##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|  |  |                                                                                                                                           
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

|  |  |                                                                                                                                 
|- |  | --------------------------------------------------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM      TO

Commission file number: 000-21137

R&G FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


|                                                           |  |                                     
|---------------------------------------------------------- |  | ------------------------------------
|Puerto Rico                                                |  | 66-0532217                          
|                                                           |  |                                     
|(State of incorporation
or organization)                   |  | (I.R.S. Employer
Identification No.)
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |  |                                     
|                                                          
|                                                          
|                                                          
|                                                          
|280 Jesús T. Piñero Avenue
Hato Rey, San Juan, Puerto Rico |  | 00918                               
|                                                           |  |                                     
|(Address of principal executive offices)                   |  | (Zip Code)                          

(787) 758-2424
(Registrants telephone number, including area code)

Indicate by checkmark whether Registrant (a) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report (s) and (b) has been subject to such filing
requirements for at least 90 days.

YES [X]        NO [   ]

Number of shares of Class B Common Stock outstanding as of September 30, 2002:
19,432,687 (Does not include 14,553,056 Class A Shares of Common Stock which
are exchangeable into Class B Shares of Common Stock at the option of the
holder.)



---

TABLE OF CONTENTS



|                             |                                                                    |                                                 |  |  |  |  |  | 
|---------------------------- | ------------------------------------------------------------------ | ----------------------------------------------- |  |  |  |  |  | 
|PART 1-FINANCIAL INFORMATION
|                             | ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS                         
|                             |                                                                    | CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 
|                             |                                                                    | CONSOLIDATED STATEMENTS OF INCOME              
|                             |                                                                    | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|                             |                                                                    | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                             | NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS              
|                             | Item 2: Managements Discussion and Analysis                      
|                             | Item 3: Quantitative and Qualitative Disclosures about Market Risk
|                             | Item 4. Controls and Procedures                                   
|PART II   OTHER INFORMATION
|                             | Item 1: Legal Proceedings                                         
|                             | Item 2: Changes in Securities                                     
|                             | Item 3: Defaults Upon Senior Securities                           
|                             | Item 4: Submission of Matters to a Vote of Security Holders       
|                             | Item 5: Other Information                                         
|                             | Item 6: Exhibits and Reports on Form 8-K                          
|SIGNATURES                  
|Guarantee Agreement         



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##### Table of Contents



R&G FINANCIAL CORPORATION

INDEX

|                                                                  |            |                                                                                                                             |    |      |   | 
|----------------------------------------------------------------- | ---------- | --------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                                                                  |            |                                                                                                                             |    | Page
|Part I  Financial Information                                    |            |                                                                                                                             |    |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 1.Consolidated Financial Statements                          |            |                                                                                                                             | 3  |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |            | Consolidated Statements of Financial Condition as of
September 30, 2002 (Unaudited) and December 31, 2001                   |    |      | 3 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |            | Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2002 and 2001 (Unaudited)               |    |      | 4 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |            | Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended September 30, 2002 and 2001
(Unaudited) |    |      | 5 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |            | Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001 (Unaudited)                     |    |      | 6 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |            | Notes to Unaudited Consolidated Financial Statements                                                                        |    |      | 7 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 2.Managements Discussion and Analysis                       |            |                                                                                                                             | 19 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 3.Quantitative and Qualitative Disclosures about Market Risk |            |                                                                                                                             | 29 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 4.Controls and Procedures                                    |            |                                                                                                                             | 30 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Part II  Other Information                                       |            |                                                                                                                             |    |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 1.Legal Proceedings                                          |            |                                                                                                                             | 31 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 2.Changes in Securities                                      |            |                                                                                                                             | 31 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 3.Defaults upon Senior Securities                            |            |                                                                                                                             | 31 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 4.Submission of Matters                                      |            |                                                                                                                             | 31 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 5.Other Information                                          |            |                                                                                                                             | 31 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Item 6.Exhibits and Reports on Form 8-K                           |            |                                                                                                                             | 31 |     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Signatures |                                                                                                                             |    | 33   |  

2



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##### Table of Contents






PART 1-FINANCIAL INFORMATION




ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS

R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION




|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |               |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------------- | ------------- | ---------- | ------------ | ------------- | ------------- | ---------- | 
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               | September 30, |            | December 31,
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               | 2002          |            | 2001        
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |             
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               | (Unaudited)   |            |              |               |              
|ASSETS                                                                                                                                           |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Cash and due from banks                                                                                                                          |                                                                                                                                                | $                                                                                                                   | 100,576,752   |               |            | $            | 79,223,030    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Money market investments:                                                                                                                        |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Securities purchased under agreements to resell                                                                                                |                                                                                                                     |               |              |            |              |               | 15,023,590    |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Time deposits with other banks                                                                                                                 |                                                                                                                     |               | 82,594,524    |            |              |               | 63,477,978    |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Mortgage loans held for sale, at lower of cost or market                                                                                         |                                                                                                                                                |                                                                                                                     | 225,007,503   |               |            |              | 236,434,204   |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Mortgage backed securities held for trading, at fair value                                                                                       |                                                                                                                                                |                                                                                                                     | 52,196,068    |               |            |              | 75,796,172    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Trading securities pledged on repurchase agreements, at fair value                                                                               |                                                                                                                                                |                                                                                                                     | 21,743,310    |               |            |              | 18,151,659    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Mortgage backed and investment securities available for sale, at fair value                                                                      |                                                                                                                                                |                                                                                                                     | 1,874,881,933 |               |            |              | 1,566,895,312 |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Available for sale securities pledged on repurchase agreements                                                                                   |                                                                                                                                                |                                                                                                                     | 745,908,244   |               |            |              | 514,783,468   |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Mortgage backed and investment securities held to maturity, at amortized cost
(estimated market value: 2002 - $30,947,229; 2001 - $60,682,234)   |                                                                                                                                                |                                                                                                                     | 30,702,699    |               |            |              | 60,425,371    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Held to maturity securities pledged on repurchase agreements, at amortized cost
(estimated market value: 2002 - $47,676,359; 2001 - $15,445,319) |                                                                                                                                                |                                                                                                                     | 47,027,256    |               |            |              | 15,206,183    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Loans receivable, net                                                                                                                            |                                                                                                                                                |                                                                                                                     | 2,625,828,191 |               |            |              | 1,802,388,064 |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Accounts receivable, including advances to investors, net                                                                                        |                                                                                                                                                |                                                                                                                     | 33,355,088    |               |            |              | 23,056,424    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Accrued interest receivable                                                                                                                      |                                                                                                                                                |                                                                                                                     | 41,769,788    |               |            |              | 35,426,760    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Servicing asset                                                                                                                                  |                                                                                                                                                |                                                                                                                     | 147,553,664   |               |            |              | 105,146,902   |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Premises and equipment                                                                                                                           |                                                                                                                                                |                                                                                                                     | 37,476,521    |               |            |              | 22,401,045    |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Other assets                                                                                                                                     |                                                                                                                                                |                                                                                                                     | 103,843,045   |               |            |              | 30,557,544    |              
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                 |                                                                                                                                                | $                                                                                                                   | 6,170,464,586 |               |            | $            | 4,664,393,706 |              
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                             |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Liabilities:                                                                                                                                     |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Deposits                                                                                                                                       |                                                                                                                     | $             | 2,814,349,618 |            |              | $             | 2,061,223,825 |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Securities sold under agreements to repurchase                                                                                                 |                                                                                                                     |               | 1,509,275,666 |            |              |               | 1,396,938,849 |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Notes payable                                                                                                                                  |                                                                                                                     |               | 196,330,499   |            |              |               | 195,586,855   |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Advances from FHLB                                                                                                                             |                                                                                                                     |               | 870,725,000   |            |              |               | 464,125,000   |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Other borrowings                                                                                                                               |                                                                                                                     |               | 10,376,164    |            |              |               | 7,971,888     |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Accounts payable and accrued liabilities                                                                                                       |                                                                                                                     |               | 121,211,711   |            |              |               | 71,867,012    |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Other liabilities                                                                                                                              |                                                                                                                     |               | 9,661,996     |            |              |               | 7,559,690     |           
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     | 5,531,930,654 |               |            |              | 4,205,273,119 |              
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|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 authorized, issued and outstanding                                                 |               |               | 50,000,000 |              |               |               | 50,000,000 | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 |                                                                                                                                                | 7.75% Series B, 1,000,000 shares authorized, issued and outstanding                                                 |               |               | 25,000,000 |              |               |               | 25,000,000 | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 |                                                                                                                                                | 7.60% Series C, 2,760,000 shares authorized, issued and outstanding                                                 |               |               | 69,000,000 |              |               |               | 69,000,000 | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 |                                                                                                                                                | 7.25% Series D, 2,760,000 shares authorized, issued and outstanding                                                 |               |               | 69,000,000 |              |               |               |           | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Common stock:                                                                                                                                  |                                                                                                                     |               |               |            |              |               |               |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 |                                                                                                                                                | Class A  $.01 par value, 40,000,000 shares authorized, 14,553,056
issued and outstanding in 2002 (2001-16,053,056) |               |               | 145,531    |              |               |               | 160,531    | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 |                                                                                                                                                | Class B  $.01 par value, 60,000,000 shares authorized, 19,432,687
issued and outstanding in 2002 (2001-10,237,675) |               |               | 194,327    |              |               |               | 152,413    | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Additional paid-in capital                                                                                                                     |                                                                                                                     |               | 114,914,423   |            |              |               | 71,254,084    |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Retained earnings                                                                                                                              |                                                                                                                     |               | 280,337,149   |            |              |               | 229,997,012   |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Capital reserves of the Bank                                                                                                                   |                                                                                                                     |               | 11,629,328    |            |              |               | 11,629,328    |           
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Accumulated other comprehensive income                                                                                                         |                                                                                                                     |               | 18,313,174    |            |              |               | 1,927,219     |           
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     | 638,533,932   |               |            |              | 459,120,587   |              
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              
|                                                                                                                                                 |                                                                                                                                                | $                                                                                                                   | 6,170,464,586 |               |            | $            | 4,664,393,706 |              
|                                                                                                                                                 |                                                                                                                                                |                                                                                                                     |               |               |            |              |               |              

3



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##### Table of Contents






R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |         |            |  | 
|---------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------------------------------------------------ | ---------- | --------- | ------ | ------------------------------------------------ | ---------- | ------------- | ------ | ---------- | ---------- | ------- | ------- | ---------- | ---------- | ------- | ------- | ---------- |  | 
|                                                                                         |                                                |                                                                                                  |            |           |        | Three month                                      |            | Nine month   
|                                                                                         |                                                |                                                                                                  |            |           |        | period ended                                     |            | period ended 
|                                                                                         |                                                |                                                                                                  |            |           |        | September 30,                                    |            | September 30,
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |              
|                                                                                         |                                                |                                                                                                  |            |           |        | 2002                                             |            | 2001          |        | 2002       |            | 2001   
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |        
|                                                                                         |                                                |                                                                                                  |            |           |        | (Unaudited)                                      |            | (Unaudited)  
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |              
|                                                                                         |                                                |                                                                                                  |            |           |        | (Dollars in thousands except for per share data)
|Interest income:                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Loans                                          |                                                                                                  | $          | 50,086    |        |                                                  | $          | 40,509        |        |            | $          | 127,569 |         |            | $          | 114,292 |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Money market and other investments             |                                                                                                  |            | 9,480     |        |                                                  |            | 8,075         |        |            |            | 28,113  |         |            |            | 23,683  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Mortgage-backed securities                     |                                                                                                  |            | 29,346    |        |                                                  |            | 22,792        |        |            |            | 83,564  |         |            |            | 60,761  |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                | Total interest income                                                                            |            |           | 88,912 |                                                  |            |               | 71,376 |            |            |         | 239,246 |            |            |         | 198,736 |           
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Interest expense:                                                                        |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deposits                                       |                                                                                                  |            | 23,826    |        |                                                  |            | 22,242        |        |            |            | 65,416  |         |            |            | 67,937  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Securities sold under agreements to repurchase |                                                                                                  |            | 12,708    |        |                                                  |            | 12,112        |        |            |            | 37,764  |         |            |            | 36,628  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Notes payable                                  |                                                                                                  |            | 1,795     |        |                                                  |            | 3,523         |        |            |            | 5,152   |         |            |            | 8,545   |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other                                          |                                                                                                  |            | 9,273     |        |                                                  |            | 5,603         |        |            |            | 21,550  |         |            |            | 18,142  |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                | Total interest expense                                                                           |            |           | 47,602 |                                                  |            |               | 43,480 |            |            |         | 129,882 |            |            |         | 131,252 |           
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Net interest income                                                                      |                                                |                                                                                                  | 41,310     |           |        |                                                  | 27,896     |               |        |            | 109,364    |         |         |            | 67,484     |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Provision for loan losses                                                                |                                                |                                                                                                  | (3,970     | )         |        |                                                  | (3,225     | )             |        |            | (13,520    | )       |         |            | (7,325     | )      
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Net interest income after provision for loan losses                                      |                                                |                                                                                                  | 37,340     |           |        |                                                  | 24,671     |               |        |            | 95,844     |         |         |            | 60,159     |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Other income:                                                                            |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Net gain on origination and sale of loans      |                                                                                                  |            | 24,380    |        |                                                  |            | 17,314        |        |            |            | 57,841  |         |            |            | 44,301  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Loan administration and servicing fees         |                                                                                                  |            | 11,193    |        |                                                  |            | 8,339         |        |            |            | 30,817  |         |            |            | 25,031  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Service charges, fees and other                |                                                                                                  |            | 4,539     |        |                                                  |            | 3,089         |        |            |            | 12,471  |         |            |            | 8,994   |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                |                                                                                                  | 40,112     |           |        |                                                  | 28,742     |               |        |            | 101,129    |         |         |            | 78,326     |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                | Total revenues                                                                                   |            |           | 77,452 |                                                  |            |               | 53,413 |            |            |         | 196,973 |            |            |         | 138,485 |           
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Operating expenses:                                                                      |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Employee compensation and benefits             |                                                                                                  |            | 12,535    |        |                                                  |            | 8,991         |        |            |            | 32,087  |         |            |            | 23,840  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Office occupancy and equipment                 |                                                                                                  |            | 5,138     |        |                                                  |            | 4,270         |        |            |            | 14,106  |         |            |            | 12,291  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other administrative and general               |                                                                                                  |            | 27,712    |        |                                                  |            | 16,716        |        |            |            | 61,681  |         |            |            | 41,040  |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                |                                                                                                  | 45,385     |           |        |                                                  | 29,977     |               |        |            | 107,874    |         |         |            | 77,171     |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Income before income taxes and cumulative effect from
change in accounting principle     |                                                |                                                                                                  | 32,067     |           |        |                                                  | 23,436     |               |        |            | 89,099     |         |         |            | 61,314     |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Income tax expense:                                                                      |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Current                                        |                                                                                                  |            | 5,880     |        |                                                  |            | 4,795         |        |            |            | 18,575  |         |            |            | 12,006  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred                                       |                                                                                                  |            | 1,139     |        |                                                  |            | 1,236         |        |            |            | 1,324   |         |            |            | 3,136   |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                |                                                                                                  | 7,019      |           |        |                                                  | 6,031      |               |        |            | 19,899     |         |         |            | 15,142     |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Income before cumulative effect
from change in accounting principle                      |                                                |                                                                                                  | 25,048     |           |        |                                                  | 17,405     |               |        |            | 69,200     |         |         |            | 46,172     |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Cumulative effect from change in accounting principle,
net of income tax benefit of $206 |                                                |                                                                                                  |           |           |        |                                                  |           |               |        |            |           |         |         |            | (323       | )      
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                | Net income                                                                                       |            | $         | 25,048 |                                                  |            | $             | 17,405 |            |            | $       | 69,200  |            |            | $       | 45,849  |           
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                | Earnings per common share before cumulative
effect from change in accounting principle  Basic   |            | $         | 0.64   |                                                  |            | $             | 0.48   |            |            | $       | 1.83    |            |            | $       | 1.32    |           
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                | Earnings per common share before cumulative
effect from change in accounting principle  Diluted |            | $         | 0.63   |                                                  |            | $             | 0.46   |            |            | $       | 1.81    |            |            | $       | 1.29    |           
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Earnings per common share  Basic                                                        |                                                | $                                                                                                | 0.64       |           |        | $                                                | 0.48       |               |        | $          | 1.83       |         |         | $          | 1.31       |        
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|                                                                                         |                                                |                                                                                                  |  Diluted  |           | $      | 0.63                                             |            |               | $      | 0.46       |            |         | $       | 1.81       |            |         | $       | 1.28       | 
|                                                                                         |                                                |                                                                                                  |            |           |        |                                                  |            |               |        |            |            |         |         |            |            |         |        
|Weighted
average number of
shares outstanding  Basic                                    |                                                |                                                                                                  | 33,053,988 |           |        |                                                  | 30,895,298 |               |        |            | 31,892,007 |         |         |            | 29,453,062 |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                |                                                                                                  |            |  Diluted |        | 33,301,846                                       |            |               |        | 31,639,707 |            |         |         | 32,209,740 |            |         |         | 30,181,107 | 

The accompanying notes are an integral part of these statements.

4



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##### Table of Contents






R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

|                                                                                   |                                                                              |   |                        |        |               |   |        |        |      |   |         |        |   |   |         |        |  
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | - | ---------------------- | ------ | ------------- | - | ------ | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                   |                                                                              |   | Three month            |        | Nine month   
|                                                                                   |                                                                              |   | period ended           |        | period ended 
|                                                                                   |                                                                              |   | September 30,          |        | September 30,
|                                                                                   |                                                                              |   |                        |        |              
|                                                                                   |                                                                              |   | 2002                   |        | 2001          |   | 2002   |        | 2001
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|                                                                                   |                                                                              |   | (Unaudited)            |        | (Unaudited)  
|                                                                                   |                                                                              |   |                        |        |              
|                                                                                   |                                                                              |   | (Dollars in thousands)
|Net income                                                                         |                                                                              | $ | 25,048                 |        |               | $ | 17,405 |        |      | $ | 69,200  |        |   | $ | 45,849  |       
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|Other comprehensive income, before tax:                                            |                                                                              |   |                        |        |               |   |        |        |      |   |         |        |   |   |         |       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Unrealized gains (losses):                                                         |                                                                              |   |                        |        |               |   |        |        |      |   |         |        |   |   |         |       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cash flow hedges                                                                   |                                                                              |   | (6,749                 | )      |               |   | (5,216 | )      |      |   | (7,954  | )      |   |   | (10,958 | )     
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|Investment securities:                                                             |                                                                              |   |                        |        |               |   |        |        |      |   |         |        |   |   |         |       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Arising during period                                                        |   |                        | 12,651 |               |   |        | 27,277 |      |   |         | 35,265 |   |   |         | 32,324 |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Less: Reclassification adjustments for (gains) losses included
in net income |   |                        | (228   | )             |   |        | 312    |      |   |         | (449   | ) |   |         | (932   | )
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|                                                                                   |                                                                              |   | 12,423                 |        |               |   | 27,589 |        |      |   | 34,816  |        |   |   | 31,392  |       
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|                                                                                   |                                                                              |   | 5,674                  |        |               |   | 22,373 |        |      |   | 26,862  |        |   |   | 20,434  |       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Income tax expense related to items of other
comprehensive income                  |                                                                              |   | (2,226                 | )      |               |   | (8,725 | )      |      |   | (10,476 | )      |   |   | (7,969  | )     
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|                                                                                   |                                                                              |   | 3,448                  |        |               |   | 13,648 |        |      |   | 16,386  |        |   |   | 12,465  |       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cumulative effect from change in accounting principle,
net of income taxes of $745 |                                                                              |   |                       |        |               |   |       |        |      |   |        |        |   |   | 1,166   |       
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|Other comprehensive income, net of tax                                             |                                                                              |   | 3,448                  |        |               |   | 13,648 |        |      |   | 16,386  |        |   |   | 13,631  |       
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     
|Comprehensive income, net of tax                                                   |                                                                              | $ | 28,496                 |        |               | $ | 31,053 |        |      | $ | 85,586  |        |   | $ | 59,480  |       
|                                                                                   |                                                                              |   |                        |        |               |   |        |        |     

The accompanying notes are an integral part of these statements.

5



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##### Table of Contents






R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |          |          |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------- | -------- | ----------------------- | -------- | ------ | -------- | -------- | -------- | -
|                                                 |                                                                                             |                                                                                   |                                                     |          | Nine month period ended
|                                                 |                                                                                             |                                                                                   |                                                     |          | September 30,          
|                                                 |                                                                                             |                                                                                   |                                                     |          |                        
|                                                 |                                                                                             |                                                                                   |                                                     |          | 2002                    |          | 2001  
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |       
|                                                 |                                                                                             |                                                                                   |                                                     |          | (Unaudited)            
|                                                 |                                                                                             |                                                                                   |                                                     |          | (Dollars in thousands) 
|Cash flows from operating activities:            |                                                                                             |                                                                                   |                                                     |          |                         |          |        |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income                                                                                  |                                                                                   | $                                                   | 69,200   |                         |          | $      | 45,849   |         
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|                                                 |                                                                                             | Adjustments to reconcile net income to net cash provided by operating activities: |                                                     |          |                         |          |        |          |          |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Depreciation and amortization                                                     |                                                     |          | 5,132                   |          |        |          | 4,897    |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Amortization of premium on investment securities, net                             |                                                     |          | 3,042                   |          |        |          | 349      |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Amortization of servicing rights                                                  |                                                     |          | 20,856                  |          |        |          | 11,904   |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Provision of reserves for impairment on servicing asset                           |                                                     |          | 6,500                   |          |        |          |         |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Provision for loan losses                                                         |                                                     |          | 13,520                  |          |        |          | 7,325    |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Provision for bad debts in accounts receivable                                    |                                                     |          |                        |          |        |          | 450      |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Gain on sales of loans                                                            |                                                     |          |                        |          |        |          | (793     | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Gain on sales of mortgage-backed and investment securities available for sale     |                                                     |          | (449                    | )        |        |          | (932     | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Unrealized profit on trading securities and derivative instruments                |                                                     |          | (151                    | )        |        |          | (554     | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in mortgage loans held for sale                                          |                                                     |          | (54,181                 | )        |        |          | (200,990 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Net decrease (increase) in mortgage-backed securities held for trading            |                                                     |          | 20,739                  |          |        |          | (8,968   | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in receivables                                                           |                                                     |          | (13,896                 | )        |        |          | (10,387  | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in other assets                                                          |                                                     |          | (6,687                  | )        |        |          | (4,039   | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | (Decrease) increase in notes payable and other borrowings                         |                                                     |          | (21,852                 | )        |        |          | 96,650   |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in accounts payable and accrued liabilities                              |                                                     |          | 22,619                  |          |        |          | 15,698   |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Increase in other liabilities                                                     |                                                     |          | 1,343                   |          |        |          | 3,641    |         
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|                                                 |                                                                                             |                                                                                   | Total adjustments                                   |          |                         | (3,465   | )      |          |          | (85,749  | )
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|                                                 |                                                                                             |                                                                                   | Net cash provided by (used in) operating activities |          |                         | 65,735   |        |          |          | (39,900  | )
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|Cash flows from investing activities:            |                                                                                             |                                                                                   |                                                     |          |                         |          |        |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of investment securities                                                          |                                                                                   |                                                     | (889,752 | )                       |          |        | (567,260 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sales of securities available for sale                                        |                                                                                   |                                                     | 431,949  |                         |          |        | 205,905  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Principal repayments on mortgage-backed securities and redemptions of investment securities |                                                                                   |                                                     | 581,476  |                         |          |        | 336,375  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Net assets acquired, net of cash received                                                   |                                                                                   |                                                     | (63,679  | )                       |          |        |         |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sales of loans                                                                |                                                                                   |                                                     |         |                         |          |        | 91,631   |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Net originations of loans                                                                   |                                                                                   |                                                     | (820,786 | )                       |          |        | (532,983 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of FHLB stock, net                                                                |                                                                                   |                                                     | (19,171  | )                       |          |        | (13,847  | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Acquisition of premises and equipment                                                       |                                                                                   |                                                     | (6,796   | )                       |          |        | (5,688   | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Acquisition of servicing rights                                                             |                                                                                   |                                                     | (37,285  | )                       |          |        | (20,114  | )       
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|                                                 |                                                                                             |                                                                                   | Net cash used in investing activities               |          |                         | (824,044 | )      |          |          | (505,981 | )
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|Cash flows from financing activities:            |                                                                                             |                                                                                   |                                                     |          |                         |          |        |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase in deposits  net                                                                  |                                                                                   |                                                     | 284,987  |                         |          |        | 198,623  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Decrease in federal funds purchased                                                         |                                                                                   |                                                     |         |                         |          |        | (15,000  | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase in securities sold under agreements to repurchase  net                            |                                                                                   |                                                     | 92,234   |                         |          |        | 356,903  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Advances from (repayments to) FHLB, net                                                     |                                                                                   |                                                     | 288,500  |                         |          |        | (26,375  | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayment of term notes                                                                     |                                                                                   |                                                     |         |                         |          |        | (35,500  | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from issuance of preferred stock                                                   |                                                                                   |                                                     | 90,799   |                         |          |        | 66,602   |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from issuance of common stock                                                      |                                                                                   |                                                     | 46,096   |                         |          |        | 31,391   |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash dividends:                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Common stock                                                                      |                                                     |          | (7,876                  | )        |        |          | (5,644   | )       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                             | Preferred stock                                                                   |                                                     |          | (10,984                 | )        |        |          | (7,200   | )       
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|                                                 |                                                                                             |                                                                                   | Net cash provided by financing activities           |          |                         | 783,756  |        |          |          | 563,800  |  
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|Net increase in cash and cash equivalents        |                                                                                             |                                                                                   | 25,447                                              |          |                         |          | 17,919 |         
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                             |                                                                                   | 157,724                                             |          |                         |          | 69,090 |         
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|Cash and cash equivalents at end of period       |                                                                                             | $                                                                                 | 183,171                                             |          |                         | $        | 87,009 |         
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|Cash and cash equivalents include:               |                                                                                             |                                                                                   |                                                     |          |                         |          |        |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash and due from banks                                                                     |                                                                                   | $                                                   | 100,577  |                         |          | $      | 5,382    |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Securities purchased under agreements to resell                                             |                                                                                   |                                                     |         |                         |          |        | 81,627   |         
|                                                 | Time deposits with other banks                                                              |                                                                                   |                                                     | 82,594   |                         |          |        |         |         
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         
|                                                 |                                                                                             | $                                                                                 | 183,171                                             |          |                         | $        | 87,009 |         
|                                                 |                                                                                             |                                                                                   |                                                     |          |                         |          |        |          |         

The accompanying notes are an integral part of these statements.

6



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##### Table of Contents






R&G FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  REPORTING ENTITY AND BASIS OF PRESENTATION

Reporting entity

The accompanying unaudited consolidated financial statements include the
accounts of R&G Financial Corporation (the Company), a diversified financial
services company, and its wholly-owned subsidiaries, R-G Premier Bank of Puerto
Rico (the Bank), a commercial bank, 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 insurance agency. The Company, currently in its
30th year of operations, operates as a financial holding company pursuant to
the provisions of the Gramm-Leach-Biley Act of 1999, and is primarily engaged
in banking, mortgage banking, and securities and insurance brokerage through
its subsidiaries.

On June 7, 2002, the Company acquired The Crown Group, Inc., a Florida
corporation, and its wholly-owned savings bank subsidiary, Crown Bank, F.S.B.
(Crown Bank), hereinafter collectively referred to as Crown, for an
aggregate of $100.0 million in cash. The acquisition resulted in goodwill
totaling approximately $46.3 million which is included in other assets in the
accompanying consolidated statement of financial condition as of September 30,
2002.

The Bank and Crown Bank provide a full range of banking services,
including residential, commercial and personal loans and a diversified range of
deposit products. The Bank operates through twenty-seven branches located
mainly in the northeastern part of the Commonwealth of Puerto Rico, and Crown
Bank operates in the Orlando and Tampa/St. Petersburg metropolitan areas
through 14 full-service offices. The Bank also provides private banking, trust
and other financial services to its customers. The Bank and Crown Bank are
subject to the regulations of certain federal and local agencies, and undergoes
periodic examinations by those regulatory agencies.

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. R&G Mortgage pools loans into
mortgage-backed securities and collateralized mortgage obligation certificates
for sale to investors. After selling the loans, it retains the servicing
function. R&G Mortgage is also a 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. R&G Mortgage
is licensed by the Secretary of the Treasury of Puerto Rico as a mortgage
company and is duly authorized to do business in the Commonwealth of Puerto
Rico.

The Company also originates FHA insured, VA guaranteed and privately
insured first and second mortgage loans on residential real estate (1 to 4
families) in the States of New York, New Jersey, Connecticut, North Carolina
and Florida, through Continental Capital Corp. (Continental Capital), a
wholly-owned subsidiary of Crown Bank.

The Company also owns R&G Acquisition Holdings Corporation (RAC), a
Florida corporation and savings and loan holding company, which is the parent of
Crown Bank. In April 2002, RAC formed R&G Capital Trust I, a Delaware
statutory business trust, which issued $25.0 million of trust preferred
securities in a private placement. Such securities are included
within notes payable in the accompanying Consolidated Statements of
Financial Condition. The Company has guaranteed certain
obligations of RAC to R&G Capital Trust I.

7



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##### Table of Contents



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.

Basis of presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles. However, in the opinion of management, the
accompanying unaudited consolidated financial statements include all
adjustments (consisting of normal recurring accruals) necessary for a fair
statement of the Companys financial condition as of September 30, 2002 and the
results of operations and changes in its cash flows for the three and nine
months ended September 30, 2002 and 2001.

The results of operations for the three and nine month periods ended
September 30, 2002 are not necessarily indicative of the results to be expected
for the year ending December 31, 2002. The unaudited consolidated financial
statements and notes thereto should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 2001.

Basis of consolidation

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

Accounting for Derivative Instruments and Hedging Activities

Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. 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

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.

On January 1, 2002, the Company adopted also 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.

8



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##### Table of Contents



During the first quarter of 2002, based on further evaluation of the adoption
effects of SFAS No. 142, management determinated that the initial adoption of
this Statement on January 1, 2002 had no effect on the financial conditions or
results of operations of the Company.

NOTE 2  EARNINGS PER SHARE

Basic earnings per common share are computed by dividing net income (less
preferred stock dividends) by the weighted average number of shares of common
stock outstanding. The weighted average of outstanding stock options granted in
connection with the Companys Stock Option Plan (247,858 and 744,409 during the
three month periods ended September 30, 2002 and 2001, respectively, and
317,733 and 728,045 during the nine month periods ended September 30, 2002 and
2001, respectively), 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 at diluted
earnings per share.

Dividends per share on common stock declared and paid by the Company were as
follows:

|              |  |               |         |      |  |      |          |  |  |   |         | 
|------------- |  | ------------- | ------- | ---- |  | ---- | -------- |  |  | - | ------- | 
|Three month   |  | Nine month   
|period ended  |  | period ended 
|September 30, |  | September 30,
|              |  |              
|2002          |  | 2001          |         | 2002 |  | 2001
|              |  |               |         |      |  |     
|$0.086375     |  | $             | 0.06775 |      |  | $    | 0.243875 |  |  | $ | 0.19150 | 

NOTE 3  INVESTMENT AND MORTGAGE-BACKED SECURITIES

The carrying value and estimated fair value of investment and
mortgage-backed securities by category 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.

|                                             |                    |   |               |            |              |   |            |            | 
|-------------------------------------------- | ------------------ | - | ------------- | ---------- | ------------ | - | ---------- | ---------- | 
|                                             |                    |   | September 30, |            | December 31,
|                                             |                    |   | 2002          |            | 2001        
|                                             |                    |   |               |            |             
|                                             |                    |   | (Unaudited)   |            |              |   |           
|Mortgage-backed securities held for
trading: |                    |   |               |            |              |   |            |           
|                                            
|                                            
|                                            
|                                            
|                                             | GNMA certificates  |   | $             | 9,606,660  |              |   | $          | 18,151,659 | 
|                                            
|                                            
|                                            
|                                            
|                                             | FHLMC certificates |   |               | 64,332,718 |              |   |            | 75,796,172 | 
|                                             |                    |   |               |            |              |   |            |           
|                                             |                    | $ | 73,939,378    |            |              | $ | 93,947,831 |           
|                                             |                    |   |               |            |              |   |            |           

9



---



##### Table of Contents



|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|----------------------------------------------------------------------------------------------- | ------------------ | -------------------------- | ------------- | ------------------ | ----------- | ----------------- | ------------- | --------- | ----------- | ----- | ------------- | - | ----------- | - | ------------- | - | ----------- | 
|                                                                                                |                    |                            |               | September 30, 2002 |             | December 31, 2001
|                                                                                                |                    |                            |               |                    |             |                  
|                                                                                                |                    |                            |               | Amortized          |             | Fair              |               | Amortized |             | Fair 
|                                                                                                |                    |                            |               | cost               |             | value             |               | cost      |             | value
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |      
|                                                                                                |                    |                            |               | (Unaudited)        |             |                   |               |           |             |       |               |  
|Mortgage-backed
securities available for sale:                                                  |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Collateralized mortgage obligations (CMO):                                                      |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from one to five years |               | $                  | 14,106,119  |                   |               | $         | 14,106,119  |       |               | $ |            |   |               | $ |            | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from five to ten years |               |                    | 44,613,567  |                   |               |           | 45,291,628  |       |               |   | 27,211,880  |   |               |   | 27,316,041  | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due over ten years         |               |                    | 389,008,931 |                   |               |           | 394,361,198 |       |               |   | 202,546,424 |   |               |   | 202,468,023 | 
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 447,728,617   |                    |             |                   | 453,758,945   |           |             |       | 229,758,304   |   |             |   | 229,784,064   |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|CMO residuals (interest only), interest only strips
(IOs) and other mortgage-backed securities |                    |                            | 23,200,436    |                    |             |                   | 23,013,167    |           |             |       | 19,135,814    |   |             |   | 20,424,258    |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|FNMA certificates:                                                                              |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from five to ten years |               |                    | 384,010     |                   |               |           | 402,611     |       |               |   | 538,047     |   |               |   | 549,144     | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due over ten years         |               |                    | 245,084,279 |                   |               |           | 254,274,655 |       |               |   | 266,495,176 |   |               |   | 270,935,878 | 
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 245,468,289   |                    |             |                   | 254,677,266   |           |             |       | 267,033,223   |   |             |   | 271,485,022   |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|FHLMC certificates:                                                                             |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due within one year        |               |                    | 4,086       |                   |               |           | 4,207       |       |               |   |            |   |               |   |            | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from one to five years |               |                    | 34,630      |                   |               |           | 35,602      |       |               |   | 73,195      |   |               |   | 74,382      | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from five to ten years |               |                    | 1,048,135   |                   |               |           | 1,097,104   |       |               |   | 1,264,702   |   |               |   | 1,292,010   | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due over ten years         |               |                    | 730,154,660 |                   |               |           | 746,490,853 |       |               |   | 435,662,149 |   |               |   | 437,026,277 | 
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 731,241,511   |                    |             |                   | 747,627,766   |           |             |       | 437,000,046   |   |             |   | 438,392,669   |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|GNMA certificates:                                                                              |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from one to five years |               |                    |            |                   |               |           |            |       |               |   | 50,063      |   |               |   | 50,313      | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from five to ten years |               |                    | 17,601,500  |                   |               |           | 17,759,785  |       |               |   | 11,053,286  |   |               |   | 11,172,001  | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due over ten years         |               |                    | 486,164,541 |                   |               |           | 491,663,293 |       |               |   | 513,507,515 |   |               |   | 511,638,456 | 
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 503,766,041   |                    |             |                   | 509,423,078   |           |             |       | 524,610,864   |   |             |   | 522,860,770   |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 1,951,404,894 |                    |             |                   | 1,988,500,222 |           |             |       | 1,477,538,251 |   |             |   | 1,482,946,783 |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|Investment securities available for sale:                                                       |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Mortgage securities portfolio mutual funds                                                      |                    |                            | 3,261,194     |                    |             |                   | 3,223,400     |           |             |       |              |   |             |   |              |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Puerto Rico Government and Agencies Obligations-                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Due over ten years |                            |               | 603,191            |             |                   |               | 603,191   |             |       |               |  |             |   |               |  |            
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|U.S. Government and Agencies securities:                                                        |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due within one year        |               |                    | 20,000,000  |                   |               |           | 20,000,000  |       |               |   | 9,600,000   |   |               |   | 9,806,480   | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from one to five years |               |                    | 286,922,156 |                   |               |           | 292,025,164 |       |               |   | 156,522,492 |   |               |   | 157,408,260 | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from five to ten years |               |                    | 146,791,478 |                   |               |           | 151,659,415 |       |               |   | 307,109,665 |   |               |   | 310,937,946 | 
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 453,713,634   |                    |             |                   | 463,684,579   |           |             |       | 473,232,157   |   |             |   | 478,152,686   |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|Corporate debt obligations:                                                                     |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from one to five years |               |                    | 55,986,973  |                   |               |           | 57,745,706  |       |               |   | 53,636,583  |   |               |   | 54,502,744  | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Due from five to ten years |               |                    | 3,495,244   |                   |               |           | 3,286,292   |       |               |   |            |   |               |   |            | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                    | Over ten years             |               |                    | 11,292,787  |                   |               |           | 11,269,620  |       |               |   |            |   |               |   |            | 
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 70,775,004    |                    |             |                   | 72,301,618    |           |             |       | 53,636,583    |   |             |   | 54,502,744    |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|FHLB stock                                                                                      |                    |                            | 92,477,167    |                    |             |                   | 92,477,167    |           |             |       | 66,076,567    |   |             |   | 66,076,567    |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    |                            | 620,830,190   |                    |             |                   | 632,289,955   |           |             |       | 592,945,307   |   |             |   | 598,731,997   |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 
|                                                                                                |                    | $                          | 2,572,235,084 |                    |             | $                 | 2,620,790,177 |           |             | $     | 2,070,483,558 |   |             | $ | 2,081,678,780 |  
|                                                                                                |                    |                            |               |                    |             |                   |               |           |             |       |               |   |             |   |               |   |             | 

10



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##### Table of Contents



On January 1, 2001 the Company reclassified mortgage-backed securities
available for sale with a fair value of $75.9 million to held for trading.
Upon transfer, the Company recognized a gain of approximately $833,000.

|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |            | 
|------------------------------------------------------------- | -------------------------- | -------------------------- | ---------- | ------------------ | ---------- | ----------------- | ---------- | ---------- | ---------- | ----- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                              |                            |                            |            | September 30, 2002 |            | December 31, 2001
|                                                              |                            |                            |            |                    |            |                  
|                                                              |                            |                            |            | Amortized          |            | Fair              |            | Amortized  |            | Fair 
|                                                              |                            |                            |            | cost               |            | value             |            | cost       |            | value
|                                                              |                            |                            |            |                    |            |                   |            |            |            |      
|                                                              |                            |                            |            | (Unaudited)        |            |                   |            |            |            |       |            |           
|Mortgage-backed securities held to maturity:                  |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |           
|                                                             
|                                                             
|                                                             
|                                                             
|GNMA certificates:                                            |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Due from five to ten years |                            | $          | 5,889,933          |            |                   | $          | 5,893,169  |            |       | $          | 7,180,376  |            |   | $          | 7,111,405  |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Due over ten years         |                            |            | 34,869,444         |            |                   |            | 35,226,858 |            |       |            | 37,042,861 |            |   |            | 37,091,537 |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|                                                              |                            |                            | 40,759,377 |                    |            |                   | 41,120,027 |            |            |       | 44,223,237 |            |            |   | 44,202,942 |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|FNMA certificates:                                            |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Due over ten years         |                            |            | 6,683,846          |            |                   |            | 6,976,773  |            |       |            | 7,593,982  |            |   |            | 7,909,958  |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|FHLMC certificates:                                           |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Due over ten years         |                            |            | 108,253            |            |                   |            | 108,484    |            |       |            | 128,335    |            |   |            | 124,863    |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|                                                              |                            |                            | 47,551,476 |                    |            |                   | 48,205,284 |            |            |       | 51,945,554 |            |            |   | 52,237,763 |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|Investment securities held to maturity:                       |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |           
|                                                             
|                                                             
|                                                             
|                                                             
|U.S. Government and Agencies obligations-
Due within one year |                            |                            | 2,492,479  |                    |            |                   | 2,492,479  |            |            |       |           |            |            |   |           |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|Puerto Rico Government and Agencies obligations:              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              |                            | Due from one to five years |            |                    | 27,120,000 |                   |            |            | 27,354,000 |       |            |            | 12,691,000 |   |            |            | 12,731,365 | 
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              |                            | Due from five to ten years |            |                    | 466,000    |                   |            |            | 471,825    |       |            |            | 10,895,000 |   |            |            | 11,058,425 | 
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|                                                              |                            |                            | 27,586,000 |                    |            |                   | 27,825,825 |            |            |       | 23,586,000 |            |            |   | 23,789,790 |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|Other:                                                        |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Due from one to five years |                            |            | 100,000            |            |                   |            | 100,000    |            |       |            | 100,000    |            |   |            | 100,000    |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|                                                              |                            |                            | 30,178,479 |                    |            |                   | 30,418,304 |            |            |       | 23,686,000 |            |            |   | 23,889,790 |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           
|                                                              |                            | $                          | 77,729,955 |                    |            | $                 | 78,623,588 |            |            | $     | 75,631,554 |            |            | $ | 76,127,553 |           
|                                                              |                            |                            |            |                    |            |                   |            |            |            |       |            |            |            |   |            |            |           

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In addition to the investment and mortgage-backed securities pledged on
repurchase agreements and reported as pledged assets in the statement of
financial condition, at September 30, 2002 the Company had investment
securities pledged as collateral on repurchase agreements where the
counterparties do not have the right to sell or repledge the assets as follows:

|                                                                            |  |                        |         | 
|--------------------------------------------------------------------------- |  | ---------------------- | ------- | 
|                                                                            |  | Carrying Amount       
|                                                                            |  |                       
|                                                                            |  | (Unaudited)           
|                                                                            |  | (Dollars in thousands)
|Mortgage-backed securities held for trading, at fair value                  |  | $                      | 9,895   | 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Mortgage-backed and investment securities available for sale,
at fair value |  |                        | 812,259 | 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Mortgage-backed securities held to maturity, at amortized cost              |  |                        | 423     | 
|                                                                            |  |                        |         | 
|                                                                            |  | $                      | 822,577 | 
|                                                                            |  |                        |         | 

NOTE 4  LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consist of the following:

|                                        |                               |                        |           |                        |           |              |           |         |           | 
|--------------------------------------- | ----------------------------- | ---------------------- | --------- | ---------------------- | --------- | ------------ | --------- | ------- | --------- | 
|                                        |                               |                        |           | September 30,          |           | December 31,
|                                        |                               |                        |           | 2002                   |           | 2001        
|                                        |                               |                        |           |                        |           |             
|                                        |                               |                        |           | (Unaudited)            |           |              |           |        
|                                        |                               |                        |           | (Dollars in thousands)
|Real estate loans:                      |                               |                        |           |                        |           |              |           |        
|                                       
|                                       
|                                       
|                                       
|                                        | Residential  first mortgage  |                        | $         | 1,426,670              |           |              | $         | 996,885 |          
|                                       
|                                       
|                                       
|                                       
|                                        | Residential  second mortgage |                        |           | 41,362                 |           |              |           | 33,321  |          
|                                       
|                                       
|                                       
|                                       
|                                        | Land                          |                        |           | 39,805                 |           |              |           | 9,188   |          
|                                       
|                                       
|                                       
|                                       
|                                        | Construction                  |                        |           | 316,324                |           |              |           | 227,271 |          
|                                       
|                                       
|                                       
|                                       
|                                        | Commercial                    |                        |           | 577,582                |           |              |           | 385,171 |          
|                                        |                               |                        |           |                        |           |              |           |         |          
|                                        |                               |                        | 2,401,743 |                        |           |              | 1,651,836 |        
|                                       
|                                       
|                                       
|                                       
|Undisbursed portion of loans in process |                               |                        | (94,388   | )                      |           |              | (92,935   | )      
|                                       
|                                       
|                                       
|                                       
|Net deferred loan costs                 |                               |                        | 170       |                        |           |              | 21        |        
|                                        |                               |                        |           |                        |           |              |           |         |          
|                                        |                               |                        | 2,307,525 |                        |           |              | 1,558,922 |        
|                                        |                               |                        |           |                        |           |              |           |         |          
|Other loans:                            |                               |                        |           |                        |           |              |           |        
|                                       
|                                       
|                                       
|                                       
|                                        | Commercial                    |                        |           | 157,538                |           |              |           | 79,909  |          
|                                       
|                                       
|                                       
|                                       
|                                        | Consumer:                     |                        |           |                        |           |              |           |         |          
|                                       
|                                       
|                                       
|                                       
|                                        |                               | Secured by deposits    |           |                        | 26,163    |              |           |         | 26,176    | 
|                                       
|                                       
|                                       
|                                       
|                                        |                               | Secured by real estate |           |                        | 72,596    |              |           |         | 83,509    | 
|                                       
|                                       
|                                       
|                                       
|                                        |                               | Other                  |           |                        | 91,866    |              |           |         | 71,507    | 
|                                       
|                                       
|                                       
|                                       
|Unearned interest                       |                               |                        | (414      | )                      |           |              | (207      | )      
|                                        |                               |                        |           |                        |           |              |           |         |          
|                                        |                               |                        | 347,749   |                        |           |              | 260,894   |        
|                                        |                               |                        |           |                        |           |              |           |         |          
|                                        |                               | Total loans            |           |                        | 2,655,274 |              |           |         | 1,819,816 | 
|                                       
|                                       
|                                       
|                                       
|                                        | Allowance for loan losses     |                        |           | (29,446                | )         |              |           | (17,428 | )        
|                                        |                               |                        |           |                        |           |              |           |         |          
|                                        |                               | $                      | 2,625,828 |                        |           | $            | 1,802,388 |        
|                                        |                               |                        |           |                        |           |              |           |         |          

12



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The changes in the allowance for loan losses follow:

|                             |  |                        |        |      |  |   |        |  
|---------------------------- |  | ---------------------- | ------ | ---- |  | - | ------ | -
|                             |  | Nine months ended     
|                             |  | September 30,         
|                             |  |                       
|                             |  | 2002                   |        | 2001
|                             |  |                        |        |     
|                             |  | (Unaudited)           
|                             |  | (Dollars in thousands)
|Balance, beginning of period |  | $                      | 17,428 |      |  | $ | 11,600 |  
|                            
|                            
|                            
|                            
|Provision for loan losses    |  |                        | 13,520 |      |  |   | 7,325  |  
|                            
|                            
|                            
|                            
|Acquired reserves            |  |                        | 7,463  |      |  |   |       |  
|                            
|                            
|                            
|                            
|Transferred reserves         |  |                        |       |      |  |   | 806    |  
|                            
|                            
|                            
|                            
|Loans charged-off            |  |                        | (9,763 | )    |  |   | (4,961 | )
|                            
|                            
|                            
|                            
|Recoveries                   |  |                        | 798    |      |  |   | 399    |  
|                             |  |                        |        |      |  |   |        |  
|Balance, end of period       |  | $                      | 29,446 |      |  | $ | 15,169 |  
|                             |  |                        |        |      |  |   |        |  

The following table sets forth the amounts and categories of R&G Financials
non-performing assets at the dates indicated.

|                                                |                          |                                                               |        |        |         |                        |        |              |        |   |  | 
|----------------------------------------------- | ------------------------ | ------------------------------------------------------------- | ------ | ------ | ------- | ---------------------- | ------ | ------------ | ------ | - |  | 
|                                                |                          |                                                               |        |        |         | September 30,          |        | December 31,
|                                                |                          |                                                               |        |        |         | 2002                   |        | 2001        
|                                                |                          |                                                               |        |        |         |                        |        |             
|                                                |                          |                                                               |        |        |         | (Dollars in thousands)
|                                                |                          |                                                               |        |        |         | (Unaudited)           
|Non-accruing loans:                             |                          |                                                               |        |        |         |                        |        |             
|                                               
|                                               
|                                               
|                                               
|                                                | Residential real estate  |                                                               | $      | 54,511 |         |                        | $      | 50,358       |       
|                                               
|                                               
|                                               
|                                               
|                                                | Residential construction |                                                               |        | 1,675  |         |                        |        | 871          |       
|                                               
|                                               
|                                               
|                                               
|                                                | Commercial real estate   |                                                               |        | 25,878 |         |                        |        | 16,945       |       
|                                               
|                                               
|                                               
|                                               
|                                                | Commercial business      |                                                               |        | 4,683  |         |                        |        | 3,105        |       
|                                               
|                                               
|                                               
|                                               
|                                                | Consumer unsecured       |                                                               |        | 641    |         |                        |        | 303          |       
|                                                |                          |                                                               |        |        |         |                        |        |             
|                                                |                          | Total                                                         |        |        | 87,388  |                        |        |              | 71,582 |  
|                                                |                          |                                                               |        |        |         |                        |        |             
|Accruing loans greater than 90 days
delinquent: |                          |                                                               |        |        |         |                        |        |             
|                                               
|                                               
|                                               
|                                               
|                                                | Residential real estate  |                                                               |        | 9      |         |                        |        |             |       
|                                               
|                                               
|                                               
|                                               
|                                                | Residential construction |                                                               |        |       |         |                        |        |             |       
|                                               
|                                               
|                                               
|                                               
|                                                | Commercial real estate   |                                                               |        | 682    |         |                        |        |             |       
|                                               
|                                               
|                                               
|                                               
|                                                | Commercial business      |                                                               |        | 540    |         |                        |        | 462          |       
|                                               
|                                               
|                                               
|                                               
|                                                | Consumer                 |                                                               |        | 685    |         |                        |        | 428          |       
|                                                |                          |                                                               |        |        |         |                        |        |             
|                                                |                          | Total accruing loans greater than
90 days delinquent          |        |        | 1,916   |                        |        |              | 890    |  
|                                                |                          |                                                               |        |        |         |                        |        |             
|                                                |                          | Total non-performing loans                                    |        |        | 89,304  |                        |        |              | 72,472 |  
|                                                |                          |                                                               |        |        |         |                        |        |             
|Real estate owned, net of reserves              |                          |                                                               | 18,660 |        |         |                        | 10,061 |             
|                                               
|                                               
|                                               
|                                               
|Other repossessed assets                        |                          |                                                               | 198    |        |         |                        | 362    |             
|                                                |                          |                                                               |        |        |         |                        |        |             
|                                                |                          |                                                               | 18,858 |        |         |                        | 10,423 |             
|                                                |                          |                                                               |        |        |         |                        |        |             
|                                                |                          | Total non-performing assets                                   |        | $      | 108,162 |                        |        | $            | 82,895 |  
|                                                |                          |                                                               |        |        |         |                        |        |             
|                                                |                          | Total non-performing loans as a
percentage of total loans (1) |        |        | 3.25    | %                      |        |              | 3.79   | %
|                                                |                          |                                                               |        |        |         |                        |        |             

13



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| |  |                                                                             |                                                                          |                                              |       |                        |      |              |       |      |      |  
| |  | --------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------------------------- | ----- | ---------------------- | ---- | ------------ | ----- | ---- | ---- | -
| |  |                                                                             |                                                                          |                                              |       | September 30,          |      | December 31,
| |  |                                                                             |                                                                          |                                              |       | 2002                   |      | 2001        
| |  |                                                                             |                                                                          |                                              |       |                        |      |             
| |  |                                                                             |                                                                          |                                              |       | (Dollars in thousands)
| |  |                                                                             |                                                                          |                                              |       | (Unaudited)           
| |  | Total non-performing assets as a
percentage of total assets                 |                                                                          |                                              | 1.75  | %                      |      |              | 1.78  | %   
| |  |                                                                             |                                                                          |                                              |       |                        |      |             
| |  | Allowance for loan losses as a percentage
of total non-performing loans (2) |                                                                          |                                              | 32.97 | %                      |      |              | 24.05 | %   
| |  |                                                                             |                                                                          |                                              |       |                        |      |             
| |  |                                                                             | Allowance for loan losses as a percentage
of total loans outstanding (2) |                                              |       | 1.07                   | %    |              |       | 0.91 | %   
| |  |                                                                             |                                                                          |                                              |       |                        |      |             
| |  |                                                                             |                                                                          | Net charge-offs to average loans
outstanding |       |                        | 0.51 | %            |       |      | 0.32 | %
| |  |                                                                             |                                                                          |                                              |       |                        |      |             



| | (1) |  | While the ratio of
non-performing loans to total loans decreased from 3.79% to 3.25%
from December 31, 2001 to September 30, 2002, such ratios were
nonetheless larger than they would otherwise have been due to loan
securitizations during 2000, 2001 and the first nine months of 2002, which
reduced the amount of loans considered in
the calculation of the ratio. Without giving effect to loan
securitizations, as of September 30, 2002 and December 31, 2001, the
ratio of non-performing loans to total loans would have been 2.45% and
2.75%, respectively. Non-performing loans at September 30, 2002
exclude $27.3 million delinquent residential mortgage loans sold
during the second quarter of 2002.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Because of the nature of the collateral, R&G Financials historical
charge-offs with respect to residential real estate loans have been
low. Excluding R&G Financials residential loan portfolio, the
allowance for loan losses to total loans and to total non-performing
loans at September 30, 2002 and December 31, 2001 would have been 2.30%
and 84.6%, respectively, and 1.97% and 78.8%, respectively.                                                                                                                                                                                                                                                                                                        

A significant amount of the increase in the Companys non-accruing commercial
real estate and real estate owned is attributable to assets acquired in
connection with the acquisition of Crown Bank in June 2002. Total non-accruing
loans and real estate owned acquired in connection with such acquisition
totaled $13.2 million and $5.1 million, respectively. Management believes that
it established appropriate reserves with respect to such assets in connection
with the acquisition.

14



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NOTE 5  MORTGAGE LOAN SERVICING

The changes in the servicing asset of the Company follows:

|                               |  |                                               |         |      |  |   |         |  
|------------------------------ |  | --------------------------------------------- | ------- | ---- |  | - | ------- | -
|                               |  | For the nine month period ended September 30,
|                               |  |                                              
|                               |  | 2002                                          |         | 2001
|                               |  |                                               |         |     
|                               |  | (Unaudited)                                  
|                               |  | (Dollars in thousands)                       
|Balance at beginning of period |  | $                                             | 105,147 |      |  | $ | 95,079  |  
|                              
|                              
|                              
|                              
|Rights originated              |  |                                               | 19,041  |      |  |   | 19,002  |  
|                              
|                              
|                              
|                              
|Rights purchased               |  |                                               | 22,682  |      |  |   | 1,112   |  
|                              
|                              
|                              
|                              
|Crown
acquired                 |  |                                               | 32,478  |      |  |   |        |  
|                              
|                              
|                              
|                              
|Scheduled amortization         |  |                                               | (13,669 | )    |  |   | (8,210  | )
|                              
|                              
|                              
|                              
|Unscheduled amortization       |  |                                               | (7,187  | )    |  |   | (2,500  | )
|                              
|                              
|                              
|                              
|Reserves for impairment        |  |                                               | (6,500  | )    |  |   | (1,194  | )
|                              
|                              
|                              
|                              
|Other adjustments              |  |                                               | (4,438  | )    |  |   |        |  
|                               |  |                                               |         |      |  |   |         |  
|Balance at end of period       |  | $                                             | 147,554 |      |  | $ | 103,289 |  
|                               |  |                                               |         |      |  |   |         |  

The portion of the Companys mortgage loans servicing portfolio consisting
of the servicing asset that was originated by the Company prior to the adoption
of SFAS No. 122 on loans not sold as of the date of the financial statements,
is not reflected as an asset on the Companys Consolidated Financial
Statements, and is not subject to amortization or impairment.

NOTE 6 DEPOSITS

Deposits are summarized as follows:

|                                                    |                   |   |                        |           |              |   |           |         | 
|--------------------------------------------------- | ----------------- | - | ---------------------- | --------- | ------------ | - | --------- | ------- | 
|                                                    |                   |   | September 30,          |           | December 31,
|                                                    |                   |   | 2002                   |           | 2001        
|                                                    |                   |   |                        |           |             
|                                                    |                   |   | (Unaudited)           
|                                                    |                   |   | (Dollars in thousands)
|Passbook savings                                    |                   | $ | 319,238                |           |              | $ | 199,756   |        
|                                                    |                   |   |                        |           |              |   |           |        
|NOW accounts                                        |                   |   | 90,939                 |           |              |   | 68,412    |        
|                                                   
|                                                   
|                                                   
|                                                   
|Super NOW accounts                                  |                   |   | 332,211                |           |              |   | 236,898   |        
|                                                   
|                                                   
|                                                   
|                                                   
|Regular checking accounts
(non-interest bearing)    |                   |   | 123,550                |           |              |   | 78,213    |        
|                                                   
|                                                   
|                                                   
|                                                   
|Commercial checking accounts
(non-interest bearing) |                   |   | 259,174                |           |              |   | 167,781   |        
|                                                    |                   |   |                        |           |              |   |           |        
|                                                    |                   |   | 805,874                |           |              |   | 551,304   |        
|                                                    |                   |   |                        |           |              |   |           |        
|Certificates of deposit:                            |                   |   |                        |           |              |   |           |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Under $100,000    |   |                        | 654,740   |              |   |           | 429,913 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | $100,000 and over |   |                        | 1,030,180 |              |   |           | 874,495 | 
|                                                    |                   |   |                        |           |              |   |           |        
|                                                    |                   |   | 1,684,920              |           |              |   | 1,304,408 |        
|                                                    |                   |   |                        |           |              |   |           |        
|Accrued interest payable                            |                   |   | 4,318                  |           |              |   | 5,756     |        
|                                                    |                   |   |                        |           |              |   |           |        
|                                                    |                   | $ | 2,814,350              |           |              | $ | 2,061,224 |        
|                                                    |                   |   |                        |           |              |   |           |        

15



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##### Table of Contents



NOTE 7  COMMITMENTS AND CONTINGENCIES

At September 30, 2002, the Company is liable under limited recourse
provisions resulting from the sale of loans to several investors, principally
FHLMC. The principal balance of these loans, which are serviced by the
Company, amounts to approximately $704.7 million at September 30, 2002.
Liability, if any, under the recourse provisions at September 30, 2002 is
estimated by management to be insignificant.

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. R&G Capital Trust issued $25.0 million of trust
preferred securities in a private placement. The Company has guaranteed
certain obligations of RAC to R&G Capital Trust.

NOTE 8  SUPPLEMENTAL INCOME STATEMENT INFORMATION

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

Total employee costs and other expenses before capitalization follows:

|                                          |  |                          |        |                         |  |      |        |      |  |   |        |  |  |   |        | 
|----------------------------------------- |  | ------------------------ | ------ | ----------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                          |  | Three month period ended |        | Nine month period ended
|                                          |  | September 30,            |        | September 30,          
|                                          |  |                          |        |                        
|                                          |  | 2002                     |        | 2001                    |  | 2002 |        | 2001
|                                          |  |                          |        |                         |  |      |        |     
|                                          |  | (Unaudited)              |        | (Unaudited)            
|                                          |  |                          |        |                        
|                                          |  | (Dollars in thousands)  
|Employee costs                            |  | $                        | 19,524 |                         |  | $    | 14,811 |      |  | $ | 51,940 |  |  | $ | 40,858 | 
|                                          |  |                          |        |                         |  |      |        |      |  |   |        |  |  |   |        | 
|Other administrative and general expenses |  | $                        | 29,083 |                         |  | $    | 18,198 |      |  | $ | 65,530 |  |  | $ | 44,828 | 
|                                          |  |                          |        |                         |  |      |        |      |  |   |        |  |  |   |        | 

16



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##### Table of Contents



NOTE 9  INDUSTRY SEGMENTS

The following summarized information presents the results of the Companys
operations for its traditional banking and mortgage banking activities:

|                           |  |                                        |        |         |  |          |        |        |  |         |       |          |  |       |        |        |  |          |        |  |  |   |        |          |  |   |       |  |  |   |        | 
|-------------------------- |  | -------------------------------------- | ------ | ------- |  | -------- | ------ | ------ |  | ------- | ----- | -------- |  | ----- | ------ | ------ |  | -------- | ------ |  |  | - | ------ | -------- |  | - | ----- |  |  | - | ------ | 
|                           |  | (Dollars in thousands)                
|                           |  | Three month period ended September 30,
|                           |  |                                       
|                           |  | 2002                                   |        | 2001   
|                           |  |                                        |        |        
|                           |  | (Unaudited)                           
|                           |  |                                       
|                           |  |                                        |        |         |  | Mortgage |        |        |  |         |       | Segments |  |       |        |        |  | Mortgage |        |  |  |   |        | Segments
|                           |  | Banking                                |        | Banking |  | Other    |        | Totals |  | Banking |       | Banking  |  | Other |        | Totals
|                           |  |                                        |        |         |  |          |        |        |  |         |       |          |  |       |        |       
|Revenues                   |  | $                                      | 39,991 |         |  | $        | 35,733 |        |  | $       | 2,310 |          |  | $     | 78,034 |        |  | $        | 30,343 |  |  | $ | 22,526 |          |  | $ | 1,419 |  |  | $ | 54,288 | 
|                          
|                          
|                          
|                          
|Non-interest expenses      |  |                                        | 18,924 |         |  |          | 26,333 |        |  |         | 984   |          |  |       | 46,241 |        |  |          | 12,947 |  |  |   | 17,396 |          |  |   | 320   |  |  |   | 30,663 | 
|                          
|                          
|                          
|                          
|Income before income taxes |  | $                                      | 21,067 |         |  | $        | 9,400  |        |  | $       | 1,326 |          |  | $     | 31,793 |        |  | $        | 17,396 |  |  | $ | 5,130  |          |  | $ | 1,099 |  |  | $ | 23,625 | 

|                                                                                               |  |                                       |         |         |  |          |        |        |  |         |       |          |  |       |         |        |  |          |        |  |  |   |        |          |  |   |       |  |  |   |         | 
|---------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ------- |  | -------- | ------ | ------ |  | ------- | ----- | -------- |  | ----- | ------- | ------ |  | -------- | ------ |  |  | - | ------ | -------- |  | - | ----- |  |  | - | ------- | 
|                                                                                               |  | Nine month period ended September 30,
|                                                                                               |  |                                      
|                                                                                               |  | 2002                                  |         | 2001   
|                                                                                               |  |                                       |         |        
|                                                                                               |  | (Unaudited)                          
|                                                                                               |  |                                       |         |         |  | Mortgage |        |        |  |         |       | Segments |  |       |         |        |  | Mortgage |        |  |  |   |        | Segments
|                                                                                               |  | Banking                               |         | Banking |  | Other    |        | Totals |  | Banking |       | Banking  |  | Other |         | Totals
|                                                                                               |  |                                       |         |         |  |          |        |        |  |         |       |          |  |       |         |       
|Revenues                                                                                       |  | $                                     | 103,809 |         |  | $        | 89,067 |        |  | $       | 6,131 |          |  | $     | 199,007 |        |  | $        | 77,793 |  |  | $ | 60,652 |          |  | $ | 3,561 |  |  | $ | 142,006 | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Non-interest expenses                                                                          |  |                                       | 49,378  |         |  |          | 58,996 |        |  |         | 2,466 |          |  |       | 110,840 |        |  |          | 34,180 |  |  |   | 44,374 |          |  |   | 809   |  |  |   | 79,363  | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Income before income taxes (and
cumulative effect from change
in accounting principle
in 2001) |  | $                                     | 54,431  |         |  | $        | 30,071 |        |  | $       | 3,665 |          |  | $     | 88,167  |        |  | $        | 43,613 |  |  | $ | 16,278 |          |  | $ | 2,752 |  |  | $ | 62,643  | 

In April 2002, the Company through RAC, formed R&G Capital Trust, as a
wholly-owned finance subsidiary. R&G Capital Trust does not qualify as an
operating segment under SFAS No. 131 and has no independent operations and no
other function other than the issuance of its securities and the related
purchase of its junior subordinated debentures from RAC, and to distribute
payments referred thereon to the holders of its securities.

17



---



##### Table of Contents



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

|                                                         |  |                          |        |                         |  |      |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------- |  | ------------------------ | ------ | ----------------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                         |  | Three month period ended |        | Nine month period ended
|                                                         |  | September 30,            |        | September 30,          
|                                                         |  |                          |        |                        
|                                                         |  | 2002                     |        | 2001                    |  | 2002 |        | 2001
|                                                         |  |                          |        |                         |  |      |        |     
|                                                         |  | (Dollars in thousands)  
|Revenues:                                                |  |                          |        |                         |  |      |        |      |  |   |         |   |  |   |         |  
|                                                        
|                                                        
|                                                        
|                                                        
|Total revenues for reportable segments                   |  | $                        | 78,034 |                         |  | $    | 54,288 |      |  | $ | 199,007 |   |  | $ | 142,006 |  
|                                                        
|                                                        
|                                                        
|                                                        
|Elimination of intersegment revenues                     |  |                          | (1,248 | )                       |  |      | (1,356 | )    |  |   | (3,949  | ) |  |   | (4,002  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Corporate revenues                                       |  |                          | 666    |                         |  |      | 481    |      |  |   | 1,915   |   |  |   | 481     |  
|                                                         |  |                          |        |                         |  |      |        |      |  |   |         |   |  |   |         |  
|Total consolidated revenues                              |  | $                        | 77,452 |                         |  | $    | 53,413 |      |  | $ | 196,973 |   |  | $ | 138,485 |  
|                                                         |  |                          |        |                         |  |      |        |      |  |   |         |   |  |   |         |  
|Income before income taxes:                              |  |                          |        |                         |  |      |        |      |  |   |         |   |  |   |         |  
|                                                        
|                                                        
|                                                        
|                                                        
|Total income before income taxes for reportable
segments |  | $                        | 31,793 |                         |  | $    | 23,625 |      |  | $ | 88,167  |   |  | $ | 62,643  |  
|                                                        
|                                                        
|                                                        
|                                                        
|Elimination of intersegment profits                      |  |                          | (171   | )                       |  |      | (479   | )    |  |   | (388    | ) |  |   | (1,259  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Unallocated corporate income (expenses), net             |  |                          | 445    |                         |  |      | 290    |      |  |   | 1,320   |   |  |   | (70     | )
|                                                         |  |                          |        |                         |  |      |        |      |  |   |         |   |  |   |         |  
|Income before income taxes, consolidated                 |  | $                        | 32,067 |                         |  | $    | 23,436 |      |  | $ | 89,099  |   |  | $ | 61,314  |  
|                                                         |  |                          |        |                         |  |      |        |      |  |   |         |   |  |   |         |  

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
September 30, 2002 and December 31, 2001 follows:

|                                     |  |                        |           |              |  |   |           |  
|------------------------------------ |  | ---------------------- | --------- | ------------ |  | - | --------- | -
|                                     |  | September 30,          |           | December 31,
|                                     |  | 2002                   |           | 2001        
|                                     |  |                        |           |             
|                                     |  | (Unaudited)            |           |              |  |  
|                                     |  | (Dollars in thousands)
|Assets:                              |  |                        |           |              |  |   |           |  
|                                    
|                                    
|                                    
|                                    
|Banking                              |  | $                      | 5,382,997 |              |  | $ | 3,929,980 |  
|                                    
|                                    
|                                    
|                                    
|Mortgage Banking                     |  |                        | 877,257   |              |  |   | 843,250   |  
|                                    
|                                    
|                                    
|                                    
|Other                                |  |                        | 114,511   |              |  |   | 8,083     |  
|                                     |  |                        |           |              |  |   |           |  
|Total assets for reportable segments |  |                        | 6,374,765 |              |  |   | 4,781,313 |  
|                                    
|                                    
|                                    
|                                    
|Parent company assets                |  |                        | 65,554    |              |  |   | 81,644    |  
|                                    
|                                    
|                                    
|                                    
|Elimination of intersegment balances |  |                        | (269,854  | )            |  |   | (198,563  | )
|                                     |  |                        |           |              |  |   |           |  
|Consolidated total assets            |  | $                      | 6,170,465 |              |  | $ | 4,664,394 |  
|                                     |  |                        |           |              |  |   |           |  

18



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##### Table of Contents






Item 2: Managements Discussion and Analysis

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, securities brokerage and
insurance activities. The Company, currently in its 30th year of operations,
operated 86 branch offices (27 bank branches mainly located in the northeastern
section of Puerto Rico, 14 bank branches in the Orlando and Tampa/St.
Petersburg Florida markets, 40 mortgage offices in Puerto Rico and, 5 mortgage
offices in the United States) as of September 30, 2002.

On June 7, 2002, the Company, through its Florida holding company, R&G
Acquisition Holdings Corporation, acquired The Crown Group, Inc., a Florida
corporation, and its wholly-owned savings bank subsidiary, Crown Bank, F.S.B.
(Crown Bank), hereinafter collectively referred to as RAC, for an aggregate
of $100.0 million in cash. RAC operates Crown Bank in the Orlando and
Tampa/St. Petersburg metropolitan areas through 14 full-service 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 acquisition was accretive to our
earnings per share during the second (one month only) and third quarter of
2002.

The Company also provides a full range of banking services in Puerto Rico
through R-G Premier Bank of Puerto Rico (the Bank), a Puerto Rico commercial
bank. Banking activities include commercial banking services, corporate and
construction lending, consumer lending and credit cards, offering a diversified
range of deposit products and, to a lesser extent, trust and other services
through its private banking department.

Mortgage banking activities are conducted through R&G Mortgage Corp.,
Puerto Ricos second largest mortgage banker, The Mortgage Store of Puerto
Rico, Inc., also a Puerto Rico mortgage company, and Continental Capital
Corp., a New York mortgage banking company and wholly-owned subsidiary of
Crown Bank with offices in New York, North Carolina and Florida. Its 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, and 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 through Home &
Property Insurance Corp., a Puerto Rico insurance agency, and securities
brokerage in early 2002 through R&G Investments Corporation, a Puerto Rico
corporation and licensed broker-dealer.

The Company is the second largest mortgage loans originator and servicer
of mortgage loans on single family residences in Puerto Rico. R&G Financials
mortgage servicing portfolio increased to approximately $11.25 billion as of
September 30, 2002, from $7.1 billion as of the same date a year ago, an
increase of 63.2%. During the second quarter of 2002 the Company acquired a
servicing portfolio of $2.6 billion as part of the acquisition of Crown Bank.
R&G Financials strategy is to continue 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 September 30, 2002, the Company held securities available for sale with a
fair market value of $2.6 billion, which included $2.0 billion of
mortgage-backed securities, of which $509.4 million consisted primarily of
Puerto Rico GNMA securities,

19



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##### Table of Contents



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 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.

Financial Condition

At September 30, 2002, total assets amounted to $6.2 billion, as compared
to $4.7 billion at December 31, 2001, an increase of $1.5 billion or 32.3%. On
June 7, 2002 the Company completed the acquisition of Florida based The Crown
Group, Inc. (Crown), with total consolidated assets of
$712.3 million and deposits of $469.7 million at the
time of acquisition. Excluding the increase in assets due to the Crown
acquisition, total assets increased by $793.7 million or 17.0% from December
31, 2001. The $793.7 million increase in total assets was primarily the result
of a $463.7 million or 22.3% increase in mortgage-backed and investment
securities available for sale, and a $358.7 million or 19.9% increase in loans
receivable, net.

At September 30, 2002, R&G Financial had $2.6 billion of borrowings
(consisting of securities sold under agreements to repurchase, notes payable,
FHLB advances and other borrowings), compared to $2.1 billion at December 31,
2001. R&G Financial utilized repurchase agreements and FHLB Advances to fund
its growth during the period.

At September 30, 2002, R&G Financials allowance for loan losses totaled
$29.4 million, which represented a $12.0 million or 69.0% increase from the
level maintained at December 31, 2001. The allowance for loan losses at
September 30, 2002 includes $7.5 million of acquired reserves from the Crown
acquisition. At September 30, 2002, R&G Financials allowance represented
approximately 1.07% of the total loan portfolio and 32.97% of total
non-performing loans. However, excluding R&G Financials residential loan
portfolio, which has minimal charge-off experience, the allowance for loan
losses to total loans and to total non-performing loans would have been 2.30%
and 84.6%, respectively. The increase in the allowance for loan losses
reflects the increase in R&G Financials commercial real estate and
construction loan portfolio.

Non-performing
loans amounted to $89.3 million at September 30, 2002, an
increase of $16.8 million when compared to $72.5 million at December 31, 2001.
Such increase is net of $27.3 million non-performing residential mortgage sold
during the second quarter of 2002. At September 30, 2002, $54.5 million or
61.0% of non-performing loans consisted of residential mortgage loans.
Management attributes the increase in recent years to increased delays in the
foreclosure process in Puerto Rico. Because of the nature of the real estate
collateral, R&G Financial has historically recognized a low level of loan
charge-offs. R&G Financials aggregate charge-offs as a percentage of average
loans outstanding amounted to 0.51% during the first nine-months of
2002, 0.32% during 2001 and 0.17% during 2000.
Although loan delinquencies have historically been higher in Puerto Rico than
in the United States, actual foreclosures and any resulting 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 3.25% from December
31, 2001 to September 30, 2002, such ratios were nonetheless larger than they
would otherwise have been due to loan securitizations undertaken by the
Company, which have reduced the amount of loans considered in the calculation
of the ratio. Without giving effect to loan securitizations, at September 30,
2002 and December 31, 2001, the ratio of non-performing loans to total loans
would have been 2.45% and 2.75%, respectively.

20



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##### Table of Contents



Stockholders equity increased from $459.1 million at December 31, 2001 to
$638.5 million at September 30, 2002. The $179.4 million or 39.1% increase was
due primarily to the issuance of 2,760,000 shares of the Companys 7.25%
Monthly Income Preferred Stock, Series D, during the first half of 2002 for
aggregate net proceeds of $66.6 million, the issuance of 2,525,000 shares of
Class B common stock in August 2002 for aggregate net proceeds of $45.2
million, the $69.2 million net income recognized during the period, net of
dividends declared, and a $16.4 million increase in other comprehensive income,
due mainly to unrealized gains on securities available for sale during the
period of $35.3 million ($21.5 million net of taxes).

Results of Operations

During the three and nine months ended September 30, 2002, R&G Financial
reported net income of $25.0 million and $69.2 million, or $.63 and $1.81 of
earnings per diluted share, respectively, compared to net income before the
cumulative effect of a change in accounting principle of $17.4 million and
$45.8 million or $0.46 and $1.28 of earnings per diluted share for the
comparative periods in 2001, which reflects an increase in earnings per share
of 37.0% and 41.4% for the three and six months periods ending September 30,
2002 over the comparable periods in 2001.

Net interest income increased by $41.9 million or 62.1% during the nine
month period ended September 30, 2002 to $109.4 million, primarily due to an
increase in the average balance of interest-earning assets, together
with a 47
basis point increase in the net interest margin from 2.49% to 2.96%. The
provision for loan losses amounted to $13.5 million during the nine months
ended September 30, 2002, a 84.6% increase over the prior comparable period, as
R&G Financial increased it general reserves to reflect the expected continued
growth in commercial lending, which involves greater credit risk than
residential lending.

R&G Financial also increased its non-interest income by $22.8 million or
29.1% during the nine months ended September 30, 2002 over the prior comparable
period to $101.1 million. Net gain on sale of loans increased significantly,
by $13.5 million or 30.6% over the prior comparable period, which was due both
to an increased volume of loans originated and sold as well as increased
profits made on loans sold. Loan administration and servicing fees also
increased by $5.8 million or 23.1% over the comparable periods, due to the
growth in the Companys loan servicing portfolio.

Net interest income increased by $13.4 million or 48.1% to $41.3 million
during the quarter ended September 30, 2002, due to an increase in the average
balance of interest-earning assets, together with a 10 basis points increase in
the net interest margin from 2.86% to 2.96%. Net gain on sale of loans
increased 40.8% to $24.4 million during the three month ended September 30,
2002.

Total expenses increased by $30.7 million or 39.8% during the nine months
ended September 30, 2002 over the prior comparable period, primarily due to a
$20.6 million or 50.3% increase in other administrative and general expenses,
primarily due to increased amortization of $10.1 million of the
Company's servicing asset, together with a $7.0
million provision for valuation impairment reserves during the third quarter
of 2002, and increased advertising
expenses to increase loan production and other marketing initiatives. Employee
compensation and benefits increased by $8.2 million or 34.6% associated with
general growth in Company operations as well as increased loan production.
These increases were accompanied by a $1.8 million or 14.8% increase in
occupancy expenses.

Total expenses increased by $15.4 million or 51.4% during the three month
period ended September 30, 2002 over the prior comparable period, due to a
$11.0 million or 65.8% increase in other general and administrative expenses,
comprised primarily of the $7.0 million provision for valuation impairment
reserves of the Companys servicing asset, a $3.5 million or 39.4% increase in
employee compensation and benefits, and a $868,000 or 20.3% increase in
occupancy expenses.

21



---



##### Table of Contents



Interest Rate Risk Management

The following table summarizes the anticipated maturities or repricing or
R&G Financials interest-earning assets and interest-bearing liabilities as of
September 30, 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 as well as all securities held for
trading, are assumed to mature within one year. In addition, investments held
by the Company which have call features are presented according to their
contractual maturity date.

|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |           | 
|------------------------------------------------------------------------------------------------------------------------ | ------------------------------- | ------ | --------- | ------- | ------- | ----------- | ----------- | ------------- | ----------- | ----- | --------- | ------- |  | - | --------- | ------- |  | - | --------- | ------- |  | - | --------- | --------- | 
|                                                                                                                         |                                 |        | Within    |         | Four to |             | More Than   |               | More Than   |       |           |         |  |   |           |         | 
|                                                                                                                         |                                 |        | Three     |         | Twelve  |             | One Year to |               | Three Years |       | Over Five |         |  |   |          
|(Dollars in Thousands)                                                                                                   |                                 | Months |           | Months  |         | Three Years |             | to Five Years |             | Years |           | Total  
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |        
|Interest-earning assets(1):                                                                                              |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Loans receivable                                                                                                         |                                 | $      | 1,153,448 |         |         | $           | 249,875     |               |             | $     | 372,741   |         |  | $ | 234,100   |         |  | $ | 645,354   |         |  | $ | 2,655,518 |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Mortgage loans held for sale                                                                                             |                                 |        | 59,673    |         |         |             | 165,335     |               |             |       |          |         |  |   |          |         |  |   |          |         |  |   | 225,008   |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Mortgage-backed securities(2)(3)                                                                                         |                                 |        | 164,755   |         |         |             | 459,435     |               |             |       | 316,316   |         |  |   | 260,650   |         |  |   | 906,817   |         |  |   | 2,107,973 |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Investment Securities(3)                                                                                                 |                                 |        | 234,571   |         |         |             | 150,320     |               |             |       | 199,883   |         |  |   | 73,243    |         |  |   | 6,469     |         |  |   | 664,486   |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Other interest-earning assets(4)                                                                                         |                                 |        | 82,595    |         |         |             |            |               |             |       |          |         |  |   |          |         |  |   |          |         |  |   | 82,595    |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|Total                                                                                                                    |                                 | $      | 1,695,042 |         |         | $           | 1,024,965   |               |             | $     | 888,940   |         |  | $ | 567,993   |         |  | $ | 1,558,640 |         |  | $ | 5,735,580 |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|Interest bearing liabilities:                                                                                            |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Deposits (5)                                                                                                             |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | NOW and Super NOW accounts      |        | $         | 20,994  |         |             | $           | 59,263        |             |       | $         | 65,149  |  |   | $         | 52,771  |  |   | $         | 224,973 |  |   | $         | 423,150   | 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Passbook savings accounts       |        |           | 7,980   |         |             |             | 23,144        |             |       |           | 57,622  |  |   |           | 46,098  |  |   |           | 184,394 |  |   |           | 319,238   | 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Regular and commercial checking |        |           | 19,137  |         |             |             | 53,583        |             |       |           | 58,901  |  |   |           | 47,710  |  |   |           | 203,393 |  |   |           | 382,724   | 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                         | Certificates of deposit         |        |           | 305,327 |         |             |             | 614,898       |             |       |           | 452,917 |  |   |           | 309,524 |  |   |           | 2,254   |  |   |           | 1,684,920 | 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|FHLB advances                                                                                                            |                                 |        | 87,000    |         |         |             | 64,000      |               |             |       | 285,725   |         |  |   | 294,000   |         |  |   | 140,000   |         |  |   | 870,725   |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Securities sold under agreements to
repurchase (6)                                                                       |                                 |        | 280,458   |         |         |             | 592,036     |               |             |       | 258,582   |         |  |   | 378,200   |         |  |   |          |         |  |   | 1,509,276 |          
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Other borrowings(7)                                                                                                      |                                 |        | 47,905    |         |         |             | 133,596     |               |             |       | 206       |         |  |   |          |         |  |   |          |         |  |   | 181,707   |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|Total                                                                                                                    |                                 |        | 768,801   |         |         |             | 1,540,520   |               |             |       | 1,179,102 |         |  |   | 1,128,303 |         |  |   | 755,014   |         |  |   | 5,371,740 |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|Effect of hedging instruments                                                                                            |                                 |        | 180,000   |         |         |             | (10,000     | )             |             |       |          |         |  |   | (90,000   | )       |  |   | (80,000   | )       |  |   |          |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|Excess (deficiency) of interest-earning
assets over interest-bearing liabilities                                         |                                 | $      | 1,106,241 |         |         | $           | (525,555    | )             |             | $     | (290,162  | )       |  | $ | (650,310  | )       |  | $ | 723,626   |         |  | $ | 363,840   |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities                              |                                 | $      | 1,106,241 |         |         | $           | 580,686     |               |             | $     | 290,524   |         |  | $ | (359,786  | )       |  | $ | 363,840   |         |  |   |          |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          
|Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a percent
of total assets |                                 |        | 17.93     | %       |         |             | 9.41        | %             |             |       | 4.71      | %       |  |   | (5.83     | )%      |  |   | 5.90      | %       |  |   |          |          
|                                                                                                                         |                                 |        |           |         |         |             |             |               |             |       |           |         |  |   |           |         |  |   |           |         |  |   |           |          

(footnotes on following page)

22



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##### Table of Contents





---

|(1) |  | Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather that in the period in which they are
due, and fixed-rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization, in each case as
adjusted to take into account estimated prepayments.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Reflects estimated prepayments in the current interest rate environment.                                                                                                                                                                                                                                                                               
|   
|   
|   
|   
|(3) |  | Includes securities held for trading, available for sale and held to
maturity.                                                                                                                                                                                                                                                                         
|   
|   
|   
|   
|(4) |  | Includes securities purchased under agreement to resell, time deposits
with other banks and federal funds sold, if any.                                                                                                                                                                                                                                
|   
|   
|   
|   
|(5) |  | Does not include non-interest-bearing deposit accounts.                                                                                                                                                                                                                                                                                                
|   
|   
|   
|   
|(6) |  | Includes federal funds
purchased, if any.                                                                                                                                                                                                                                                                                                              
|   
|   
|   
|   
|(7) |  | Comprised of warehousing
lines, notes payable, trust preferred securities and other borrowings.                                                                                                                                                                                                                                                        

As of September 30, 2002, the Company had a one year positive gap of
approximately $580.7 million which constituted 9.41% of total assets at such
date, compared to a positive gap of approximately $462.6 million or 9.92% of
total assets at December 31, 2001. R&G Financials positive gap within one
year at September 30, 2002 and December 31, 2001 is due primarily to an
increasing amount of adjustable rate loans resulting from greater emphasis in
commercial and construction lending as well as to the extension during 2001 and
2002 of the maturity dates of certain borrowings of the Company into
longer-term maturities at very attractive rates, taking advantage of reducted
interest rates during such period. The Company estimates that as of September
30, 2002, approximately 53% of all borrowings of the Company had maturity dates
longer than one year. In addition, the Company has entered into certain
derivative instruments and increased its portfolio of investment securities
held for trading, reducing its gap exposure.

While the above table presents the Companys 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.

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 R&G Mortgage and Crown Bank,
and average daily balances for the Bank in each case during the periods
presented.

23



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##### Table of Contents



|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|----------------------------------------------------------------------- |  | ---------------------------------------------- | --------- | -------- |  | ---- | ------ | ------- |  | -------- | ------ | ---- |  | - | --------- | ------ |  | - | ------ |  |  |  | ------ | -
|                                                                        |  | For the three month period ended September 30,
|                                                                        |  |                                               
|                                                                        |  | 2002                                           |           | 2001    
|                                                                        |  |                                                |           |         
|                                                                        |  | Average                                        |           |          |  |      |        | Yield/  |  | Average  |        |      |  |   |           | Yield/
|(Dollars in thousands)                                                  |  | Balance                                        |           | Interest |  | Rate |        | Balance |  | Interest |        | Rate
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |     
|Interest-Earning Assets:                                                |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Cash and cash equivalents(1)                                            |  | $                                              | 164,721   |          |  | $    | 306    |         |  |          | 0.74   | %    |  | $ | 30,431    |        |  | $ | 324    |  |  |  | 4.26   | %
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Investment securities available for sale                                |  |                                                | 586,240   |          |  |      | 8,029  |         |  |          | 5.48   |      |  |   | 420,479   |        |  |   | 6,851  |  |  |  | 6.52   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Investment securities held to maturity                                  |  |                                                | 27,414    |          |  |      | 369    |         |  |          | 5.38   |      |  |   | 13,706    |        |  |   | 200    |  |  |  | 5.84   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Mortgage-backed securities held for trading                             |  |                                                | 77,719    |          |  |      | 1,106  |         |  |          | 5.69   |      |  |   | 113,846   |        |  |   | 1,802  |  |  |  | 6.33   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Mortgage-backed securities available for sale                           |  |                                                | 1,795,230 |          |  |      | 27,547 |         |  |          | 6.14   |      |  |   | 1,209,321 |        |  |   | 20,255 |  |  |  | 6.70   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Mortgage-backed securities held to maturity                             |  |                                                | 48,520    |          |  |      | 693    |         |  |          | 5.71   |      |  |   | 48,868    |        |  |   | 735    |  |  |  | 6.02   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Loans receivable, net (2)                                               |  |                                                | 2,784,689 |          |  |      | 50,086 |         |  |          | 7.19   |      |  |   | 2,011,547 |        |  |   | 40,509 |  |  |  | 8.06   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|FHLB of New York Stock                                                  |  |                                                | 93,066    |          |  |      | 776    |         |  |          | 3.34   |      |  |   | 55,380    |        |  |   | 700    |  |  |  | 5.06   |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Total interest-earning assets                                           |  |                                                | 5,577,599 |          |  | $    | 88,912 |         |  |          | 6.38   | %    |  |   | 3,903,578 |        |  | $ | 71,376 |  |  |  | 7.31   | %
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Non-interest-earning assets                                             |  |                                                | 203,668   |          |  |      |        |         |  |          |        |      |  |   | 309,390   |        |  |   |        |  |  |  |        |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Total assets                                                            |  | $                                              | 5,781,267 |          |  |      |        |         |  |          |        |      |  | $ | 4,212,968 |        |  |   |        |  |  |  |        |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Interest-Bearing Liabilities:                                           |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Deposits                                                                |  | $                                              | 2,698,319 |          |  | $    | 23,826 |         |  |          | 3.53   | %    |  | $ | 1,872,192 |        |  | $ | 22,242 |  |  |  | 4.75   | %
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Securities sold under agreements to
repurchase (3)                      |  |                                                | 1,376,646 |          |  |      | 12,708 |         |  |          | 3.69   |      |  |   | 1,098,472 |        |  |   | 12,135 |  |  |  | 4.42   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Notes payable                                                           |  |                                                | 232,472   |          |  |      | 1,795  |         |  |          | 3.09   |      |  |   | 266,811   |        |  |   | 3,523  |  |  |  | 5.28   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Other borrowings(4)                                                     |  |                                                | 827,888   |          |  |      | 9,273  |         |  |          | 4.48   |      |  |   | 433,739   |        |  |   | 5,580  |  |  |  | 5.15   |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Total interest-bearing liabilities                                      |  |                                                | 5,135,325 |          |  | $    | 47,602 |         |  |          | 3.71   | %    |  |   | 3,671,214 |        |  | $ | 43,480 |  |  |  | 4.74   | %
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Non-interest-bearing liabilities                                        |  |                                                | 40,993    |          |  |      |        |         |  |          |        |      |  |   | 116,462   |        |  |   |        |  |  |  |        |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Total liabilities                                                       |  |                                                | 5,176,318 |          |  |      |        |         |  |          |        |      |  |   | 3,787,676 |        |  |   |        |  |  |  |        |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Stockholders equity                                                    |  |                                                | 604,949   |          |  |      |        |         |  |          |        |      |  |   | 425,292   |        |  |   |        |  |  |  |        |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Total liabilities and stockholders equity                              |  | $                                              | 5,781,267 |          |  |      |        |         |  |          |        |      |  | $ | 4,212,968 |        |  |   |        |  |  |  |        |  
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Net interest income; interest rate spread (5)                           |  |                                                |           |          |  | $    | 41,310 |         |  |          | 2.67   | %    |  |   |           |        |  | $ | 27,896 |  |  |  | 2.57   | %
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Net interest margin                                                     |  |                                                |           |          |  |      |        |         |  |          | 2.96   | %    |  |   |           |        |  |   |        |  |  |  | 2.86   | %
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  
|Average interest-earning assets to average
interest-bearing liabilities |  |                                                |           |          |  |      |        |         |  |          | 108.61 | %    |  |   |           |        |  |   |        |  |  |  | 106.33 | %
|                                                                        |  |                                                |           |          |  |      |        |         |  |          |        |      |  |   |           |        |  |   |        |  |  |  |        |  

(footnote on page 26)

24



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##### Table of Contents



|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|----------------------------------------------------------------------- |  | --------------------------------------------- | --------- | -------- |  | ---- | ------- | ------- |  | -------- | ------ | ---- |  | - | --------- | ------ |  | - | ------- |  |  |  | ------ | -
|                                                                        |  | For the nine month period ended September 30,
|                                                                        |  |                                              
|                                                                        |  | 2002                                          |           | 2001    
|                                                                        |  |                                               |           |         
|                                                                        |  | Average                                       |           |          |  |      |         | Yield/  |  | Average  |        |      |  |   |           | Yield/
|(Dollars in thousands)                                                  |  | Balance                                       |           | Interest |  | Rate |         | Balance |  | Interest |        | Rate
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |     
|Interest-Earning Assets:                                                |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Cash and cash equivalents (1)                                           |  | $                                             | 91,933    |          |  | $    | 902     |         |  |          | 1.31   | %    |  | $ | 37,109    |        |  | $ | 1,345   |  |  |  | 4.83   | %
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Investment securities available for sale                                |  |                                               | 563,497   |          |  |      | 23,950  |         |  |          | 5.67   |      |  |   | 394,164   |        |  |   | 19,770  |  |  |  | 6.69   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Investment securities held to maturity                                  |  |                                               | 25,093    |          |  |      | 1,020   |         |  |          | 5.42   |      |  |   | 7,506     |        |  |   | 325     |  |  |  | 5.77   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Mortgage-backed securities held for trading                             |  |                                               | 84,241    |          |  |      | 3,480   |         |  |          | 5.51   |      |  |   | 108,557   |        |  |   | 5,117   |  |  |  | 6.28   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Mortgage-backed securities available for sale                           |  |                                               | 1,677,697 |          |  |      | 77,901  |         |  |          | 6.19   |      |  |   | 1,114,739 |        |  |   | 54,343  |  |  |  | 6.50   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Mortgage-backed securities held to maturity                             |  |                                               | 49,982    |          |  |      | 2,183   |         |  |          | 5.82   |      |  |   | 29,049    |        |  |   | 1,301   |  |  |  | 5.97   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Loans receivable, net (2)                                               |  |                                               | 2,354,631 |          |  |      | 127,569 |         |  |          | 7.22   |      |  |   | 1,866,557 |        |  |   | 114,292 |  |  |  | 8.16   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|FHLB of New York Stock                                                  |  |                                               | 79,151    |          |  |      | 2,241   |         |  |          | 3.77   |      |  |   | 49,933    |        |  |   | 2,243   |  |  |  | 5.99   |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Total interest-earning assets                                           |  |                                               | 4,926,225 |          |  | $    | 239,246 |         |  |          | 6.48   | %    |  |   | 3,607,614 |        |  | $ | 198,736 |  |  |  | 7.35   | %
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Non-interest-earning assets                                             |  |                                               | 338,364   |          |  |      |         |         |  |          |        |      |  |   | 301,599   |        |  |   |         |  |  |  |        |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Total assets                                                            |  | $                                             | 5,264,589 |          |  |      |         |         |  |          |        |      |  | $ | 3,909,213 |        |  |   |         |  |  |  |        |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Interest-Bearing Liabilities:                                           |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Deposits                                                                |  | $                                             | 2,340,924 |          |  | $    | 65,416  |         |  |          | 3.73   | %    |  | $ | 1,773,775 |        |  | $ | 67,937  |  |  |  | 5.11   | %
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Securities sold under agreements to
repurchase (3)                      |  |                                               | 1,399,763 |          |  |      | 37,764  |         |  |          | 3.60   |      |  |   | 973,255   |        |  |   | 36,717  |  |  |  | 5.03   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Notes payable                                                           |  |                                               | 252,815   |          |  |      | 5,152   |         |  |          | 2.72   |      |  |   | 231,468   |        |  |   | 8,545   |  |  |  | 4.92   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Other borrowings(4)                                                     |  |                                               | 643,326   |          |  |      | 21,550  |         |  |          | 4.47   |      |  |   | 446,538   |        |  |   | 18,053  |  |  |  | 5.39   |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Total interest-bearing liabilities                                      |  |                                               | 4,636,828 |          |  | $    | 129,882 |         |  |          | 3.73   | %    |  |   | 3,425,036 |        |  | $ | 131,252 |  |  |  | 5.11   | %
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Non-interest-bearing liabilities                                        |  |                                               | 112,911   |          |  |      |         |         |  |          |        |      |  |   | 96,956    |        |  |   |         |  |  |  |        |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Total
liabilities                                                       |  |                                               | 4,749,739 |          |  |      |         |         |  |          |        |      |  |   | 3,521,992 |        |  |   |         |  |  |  |        |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Stockholders equity                                                    |  |                                               | 514,850   |          |  |      |         |         |  |          |        |      |  |   | 387,221   |        |  |   |         |  |  |  |        |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Total liabilities and stockholders equity                              |  | $                                             | 5,264,589 |          |  |      |         |         |  |          |        |      |  | $ | 3,909,213 |        |  |   |         |  |  |  |        |  
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Net interest income; interest rate spread(5)                            |  |                                               |           |          |  | $    | 109,364 |         |  |          | 2.75   | %    |  |   |           |        |  | $ | 67,484  |  |  |  | 2.24   | %
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Net interest margin                                                     |  |                                               |           |          |  |      |         |         |  |          | 2.96   | %    |  |   |           |        |  |   |         |  |  |  | 2.49   | %
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  
|Average interest-earning assets to average
interest-bearing liabilities |  |                                               |           |          |  |      |         |         |  |          | 106.24 | %    |  |   |           |        |  |   |         |  |  |  | 105.33 | %
|                                                                        |  |                                               |           |          |  |      |         |         |  |          |        |      |  |   |           |        |  |   |         |  |  |  |        |  

(footnotes on following page)

25



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##### Table of Contents





---

|(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 and non-accrual loans.                                                                                                                                                                                                                               
|   
|   
|   
|   
|(3) |  | Includes federal funds purchased.                                                                                                                                                                                                                                                          
|   
|   
|   
|   
|(4) |  | Comprised of long-term debt,
advances from the FHLB of New York, trust preferred securities and other
borrowings.                                                                                                                                                                          
|   
|   
|   
|   
|(5) |  | 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.

Mortgage Loan Servicing

The following table sets forth certain information regarding the mortgage
loan servicing portfolio of R&G Financial for the periods indicated.

|                                                  |                                      |                          |                                           |            |                                 |            |           |           |           |          |  
|------------------------------------------------- | ------------------------------------ | ------------------------ | ----------------------------------------- | ---------- | ------------------------------- | ---------- | --------- | --------- | --------- | -------- | -
|                                                  |                                      |                          |                                           |            | At or for the nine months ended
|                                                  |                                      |                          |                                           |            | September 30,                  
|                                                  |                                      |                          |                                           |            |                                
|                                                  |                                      |                          |                                           |            | 2002                            |            | 2001     
|                                                  |                                      |                          |                                           |            |                                 |            |          
|                                                  |                                      |                          |                                           |            | (Dollars in thousands)         
|Composition of Servicing Portfolio at period end: |                                      |                          |                                           |            |                                 |            |           |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                      | GNMA                     |                                           | $          | 2,721,221                       |            |           | $         | 2,958,985 |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                      | FNMA/FHLMC               |                                           |            | 5,926,375                       |            |           |           | 2,337,570 |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                      | Other mortgage loans (3) |                                           |            | 2,602,507                       |            |           |           | 1,808,222 |         
|                                                  |                                      |                          |                                           |            |                                 |            |           |           |           |         
|Total servicing portfolio (3)                     |                                      | $                        | 11,250,103                                |            |                                 | $          | 7,104,777 |          
|                                                  |                                      |                          |                                           |            |                                 |            |           |           |           |         
|Activity in the Servicing Portfolio:              |                                      |                          |                                           |            |                                 |            |           |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Beginning servicing portfolio        |                          | $                                         | 7,224,571  |                                 |            | $         | 6,634,059 |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Add: Loan originations and purchases |                          |                                           | 1,529,819  |                                 |            |           | 1,415,853 |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                      |                          | Servicing of portfolio loans acquired (4) |            |                                 | 4,168,844  |           |           |           | 3,837    |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Less: Sale of servicing rights(1)    |                          |                                           | (176,644   | )                               |            |           | (164,875  | )        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                      |                          | Run-offs(2)                               |            |                                 | (1,496,487 | )         |           |           | (784,097 | )
|                                                  |                                      |                          |                                           |            |                                 |            |           |           |           |         
|                                                  | Ending servicing portfolio(3)        |                          | $                                         | 11,250,103 |                                 |            | $         | 7,104,777 |          
|                                                  |                                      |                          |                                           |            |                                 |            |           |           |           |         
|                                                  | Number of loans serviced             |                          |                                           | 162,823    |                                 |            |           | 113,181   |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Average loan size                    |                          | $                                         | 69         |                                 |            | $         | 63        |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Average servicing fee rate           |                          |                                           | 0.51       | %                               |            |           | 0.50      | %        



---

|(1) |  | Corresponds to loans sold, servicing released, by Continental Capital.
|--- |  | ----------------------------------------------------------------------

26



---



##### Table of Contents



|(2) |  | Run-offs refer to regular amortization of loans, prepayments and
foreclosures.                                                                                                                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(3) |  | At the dates shown, included $981.1 million and $1.0 billion of loans
serviced for the Bank, respectively, which constituted 8.7% and 14.1% of
the total servicing portfolio, respectively, and $120.8 million of loans
in Crown Banks portfolio as of September 30, 2002, or 1.1% of the total
servicing portfolio at such date.
|   
|   
|   
|   
|(4) |  | Includes $2.6 billion acquired through Crown Bank acquisition in June
2002.                                                                                                                                                                                                                                                       

A large portion of the mortgage loans in R&G Financials servicing
portfolio are secured by single (one-to-four) family residences secured by real
estate located in Puerto Rico. At September 30, 2002, 62.6% of the Companys
mortgage servicing portfolio was related to mortgages secured by real property
located in Puerto Rico.

The Company reduces the sensitivity of its servicing income to increases
in prepayment rates through a strong retail origination network that has
increased or maintained the size of R&G Financials servicing portfolio even
during periods of high prepayments. In addition, a substantial portion of the
Companys servicing portfolio consists of tax-exempt FHA/VA mortgage loans in
Puerto Rico which carry lower interest rates than those on conventional loans,
which tends to reduce risks related to R&G Financials servicing portfolio.
During the nine month periods ended September 30, 2002 and 2001, the Company
recognized $7.2 million and $2.5 million, respectively, of unscheduled
amortization on mortgage servicing rights, and made provisions for impairment
of approximately $6.5 million and $1.2 million during such respective periods.

Liquidity and Capital Resources

Liquidity- Liquidity refers to the Company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. The Company monitors its liquidity in accordance with guidelines
established by the Company and applicable regulatory requirements. The
Companys need for liquidity is affected by loan demand, net changes in deposit
levels and the scheduled maturities of its borrowings. The Company can
minimize the cash required during the 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 the
Company has limited control. The Company derives its liquidity from both its
assets and liabilities. Liquidity is derived from assets by receipt of
interest and principal payments and prepayments, by the ability to sell assets
at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including deposits, advances from the FHLB of New York and
other short and long-term borrowings.

The Company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 the
Company 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 September 30, 2002, the Company had $119.7 million in borrowing
capacity under unused warehousing and other lines of credit, $768.7 million in
borrowings capacity under unused lines of credit with the FHLB of New York and
$25.0 million under unused fed funds lines of credit. The Company has
generally not relied upon brokered deposits as a source of liquidity.

27



---



##### Table of Contents



At September 30, 2002, the Company had outstanding commitments to
originate and/or purchase mortgage and non-mortgage loans (including
unused lines of credit) of $365.9 million. Certificates of deposit which are scheduled
to mature within one year totaled $916.7 million at September 30, 2002, and
borrowings that are scheduled to mature within the same period amounted to $1.2
billion. The Company anticipates that it will have sufficient funds available
to meet its current loan commitments.

Capital Resources- The Company issued $25 million in Trust Preferred
Securities in April 2002 through R&G Capital Trust I, a subsidiary of RAC. The
Trust Preferred Securities increased the Companys regulatory capital, which
allows for the continued growth of our franchise. The ability to treat these
Trust Preferred Securities as regulatory capital under Federal Reserve
guidelines, coupled with the Federal income tax deductibility of the related
expense, provides the Company with a cost-effective form of capital.

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 1 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 1 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
September 30, 2002, the Bank met each of its capital requirements, with Tier 1
leverage capital, Tier 1 risk-based capital and total risk-based capital ratios
of 6.80%, 12.77% and 13.74%, respectively. At September 30, 2002 Crown Bank
also met each of its capital requirements, with Tier 1 (core) capital, Tier 1
risk-based capital and total risk-based capital ratios of 8.44%, 11.86% and
12.91%, respectively.

In addition, the Federal Reserve Board has promulgated capital adequacy
guidelines for bank holding companies which are substantially similar to those
adopted by FDIC regarding state-chartered banks, as described above. The
Company is currently in compliance with such regulatory capital requirements.

Critical Accounting Policies

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

28



---



##### Table of Contents



Notes to the Consolidated Financial Statements as of December 31, 2001 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 September 30, 2002, the Company had a servicing asset of $147.6
million, and retained interests (CMO residuals and interest only strips)
resulting from financial asset transfers accounted for as sales totaling $22.7
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 as of
December 31, 2001 for further information regarding the Companys servicing
asset and retained interests policy.

Recent Legislation

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002, or the SOA. The stated goals of the SOA are to increase corporate
responsibility, to provide for enhanced penalties for accounting and auditing
improprieties at publicly traded companies and to protect investors by
improving the accuracy and reliability of corporate disclosures pursuant to the
securities laws.

The SOA is the most far-reaching U.S. securities legislation enacted in
some time. The SOA generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the Securities and
Exchange Commission, or the SEC, under the Securities Exchange Act of 1934, or
the Exchange Act. Given the extensive SEC role in implementing rules relating
to many of the SOAs new requirements, the final scope of these requirements
remains to be determined.

The SOA includes very specific additional disclosure requirements and new
corporate governance rules, requires the SEC and securities exchanges to adopt
extensive additional disclosure, corporate governance and other related rules
and mandates further studies of certain issues by the SEC and the Comptroller
General. The SOA represents significant federal involvement in matters
traditionally left to state regulatory systems, such as the regulation of the
accounting profession, and to state corporate law, such as the relationship
between a board of directors and management and between a board of directors
and its committees.

This SOA addresses, among other matters: audit committees; certification
of financial statements by the chief executive officer and the chief financial
officer; the forfeiture of bonuses and profits made by directors and senior
officers in the twelve month period covered by restated financial statements; a
prohibition on insider trading during pension plan black out periods;
disclosure of off-balance sheet transactions; a prohibition on personal loans
to directors and officers; expedited filing requirements for Forms 4s;
disclosure of a code of ethics and filing a Form 8-K for a change or waiver of
such code; real time filing of periodic reports; the formation of a public
accounting oversight board; auditor independence; and various increased
criminal penalties for violations of securities laws.

The SOA contains provisions which became effective upon enactment on July
30, 2002 and provisions which will become effective from within 30 days to one
year from enactment. The SEC has been delegated the task of enacting rules to
implement various of the provisions with respect to, among other matters,
disclosure in periodic filings pursuant to the Exchange Act.




Item 3: Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risks at December
31, 2001 are presented in Item 7A of the Companys Annual report on Form 10-K.
Information at September 30, 2002 is presented on page 22 of this Report.
Management believes there have been no material changes in the Companys market
risk since December 31, 2001.

29



---



##### Table of Contents






Item 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer along with the
Companys Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to the
Securities Exchange Act of 1934 (Exchange Act) Rule 13a-14. Based upon that
evaluation, the Companys Chief Executive Officer along with the Companys
Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to
be included in the Companys periodic Securities and Exchange Commission
(SEC) filings. There have been no significant changes in the Companys
internal controls or in other factors which could significantly affect these
controls subsequent to the date the Company carried out its evaluation.

Disclosure controls and procedures are Company controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.

30



---



##### Table of Contents






PART II   OTHER INFORMATION




Item 1:Legal Proceedings



| |  |  | The Registrant is involved in routine legal proceedings occurring
in the ordinary course of business which, in the aggregate, are
believed by management to be immaterial to the financial condition
and results of operations of the Registrant.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 2:Changes in Securities



| |  |  | Not applicable.
| |  |  | ---------------




Item 3:Defaults Upon Senior Securities



| |  |  | Not applicable.
| |  |  | ---------------




Item 4:Submission of Matters to a Vote of Security Holders



| |  |  | Not applicable.
| |  |  | ---------------




Item 5:Other Information



| |  |  | Not applicable.
| |  |  | ---------------




Item 6:Exhibits and Reports on Form 8-K



|(a) |  | Item 601 exhibits:
|--- |  | ------------------

|      |  |                                                                                                                                                                                                                              
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.   |  | Description                                                                                                                                                                                                                  
|      |  |                                                                                                                                                                                                                              
|2.1   |  | Amended and Restated Agreement and Plan of Merger by and between R&G
Financial Corporation, R-G Premier Bank of Puerto Rico and R-G Interim
Premier Bank, dated as of September 27, 1996(1)                                  
|     
|     
|     
|     
|2.2   |  | Agreement and Plan of Reorganization by and among R&G Financial
Corporation, R&G Acquisition Holdings Corporation, The Crown Group, Inc.
and Crown Bank, a Federal Savings Bank dated as of December 19, 2001, as
amended (2)
|     
|     
|     
|     
|3.1.0 |  | Certificate of Incorporation of R&G Financial Corporation (3)                                                                                                                                                                
|     
|     
|     
|     
|3.1.1 |  | Certificate of Amendment to the Certificate of Incorporation of R&G
Financial Corporation (3)                                                                                                                                

31



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##### Table of Contents



|      |  |                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.   |  | Description                                                                                                                                                                                                
|      |  |                                                                                                                                                                                                            
|     
|     
|     
|     
|3.1.2 |  | Amended and Restated Certificate of Incorporation of R&G Financial
Corporation (4)                                                                                                                         
|     
|     
|     
|     
|3.1.3 |  | Amendment to the Amended and Restated Certificate of Incorporation of
R&G Financial Corporation (5)                                                                                                        
|     
|     
|     
|     
|3.1.4 |  | Second Amendment to Amended and Restated Certificate of Incorporation of
R&G Financial Corporation (15)                                                                                                    
|     
|     
|     
|     
|3.1.5 |  | Certificate of Resolutions designating the terms of the Series A Preferred Stock (6)                                                                                                                       
|     
|     
|     
|     
|3.1.6 |  | Certificate of Resolutions designating the terms of the Series B Preferred Stock (7)                                                                                                                       
|     
|     
|     
|     
|3.1.7 |  | Certificate of Resolutions designating the terms of the Series C Preferred Stock (12)                                                                                                                      
|     
|     
|     
|     
|3.1.8 |  | Certificate of Resolutions designating the terms of the Series D Preferred Stock (13)                                                                                                                      
|     
|     
|     
|     
|3.2   |  | Bylaws of R&G Financial Corporation (3)                                                                                                                                                                    
|     
|     
|     
|     
|4.0   |  | Specimen of Stock Certificate of R&G Financial Corporation (3)                                                                                                                                             
|     
|     
|     
|     
|4.1   |  | Form of Series A Preferred Stock Certificate of R&G Financial Corporation (9)                                                                                                                              
|     
|     
|     
|     
|4.2   |  | Form of Series B Preferred Stock Certificate of R&G Financial Corporation (10)                                                                                                                             
|     
|     
|     
|     
|4.3   |  | Form of Series C Preferred Stock Certificate of R&G Financial Corporation (11)                                                                                                                             
|     
|     
|     
|     
|4.4   |  | Form of Series D Preferred Stock Certificate of R&G Financial Corporation (14)                                                                                                                             
|     
|     
|     
|     
|10.1  |  | Master Custodian Agreement between R&G Mortgage Corporation and R-G
Premier Bank of Puerto Rico dated February 16, 1990, as amended on June
27, 1996 (3)                                                   
|     
|     
|     
|     
|10.2  |  | Master Production Agreement between R&G Mortgage and R-G Premier Bank of
Puerto Rico dated February 16, 1990, as amended on August 30, 1991 and
March 31, 1995 (3)                                         
|     
|     
|     
|     
|10.3  |  | Data Processing Computer Service Agreement between R&G Mortgage and R-G
Premier Bank of Puerto Rico dated December 1, 1994 (3)                                                                             
|     
|     
|     
|     
|10.4  |  | Securitization Agreement by and between R&G Mortgage and R-G Premier Bank
of Puerto Rico, dated as of July 1, 1995 (3)                                                                                     
|     
|     
|     
|     
|10.5  |  | R&G Financial Corporation Stock Option Plan (3)(*)                                                                                                                                                         
|     
|     
|     
|     
|10.6  |  | Guarantee Agreement between R&G Financial Corporation, R&G Acquisition
Holdings Corporation and Wilmington Trust as Guarantee Trustee with
respect to the Capital Securities issued by R&G Capital Trust I.



|(1)  |  | Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 333-13199) filed by the Registrant with the Securities
and Exchange Commission (SEC) on October 1, 1996.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(2)  |  | Incorporated by reference from the Registrants Current Report on Form
8-K filed with the SEC on December 20, 2001.                                                                               
|    
|    
|    
|    
|(3)  |  | Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-06245) filed by the Registrant with the SEC on June
18, 1996, as amended.                             
|    
|    
|    
|    
|(4)  |  | Incorporated by reference from the Registrants Current Report on Form
8-K filed with the SEC on November 19, 1999.                                                                               
|    
|    
|    
|    
|(5)  |  | Incorporated by reference from the Registrants Current Report on Form
8-K filed with the SEC on June 12, 2001.                                                                                   
|    
|    
|    
|    
|(6)  |  | Incorporated by reference from the Registrants Current Report on Form
8-K filed with the SEC on August 31, 1998                                                                                  
|    
|    
|    
|    
|(7)  |  | Incorporated by reference from the Registrants Form 10-K filed with the
SEC on April 13, 2000.                                                                                                   
|    
|    
|    
|    
|(8)  |  | Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registrants Registration Statement on Form S-3 (File No. 333-55834),
filed with the SEC on March 7, 2001.                    
|    
|    
|    
|    
|(9)  |  | Incorporated by reference from the Registrants Registration Statement on
Form S-3 (Registration No. 333-60923), as amended, filed with the SEC on
August 7, 1998.                                
|    
|    
|    
|    
|(10) |  | Incorporated by reference from the Registrants Registration Statement on
Form S-3 (Registration No. 333-90463), filed with the SEC on November 5,
1999.                                          
|    
|    
|    
|    
|(11) |  | Incorporated by reference from the Registrants Registration Statement on
Form S-3 (File No. 333-55834), filed with the SEC on February 16, 2001.                                                 
|    
|    
|    
|    
|(12) |  | Incorporated by reference from the Registrants Form 10-K filed with the
SEC on April 14, 2001.                                                                                                   
|    
|    
|    
|    
|(13) |  | Incorporated by reference from the Registrants Current Report on Form
8-K filed with the SEC on March 7, 2002.                                                                                   
|    
|    
|    
|    
|(14) |  | Incorporated by reference from the Registrants Registration Statement on
Form S-3 (File No. 333-81214) filed with the SEC on January 22, 2002.                                                   
|    
|    
|    
|    
|(15) |  | Incorporated by reference from the Registrants Current Report on Form
8-K filed with the SEC on June 18, 2002.                                                                                   
|    
|    
|    
|    
|(*)  |  | Management contract or compensatory plan or arrangement.                                                                                                                                          

32



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##### Table of Contents





|(b) |  | Reports on Form 8-K
|--- |  | -------------------

(1)  The Registrant filed a current report on Form 8-K on July 3, 2002,
announcing the filing of a listing application with The New York Stock Exchange
to list its Class B Common Stock.

(2)  The Registrant filed a current report on Form 8-K on July 11, 2002,
announcing receipt of approval to list its Class B Common Stock on The New York
Stock Exchange (the NYSE), and that the Class B Common would begin trading on
the NYSE on July 12, 2002 and be delisted from the Nasdaq National Market
effective July 11, 2002.

(3)  The Registrant filed a current report on Form 8-K on July 17, 2002, with an
attached press release announcing its earning for the second quarter and six
months ended June 30, 2002.

(4)  The Registrant filed a current report on Form 8-K on July 30, 2002,
announcing the pricing of an offering of 3.5 million shares of is Class B
Common Stock at a price of $19.00 per share.

(5)  The Registrant filed a current report on Form 8-K on August 2, 2002,
announcing the closing of the offering of 3.5 million shares of its Class B
Common Stock.




SIGNATURES

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

|                        |  |                                                                                                                   |  |                       
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----------------------
|                        |  | R&G FINANCIAL CORPORATION                                                                                        
|                       
|                       
|                       
|                       
|                        |  |                                                                                                                   |  |                       
|                       
|                       
|                       
|                       
|Date: November 14, 2002 |  | By:                                                                                                               |  | /S/ VICTOR J. GALAN   
|                        |  |                                                                                                                   |  |                       
|                        |  | Víctor J. Galán, Chairman
and Chief Executive Officer
(Principal Executive Officer)                              
|                       
|                       
|                       
|                       
|                        |  |                                                                                                                   |  |                       
|                       
|                       
|                       
|                       
|                        |  | By:                                                                                                               |  | /S/ JOSEPH R. SANDOVAL
|                        |  |                                                                                                                   |  |                       
|                        |  | Joseph R. Sandoval
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)

33



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##### Table of Contents



CERTIFICATIONS

I, Víctor J. Galán, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of R&G
Financial Corporation;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     



| | (a) |  | Designed such disclosure controls and
procedures to ensure that material information relating
to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which the
periodic report is being prepared;
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the
registrant s disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                               
|
| | (c) |  | Presented in this quarterly report
our conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                      



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and to the audit committee of the registrants board of
directors (or persons performing the equivalent function):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the
design or operation of internal controls which could
adversely affect the registrants ability to record,
process, summarize and report financial data and have
identified for the registrants auditors any material
weaknesses in internal controls;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material,
that involves management or other employees who have a
significant role in the registrants internal controls;
and                                                                                                                                    



|6. |  | The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                                      
|----------------------- |  | ---------------------------------------------------------------------
|Date: November 14, 2002 |  |                                                                      
|                       
|                        |  | /s/ Víctor J. Galán
Chairman of the Board and
Chief Executive Officer





---



##### Table of Contents



I, Joseph R. Sandoval, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of R&G
Financial Corporation;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     



| | (a) |  | Designed such disclosure controls and
procedures to ensure that material information relating
to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which the
periodic report is being prepared;
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the
registrant s disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                               
|
| | (c) |  | Presented in this quarterly report
our conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                      



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and to the audit committee of the registrants board of
directors (or persons performing the equivalent function):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the
design or operation of internal controls which could
adversely affect the registrants ability to record,
process, summarize and report financial data and have
identified for the registrants auditors any material
weaknesses in internal controls;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material,
that involves management or other employees who have a
significant role in the registrants internal controls;
and                                                                                                                                    



|6. |  | The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                                         
|----------------------- |  | ------------------------------------------------------------------------
|Date: November 14, 2002 |  |                                                                         
|                       
|                        |  | /s/ Joseph R. Sandoval
Senior Vice President and Chief
Financial Officer