

Cash flows from investing activities:
  Purchases of investment securities available for
    sale and held to maturity                            (1,226,498,149)       (933,955,383)       (121,965,820)
  Proceeds from sales of investment
    securities available for sale and redemptions
    of investment securities available for sale
    and held to maturity                                  1,004,165,419         653,307,375         100,574,835
  Principal repayments on mortgage-backed
    securities                                              507,601,305         120,775,229          43,696,049
  Proceeds from sale of loans                                        --         131,508,175         107,563,097
  Net originations of loans                              (1,045,202,416)       (735,404,345)       (590,126,877)
  Purchases of FHLB stock, net                              (11,030,100)        (20,103,400)        (13,148,000)
  Net assets acquired, net of cash received                 (63,679,367)                 --             958,428
  Acquisition of premises and equipment                      (9,772,883)         (7,655,624)         (4,729,443)
  Purchases of servicing rights                             (44,230,234)        (26,739,228)        (20,350,101)
                                                        ---------------     ---------------     ---------------

  Net cash used in investing activities                    (888,646,425)       (818,267,201)       (497,527,832)
                                                        ---------------     ---------------     ---------------
</TABLE>


62                                  (continued)


<PAGE>


R-G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                             2002                2001                 2000
                                                        ---------------     ---------------     ---------------
<S>                                                     <C>                 <C>                 <C>
Cash flows from financing activities:
  Payments on term notes                                $            --     $   (35,500,000)    $   (25,000,000)
  Increase in deposits, net                                 272,961,736         385,161,662         345,555,795
  Increase in securities sold under
    agreements to repurchase, net                            72,716,542         569,189,355          96,408,154
  (Decrease) increase in federal funds purchased                     --         (25,000,000)         10,000,000
  Advances (repayments) from FHLB, net                      358,500,000         (40,875,000)        121,000,000
  Proceeds from issuance of trust preferred
    securities                                               33,918,113                  --                  --
  Net proceeds from issuance of preferred stock              66,590,747          66,601,925                  --
  Net proceeds from issuance of common stock                 46,132,787          32,877,745              46,919
  Cash dividends - common stock                             (11,002,966)         (7,897,122)         (5,811,365)
                 - preferred stock                          (14,954,911)         (9,920,100)         (5,637,500)
                                                        ---------------     ---------------     ---------------
Net cash provided by financing activities                   824,862,048         934,638,465         536,562,003
                                                        ---------------     ---------------     ---------------
Net increase in cash and
  cash equivalents                                           39,918,584          88,634,634           3,094,419

Cash and cash equivalents at beginning of year              157,724,598          69,089,964          65,995,545
                                                        ---------------     ---------------     ---------------
Cash and cash equivalents at end of year                $   197,643,182     $   157,724,598     $    69,089,964
                                                        ===============     ===============     ===============
Cash and cash equivalents include:
  Cash and due from banks                               $   128,085,571     $    79,223,030     $    43,466,268
  Securities purchased under agreements
    to resell                                                        --          15,023,590                  --
  Time deposits with other banks                             65,400,717          63,477,978          25,623,696
  Short-term investments                                      4,156,894                  --                  --
                                                        ---------------     ---------------     ---------------
                                                        $   197,643,182     $   157,724,598     $    69,089,964
                                                        ===============     ===============     ===============
</TABLE>

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



                                                                              63

<PAGE>

R-G FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000

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, 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 and licensed securities
broker-dealer, and Home & Property Insurance Corp., a Puerto Rico corporation
and insurance agency. The Company operates as a financial holding Company,
pursuant to the provisions of the Gramm-Leach-Bliley Act of 1999, and is
primarily engaged in banking, mortgage banking, and 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 totalling approximately $48.5 million which
is included in other assets in the accompanying consolidated statement of
financial condition as of December 31, 2002. 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 provides a full range of banking services, including
residential, commercial and personal loans and a variety of deposit products.
R-G Premier operates through twenty-nine branches located mainly in the
northeastern part of the Commonwealth of Puerto Rico. Crown Bank operates in the
Orlando and Tampa/St. Petersburg metropolitan areas through fifteen full service
branches and six commercial lending offices. R-G Premier also provides private
banking, trust and other financial services to its customers. As discussed in
Note 15 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). 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.

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

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 $25.0 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 $10.0 million of
trust preferred securities in a private placement. Such securities are
redeemable beginning in 2007 and are included within other borrowings in the
accompanying Consolidated Statements of Financial Condition.


64

<PAGE>


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 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 classified as either
available for sale or held to maturity 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 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.


                                                                              65

<PAGE>


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 earlier 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
subjectivity 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.

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

66
<PAGE>


control has 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. Generally,
the Company retains the right to service the loans, and the sales of
non-conforming loans to local financial institutions and FHLMC and FNMA are on
recourse basis. 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 $20.8 million, $14.1
million and $6.1 million during the years ended December 31, 2002, 2001 and
2000, respectively. In addition, interest only strips recognized in
securitizations totaled $16,793,000 and $2,334,000 in 2002 and 2001,
respectively; no interest-only strips were recognized in 2000.

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 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 standards 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.

                                                                              67
<PAGE>


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

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 and certain identifiable
intangibles held and used 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 has
recognized goodwill totalling $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, totalling $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 $1,449,000 and $972,000 at December 31, 2002 and 2001,
respectively; amortization expense during 2002, 2001 and 2000 was $477,000,
$165,000 and $165,000, respectively.

On October 30, 2000, the Company acquired Home & Property Insurance Corp. (Home
& Property) at a cost of approximately $345,000. The acquisition was accounted
for under the purchase method of accounting resulting in the recognition of
goodwill of approximately $335,000.

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 and 2000 was $436,000 and $447,000, respectively.


68

<PAGE>


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 similar
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 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.

Employee benefits

The Company and its subsidiaries have no post retirement benefit plans for its
employees as of December 31, 2002.

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 paid-in common and preferred stock
capital.

Stock option plan

As discussed in Note 16 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. The Company complies with the
disclosure provisions of SFAS No. 123 - "Accounting for Stock-Based
Compensation."

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


                                                                              69
<PAGE>

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, 2002 include $9,250,000 pledged as
collateral on interest rate SWAP agreements.

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 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 a 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.

New 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. Management
believes that the adoption of this Statement will 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. Management believes that the adoption of this Statement
will 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. The

70

<PAGE>


Company has followed the disclosure only provisions of SFAS No. 123 and thus,
does not recognize compensation costs for the Company's Stock Option Plan.
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 does not intend to adopt this
Statement.

Accounting 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 are effective for guarantees issued or modified after
December 31, 2002. Managements believes that the adoption of FIN No. 45 will not
have a significant impact on the Company's consolidated financial statements.

2. Mortgage loans held for sale

Mortgage loans held for sale consist of:


<TABLE>
<CAPTION>
                                               December 31,
                                    -----------------------------------
                                        2002                  2001
                                    -------------         -------------
<S>                                 <C>                   <C>
Conventional loans                  $ 191,411,106         $ 133,837,961

FHA/VA loans                           67,326,630         $ 102,596,243
                                    -------------         -------------
                                    $ 258,737,736         $ 236,434,204
                                    =============         =============
</TABLE>


The aggregate amortized cost and approximate market value of loans held for sale
as of December 31, 2002 are as follows:

<TABLE>
<CAPTION>
   Amortized    Gross unrealized    Gross unrealized    Approximate
     cost            gains              losses          market value
-------------   ----------------    ----------------    -------------
<S>             <C>                  <C>                <C>
$ 258,737,736    $ 6,872,916          $ (109,060)       $ 265,501,592
</TABLE>

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


                                                                              71
<PAGE>


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>
                                                              2002                2001                2000
                                                        ---------------     ---------------     ---------------
<S>                                                     <C>                 <C>                 <C>
Proceeds from sales of mortgage loans
  and mortgage-backed securities                        $ 1,186,489,878     $ 1,223,894,857     $   749,092,437

Mortgage loans and mortgage-
  backed securities sold                                 (1,113,708,287)     (1,180,049,738)       (718,925,649)
                                                        ---------------     ---------------     ---------------

Gain on sale, net                                            72,781,591          43,845,119          30,166,788

Deferred fees earned, net of loan
  origination costs and commitment fees paid                 11,106,643          14,868,692          10,916,338
                                                        ---------------     ---------------     ---------------
                                                             83,888,234          58,713,811          41,083,126

Net unrealized profit on trading securities                     988,863           2,014,471             147,108

Net loss on trading derivative instruments                     (176,095)         (1,502,518)                 --
                                                        ---------------     ---------------     ---------------
Net gain on origination and sale of mortgage loans           84,701,002          59,225,764          41,230,234

Gains on sales of investment securities
  available for sale from banking activities                    837,130           3,286,165                  --
                                                        $    85,538,132     $    62,511,929     $    41,230,234
                                                        ===============     ================    ===============

</TABLE>

Total gross loan origination fees totaled approximately $40,990,000, $41,476,000
and $25,779,000 during the years ended December 31, 2002, 2001 and 2000,
respectively. Gross gains of $80,463,000, $51,918,000 and $34,789,000, and gross
losses of $7,681,000, $8,073,000 and $4,622,000 were realized on the above sales
during the years ended December 31, 2002, 2001 and 2000, respectively.


3.       Investment securities

<TABLE>
<CAPTION>
                                                              December 31,
                                                      ------------------------------
                                                          2002              2001
                                                      ------------      ------------
<S>                                                   <C>               <C>
MORTGAGE-BACKED SECURITIES HELD FOR TRADING

GNMA certificates                                     $  9,740,818      $ 18,151,659

FHLMC certificates                                      65,016,366        75,796,172
                                                      ------------      ------------
                                                      $ 74,757,184      $ 93,947,831
                                                      ============      ============
</TABLE>


72

<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 except for the investment in Federal Home Loan Bank (FHLB)
stock which is valued at its redemption value. 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,
                                                         -----------------------------------------------------------------
                                                                       2002                             2001
                                                         -------------------------------   -------------------------------
                                                            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                                 17,177,828       17,288,292        2,606,313        2,598,584
  Due from five to ten years                                 31,570,670       32,219,306       27,211,880       27,316,041
  Due over ten years                                        404,980,787      409,830,246      202,546,424      202,468,023
                                                         --------------   --------------   --------------   --------------
                                                            453,841,744      459,450,303      232,364,617      232,382,648
                                                         --------------   --------------   --------------   --------------
CMO residuals (interest only) and interest only strips
(IOs)                                                        30,964,055       32,759,469       16,529,501       17,825,674
                                                         --------------   --------------   --------------   --------------
FNMA certificates:
  Due from five to ten years                                    369,939          390,054          538,047          549,144
  Due over ten years                                        258,805,230      269,367,159      266,495,176      270,935,878
                                                         --------------   --------------   --------------   --------------
                                                            259,175,169      269,757,213      267,033,223      271,485,022
                                                         --------------   --------------   --------------   --------------
FHLMC certificates:
  Due within one year                                             1,765            1,828               --               --
  Due from one to five years                                     19,827           20,577           73,195           74,382
  Due from five to ten years                                    889,484          935,452        1,264,702        1,292,010
  Due over ten years                                        738,041,227      756,227,808      435,662,149      437,026,277
                                                         --------------   --------------   --------------   --------------
                                                            738,952,303      757,185,665      437,000,046      438,392,669
                                                         --------------   --------------   --------------   --------------
GNMA certificates:
  Due from one to five years                                         --               --           50,063           50,313
  Due from five to ten years                                 16,515,283       16,758,845       11,053,286       11,172,001
  Due over ten years                                        440,767,086      446,338,879      513,507,515      511,638,456
                                                            457,282,369      463,097,724      524,610,864      522,860,770
                                                         --------------   --------------   --------------   --------------
                                                          1,940,215,640    1,982,250,374    1,477,538,251    1,482,946,783
                                                         --------------   --------------   --------------   --------------
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                                                --               --        9,600,000        9,806,480
  Due from one to five years                                263,631,848      267,895,747      156,522,492      157,408,260
  Due from five to ten years                                137,755,838      143,695,233      307,109,665      310,937,946
                                                         --------------   --------------   --------------   --------------
                                                            401,387,686      411,590,980      473,232,157      478,152,686
                                                         --------------   --------------   --------------   --------------
Corporate debt obligations:
  Due within one year                                         3,204,892        3,366,952               --               --
  Due from one to five years                                 52,779,254       55,282,686       53,636,583       54,502,744
  Due from five to ten years                                  2,978,807        2,384,737               --               --
  Due over ten years                                          9,805,140        9,808,587               --               --
                                                         --------------   --------------   --------------   --------------
                                                             68,768,093       70,842,962       53,636,583       54,502,744
                                                         --------------   --------------   --------------   --------------
U.S. Municipal debt obligations - Due over ten years          4,884,443        4,878,910               --               --
                                                         --------------   --------------   --------------   --------------
FHLB stock                                                   84,336,667       84,336,667       66,076,567       66,076,567
                                                         --------------   --------------   --------------   --------------
Other                                                            48,617           48,617               --               --
                                                         --------------   --------------   --------------   --------------
                                                            562,691,980      574,662,531      592,945,307      598,731,997
                                                         --------------   --------------   --------------   --------------
                                                         $2,502,907,620   $2,556,912,905   $2,070,483,558   $2,081,678,780
                                                         ==============   ==============   ==============   ==============
</TABLE>

                                                                              73

<PAGE>
Mortgage-backed securities available for sale include CMO residuals and interest
only strips (I0'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, 2002 and the sensitivity analysis on the fair
value of such retained interests as of such date follows:

<TABLE>
<CAPTION>
                                                        December 31, 2002
                   --------------------------------------------------------------------------------------------------------------
                                                                                 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            $  9,101,368           $  (138,276)          $  (345,490)          $(223,505)      $  (433,404)
   Discount rate    10%

IO's Strips

   PSA             200-333           23,658,101            (2,372,233)           (4,741,114)           (735,414)       (1,472,302)
   Discount rate    13-15%         ------------           -----------           -----------           ---------       -----------

                                   $ 32,759,469           $(2,510,509)          $(5,086,604)          $(958,919)      $(1,905,706)
                                   ============           ===========           ===========           =========       ===========

</TABLE>


Anticipated credit losses as of December 31, 2002, as well as credit losses, net
of recoveries, during 2002, 2001 and 2000 were insignificant.

The fair values presented above were estimated based on a computer model used to
structure mortgage-backed securities. The computer 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 as published by
Bloomberg Financial News.


<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                  2002                                        2001
                                                     Amortized              Fair                Amortized                Fair
                                                        cost               value                   cost                  value
                                                   -------------------------------------------------------------------------------
<S>                                                <C>                   <C>                   <C>                     <C>
 MORTGAGE-BACKED SECURITIES HELD TO MATURITY

   GNMA certificates:
         Due from five to ten years                 $ 5,456,784          $ 5,513,200           $ 7,180,376             $ 7,111,405
         Due over ten years                          33,521,322           34,090,974            37,042,861              37,091,537
                                                    -----------          -----------           -----------             -----------
                                                     38,978,106           39,604,174            44,223,237              44,202,942
                                                    -----------          -----------           -----------             -----------
FNMA certificates- Due over ten years                 6,327,353            6,697,814             7,593,982               7,909,958
                                                    -----------          -----------           -----------             -----------
FHLMC certificates- Due over ten years                  102,162              102,380               128,335                 124,863
                                                    -----------          -----------           -----------             -----------
                                                     45,407,621           46,404,368            51,945,554              52,237,763
                                                    -----------          -----------           -----------             -----------
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                   1,500,000            1,500,000                    --                      --
                                                    -----------          -----------           -----------             -----------
                                                      2,497,176            2,497,176                    --                      --
                                                    -----------          -----------           -----------             -----------
Puerto Rico Government and Agencies obligations:
         Due from one to five years                  26,586,000           26,803,842            12,691,000              12,731,365
         Due from five to ten years                   1,000,000            1,005,000            10,895,000              11,058,425
                                                    -----------          -----------           -----------             -----------
                                                     27,586,000           27,808,842            23,586,000              23,789,790
                                                    -----------          -----------           -----------             -----------
Other-Due from one to five years                        100,000              100,000               100,000                 100,000
                                                    -----------          -----------           -----------             -----------
                                                     30,183,176           30,406,018            23,686,000              23,889,790
                                                    -----------          -----------           -----------             -----------
                                                    $75,590,797          $76,810,386           $75,631,554             $76,127,553
                                                    ===========          ===========           ===========             ===========
 </TABLE>


74
<PAGE>
Unrealized gains and losses on securities held to maturity and available for
sale follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                --------------------------------------------------------------------
                                                             2002                                  2001
                                                        Gross unrealized                     Gross unrealized
                                                    Gains              Losses             Gains             Losses
                                                ------------       ------------       ------------       -----------
<S>                                             <C>                <C>                <C>                <C>
Securities held to maturity:
   US Government obligations                    $         --       $         --       $         --       $        --
   Puerto Rico Government obligations                222,842                 --            203,790                --
   Mortgage-backed securities                      1,000,285             (3,538)           379,385           (87,176)
                                                ------------       ------------       ------------       -----------
                                                $  1,223,127       $     (3,538)      $    583,175       $   (87,176)
                                                ============       ============       ============       ===========
Securities available for sale:
   Mutual funds                                 $         --       $   (302,079)      $         --       $        --
   U.S. Government obligations                    10,203,294                 --          6,259,643        (1,339,114)
   Corporate debt obligations                      2,704,172           (629,303)         1,009,959          (143,798)
   Mortgage-backed securities                     43,186,551         (1,151,817)        12,881,269        (7,472,737)
   U.S. Municipal debt obligations                    42,649            (48,182)                --                --
                                                ------------       ------------       ------------       -----------
                                                $ 56,136,666       $ (2,131,381)      $ 20,150,871       $(8,955,649)
                                                ============       ============       ============       ===========
</TABLE>

During the years ended December 31, 2002, 2001 and 2000, proceeds from the sale
of securities available for sale totaled approximately $552,732,000,
$372,615,000 and $66,848,000, respectively; gross gains realized on such sales
totaled approximately $1,208,000 and $3,538,000 during 2002 and 2001
respectively; no gains were realized in 2000; gross losses realized in 2002,
2001 and 2000 were approximately $225,000, $1,196,000 and $576,000 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, 9 and 10 to the consolidated financial statements,
as of December 31, 2002 the Company had investment and mortgage-backed
securities and mortgage loans amounting to approximately $3.0 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, 2002 and 2001 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,
                                                      ------------------------------
                                                          2002              2001
                                                      ------------      ------------
<S>                                                   <C>               <C>
Mortgage-backed securities held for trading           $ 17,338,648      $         --

Mortgage-backed and investment securities
   available for sale                                  770,372,102       854,380,882

Mortgage-backed securities held to maturity                372,812        36,613,639
                                                      ------------      ------------
                                                      $788,083,562      $890,994,521
                                                      ============      ============

</TABLE>


                                                                              75
<PAGE>

4.       Loans and allowances for loan losses

         Loans consist of the following:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                    ---------------------------------------
                                                          2002                   2001
                                                    ---------------         ---------------
<S>                                                 <C>                     <C>
Real estate loans:
   Residential - first mortgage                     $ 1,473,051,302         $   996,885,290
   Residential - second mortgage                         40,429,091              33,320,705
   Land                                                  27,520,746               9,187,516
   Construction                                         355,366,539             227,271,477
   Commercial                                           633,233,584             372,923,231
                                                    ---------------         ---------------

                                                      2,529,601,262           1,639,588,219
Undisbursed portion of loans in process                 (90,431,837)            (92,934,804)
Net deferred loan (fees) costs                              (45,387)                 20,307
                                                    ---------------         ---------------

                                                      2,439,124,038           1,546,673,722
                                                    ---------------         ---------------
Other loans:
   Commercial                                           152,742,927              92,156,655
   Consumer:
       Loans secured by deposits                         28,070,245              26,175,695
       Loans secured by real estate                      68,155,929              83,509,393
       Other                                            104,714,757              71,506,951
   Unearned interest                                       (443,411)               (206,654)
                                                    ---------------         ---------------

                                                        353,240,447             273,142,040
                                                    ---------------         ---------------

   Total loans                                        2,792,364,485           1,819,815,762
Allowance for loan losses                               (32,675,502)            (17,427,698)
                                                    ---------------         ---------------

                                                    $ 2,759,688,983         $ 1,802,388,064
                                                    ===============         ===============
</TABLE>

              The changes in the allowance for loan losses follow:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                           ------------------------------------------------------
                                               2002                 2001                 2000
                                           ------------         ------------         ------------
<S>                                        <C>                  <C>                  <C>
Balance, beginning of year                 $ 17,427,698         $ 11,599,634         $  8,970,605
Provision for loan losses                    18,020,000           11,125,000            5,751,325
Acquired reserves - Crown Bank                7,463,000                   --                   --
Transferred reserves                                 --              806,176                   --
Loans charged-off                           (11,692,808)          (6,627,063)          (3,985,445)
Recoveries                                    1,457,612              523,951              863,149
                                           -----------          ------------         ------------

Balance, end of year                       $ 32,675,502         $ 17,427,698         $ 11,599,634
                                           ============         ============         ============
</TABLE>

As of December 31, 2002 and 2001 the Company had commercial loans classified as
impaired totaling $16,684,000 and $4,994,000, respectively, including $4,096,000
at December 31, 2002 acquired in connection with the acquisition of Crown Bank
in June 2002. No reserves for impairment were necessary as of such dates since
the fair value of the collateral securing such loans exceeded their outstanding
balances.

As of December 31, 2002, 2001 and 2000, loans on which the accrual of interest
income had been discontinued amounted to approximately $77,167,000, $71,582,000
and $94,982,000, respectively. The additional interest income that would have
been recognized during 2002, 2001 and 2000 had these loans been accruing
interest amounted to approximately $1,589,000, $3,254,000 and $2,664,000,
respectively. The Company has no material commitments to lend additional funds
to borrowers whose loans were in non-accruing status at December 31, 2002.


76
<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, 2002 and
2001, the mortgage loans servicing portfolio amounted to approximately
$10,991,944,000 and $7,224,571,000, respectively, including approximately
$1,084,859,000 and $1,020,564,000, respectively, serviced for R-G Premier, and
$470,100,000 and $484,961,000, respectively, under sub-servicing contracts with
an outside party. In addition, the servicing portfolio at December 31, 2002
includes $100,876,000 serviced for Crown Bank.

The changes in the servicing asset of the Company follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                      --------------------------------------------------------
                                          2002                  2001                  2000
                                      -------------         -------------         ------------
<S>                                   <C>                   <C>                   <C>
Balance at beginning of period        $ 105,146,902         $  95,078,530         $ 84,252,506
  Rights originated                      24,814,918            25,088,857           15,039,273
  Crown Bank acquired                    32,477,522                    --                   --
  Rights purchased                       23,850,824             1,650,371            5,310,828
  Scheduled  amortization               (18,502,491)          (11,303,856)          (9,524,077)
  Unscheduled amortization              (14,201,749)           (3,908,690)                  --
  Reserves for impairment                (6,816,290)           (1,458,310)                  --
  Other adjustments                      (4,435,508)                   --                   --
                                      -------------         -------------         ------------
Balance at end of period              $ 142,334,128         $ 105,146,902         $ 95,078,530
                                      =============         =============         ============
</TABLE>

The changes in the reserve for impairment follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                      --------------------------------------------------------
                                          2002                  2001                  2000
                                      -------------         -------------         ------------
<S>                                   <C>                   <C>                   <C>
Balance at beginning of period        $   1,458,310         $          --           $     --
Additions charged to expense              7,274,923             1,458,310                 --
Reductions credited to expense             (458,633)                   --                 --
Direct write-downs                               --                    --                 --
                                      -------------         -------------         ------------
Balance at end of period              $   8,274,600         $   1,458,310           $     --
                                      =============         =============         ============
</TABLE>

As of December 31, 2002 and 2001, the fair value of capitalized mortgage
servicing rights was approximately $146,855,000 and $107,119,000, respectively.
The major assumptions for the estimated fair value at December 31, 2002 were
discount rates ranging from 9% to 14% and a PSA of 100 to 1,124, depending on
the type and coupon of the loan, with a weighted average life of 7.3 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, 2002, the mortgage loan portfolio serviced
for GNMA, FNMA, FHLMC and private investors subject to the timely payment
commitment amounted to approximately $2,642,096,000, $2,752,680,000,
$2,905,752,000 and $209,083,000, respectively (2001- $2,955,997,000,
$791,904,000, $1,572,511,000 and $66,141,000, respectively).

Total funds advanced as of December 31, 2002 in relation to such commitments
amount to $6,628,000, $15,719,000 and $2,034,000 for escrow advances, principal
and interest advances and foreclosure advances, respectively (2001 - $4,359,000,
$9,089,000 and $1,789,000, respectively).


                                                                              77
<PAGE>

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, 2002 and 2001, the related escrow
funds include approximately $220,024,000 and $101,903,000, respectively,
deposited in banking subsidiaries of the Company; these funds are included in
the Company's consolidated financial statements. Escrow funds also include
approximately $4,347,000 and $4,792,000 at December 31, 2002 and 2001,
respectively, deposited with other banks and excluded from the Company's assets
and liabilities.

6.       Premises and equipment

         Premises and equipment consist of:

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                         -----------------------------------------------------------
                                                         Estimated useful life        2002                  2001
                                                               (years)
                                                         ---------------------    -------------         ------------
<S>                                                      <C>                      <C>                   <C>
Buildings                                                              20         $  17,534,574         $  2,570,311
Furniture, fixtures and equipment                                       5            34,733,140           28,522,503
Leasehold improvements                                                 10            18,495,157           14,397,266
Autos                                                                   5               846,504              703,659
                                                                                  -------------         ------------
                                                                                     71,609,375           46,193,739
Less - Accumulated depreciation and amortization                                    (32,943,931)         (23,792,694)
                                                                                  -------------         ------------
                                                                                  $  38,665,444         $ 22,401,045
                                                                                  =============         ============
</TABLE>

7.       Deposits

         Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                       ---------------------------------------
                                                            2002                     2001
                                                       ---------------         ---------------
<S>                                                    <C>                     <C>
Passbook savings                                       $   329,488,781         $   199,756,208
                                                       ---------------         ---------------
NOW accounts                                               100,030,784              68,411,356
Super NOW accounts                                         335,014,899             236,898,326
Regular checking accounts
  (non-interest bearing)                                   107,585,787              78,213,163
Commercial checking accounts
  (non-interest bearing)                                   282,769,165             167,780,668
                                                       ---------------         ---------------
                                                           825,400,635             551,303,513
                                                       ---------------         ---------------

Certificates of deposit:
  Under  $ 100,000                                         652,064,940             429,913,386
  $100,000 and over                                        991,504,220             874,494,924
                                                       ---------------         ---------------
                                                         1,643,569,160           1,304,408,310
                                                       ---------------         ---------------
Accrued interest payable                                     3,865,436               5,755,794
                                                       ---------------         ---------------
                                                       $ 2,802,324,012         $ 2,061,223,825
                                                       ===============         ===============
</TABLE>

The weighted average stated interest rate on all deposits at December 31, 2002
and 2001 was 3.06% and 4.01%, respectively.

As of December 31, 2002, the Company had delivered investment securities held to
maturity and available for sale with a carrying value of approximately $6.2
million as collateral for public funds' deposits.


78
<PAGE>

At December 31, 2002 scheduled maturities of certificates of deposit are as
follows:

<TABLE>
<CAPTION>
                                    --------------
<S>                                 <C>
   2003                             $  842,208,974
   2004                                265,937,695
   2005                                214,852,017
   2006                                127,431,230
   2007                                190,927,806
Thereafter                               2,211,438
                                    --------------
                                    $1,643,569,160
                                    ==============
</TABLE>

8.       Securities sold under agreements to repurchase

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                 ------------------------------------------------------------------------------
                                                                2002                                     2001
                                                                   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                             $  219,828,000      $  252,916,640      $  292,107,000      $  290,084,633
GNMA:
  Held for trading                                    9,448,600           9,740,818          17,607,109          18,151,659
  Available for sale                                421,184,020         434,446,308         518,860,230         537,548,442
  Held to maturity                                   38,184,000          39,601,693          43,741,000          44,205,544
CMO and CMO residuals available for sale            269,045,271         285,272,762          25,332,510          29,336,121
FHLMC:
  Held for trading                                   31,584,500          33,704,170                  --                  --
  Available for sale                                424,279,000         458,818,162         387,076,000         405,669,425
FNMA:
  Available for sale                                 17,401,000          20,424,513          61,707,000          62,060,485
  Held to maturity                                    6,622,000           6,697,814           8,166,000           7,909,958
Corporate debt obligations available for sale        52,182,000          56,149,638          42,342,000          44,465,244
                                                 --------------      --------------      --------------      --------------
                                                 $1,489,758,391      $1,597,772,518      $1,396,938,849      $1,439,431,511
                                                 ==============      ==============      ==============      ==============
</TABLE>

At December 31, 2002, repurchase agreements mature within ninety days, except
for repurchase agreements totaling $990,021,000 maturing in various dates
commencing on April 30, 2003 until February 28, 2011. Expected maturities may
differ from contractual maturities because counterparties to the agreements may
have call options. At December 31, 2002 repurchase agreements amounting to
$339.7 million had call options.

Maximum amount of borrowings outstanding at any month-end during 2002 and 2001
under the agreements to repurchase were $1,602,394,000 and $1,396,939,000,
respectively. The approximate average aggregate borrowings outstanding during
2002 and 2001 were $1,437,089,000 and $1,035,814,000, respectively. The weighted
average interest rate of such agreements was 3.16% and 3.47% at December 31,
2002 and 2001, respectively; the weighted average rate during 2002 and 2001 was
3.56% and 4.77%, respectively.


                                                                              79
<PAGE>

9.       Notes payable

         Notes payable consist of:

<TABLE>
<CAPTION>
                                                                                                          December 31,
                                                                                                 ------------------------------
                                                                                                     2002              2001
                                                                                                 ------------      ------------
<S>                                                                                              <C>               <C>
Warehousing lines, bearing interest at floating rates ranging from 1.00% to 1.25%
  over the applicable Libor rate (2.51% in 2002 and 2.98% in 2001)                               $167,957,115      $162,036,855

Lines of credit with banks for an aggregate of $31.7 million bearing interest at
  floating rates ranging from 1.375% to 1.75% over the applicable Libor rate
  (2.82% at December 31,2002 and 3.34% at December 31, 2001), collateralized
  by mortgage servicing rights with a fair value of approximately $36.3 million in 2002            26,650,000        33,550,000
                                                                                                 ------------      ------------
                                                                                                 $194,607,115      $195,586,855
                                                                                                 ============      ============
</TABLE>

As of December 31, 2002, the Company had various credit line agreements
permitting the Company to borrow up to $278.4 million in warehousing lines with
banks; the unused portion of warehousing lines totaled approximately $110.4
million. Warehousing lines at December 31, 2002 are collateralized by
approximately $216.0 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 of which the most important include maintaining net
worth and debt service over certain defined minimums, and limitations on
indebtedness and declaration of dividends.

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

<TABLE>
<CAPTION>
                                                                                               December 31, (Dollars in thousands)
                                                                                               -----------------------------------
                                                                                                     2002              2001
                                                                                               ----------------  -----------------
<S>                                                                                            <C>               <C>
Maximum aggregate borrowings outstanding at any month-end                                        $    194,607      $    222,801

Approximate average aggregate borrowings outstanding during the year                             $    256,158      $    208,521

Weighted average interest rate during the year computed on a monthly basis                               2.65%             4.37%

Weighted average interest rate at end of year                                                            2.55%             3.04%
</TABLE>

10.      Advances from The Federal Home Loan Bank

At December 31, 2002 advances from FHLB mature at various dates commencing on
January 1, 2003 until March 2, 2011, and bear interest at various rates ranging
from 1.29% to 6.31%. The weighted average stated interest rate on advances from
the FHLB was 4.23% and 4.87% at December 31, 2002 and 2001, respectively.

Scheduled maturities of FHLB Advances were as follows as of December 31, 2002:

<TABLE>
<CAPTION>
                                    (in thousands)
                                    --------------
<S>                                 <C>
   2003                             $    299,125
   2004                                       --
   2005                                  245,100
   2006                                  173,500
   2007                                   83,000
Thereafter                               140,000
                                    --------------
                                    $    940,725
                                    ==============
</TABLE>

Expected maturities may differ from contractual maturities because some of the
Advances may have call options. At December 31, 2002 FHLB Advances amounting to
$343.6 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 $1.7 billion as of December 31, 2002.
The unused portion under such line of credit was approximately $724.2 million.
Under the Agreements, the Company is required to maintain a minimum 80 amount of
qualifying collateral with a market value of at least 110% of the outstanding
advances.


80
<PAGE>
At December 31, 2002 the Company maintains collateral (principally in the form
of first mortgage notes and investment securities) amounting to approximately
$1.2 billion with the FHLB as part of the Agreements. At December 31, 2002, the
market value of the collateral indicated above was sufficient to comply with the
collateral requirements of the FHLB.

11.      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 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. Under the
Puerto Rico Income Tax Law entities are not entitled to file consolidated tax
returns.

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,
                                                                                 -------------------------------
                                                                                     2002               2001
                                                                                 ------------       ------------
<S>                                                                              <C>                <C>
DEFERRED TAX LIABILITIES:

Unrealized gain on securities held for trading                                   $  1,141,378       $    897,307
Deferred expenses                                                                     240,515             83,480
CMO residuals (IOs)                                                                 7,760,841          3,097,606
Net deferred loan origination costs                                                   509,198                 --
Servicing asset                                                                    14,584,689         16,194,122
Securitization gains on mortgage-backed securities                                  9,265,347          6,661,392
Unrealized gains on securities available for sale                                  21,068,038          4,366,136
Leases                                                                                822,019                 --
Core deposit intangible                                                               755,795                 --
Other                                                                                 338,161                 --
                                                                                 ------------       ------------
                                                                                   56,485,981         31,300,043
                                                                                 ------------       ------------
DEFERRED TAX ASSETS:

Net deferred origination fees                                                              --           (133,033)
Net operating loss carryforward                                                    (1,198,676)          (510,482)
Allowance for loan losses                                                         (12,727,926)        (6,796,802)
AMT and other tax credits                                                          (2,632,675)        (3,344,844)
Other foreclosed property reserve                                                    (894,152)           (94,748)
Unrealized losses on cash flow hedges                                              (6,993,451)        (3,133,980)
Unrealized losses on derivative instruments
   held for trading                                                                  (673,116)          (653,376)
Deferred gains on sale of investment securities                                      (208,785)          (211,228)
Recourse reserve                                                                     (702,000)                --
Other                                                                                      --           (370,500)
                                                                                 ------------       ------------
                                                                                  (26,030,781)       (15,248,993)

Net deferred tax liability                                                       $ 30,455,200       $ 16,051,050
                                                                                 ============       ============
</TABLE>


                                                                              81
<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)
                                                         -----------------------------------------------------------------------
                                                                2002                     2001                    2000
                                                         ----------------------   ---------------------   ----------------------
                                                                    % of pretax             % of pretax             % of pretax
                                                          Amount       Income      Amount      Income      Amount      Income
                                                         --------   -----------   --------  -----------   --------  ------------
<S>                                                      <C>        <C>           <C>       <C>           <C>       <C>
Computed income tax at statutory rate                    $ 48,751         39%     $ 34,073        39%     $ 22,524        39%
Effect on provision of:
  Tax-exempt interest                                     (19,603)       (15)      (11,968)      (14)       (5,907)      (11)
  Adjustment for tax  differences expected to reverse
    at tax rates lower than the statutory rate                 --         --          (576)       (1)       (1,664)       (3)
  Discount on tax credits purchased                            --         --            --        --        (1,133)       (2)
  Other  (non-taxable) / non-deductible items, net           (488)        (1)           73         1           301         1
                                                         --------                 --------                --------

                                                         $ 28,660         23%     $ 21,602        25%     $ 14,121        24%
                                                         ========                 ========                ========
</TABLE>

12.      Stockholders' equity

The Company's average number of common shares outstanding used in the
computation of basic earnings per common share was 32,420,877 in 2002 (2001 -
29,871,972; 2000 - 28,662,305); the weighted average number of shares
outstanding for the computation of diluted earnings per share was 32,706,465 in
2002 (2001 - 30,552,403; 2000 -29,314,712) after giving effect to outstanding
stock options granted under the Company's Stock Option Plan. During 2002, cash
dividends were paid of $0.336 (2001 -$0.2635; 2000 - $0.20275) per common share
amounting to $11,003,000 (2001 - $7,897,000; 2000 - $5,811,000).


Non-cumulative perpetual preferred stocks at December 31, 2002 may be redeemed
in whole or in part at various redemption prices ranging from $26.00 to $25.00
beginning on October 1, 2003 at the Company's option as follows:

<TABLE>
               <S>                                   <C>
               Series A                              October 1, 2003

               Series B                              January 1, 2005

               Series C                              April 1, 2006

               Series D                              March 1, 2007
</TABLE>

13.      Non-interest expenses

Non-interest expenses consist of the following:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                 -----------------------------------------
                                                     2002           2001           2000
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
Stationery and supplies                          $ 4,064,341    $ 2,304,214    $ 1,861,689
Advertising and promotion                         11,662,034      8,559,121      5,488,373
Telephone                                          2,226,061      1,767,115      1,745,117
License and other taxes                            4,915,995      4,282,639      3,597,296
Deposit insurance                                    569,730        318,790        293,751
Other insurance                                    1,186,844        858,572        865,039
Legal and other professional services              3,752,660      2,527,347      2,213,678
Amortization and impairment of
   mortgage servicing asset                       39,520,530     16,670,855      9,524,077
Goodwill amortization                                     --        435,626        446,960
Guaranty fees                                      2,813,167      3,218,576      2,536,248
Other                                             23,651,249     16,190,318     11,752,766
                                                 -----------    -----------    -----------
                                                 $94,362,611    $57,133,173    $40,324,994
                                                 ===========    ===========    ===========
</TABLE>


82
<PAGE>
14. 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 2002 were
approximately $3,006,000 (2001 - $2,352,000; 2000 - $2,179,000).

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, 2002 the aggregate amount of loans outstanding to officers,
directors, and principal stockholders' of the Company and its subsidiaries were
insignificant.

15. 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 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 requires 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,
2001, the Company meets all capital adequacy requirements to which it is
subject.

As of December 31, 2002, 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.



                                                                              83

<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, 2002 and 2001:

<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, 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%

As of December 31, 2001
Total capital (to risk weighted assets):
    Consolidated                                 $448,715        18.37%        $195,442        8%             N/A        N/A
    R-G Premier Bank only                        $255,557        12.11%        $168,828        8%        $211,035        10%
Tier I capital (to risk weighted assets):
  Consolidated                                   $439,885        18.01%        $ 97,721        4%             N/A        N/A
  R-G Premier Bank only                          $239,439        11.35%        $ 84,414        4%        $126,620         6%
Tier I capital (to average assets):
  Consolidated                                   $439,885         9.81%        $179,325        4%             N/A        N/A
  R-G Premier Bank only                          $239,439         6.44%        $148,620        4%        $185,775         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, 2002 include the impact of this new capital rule.

16. Stock option plan

The Company has a Stock Option Plan, which is 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 869,400 shares after giving effect to
stock splits) were 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.


84

<PAGE>

Stock options granted, cancelled and exercised during 2000, 2001 and 2002 were
as follows:

<TABLE>
<CAPTION>
                                                                    weighted
                                                                 average price
                                                                 -------------
<S>                                                 <C>          <C>
Outstanding stock options, January 1, 2000           755,160         $ 5.69
   Exercised                                          (9,720)        $ 4.03
   Cancelled                                          (8,640)        $ 4.03
Outstanding stock options, December 31, 2000         736,800         $ 5.75
   Granted                                            50,000         $15.00
   Exercised                                        (414,720)        $ 4.22
   Cancelled                                         (12,000)        $16.25
Outstanding stock options, December 31, 2001         360,080         $ 8.46
   Exercised                                        (172,600)        $ 4.12
   Cancelled                                              --         $   --
Outstanding stock options, December 31, 2002         187,480         $12.03

</TABLE>

Outstanding stock options at December 31, 2002 are exercisable at prices ranging
from $4.03 to $16.125, and have a remaining weighted average contractual life of
6.20 years.

The Company adopted in 1996 the disclosure provisions of SFAS No. 123 -
"Accounting for Stock-Based Compensation" (SFAS 123). Accordingly, 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, 2002, 2001 and 2000 would have been reduced to the pro-forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                    2002                2001                2000
                                                ------------        ------------        ------------
<S>                                             <C>                 <C>                 <C>
Net earnings - as reported                      $ 96,342,156        $ 65,970,843        $ 43,632,795
Net earnings - pro forma                        $ 96,187,642        $ 65,816,329        $ 43,478,281
Basic earnings per share - as reported          $       2.51        $       1.88        $       1.33
Basic earnings per share - pro forma            $       2.51        $       1.87        $       1.32
Diluted earnings per share - as reported        $       2.49        $       1.83        $       1.30
Diluted earnings per share - pro forma          $       2.48        $       1.83        $       1.29
</TABLE>

17. 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, 2002,
2001 and 2000 amounted to approximately $288,000, $257,000 and $232,000,
respectively.

18. Commitments and contingencies

Commitments to buy and sell GNMA certificates As of December 31, 2002, the
Company had open commitments to issue GNMA certificates in the amount of $23.7
million.

Commitments to sell mortgage loans

As of December 31, 2002, the Company had commitments to sell mortgage loans to
third party investors amounting to $179.6 million.

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.


                                                                              85

<PAGE>

As of December 31, 2002, 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>
                    2003                                  $   5,840,617
                    2004                                      5,338,395
                    2005                                      4,442,586
                    2006                                      3,943,635
                    2007                                      3,686,732
                  Later years                                15,358,518
                                                           ------------
                                                           $ 38,610,483
                                                           ============
</TABLE>

Rent expense amounted to approximately $7,185,000 in 2002, $5,752,000 in 2001
and $5,091,000 in 2000.

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, 2002, the Company is liable under limited recourse provisions
resulting from the sale of residential mortgage loans to several investors,
principally FHLMC. The principal balance of these loans, which are serviced by
the Company, amounts to approximately $762.3 million at December 31, 2002. As of
December 31, 2002 the Company has an allowance for recourse provisions of $1.8
million. Historical losses on recourse obligations have not been significant.

In April 2002, R-G Acquisition Holdings Corporation (a wholly-owned subsidiary
of R-G Financial) ("RAC"), a Florida corporation and savings and loan holding
company, formed R-G Capital Trust I ("R-G Capital Trust"), a Delaware statutory
business trust, which issued $25.0 million of thirty-year trust preferred
securities in a private placement. Interest paid during 2002 totaled
approximately $1,604,000. The Company has guaranteed certain obligations of RAC
to R-G Capital Trust, 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.

19. Supplemental disclosure on the statements of cash flows

During 2002, 2001 and 2000, the Company paid interest amounting to approximately
$183,704,000, $177,254,000 and $168,870,000, respectively, and income taxes of
approximately $13,348,000, $7,409,000 and $18,142,000, respectively.

During 2002, 2001 and 2000 the Company retained as investment securities
approximately $534,656,000, $421,645,000 and $410,453,000, respectively, of
loans securitized from its mortgage loan portfolio.

20. 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 $208.5 million and $9.6 million, respectively, as of
December 31, 2002.

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


86

<PAGE>

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.

21. 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, 2002
follows:

<TABLE>
<CAPTION>
                                    notional                               pay fixed          receive              designation/
Hedged item                          amount              maturity             rate         rate floating           description
-----------                         --------             --------          ---------       -------------           -----------
<S>                               <C>                <C>                   <C>             <C>                  <C>
N/A                               $10,000,000          June 6, 2003           6.83%        3 month Libor        Trading derivative
Repurchase agreements              15,000,000        February 6, 2006         4.80%        3 month Libor         Cash flow hedge
FHLB Advance                       50,000,000        February 6, 2006         4.67%        3 month Libor         Cash flow hedge
Trust preferred securities         25,000,000         April 22, 2007          8.77%        3 month Libor         Cash flow hedge
Repurchase agreements              70,000,000        December 8, 2009         5.60%        3 month Libor         Cash flow hedge
N/A                                10,000,000        December 15, 2009        5.69%        3 month Libor        Trading derivative
</TABLE>

The following table summarizes the changes in notional amounts of swaps
outstanding during 2002:

<TABLE>
<S>                      <C>
Beginning balance        $155,000,000
New swaps                  25,000,000
Maturities                         --
                         ------------
Ending balance           $180,000,000
                         ============
</TABLE>

As of December 31, 2002, interest rate swap maturities are as follows:

<TABLE>
           <S>         <C>
           2003        $ 10,000,000
           2006          65,000,000
           2007          25,000,000
           2009          80,000,000
                       ------------
                       $180,000,000
                       ============
</TABLE>

Expected maturities will differ from contractual maturities because
counterparties to the agreements may have the right to call the swaps. As of
December 31, 2002, swap agreements with call options totalled $155 million.

Net interest settlements on swap agreements are recorded as an adjustment to
interest expense on notes payable and repurchase agreements. Net interest paid
during 2002 and 2001 amounted to approximately $5,685,000 and $1,727,000,
respectively; net interest received amounted to approximately $886,000 during
2000.

At December 31, 2002 and 2001, swap agreement designated as cash flow hedges had
a negative fair value of $18,011,000 and $8,036,000, respectively, that has been
recorded as a liability in the accompanying consolidated statements of financial
condition. For the years ended December 31, 2002 and 2001, mark-to-market losses
of $176,000 and $1,503,000, respectively, were


                                                                              87

<PAGE>

recorded in trading activities in the accompanying consolidated statements of
income related to swaps designated as trading. Also, unrealized losses related
to the fair value of swaps designated as cash flow hedges amounting to
approximately $9,975,000 and $9,947,000, were recorded as part of other
comprehensive income in the consolidated statements of stockholders' equity.

Interest rate cap agreements with an aggregate amount of $200 million matured in
August 2002.

22. 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>

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                                                    $   2.51            2.49        $   1.89            1.89
  Diluted                                                  $   2.49            2.47        $   1.85            1.85
Earnings per common share:
  Basic                                                    $   2.51            2.49        $   1.88            1.88
  Diluted                                                  $   2.49            2.47        $   1.83            1.84
</TABLE>

23. 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


88

<PAGE>


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,
                                                 ------------------------------------------------
                                                     2002               2001               2000
                                                     ----               ----               ----
<S>                                              <C>                <C>                <C>
Employee costs                                   $71,829,758        $56,181,507        $43,372,567
                                                 -----------        -----------        -----------
Other administrative and general expenses        $99,785,058        $62,000,927        $44,155,321
                                                 -----------        -----------        -----------
</TABLE>

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,
                                                      -------------------------------------------------
                                                          2002               2001               2000
                                                          ----               ----               ----
<S>                                                   <C>                <C>                <C>
Offset against mortgage loan sales and fees           $11,072,074        $ 6,263,810        $ 3,665,396
                                                      -----------        -----------        -----------
Offset against interest income on loans               $ 4,603,135        $ 4,243,213        $ 3,128,092
                                                      -----------        -----------        -----------
Capitalized as part of loans held for sale and
loans held for investment                             $16,332,620        $17,251,866        $13,378,066
                                                      -----------        -----------        -----------
</TABLE>

24. 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>
                                                                            (Dollars in thousands)
                                                       ----------------------------------------------------------------
                                                                  2002                                2001
                                                        Carrying         Estimated          Carrying         Estimated
                                                          value          fair value           value          fair value
                                                       ----------        ----------        ----------        ----------
<S>                                                    <C>               <C>               <C>               <C>
FINANCIAL ASSETS

Cash and due from banks                                $  128,086        $  128,086        $   79,223        $   79,223
Time deposits with other banks                             65,401            65,401            63,478            63,478
Securities purchased under agreements to resell                --                --            15,024            15,024
Mortgage loans held for sale                              258,738           265,502           236,434           243,067
Mortgage-backed securities held for trading                74,757            74,757            93,948            93,948
Investment and mortgage-backed securities
  available for sale                                    2,472,576         2,472,576         2,015,602         2,015,602
Investment in Federal Home Loan Bank stock                 84,337            84,337            66,077            66,077
Investment and mortgage-backed securities
  held to maturity                                         75,591            76,810            75,632            76,128
Loans, net                                              2,759,689         2,928,281         1,802,388         1,884,611
Accounts receivable                                        72,501            72,501            58,483            58,483

FINANCIAL LIABILITIES

Deposits:

  Non-interest bearing demand                          $  390,355        $  390,355        $  245,994        $  245,994
  Savings and NOW accounts                                764,534           768,926           505,066           505,228
  Certificates of deposit                               1,647,435         1,669,561         1,310,164         1,294,804
Securities sold under agreements to repurchase          1,489,758         1,513,860         1,396,939         1,390,762
Notes payable                                             194,607           194,607           195,587           195,587
Advances from FHLB                                        940,725           977,339           464,125           468,662
Other borrowings                                           45,065            45,343             7,972             7,972
Accounts payable and accrued liabilities                  134,426           134,426            71,867            71,867
Trading derivative instruments                              1,584             1,584             1,408             1,408
Derivative instruments accounted for as cash
  flow hedges                                              18,011            18,011             8,036             8,036

</TABLE>


                                                                              89

<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, 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 the actual interest rates at December 31, 2002 and 2001. 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


90

<PAGE>

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.

25. 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, 2002
and 2001 and the results of its operations and its cash flows for each of the
three years ended on December 31, 2001:

<TABLE>
<CAPTION>
                                                                         December 31,
STATEMENTS OF FINANCIAL CONDITION                                  2002                2001
                                                               ------------        ------------
<S>                                                            <C>                 <C>
ASSETS

Cash                                                           $ 16,213,087        $ 29,777,023

Mortgage-backed and investment securities held
   to maturity, at amortized cost (market value:
   2002 - $35,739,706; 2001 - $36,150,901)                       35,166,516          36,087,492
Investment securities available for sale, at fair value              48,617                  --
Investment in R-G Premier Bank, at equity                       341,344,348         248,792,067
Investment in R-G Acquisition Holdings Corporation,
   at equity                                                     87,441,650                  --
Investment in R-G Mortgage, at equity                           188,519,169         156,755,609
Investment in Home & Property Insurance Corp.,
   at equity                                                      8,221,475           4,411,074
Investment in R-G Investment Corporation, at equity               4,439,908           1,367,703
Investment in R-G International Corp., at equity                    500,000             500,000
Accrued interest receivable                                         174,029             296,708
Accounts receivable - subsidiaries                               11,219,953          15,259,242
Other assets                                                        148,371             222,918
                                                               ------------        ------------
   Total assets                                                $693,437,123        $493,469,836
                                                               ============        ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Advances from subsidiaries                                     $ 30,381,040        $ 34,177,000
Other liabilities and accrued expenses                              837,905             172,249
Stockholders' equity                                            662,218,178         459,120,587
                                                               ------------        ------------
   Total liabilities and stockholders' equity                  $693,437,123        $493,469,836
                                                               ============        ============
</TABLE>


                                                                              91

<PAGE>

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                      -------------------------------------------------
STATEMENTS OF INCOME                                     2002               2001               2000
                                                      -----------        -----------        -----------
<S>                                                   <C>                <C>                <C>
Income:
  Interest income                                     $ 2,428,039        $ 1,006,040        $        --
  Other                                                   902,558            549,382            448,267
                                                      -----------        -----------        -----------
                                                        3,330,597          1,555,422            448,267

Operating expenses                                        820,507            503,496            383,539
                                                      -----------        -----------        -----------
Income before income taxes and equity
  earnings in unconsolidated subsidiaries               2,510,090          1,051,926             64,728
Income taxes                                               25,000             17,803             18,124
                                                      -----------        -----------        -----------

Income before equity earnings
    in unconsolidated subsidiaries                      2,485,090          1,034,123             46,604
Equity earnings in unconsolidated subsidiaries         93,857,066         64,936,720         43,586,191
                                                      -----------        -----------        -----------
Net income                                            $96,342,156        $65,970,843        $43,632,795
                                                      ===========        ===========        ===========
</TABLE>

The Holding Company had no operations during the years ended December 31, 2002,
2001 and 2000.

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.


92

<PAGE>

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                             --------------------------------------------------------
STATEMENTS OF CASH FLOWS                                         2002                  2001                  2000
                                                             -------------         -------------         ------------
<S>                                                          <C>                   <C>                   <C>
Cash flows from operating activities:

  Net income                                                 $  96,342,156         $  65,970,843         $ 43,632,795

  Adjustments to reconcile net income to cash
  (used in) provided by operating activities:
  Amortization of premium on investment securities                 136,376                    --                   --
  Equity earnings in unconsolidated subsidiaries               (93,857,066)          (64,936,720)         (43,586,191)
  Decrease (increase) in accounts
    receivable - subsidiaries                                    4,039,289           (15,241,378)             121,292
  Decrease (increase) in other assets                              197,226              (353,839)             (49,345)
  Increase (decrease) in other liabilities and
    accrued expenses                                               665,656                41,237              (62,148)
                                                             -------------         -------------         ------------
  Total adjustments                                            (88,818,519)          (80,490,700)         (43,576,392)
                                                             -------------         -------------         ------------
  Net cash provided by (used in)
    operating activities                                         7,523,637           (14,519,857)              56,403
                                                             -------------         -------------         ------------
Cash flows from investing activities:
  Purchase of investment securities                            (25,613,272)          (36,382,555)                  --
  Proceeds from sales of investment securities
    available for sale                                          21,599,255                    --                   --
  Principal repayments on and redemptions of
    investment securities                                        4,750,000               295,063                   --
  Investments in R-G Acquisition Holdings
    Corporation common stock                                   (94,551,561)                   --                   --
  Investments in Home & Property common stock                           --            (1,500,000)            (345,000)
  Investments in R-G Premier common stock                      (31,199,569)          (35,000,000)                  --
  Investments in R-G Investment Corporation
    common stock                                                (5,000,000)           (1,500,000)                  --
  Investments in R-G International Corp. common stock                   --              (500,000)                  --
  Dividends on common stock from subsidiaries                   25,957,877            17,817,222           11,798,865
                                                             -------------         -------------         ------------
  Cash (used in) provided by investing activities             (104,057,270)          (56,770,270)          11,453,865
                                                             -------------         -------------         ------------
Cash flows from financing activities:
  Issuance of common stock                                      46,132,787            32,877,745               46,919
  Net proceeds from issuance of preferred stock                 66,590,747            66,601,925                   --
  Cash dividends                                               (25,957,877)          (17,817,222)         (11,448,865)
  Net (repayments) advances from subsidiaries                   (3,795,960)           19,177,000                   --
                                                             -------------         -------------         ------------
  Net cash provided by (used in) financing
    activities                                                  82,969,697           100,839,448          (11,401,946)
                                                             -------------         -------------         ------------
Net (decrease) increase in cash                                (13,563,936)           29,549,321              108,322
Cash at beginning of year                                       29,777,023               227,702              119,380
                                                             -------------         -------------         ------------
Cash at end of year                                          $  16,213,087         $  29,777,023         $    227,702
                                                             =============         =============         =============
</TABLE>



                                                                              93

<PAGE>


26. Industry segments

The following summarized financial information presents the results of the
Company's operations for each of the three years ended December 31, 2002 for its
traditional banking and mortgage banking activities:

<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
                                                   ============        ============        ============        ============

</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,
                                                    ---------------------------------------------------------
                                                         2002                  2001                  2000
                                                    -------------         -------------         -------------
<S>                                                 <C>                   <C>                   <C>
REVENUES:

Total revenues for reportable segments              $ 286,296,191         $ 199,081,343         $ 142,830,093
Elimination of intersegment revenues                   (4,460,799)           (5,120,252)           (4,284,312)
Corporate revenues                                      2,404,008             1,006,040                    --
                                                    -------------         -------------         -------------
Total consolidated revenues                         $ 284,239,400         $ 194,967,131         $ 138,545,781
                                                    =============         =============         =============
</TABLE>


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                    ---------------------------------------------------------
                                                         2002                  2001                  2000
                                                    -------------         -------------         -------------
<S>                                                 <C>                   <C>                   <C>
INCOME BEFORE INCOME TAXES:

Total income before income taxes for
  reportable segments                               $ 123,258,403         $  88,484,896         $  58,905,775
Elimination of intersegment costs (profits)               159,611            (1,092,364)             (768,433)
Unallocated corporate income (expenses), net            1,583,501               502,544              (383,539)
                                                    -------------         -------------         -------------
Income before income taxes, consolidated            $ 125,001,515         $  87,895,076         $  57,753,803
                                                    =============         =============         =============

</TABLE>



94

<PAGE>

<TABLE>
<CAPTION>
                    2001                                                           2000
------------------------------------------------------------     ---------------------------------------------------------
                  Mortgage                         Segment                        Mortgage                      Segment
   Banking         Banking         Other           Totals          Banking         Banking        Other          Totals
------------     -----------     ----------     ------------     -----------     -----------     --------     ------------
<S>              <C>             <C>            <C>              <C>             <C>             <C>          <C>
$ 71,695,814     $13,582,462     $       --     $ 85,278,276     $55,935,128     $ 3,300,684     $     --     $ 59,235,812

  27,391,951      35,119,978             --       62,511,929      15,170,465      26,059,769           --       41,230,234
          --      35,935,370             --       35,935,370              --      33,324,040           --       33,324,040
   7,879,251       2,655,998      4,820,519       15,355,768       7,044,593       1,813,356      182,058        9,040,007

 106,967,016      87,293,808      4,820,519      199,081,343      78,150,186      64,497,849      182,058      142,830,093

  16,514,946      16,071,621        703,805       33,290,372      13,426,617      13,556,821       47,902       27,031,340
  10,654,129       5,848,499        145,882       16,648,510       8,464,625       4,959,456       11,563       13,435,644
  20,516,364      39,540,600        600,601       60,657,565      15,019,159      28,395,036       43,139       43,457,334

  47,685,439      61,460,720      1,450,288      110,596,447      36,910,401      46,911,313      102,604       83,924,318
------------     -----------     ----------     ------------     -----------     -----------     --------     ------------
$ 59,281,577     $25,833,088     $3,370,231     $ 88,484,896     $41,239,785     $17,586,536     $ 79,454     $ 58,905,775
============     ===========     ==========     ============     ===========     ===========     ========     ============
</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, 2002 and 2001 follows:

<TABLE>
<CAPTION>
                                                     December 31,
                                         ------------------------------------
                                              2002                2001
                                         ---------------      ---------------
<S>                                      <C>                  <C>
Assets:

Banking                                  $ 5,453,320,931      $ 3,929,980,434
Mortgage Banking                             908,660,313          843,249,867
Other                                        111,004,542            8,082,867

Total assets for reportable segments       6,472,985,786        4,781,313,168
Parent company assets                         62,970,573           81,643,383
Elimination of intersegment balances        (258,710,678)        (198,562,845)
                                         ---------------      ---------------
Consolidated total assets                $ 6,277,245,681      $ 4,664,393,706
                                         ===============      ===============
</TABLE>


                                                                              95

<PAGE>

27. 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)
                                                          --------------------------------------------------
                                                                                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                         $   0.59      $   0.60      $   0.64      $   0.68
Earnings per common share - Diluted                       $   0.58      $   0.59      $   0.63      $   0.68
</TABLE>


<TABLE>
<CAPTION>
                                                          (dollars in thousands, except for per share data)
                                                          -------------------------------------------------
                                                                                2001
                                                          March 31       June 30      Sept. 30      Dec. 31
                                                          --------      --------      --------      --------
<S>                                                       <C>           <C>           <C>           <C>
Interest income                                           $ 62,869      $ 64,491      $ 71,376      $ 71,835
Interest expense                                           (44,702)      (43,070)      (43,480)      (42,274)
                                                          --------      --------      --------      --------
Net interest income                                         18,167        21,421        27,896        29,561
Provision for loan losses                                   (2,000)       (2,100)       (3,225)       (3,800)
                                                          --------      --------      --------      --------
Income before income taxes and cumulative effect
   from change in accounting principle                      18,425        19,453        23,436        26,581
Income tax expense                                          (5,096)       (4,015)       (6,031)       (6,459)
                                                          --------      --------      --------      --------
Income before cumulative effect from change in
   accounting principle                                     13,329        15,438        17,405        20,122
Cumulative effect from change in accounting principle         (323)           --            --            --
                                                          --------      --------      --------      --------
Net income                                                  13,006        15,438        17,405        20,122
                                                          ========      ========      ========      ========
Earnings before cumulative effect from change in
   accounting principle  -  Basic                         $    .40      $    .44      $    .48      $    .57
                         -  Diluted                       $    .39      $    .43      $    .46      $    .56
Earnings per common share - Basic                         $    .39      $    .44      $    .48      $    .57
Earnings per common share - Diluted                       $    .38      $    .43      $    .46      $    .56

</TABLE>


96
<PAGE>
                             STOCKHOLDER INFORMATION





[PHOTO]


Corporate Offices
R-G Plaza
280 JT Pinero Ave.
San Juan, PR 00918
(787) 758-2424


US Banking Operations
105 Live Oaks Gardens
Casselberry, Florida 32707
(407) 260-1003


US Mortgage Banking Operations
290 Broad Hollow Road
2nd Floor
Melville, New York 11747
(631) 549-8188


Annual Meeting
April 25, 2003
10 AM Atlantic time
Bankers Club of Puerto Rico
Hato Rey, Puerto Rico


Special Counsel
Kelley, Drye & Warren, LLP
Tysons Corner
8000 Towers Crescent Drive
Suite 1200
Vienna, Virginia 22182


McConnell & Valdes
270 Munoz Rivera Ave.
San Juan, Puerto Rico 00918

Transfer Agent & Registrar
American Stock Transfer & Trust Co.
6201 Fifteenth Avenue
Brooklyn, New York 11219


Independent Public Accountants
PricewaterhouseCoopers, LLP
BBV Tower-9th Floor
San Juan, Puerto Rico 00918


Market Makers
UBS Warburg LLC
299 Park Avenue
New York, N.Y. 10171-0026


Keefe, Bruyette & Woods, Inc.
787 Seventh Avenue
4th Floor
New York, N,Y. 10022


Sandler O'Neill & Partners, LP
919 Third Avenue, 6th Floor
New York, NY 10022


Friedman, Billing, Ramsey & Co., Inc.
1001 Nineteenth Street North
Arlington, VA 22209

Internet Website
http://www.rgonline.com
(Spanish and English)


                                                                              97
<PAGE>


General Inquiries & Reports

R-G Financial is required to file an annual report on Form 10K for its fiscal
year ended December 31,2002 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. Damarys Quiles at 787-756-2801.




Stock Listings
Common
   RGF-NYSE
Preferred
   RGFCP-NASDAQ
   RGFCO-NASDAQ
   RGFCN-NASDAQ
   RGFCM-NASDAQ


At December 31,2002, the Company had 170 stockholders of record, which does not
take into consideration approximately 2,900 investors who hold their stock
through brokerage and other firms. The high and low prices and dividends paid
per share for the Company's stock during each quarter of the last two fiscal
years were as follows:




<TABLE>
<CAPTION>
                          MAR 31     JUN 30    SEPT 30     DEC 31      MAR 31    JUNE 30     SEPT 30     DEC 31
                           2002       2002      2002        2002        2001      2001        2001        2001
                          ------   --------   --------    --------    -------    ------     --------    -------
<S>                       <C>       <C>       <C>         <C>         <C>        <C>        <C>          <C>
High                       22.15      25.25      23.90       24.93      17.00      20.00       20.91      19.25
Low                        16.40      18.82      19.10       19.50     12.625      14.12       15.70      14.93
Dividends Paid            0.0765    0.08125   0.086375      0.0920       0.06    0.06375     0.06775     0.0720
</TABLE>


98