Edgar Filing: R&G FINANCIAL CORP

Filed Pursuant to Rule 424(b)(1)

Registration No. 333-60910

PROSPECTUS June 21, 2001

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4,000,000 SHARES

(R-G FINANCIAL CORPORATION LOGO)

CLASS B COMMON STOCK

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R&G Financial is a Puerto Rico chartered financial holding company that operates
R&G Mortgage Corp., the second largest mortgage company in Puerto Rico, and R-G
Premier Bank, a Puerto Rico commercial bank. We are offering 2,000,000 shares of
Class B common stock and two of our stockholders (the "Selling Stockholders")
are offering 2,000,000 shares of Class B common stock. We will not receive any
proceeds from the sale of shares by the Selling Stockholders.

Our Class B common stock is quoted on the Nasdaq National Market under the
symbol "RGFC." The last reported sale price of our Class B common stock on June
21, 2001 was $15.67 per share.

INVESTING IN OUR CLASS B COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 9 OF THIS PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR COMMONWEALTH OF
PUERTO RICO SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OBLIGATIONS OF ANY BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING LOSS OF THE
PRINCIPAL INVESTED.

PER SHARE TOTAL

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Public offering price $15.0000 $60,000,000
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Underwriting discounts and commissions $ 0.8250 $ 3,300,000
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Proceeds, before expenses, to R&G Financial $14.1750 $28,350,000
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Proceeds, before expenses, to the Selling Stockholders $14.1750 $28,350,000
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We and one of the Selling Stockholders have each also granted the underwriters a
30-day option to purchase up to 300,000 shares of Class B common stock, or an
aggregate of an additional 600,000 shares, to cover over-allotments at the
public offering price per share less the underwriting discounts and commissions.

The underwriters are offering the shares of our Class B common stock as
described in "Underwriting." Delivery of the shares will be made on or about
June 26, 2001.

UBS WARBURG KEEFE, BRUYETTE & WOODS, INC.
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TABLE OF CONTENTS

PAGE
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Summary..................................................... 1
Risk Factors................................................ 9
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 12
Price Range of Class B Common Stock......................... 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Selected Consolidated Financial and Other Data.............. 15
Recent Developments......................................... 18
Management.................................................. 20
Description of Capital Stock................................ 23
Taxation.................................................... 26
Selling Stockholders........................................ 31
Underwriting................................................ 32
Incorporation of Certain Documents by Reference............. 33
Where You Can Find More Information......................... 34
Legal Matters............................................... 34
Experts..................................................... 34

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PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION INCORPORATED BY
REFERENCE OR CONTAINED IN THIS PROSPECTUS. NEITHER R&G FINANCIAL NOR ANY
UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH
INFORMATION DIFFERENT FROM THAT INCORPORATED BY REFERENCE OR CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT SEEKING AN OFFER
TO BUY, THE CLASS B COMMON STOCK IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS COMPLETE AND ACCURATE ONLY
AS OF THE DATE SET FORTH ON THE FRONT COVER, REGARDLESS OF THE TIME OF DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
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SUMMARY

This summary provides an overview of selected information contained
elsewhere in this prospectus and does not contain all the information you should
consider. You should also read the more detailed information set out in this
prospectus or incorporated by reference into this prospectus and the "Risk
Factors" section beginning on page 9. Unless otherwise stated, all information
in this prospectus assumes that the underwriters will not exercise their
over-allotment option to purchase any of the 600,000 shares of Class B common
stock subject to that option.

R&G FINANCIAL

GENERAL

R&G Financial is a Puerto Rico chartered financial holding company that
operates R&G Mortgage Corp., the second largest mortgage company in Puerto Rico,
and R-G Premier Bank, a Puerto Rico commercial bank. Through R&G Mortgage, we
also operate Mortgage Store of Puerto Rico, Inc., formerly Champion Mortgage
Corporation, a Puerto Rico mortgage company, and through R-G Premier Bank, we
operate Continental Capital Corp., a Huntington Station, New York mortgage
banking company. With our acquisition of Continental in late 1999, we plan to
expand our operations in the United States, concentrating initially in New York
and then into other markets to the extent that we are presented with appropriate
expansion opportunities. We also recently acquired Home and Property Insurance
Corporation, a Puerto Rico insurance agency, and intend to open R&G Investments
Corporation, a licensed broker-dealer, during the second quarter of this year.

We are currently in our 29th year of operations and operate our business
through our subsidiaries. We are primarily engaged in a range of real estate
secured lending activities, including the origination, servicing, purchase and
sale of mortgages on single-family residences, the securitization and sale of
various mortgage-backed and related securities and the holding and financing of
mortgage loans and mortgage-backed and related securities for sale or investment
and the purchase and sale of servicing rights associated with such mortgage
loans. We are also engaged in providing a full range of banking services,
including commercial banking services, corporate real estate and business
lending, residential construction lending, consumer lending and credit cards,
offering a diversified range of deposit products and, to a lesser extent, trust
and investment services through our private banking department.

We were organized in 1972 as R&G Mortgage Corp. and completed our initial
public offering in 1996, following our reorganization as a bank holding company.
As of March 31, 2001, we had consolidated total assets of $3.7 billion,
consolidated total deposits of $1.7 billion and consolidated stockholders'
equity of $389.5 million. We operate 60 branch offices (32 mortgage offices in
Puerto Rico, four mortgage offices in the United States and 24 bank branches
mainly located in the northeastern section of Puerto Rico).

We have generally sought to achieve long-term financial strength and
profitability by increasing the amount and stability of our net interest income
and non-interest income. We have sought to implement this strategy by: (1)
emphasizing the growth of our mortgage banking activities, including the
origination and sale of mortgage loans, and growing our loan servicing
operation; (2) expanding our retail banking franchise in order to achieve
increased market presence and to increase core deposits; (3) enhancing our net
interest income by increasing our loans held for investment, particularly
single-family residential loans, and investment securities; (4) developing new
business relationships through an increased emphasis on commercial real estate
and commercial business lending; (5) diversifying our retail products and
services, including an increase in consumer loan originations; (6) meeting the
banking needs of our customers through, among other things, the offering of
trust and investment services and insurance products; (7) expanding our
operations in the United States; and (8) controlled growth and the pursuit of a
variety of acquisition opportunities when appropriate.

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Our senior management is comprised of five persons with an average of over
26.8 years of experience in the financial services industry. We recently
promoted Ramon Prats, our Vice Chairman, to the office of President. Mr. Prats
formerly was Executive Vice President of R&G Mortgage, a position he held since
1980. Victor J. Galan, one of the Selling Stockholders, is our Chairman and
Chief Executive Officer, positions he has held since our incorporation in 1996.
Mr. Galan is also the founder and Chairman of R&G Mortgage, a position he has
held since 1972.

Our principal executive offices are located at 280 Jesus T. Pinero Avenue,
San Juan, Puerto Rico 00918 and our telephone number is (787) 758-2424.

R&G MORTGAGE

Originations. R&G Mortgage is engaged primarily in the business of
originating first and second mortgage loans on single-family residential
properties secured by real estate. R&G Mortgage also originates residential
mortgage loans through the Mortgage Store of Puerto Rico, our wholly-owned
subsidiary. Pursuant to agreements entered into between R&G Mortgage and R-G
Premier Bank, non-conforming conventional single-family residential loans and
consumer loans secured by real estate are also originated by R&G Mortgage for
portfolio retention by R-G Premier Bank. R-G Premier Bank retains the
non-conforming conventional single-family residential loans because these loans
generally do not satisfy resale guidelines of purchasers in the secondary
mortgage market, primarily because of size (in the case of "jumbo" loans) or
other underwriting technicalities at the time of origination. Jumbo loans may be
packaged and sold in the secondary market while loans with underwriting
technicalities may be cured through payment experience and subsequently sold.
Management believes that these loans are essentially of the same credit quality
as conforming loans. During the three months ended March 31, 2001, and the years
ended December 31, 2000, 1999 and 1998, R&G Mortgage originated a total of
$375.2 million, $1.1 billion, $1.1 billion and $914.1 million of residential
mortgage loans, respectively. These aggregate originations include loans
originated by R&G Mortgage directly for R-G Premier Bank of $166.9 million,
$451.4 million, $437.1 million and $450.6 million during the three months ended
March 31, 2001 and the years ended December 31, 2000, 1999 and 1998,
respectively, or 44%, 43%, 41% and 49%, respectively, of total originations. The
loans originated by R&G Mortgage for R-G Premier Bank are comprised primarily of
conventional residential loans and, to a lesser extent, residential construction
loans and consumer loans secured by real estate.

Servicing. R&G Financial's servicing portfolio has grown significantly
over the past several years. At March 31, 2001, R&G Financial's servicing
portfolio totaled $6.8 billion and consisted of a total of 111,925 loans. These
amounts include R&G Mortgage's servicing portfolio totaling $6.3 billion and
Continental's servicing portfolio totaling $471.0 million at March 31, 2001. At
March 31, 2001, R&G Financial's servicing portfolio included $986.2 million of
loans serviced for R-G Premier Bank, or 14.5% of the total servicing portfolio.
Substantially all of the mortgage loans in R&G Financial's servicing portfolio
are secured by single (one-to-four) family residences. R&G Mortgage generally
retains the servicing function with respect to the loans which have been
securitized and sold. Most of R&G Financial's mortgage servicing portfolio is
comprised of mortgages secured by real estate located in Puerto Rico.

Securitizations. R&G Mortgage pools Federal Housing Administration, or
FHA, and Veterans Administration, or VA, loans into mortgage-backed securities
which are guaranteed by the Government National Mortgage Association, or GNMA.
These securities are sold to securities broker-dealers and other investors in
Puerto Rico. Conventional loans may either be sold directly to agencies such as
the Federal National Mortgage Association, or FNMA, and the Federal Home Loan
Mortgage Corporation, or FHLMC, or to private investors, or may be pooled into
FNMA or FHLMC mortgage-backed securities which are generally sold to investors.
During the three months ended March 31, 2001 and the years ended December 31,
2000, 1999 and 1998, R&G Financial sold $160.6 million, $637.8 million, $721.0
million and $493.0 million of loans, respectively, as part of its mortgage
banking activities, which includes loans securitized and sold but does not
include loans originated for R-G Premier Bank or loans securitized for other
institutions.

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R-G PREMIER BANK

General. R-G Premier Bank's principal business consists of holding
deposits from the general public and tax-advantaged funds from eligible Puerto
Rico corporations and using them, together with funds obtained from other
sources, to originate and purchase loans secured primarily by residential real
estate in Puerto Rico, and to purchase mortgage-backed and other securities. R-G
Premier Bank also is engaged in the business of originating FHA insured, VA
guaranteed and privately insured first and second mortgage loans on residential
real estate (one-to-four family) in the States of New York, New Jersey,
Connecticut, North Carolina and Florida, through its wholly-owned subsidiary,
Continental Capital Corp. To a lesser extent but with increasing emphasis over
the past few years, R-G Premier Bank also originates construction loans and
loans secured by commercial real estate, as well as consumer and personal loans
and commercial business loans. Such loans offer higher yields, are generally for
shorter terms and offer R-G Premier Bank an opportunity to provide a greater
range of financial services to its customers. R-G Premier Bank also offers trust
services through its trust department.

Residential Loans. At March 31, 2001, R&G Financial's loans receivable,
net, totaled $1.7 billion, which represented 45.3% of R&G Financial's $3.7
billion of total assets. At such date, all but $1.1 million of R&G Financial's
loans receivable, net, were held by R-G Premier Bank. R-G Premier Bank's loan
portfolio has historically been concentrated in loans secured by first mortgage
liens on existing single-family residences. At March 31, 2001, $1.0 billion, or
54.4% of R&G Financial's total loans held for investment, consisted of such
loans, of which all but $1.3 million consisted of conventional loans.

Construction Loans. R-G Premier Bank has been active in originating loans
to construct single-family residences. At March 31, 2001, retail construction
loans amounted to $45.7 million, or 2.5% of R&G Financial's total loans held for
investment, while commercial construction and land acquisition loans amounted to
in the aggregate $230.3 million, or 12.5% of total loans held for investment.
R-G Premier Bank intends to continue to increase its involvement in
single-family residential construction lending. Such loans afford R-G Premier
Bank the opportunity to increase the interest rate sensitivity of its loan
portfolio.

Commercial Loans. R-G Premier Bank also originates mortgage loans secured
by commercial real estate, primarily office buildings, retail stores, warehouses
and general purpose industrial space. At March 31, 2001, $276.5 million, or 15%
of R&G Financial's total loans held for investment, consisted of such loans. As
of such date, R-G Premier Bank's commercial real estate loan portfolio consisted
of approximately 1,036 loans with an average principal balance of $267,000.
Finally, R-G Premier Bank also offers commercial business loans, including
working capital lines of credit, inventory and accounts receivable loans,
equipment financing (including equipment leases), term loans, insurance premium
loans and loans guaranteed by the Small Business Administration and various
consumer loans. At March 31, 2001, consumer loans, which are primarily secured
by real estate, amounted to $173.1 million, or 9.4% of total loans held for
investment, and commercial business loans amounted to $76.4 million, or 4.2% of
total loans held for investment.

REGULATION

We operate our businesses under a variety of federal, state and Puerto Rico
laws and rules. As a financial holding company, we are subject to the rules of
the Board of Governors of the Federal Reserve System and the Office of the
Commissioner of Financial Institutions of Puerto Rico, or OCFI. Among other
things, we are required to meet minimum capital requirements, and our activities
are limited to those that are determined to be financial in nature or incidental
or complimentary to a financial activity.

R&G Mortgage's mortgage banking business is subject to the rules of the
FHA, VA, GNMA, FNMA, FHLMC, Department of Housing and Urban Development, OCFI
and state regulatory authorities with respect to originating, processing,
selling and servicing mortgage loans. Among other things, these rules prohibit
discrimination, establish underwriting guidelines, require credit reports, fix
maximum loan amounts and, in some cases, fix maximum interest rates.

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R-G Premier Bank is subject to the rules of the OCFI and the Federal
Deposit Insurance Corporation, or FDIC. Among other things, R-G Premier Bank is
subject to requirements on the type and amount of credit it may extend to its
affiliates, including a requirement that most of such credit be fully secured,
and if there were any "liquidation or other resolution" of R-G Premier Bank,
deposits and administrative expenses would be afforded a priority over general
unsecured claims. In addition, the FDIC is required to take "prompt corrective
action" if R-G Premier Bank does not meet minimum capital requirements. The FDIC
has established five capital tiers to implement this requirement, from "well
capitalized" to "critically undercapitalized." A bank's capital tier will depend
on various capital measures and other qualitative factors and will subject it to
specific requirements. As of March 31, 2001, R-G Premier Bank met the capital
measures for being "well capitalized" under the FDIC's regulations.

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THE OFFERING

Class B Common Stock
Offered.................... 2,000,000 shares by R&G Financial
2,000,000 shares by Selling Stockholders(1)

Common Stock Outstanding
After This Offering(2)... 16,440,556 shares of Class A common stock
14,237,675 shares of Class B common stock

Nasdaq National Market
Symbol................... RGFC

Use of Proceeds............ We are raising funds in this offering primarily for
general corporate purposes and to support further
expansion both in Puerto Rico and in the United
States. We expect to use a portion of the net
proceeds to increase R-G Premier Bank's regulatory
capital, which will facilitate its ability to
increase deposits and borrowings to fund additional
investments.

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

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

Dividends.................. We currently pay a cash dividend of $0.06375 per
share of Class A or Class B common stock per
quarter, or $0.25500 per share per year. The
dividend payment we declared for the quarter ended
March 31, 2001, which was paid on June 1, 2001,
represents the 18th consecutive increase in
quarterly dividend payments by us, which reflects
every quarter since our initial public offering in
1996. We pay the same dividend per share to the
holders of shares of Class A common stock and Class
B common stock. The dividend rate and the continued
payment of dividends will depend on a number of
factors. No assurance can be given that we will
continue to pay dividends or that they will not be
reduced in the future.
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(1) We have two classes of outstanding common stock: Class A common stock, which
is unregistered and solely owned by Victor J. Galan, our Chairman of the
Board and Chief Executive Officer, who is one of the Selling Stockholders;
and Class B common stock, which is registered and trades on the Nasdaq
National Market (the shares of Class A common stock and Class B common stock
are sometimes collectively referred to as the "Common Stock"). The shares of
Class A common stock are convertible into shares of Class B common stock on
a one-for-one basis. Only shares of Class B common stock are being offered
by this prospectus.

(2) Excludes 729,600 shares of Common Stock which are reserved for issuance upon
the exercise of outstanding options pursuant to our stock option plan at
exercise prices ranging between $4.03 and $16.13 per share.

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Voting Rights.............. The rights of holders of our Common Stock are
identical, except that the Class A common stock is
entitled to two votes per share and the Class B
common stock is entitled to one vote per share.
Following the offering, Victor J. Galan, our
Chairman of the Board and Chief Executive Officer
and one of the Selling Stockholders, will own 53.6%
of the outstanding Common Stock and will be
entitled to exercise 69.8% of the outstanding
voting rights (52.1% and 68.5%, respectively, if
the underwriters' over-allotment option is
exercised in full).

Risk Factors............... Investing in our Class B common stock involves
certain risks, which are described under "Risk
Factors."

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

You should read the summary consolidated financial information presented
below, together with our consolidated financial statements and notes which are
incorporated by reference into this prospectus and with our historical financial
information included under "Selected Consolidated Financial and Other Data"
beginning on page 15 of this prospectus. Per share information takes into
account prior stock splits and dividends.

The return on average assets ratio is computed by dividing net income by
average total assets for the period. The return on average common equity ratio
is computed by dividing net income less preferred stock dividends by average
stockholders' equity for the period. Both ratios have been computed using
month-end averages.

THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
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2001 2000 2000 1999 1998 1997 1996
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

BALANCE SHEET DATA:
Total assets.......... $3,671,472 $3,121,835 $3,539,444 $2,911,993 $2,044,782 $1,510,746 $1,037,798
Stockholders'
equity.............. 389,463 275,229 308,836 269,535 221,162 138,054 115,633
Common stockholders'
equity per share.... $ 8.56 $ 6.99 $ 8.16 $ 6.79 $ 5.99 $ 4.88 $ 4.09
INCOME STATEMENT DATA:
Income before
cumulative effect
from change in
accounting
principle, net of
taxes(1)............ $ 13,006 $ 9,487 $ 43,633 $ 41,335 $ 34,034 $ 23,497 $ 13,200
Diluted earnings per
common share before
cumulative effect of
change in accounting
principle........... $ 0.39 $ 0.28 $ 1.30 $ 1.28 $ 1.12 $ 0.81 $ 0.59
OPERATING DATA:
Loan production....... $ 528,096 $ 438,959 $1,729,373 $1,977,322 $1,426,069 $ 906,324 $ 624,571
Loan servicing
portfolio........... 6,791,561 6,320,007 6,634,059 6,177,511 4,827,798 3,000,888 2,550,169
PERFORMANCE RATIOS:
Return on average
assets.............. 1.48% 1.26% 1.34% 1.72% 1.95% 1.85% 1.38%
Return on average
common equity....... 19.31 16.37 18.00 20.23 21.32 18.69 15.54
Net interest margin... 2.18 2.43 2.16 2.60 2.72 3.12 3.24
ASSET QUALITY RATIOS:
Non-performing assets
to total assets at
end of period....... 3.19% 2.14% 2.96% 2.26% 2.41% 2.12% 1.90%
Non-performing loans
to total loans at
end of period....... 5.83(2) 3.39 5.38(2) 3.66 4.08 3.89 3.09
Allowance for loan
losses to total
loans at end of
period(3)........... 0.66 0.54 0.66 0.55 0.74 0.87 0.55
Allowance for loan
losses to total non-
performing loans at
end of period(3).... 11.25 15.77 12.21 15.11 17.92 22.34 17.64
Net charge-offs to
average loans
outstanding......... 0.35 0.19 0.17 0.25 0.55 0.40 0.75

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(1) In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement, as amended, requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value.

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Upon the adoption of this Statement, R&G Financial 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.

(2) The increase in the ratio was partially caused by significant loan
securitizations during the last two quarters of 2000 and the first quarter
of 2001, which reduced the amount of loans held in portfolio that are
considered in the calculation of the ratio. Without giving effect to loan
securitizations, as of March 31, 2001 and December 31, 2000, the ratio of
non-performing loans to total loans would have been 4.60% and 4.37%,
respectively.

(3) See "Recent Developments" for a discussion of our historical charge-off
experience. Because of the nature of the collateral, our historical
charge-offs with respect to residential real estate loans have been low.
Excluding our residential loan portfolio, the allowance for loan losses to
total loans and to total non-performing loans at March 31, 2001 and December
31, 2000 would have been 1.49% and 61.2%, respectively, and 1.57% and 73.7%,
respectively.

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RISK FACTORS

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

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

Interest rate fluctuations is the primary market risk affecting R&G
Financial. Changes in interest rates affect the following areas of its business:

- the number of mortgage loans originated and purchased;

- the interest income earned on loans and securities;

- gain on sale of loans;

- the value of securities holdings; and

- the value of our servicing asset.

Increases in Interest Rates Reduce Demand for New Mortgage Loan
Originations and Refinancings. Higher interest rates increase the cost of
mortgage loans to consumers and reduce demand for mortgage loans, which
negatively impacts R&G Financial's profits. Reduced demand for mortgage loans
results in reduced loan originations by R&G Financial, lower mortgage
origination income and lower gain on sale of loans. Demand for refinancings is
particularly sensitive to increases in interest rates.

Increases in Interest Rates Reduce Net Interest Income. Increases in
short-term interest rates reduce net interest income, which is an important part
of R&G Financial's earnings. Net interest income is the difference between the
interest received by R&G Financial on its assets and the interest paid on its
borrowings. Most of R&G Financial's assets, like its mortgage loans and
mortgage-backed securities, are long-term assets. In contrast, most of R&G
Financial's borrowings are short-term. When interest rates rise, R&G Financial
must pay more in interest on its borrowings while interest earned on its assets
does not rise as quickly, which causes profits to decrease.

Increases in Interest Rates May Reduce or Eliminate Gain on Sale of
Mortgage Loans. If long-term interest rates increase between the time R&G
Financial commits to or establishes an interest rate on a mortgage loan and the
time it sells the loan, R&G Financial may realize a reduced gain or a loss on
such sale.

Increases in Interest Rates May Reduce the Value of Mortgage Loans and
Securities Holdings. Increases in interest rates may reduce the value of R&G
Financial's financial assets and have an adverse impact on its earnings and
financial condition. R&G Financial owns a substantial portfolio of mortgage
loans, mortgage-backed securities and other debt securities, which have both
fixed and adjustable interest rates. The market value of an obligation with a
fixed interest rate generally decreases when prevailing interest rates rise,
which may have an adverse effect on R&G Financial's earnings and financial
condition. In addition, the market value of an obligation with an adjustable
interest rate can be adversely affected when interest rates increase due to a
lag in the implementation of repricing terms as well as caps, which may limit
the amount of increase in the obligation's interest rate.

Decreases in Interest Rates May Adversely Affect the Value of Servicing
Asset. Decreases in interest rates lead to increases in the prepayment of
mortgages by borrowers, which may reduce the value of R&G Financial's servicing
asset. The servicing asset is the estimated present value of the fees R&G
Financial expects to receive on the mortgages it services over their expected
term. If prepayments increase above expected levels, the value of the servicing
asset decreases because the amount of future fees expected to be received by R&G
Financial decreases. R&G Financial may be required to recognize this decrease in
value by taking a charge against its earnings, which would cause its profits to
decrease.

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R&G FINANCIAL'S BUSINESS OPERATIONS INVOLVE CREDIT AND OTHER RISKS

R&G Financial is Subject to Default and Recourse Risk in Connection with
Its Loan Originations. From the time that R&G Financial funds the mortgage loans
it originates for third parties to the time it sells them, R&G Financial is
generally at risk for any mortgage loan defaults. Once R&G Financial sells the
mortgage loans, the risk of loss from mortgage loan defaults and foreclosures
passes to the purchaser or insurer of the mortgage loans. However, in the
ordinary course of business, R&G Financial makes representations and warranties
to the purchasers and insurers of mortgage loans. If a borrower defaults on a
mortgage loan and there has been a breach of any of these representations or
warranties, R&G Financial may become liable for the unpaid principal and
interest on the defaulted mortgage loan and may be required to repurchase the
mortgage loan and bear any subsequent loss on the mortgage loan. In addition,
with respect to the non-conventional mortgage loans originated by R&G Financial,
which are subsequently securitized and sold, from time to time, R&G Financial
provides recourse in the event of mortgage loan defaults and/or foreclosures or
certain documentation deficiencies. At March 31, 2001, there were $567.8 million
of loans subject to such recourse provisions.

R&G Financial is Subject to Default Risk in Connection with R-G Premier
Bank's Loan Originations. R-G Premier Bank is subject to the risk of loss from
mortgage loan defaults and foreclosures with respect to the loans originated for
its portfolio. Notwithstanding the care with which loans are originated,
industry experience indicates that a portion of R-G Premier Bank's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by R-G Premier
Bank, losses may be experienced as a result of various factors beyond R-G
Premier Bank's control, including, among others, changes in market conditions
affecting the value of collateral and problems affecting the credit of the
borrower. Due to the concentration of loans in Puerto Rico, adverse economic
conditions in Puerto Rico could result in a decrease in the value of R-G Premier
Bank's loan portfolio and underlying collateral. Although loan delinquencies
have historically been higher in Puerto Rico than in the United States, loan
charge-offs have historically been lower than in the United States.

R-G Premier Bank establishes provisions for loan losses, which are charged
to operations, in order to maintain the allowance for loan losses at a level
which is deemed to be appropriate by management based upon an assessment of
prior loss experience, the volume and type of lending being conducted, industry
standards, past due loans, general economic conditions in its market area and
other factors related to the collectibility of the loan portfolio. Although R-G
Premier Bank's management utilizes its best judgment in providing for loan
losses, there can be no assurance that R-G Premier Bank will not have to
increase its provisions for loan losses in the future as a result of future
increases in non-performing loans or for other reasons beyond the control of R-G
Premier Bank. Any such increases in R-G Premier Bank's provisions for loan
losses or any loan losses in excess of its provisions with respect thereto could
have a negative impact on R&G Financial's future financial condition and/or
results of operations.

R&G Financial's Exposure to Larger Credit Risk Will Increase as a
Consequence of the Increase in R-G Premier Bank's Construction and Commercial
Lending Activities. R-G Premier Bank has increased its emphasis on residential
construction, commercial real estate and commercial business lending, which is
likely to increase overall credit risk. R-G Premier Bank generally charges
higher interest rates on commercial and residential construction loans than on
permanent residential mortgage loans, because larger loan losses are expected in
this business line. Generally, commercial and construction loans are considered
to be riskier than permanent residential mortgage loans because they have larger
balances to a single borrower or group of related borrowers. In addition, the
borrower's ability to repay a commercial and a construction loan depends, in the
case of a commercial loan, on the successful operation of the business or the
property securing the loan and, in the case of a construction loan, on the
successful completion and sale or operation of the project. If R-G Premier Bank
experiences loan losses that are higher than its allowance for loan losses, R&G
Financial's profits and financial condition would be adversely affected.

R&G Financial is Subject to Risks in Servicing Loans for Others. R&G
Financial is also affected by mortgage loan delinquencies and defaults on
mortgage loans that it services for third parties. Under

10
13

certain types of servicing contracts, the servicer must forward all or part of
the scheduled payments to the owner of the mortgage loan, even when mortgage
loan payments are delinquent. Also, to protect their liens on mortgaged
properties, owners of mortgage loans usually require the servicer to advance
mortgage and hazard insurance and tax payments on schedule even though
sufficient escrow funds may not be available. The servicer will generally
recover its advances from the mortgage owner or from liquidation proceeds when
the mortgage loan is foreclosed. However, in the interim, the servicer must
absorb the cost of funds advanced during the time the advance is outstanding.
Further, the servicer must bear the increased costs of attempting to collect on
delinquent and defaulted mortgage loans. In addition, if a default is not cured,
the mortgage loan will be repaid as a result of foreclosure proceedings. As a
consequence, R&G Financial is required to forego servicing income from the time
such loan becomes delinquent, and into the future.

R&G Financial's Business is Concentrated in Puerto Rico, and Adverse
Conditions in Puerto Rico Could Negatively Impact Its Operations. R&G
Financial's business activities and credit exposure are concentrated with
customers in Puerto Rico. Accordingly, its financial condition and results of
operations are dependent to a significant extent upon the economic conditions
prevailing in Puerto Rico, including the effect of such economic conditions on
real estate values. Any significant adverse economic developments in Puerto
Rico, and, in particular, any decline in real estate values, could result in a
downturn in loan originations, an increase in the level of nonperforming assets
and a reduction in the value of R&G Financial's loans, real estate owned and
mortgage servicing portfolio.

R&G Financial's Origination Business Could Be Adversely Affected if It
Cannot Maintain Access to Stable Funding Sources. R&G Financial's business
requires continuous access to various funding sources. While R-G Premier Bank is
able to fund its operations through deposits as well as through longer-term
borrowings from the Federal Home Loan Bank, or FHLB of New York and other
alternative sources, the business of R&G Mortgage and Continental is
significantly dependent upon short-term borrowings under warehousing lines.
Certain of these warehousing lines of credit require the maintenance of minimum
levels of net worth and debt service and limit the amount of indebtedness and
dividends that may be declared.

While R&G Financial expects to have continued access to credit from the
foregoing sources of funds, there can be no assurance that such financing
sources will continue to be available or will be available on favorable terms.
In the event that the warehousing lines of credit of R&G Financial's
subsidiaries were reduced or eliminated and R&G Financial was not able to
replace such lines on a cost-effective basis, R&G Financial would be forced to
curtail or cease its mortgage origination business, which would have a material
adverse effect on R&G Financial's operations and financial condition. Although
R&G Financial's subsidiaries could also potentially access borrowings from R-G
Premier Bank, any such borrowings would be subject to and limited by certain
regulatory restrictions which apply to transactions between R-G Premier Bank and
its affiliates, including certain subsidiaries of R&G Financial.

Risks Relating to Concentration of Ownership and Disparate Voting
Rights. The shares of Class A common stock are entitled to two votes per share
and the shares of Class B common stock are entitled to one vote per share. Upon
completion of this offering (taking into consideration the sale of shares of
Class B common stock by the Selling Stockholders), Victor J. Galan, Chairman of
the Board and Chief Executive Officer and one of the two Selling Stockholders,
will own approximately 53.6% of our outstanding Common Stock and will be
entitled to exercise 69.8% of the outstanding voting rights (52.1% and 68.5%,
respectively, assuming full exercise of the underwriters' over-allotment
option). As a result, Mr. Galan will continue to have the power to elect and
remove all of R&G Financial's Board of Directors and management and to determine
the outcome of substantially all other matters to be decided by a vote of
stockholders. Mr. Galan's interest may not always be necessarily consistent with
the interests of all other stockholders.

Risks Relating to R&G Financial's Dependence on Key Individuals. The
success of R&G Financial has been largely dependent on Victor J. Galan, Chairman
of the Board and Chief Executive Officer, and Ramon Prats, Vice Chairman of the
Board and President. R&G Financial's future success will also

11
14

depend, to a great extent, upon the services of Mr. Galan and Mr. Prats. R&G
Financial believes that the prolonged unavailability or the unexpected loss of
the services of Mr. Galan and/or Mr. Prats could have a material adverse effect
upon R&G Financial, as attracting suitable replacements may involve significant
time and/or expense.

Changes in Statutes and Regulations Could Adversely Affect R&G
Financial. R&G Financial, as a Puerto Rico chartered financial holding company,
and its various subsidiaries, are each subject to extensive federal and local
governmental supervision and regulation. There are laws and regulations which
restrict transactions between R&G Financial and its various subsidiaries. Any
change in such regulations, whether by applicable regulators or as a result of
legislation subsequently enacted by the Congress of the United States or the
applicable local legislatures, could have a substantial impact on R&G
Financial's operations.

Competition with Other Financial Institutions Could Adversely Affect R&G
Financial's Profitability. R&G Financial faces substantial competition in
originating loans and in attracting deposits. The competition in originating
loans comes principally from other U.S., Puerto Rico and foreign banks, mortgage
banking companies, consumer finance companies, insurance companies and other
institutional lenders and purchasers of loans. R&G Financial will encounter
greater competition as it expands its operations in the United States. A number
of institutions with which R&G Financial competes have significantly greater
assets, capital and other resources. In addition, many of R&G Financial's
competitors are not subject to the same extensive federal regulation that
governs R&G Financial's business. As a result, many of R&G Financial's
competitors have advantages in conducting certain businesses and providing
certain services. Increased competition could require R&G Financial to increase
its rates charged on deposits or lower the rates offered on loans, which could
adversely affect R&G Financial's profitability.

Certain Provisions in R&G Financial's Certificate of Incorporation and
Bylaws Could Discourage an Acquisition of R&G Financial. In addition to the
amount of Common Stock controlled by R&G Financial's Chairman of the Board and
Chief Executive Officer described above under "-- Risks Relating to
Concentration of Ownership and Disparate Voting Rights," certain provisions of
R&G Financial's Certificate of Incorporation and Bylaws could have the effect of
discouraging non-negotiated takeover attempts, which certain stockholders might
deem to be in their interest, and make it more difficult for stockholders of R&G
Financial to remove members of its Board of Directors and management. In
addition, various federal laws and regulations could affect the ability of a
person, firm or entity to acquire R&G Financial or shares of its Common Stock.
See "Description of Capital Stock - Restrictions on Acquisition of R&G
Financial."

FORWARD-LOOKING STATEMENTS

This prospectus contains and incorporates by reference certain
forward-looking statements regarding R&G Financial's financial condition,
results of operations and business. These statements are not historical facts
and include statements about R&G Financial's operations, performance and
financial condition, including its future economic performance, plans and
objectives and the likelihood of success in developing and expanding its
business. These statements are based upon a number of assumptions and estimates
which are subject to significant uncertainties, many of which are beyond the
control of R&G Financial. The words "may," "would," "could," "will," "expect,"
"anticipate," "believe," "intend," "plan," "estimate" and similar expressions
are meant to identify these forward-looking statements. Actual results may
differ materially from those expressed or implied by these forward-looking
statements.

USE OF PROCEEDS

Our net proceeds from the sale of our shares of Class B common stock are
expected to be $28,038,000 ($32,290,500 if the underwriters' over-allotment
option is exercised in full), after deducting the underwriting discounts and
commissions and estimated offering expenses.

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15

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

We are raising proceeds in this offering primarily for general corporate
purposes, and to support further expansion both in Puerto Rico and in the United
States. We expect to use a portion of the net proceeds to increase R-G Premier
Bank's regulatory capital, thereby facilitating its ability to increase deposits
and borrowings to fund additional investments. While we periodically engage in
discussions with companies and investment banking firms concerning potential
acquisition opportunities, we have no present agreements or understanding with
any party and there can be no assurance that we will be successful in completing
any acquisitions in the future.

PRICE RANGE OF CLASS B COMMON STOCK

R&G Financial's Class B common stock was initially offered to the public on
August 22, 1996 at $4.03 per share (as adjusted for stock splits and dividends).
It has traded since that date on the Nasdaq National Market under the symbol
"RGFC." The high and low sales prices on R&G Financial's Class B common stock,
as reported by Nasdaq, and the dividends paid by R&G Financial, in each case,
during the last two years and through June 21, 2001, were as follows:

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

1999
---------------------------------------------------------
First Quarter............................................ $21.5000 $ 17.7500 $ 0.03300
Second Quarter........................................... 19.3750 14.2500 0.03575
Third Quarter............................................ 18.1875 12.1875 0.03850
Fourth Quarter........................................... 16.0000 9.8750 0.04150
2000
---------------------------------------------------------
First Quarter............................................ 12.0000 7.6880 0.04500
Second Quarter........................................... 9.5000 6.5000 0.04875
Third Quarter............................................ 11.0000 7.8750 0.05250
Fourth Quarter........................................... 14.5000 8.6250 0.05650
2001
---------------------------------------------------------
First Quarter............................................ 17.0000 12.6250 0.06000
Second Quarter (through June 21, 2001)................... 20.0000 15.2300 0.06375

On June 21, 2001, the last reported sale price of R&G Financial's Class B
common stock on the Nasdaq National Market was $15.67. As of June 6, 2001, there
were approximately 2,081 holders of record of R&G Financial's Class B common
stock and one holder of record of R&G Financial's Class A common stock.

DIVIDEND POLICY

We currently pay a cash dividend of $0.06375 per share of Class A common
stock and Class B common stock per quarter, or $0.25500 per share per year. Our
dividend payment for the quarter ended March 31, 2001, which was paid on June 1,
2001, represents the 18th consecutive increase in quarterly dividend payments we
have made since our initial public offering in 1996. We pay the same dividend to
holders of shares of Class A common stock and Class B common stock.

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

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CAPITALIZATION

The following table sets forth R&G Financial's unaudited consolidated
capitalization at March 31, 2001, and as adjusted to reflect the issuance of the
shares of Class B common stock offered by this prospectus and the application of
the net proceeds therefrom to R&G Financial, as if the sale of the Class B
common stock had been consummated on March 31, 2001. In addition to the
indebtedness reflected below, R&G Financial had total deposits of $1.7 billion
at March 31, 2001. The table does not give effect to any exercise of the
over-allotment option granted to the underwriters and should be read in
conjunction with R&G Financial's consolidated financial statements and related
notes incorporated by reference into this prospectus.

MARCH 31, 2001
------------------------------
ACTUAL AS ADJUSTED
------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)

Borrowings(1)............................................... $1,482,859 $1,482,859
========== ==========
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized:
2,000,000 shares of Series A Preferred Stock
outstanding............................................ $ 50,000 $ 50,000
1,000,000 shares of Series B Preferred Stock
outstanding............................................ 25,000 25,000
2,760,000 shares of Series C Preferred Stock
outstanding............................................ 69,000 69,000
Common stock, $0.01 par value:
Class A Shares, 40,000,000 shares authorized; 18,440,556 and
16,440,556 shares issued and outstanding and as
adjusted.................................................. 185 165
Class B Shares, 30,000,000 shares authorized and 40,000,000
shares authorized as adjusted(2); 10,237,675 and
14,237,675 shares issued and outstanding and as
adjusted.................................................. 102 142
Additional paid-in capital.................................. 38,439 66,457
Retained earnings........................................... 195,555 195,555
Capital reserves of R-G Premier Bank........................ 7,444 7,444
Accumulated other comprehensive income, net of tax.......... 3,738 3,738
---------- ----------
Total stockholders' equity........................ $ 389,463 $ 417,501
========== ==========
Common stockholders' equity per share............. $ 8.56 $ 8.92
========== ==========

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

(1) Includes securities sold under agreements to repurchase, notes payable, FHLB
advances and other borrowings.

(2) The "As Adjusted" column reflects an increase in the authorized number of
shares of Class B common stock to 40,000,000 shares, which was approved at a
special meeting of stockholders held on June 12, 2001.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected consolidated financial and other data below should be read in
connection with the consolidated financial information included in R&G
Financial's Annual Report on Form 10-K/A for the year ended December 31, 2000,
and its Quarterly Report on Form 10-Q/A for the three months ended March 31,
2001, incorporated by reference in this prospectus. The consolidated financial
information for the three-month periods ended March 31, 2001 and 2000 are
derived from R&G Financial's unaudited consolidated financial statements, which,
in the opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. Results for the three-month period ended March 31, 2001 are not
necessarily indicative of R&G Financial's results for the full year.

AT OR FOR THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ----------- ---------- ---------- ---------- ---------- ----------

SELECTED BALANCE SHEET DATA:
Total assets(1)............. $3,671,472 $3,121,835 $3,539,444 $2,911,993 $2,044,782 $1,510,746 $1,037,798
Loans receivable, net....... 1,662,508 1,714,800 1,631,276 1,563,007 1,073,668 765,059 603,751
Mortgage loans held for
sale...................... 152,507 97,976 95,668 77,277 117,126 46,885 54,450
Mortgage-backed and
investment securities held
for trading............... 102,210 14,967 12,038 43,564 450,546 401,039 110,267
Mortgage-backed securities
available for sale........ 1,044,323 703,738 1,150,100 712,705 95,040 46,004 50,841
Mortgage-backed securities
held to maturity.......... 19,035 22,338 19,818 23,249 28,255 33,326 37,900
Investment securities
available for sale........ 405,935 320,656 368,271 258,164 59,502 75,863 30,973
Investment securities held
to maturity............... 3,668 5,436 3,703 5,438 6,344 10,693 5,270
Servicing asset............. 97,451 86,603 95,079 84,253 58,221 21,213 12,595
Cash and cash
equivalents(2)............ 85,553 70,331 69,090 65,996 103,728 68,366 98,856
Deposits.................... 1,740,004 1,434,861 1,676,062 1,330,506 1,007,297 722,418 615,567
Securities sold under
agreements to
repurchase................ 892,318 780,850 827,749 731,341 471,422 433,135 97,444
Notes payable............... 173,076 113,996 138,858 132,707 182,748 103,453 126,842
Other borrowings(3)......... 417,465 444,557 538,840 408,843 121,000 86,359 65,463
Common stockholders'
equity.................... 389,463 275,229 308,836 269,535 221,162 138,054 115,633
Common stockholders' equity
per share(4).............. $ 8.56 $ 6.99 $ 8.16 $ 6.79 $ 5.99 $ 4.88 $ 4.09
SELECTED INCOME STATEMENT
DATA:
Revenues:
Net interest income....... $ 18,167 $ 16,760 $ 64,987 $ 56,578 $ 43,973 $ 36,530 $ 28,923
Provision for loan
losses.................. (2,000) (1,350) (5,751) (4,525) (6,600) (6,370) (4,258)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses.................. 16,167 15,410 59,236 52,053 37,373 30,160 24,665
Loan administration and
servicing fees.......... 8,023 7,611 30,849 27,109 15,987 13,214 13,029
Net gain on sale of
loans................... 15,038 7,324 41,230 37,098 34,956 23,286 12,285
Other(5).................. 2,525 1,489 7,231 6,604 5,527 4,605 3,938
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............ 41,753 31,834 138,546 122,864 93,843 71,265 53,917
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Compensation and
benefits................ 7,550 7,228 27,031 24,433 17,095 13,653 10,794
Occupancy expenses........ 3,902 3,252 13,436 11,289 8,987 7,131 5,531
SAIF special assessment... -- -- -- -- -- -- 2,508
Other administrative and
general expenses........ 11,876 9,593 40,325 33,568 22,687 18,252 15,424
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses............ 23,328 20,073 80,792 69,290 48,769 39,036 34,257
---------- ---------- ---------- ---------- ---------- ---------- ----------

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Income before minority
interest in R-G Premier
Bank, income taxes and
cumulative effect from
change in accounting
principle................. 18,425 11,761 57,754 53,574 45,074 32,229 19,660
Minority interest in R-G
Premier Bank's earnings... -- -- -- -- -- -- 538
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes
and cumulative effect from
change in accounting
principle................. 18,425 11,761 57,754 53,574 45,074 32,229 19,122
Income taxes................ 5,096 2,274 14,121 12,239 11,040 8,732 5,922
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative
effect from change in
accounting principle...... 13,329 9,487 43,633 41,335 34,034 23,497 13,200
Cumulative effect from
change in accounting
principle, net of income
taxes..................... (323) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.................. 13,006 9,487 43,633 41,335 34,034 23,497 13,200
Less: Dividends on preferred
stock..................... (1,759) (1,409) (5,638) (3,754) (1,233) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to
common stockholders....... $ 11,247 $ 8,078 $ 37,995 $ 37,581 $ 32,801 $ 23,497 $ 13,200
========== ========== ========== ========== ========== ========== ==========
Basic earnings per common
share before cumulative
effect from change in
accounting principle(4)... $ 0.40 $ 0.28 $ 1.33 $ 1.31 $ 1.15 $ 0.83 $ 0.60
========== ========== ========== ========== ========== ========== ==========
Diluted earnings per common
share before cumulative
effect from change in
accounting principle(4)... $ 0.39 $ 0.28 $ 1.30 $ 1.28 $ 1.12 $ 0.81 $ 0.59
========== ========== ========== ========== ========== ========== ==========
Basic earnings per common
share(4).................. $ 0.39 $ 0.28 $ 1.33 $ 1.31 $ 1.15 $ 0.83 $ 0.60
========== ========== ========== ========== ========== ========== ==========
Diluted earnings per common
share(4).................. $ 0.38 $ 0.28 $ 1.30 $ 1.28 $ 1.12 $ 0.81 $ 0.59
========== ========== ========== ========== ========== ========== ==========
SELECTED OPERATING DATA(6):
Performance Ratios and Other
Data:
Loan production............. $ 528,096 $ 438,959 $1,729,373 $1,977,322 $1,426,069 $ 906,324 $ 624,571
Mortgage servicing
portfolio................. 6,791,561 6,320,007 6,634,059 6,177,511 4,827,798 3,000,888 2,550,169
Return on average assets.... 1.48% 1.26% 1.34% 1.72% 1.95% 1.85% 1.38%
Return on average common
equity.................... 19.31 16.37 18.00 20.23 21.32 18.69 15.54
Equity to assets at end of
period.................... 10.61 8.82 8.73 9.26 10.82 9.13 11.14
Interest rate spread(7)..... 1.95 2.23 1.96 2.40 2.43 2.88 3.00
Net interest margin(7)...... 2.18 2.43 2.16 2.60 2.72 3.12 3.24
Average interest-earning
assets to average
interest-bearing
liabilities............... 104.25 103.70 103.54 104.21 105.93 104.61 104.60
Total non-interest expenses
to average total assets... 2.59 2.66 2.49 2.88 2.80 3.08 3.59
Cash dividends declared per
common share(4)........... $ 0.060 $ 0.049 $ 0.203 $ 0.149 $ 0.111 $ 0.065 $ 0.069

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ASSET QUALITY RATIOS(8):
Non-performing assets to
total assets at end of
period.................... 3.19% 2.14% 2.96% 2.26% 2.41% 2.12% 1.90%
Non-performing loans to
total loans at end of
period.................... 5.83(9) 3.39 5.38(9) 3.66 4.08 3.89 3.09
Allowance for loan losses to
total loans at end of
period(10)................ 0.66 0.54 0.66 0.55 0.74 0.87 0.55
Allowance for loan losses to
total non-performing loans
at end of period(10)...... 11.25 15.77 12.21 15.11 17.92 22.34 17.64
Net charge-offs to average
loans outstanding......... 0.35 0.19 0.17 0.25 0.55 0.40 0.75
BANK REGULATORY CAPITAL
RATIOS(11):
Tier 1 risk-based capital
ratio..................... 13.13% 11.33% 11.37% 12.36% 13.41% 13.10% 13.91%
Total risk-based capital
ratio..................... 13.88 12.03 12.15 13.08 14.46 14.00 14.79
Tier 1 leverage capital
ratio..................... 7.05 6.52 6.04 7.07 8.04 7.34 8.45

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

(1) At March 31, 2001, R&G Mortgage and R-G Premier Bank had total assets of
$776.7 million and $3.0 billion, respectively, before consolidation.
(2) Comprised of cash and due from banks, securities purchased under agreements
to resell, time deposits with other banks and federal funds sold, all of
which had original maturities of 90 days or less.
(3) Comprised of advances from the Federal Home Loan Bank of New York, federal
funds purchased and other borrowings.
(4) Per share information for all periods presented takes into consideration
prior stock splits and dividends.
(5) Comprised of change in provision for cost in excess of market value of
loans available for sale and other miscellaneous revenue sources, including
service charges, fees and other income.
(6) With the exception of end of period ratios, all ratios for R&G Mortgage are
based on the average of month-end balances, while all ratios for R-G
Premier Bank are based on average daily balances, and all ratios are
annualized where appropriate.
(7) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities. Net interest margin represents net interest
income as a percentage of average interest-earning assets.
(8) Non-performing loans consist of non-accrual loans and non-performing assets
consist of non-performing loans and real estate acquired by foreclosure or
deed-in-lieu thereof.
(9) The increase in the ratio was partially caused by significant loan
securitizations during the last two quarters of 2000 and the first quarter
of 2001, which reduced the amount of loans held in portfolio which are
considered in the calculation of the ratio. Without giving effect to loan
securitizations, as of March 31, 2001 and December 31, 2000, the ratio of
non-performing loans to total loans would have been 4.60% and 4.37%,
respectively.
(10) See "Recent Developments" for a discussion of R&G Financial's historical
charge-off experience. Because of the nature of the collateral, R&G
Financials's historical charge-offs with respect to residential real estate
loans have been low. Excluding R&G Financial's residential loan portfolio,
the allowance for loan losses to total loans and to total non-performing
loans at March 31, 2001 and December 31, 2000 would have been 1.49% and
61.2%, respectively, and 1.57% and 73.7%, respectively.
(11) All of such ratios were in compliance with the applicable requirements of
the FDIC.

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20

RECENT DEVELOPMENTS

DISCUSSION OF FIRST QUARTER RESULTS

Results of Operations. During the three months ended March 31, 2001, R&G
Financial reported net income before the cumulative effect of a change in
accounting principle of $13.3 million, or $0.39 of earnings per diluted share,
compared to $9.5 million, or $0.28 of earnings per diluted share, for the
comparative three-month period ended March 31, 2000.

Net interest income increased by $1.4 million, or 8%, during the comparable
periods to $18.2 million, primarily due to an increase in the average balance of
interest-earning assets, which was partially offset by a 25 basis point decline
in the net interest margin from 2.43% to 2.18%. With interest rates currently
declining, R&G Financial expects a gradual improvement in its net interest
margin, as evidenced by the two basis point improvement when compared with the
year ended December 31, 2000. The provision for loan losses amounted to $2
million during the three months ended March 31, 2001, a 48% increase over the
prior comparable period, as R&G Financial increased its general reserves to
reflect the expected continued growth in commercial lending, which involves
greater credit risk than residential lending.

R&G Financial also experienced an increase in non-interest income during
the three months ended March 31, 2001 over the prior comparable period. Net gain
on sale of loans increased significantly, by $7.7 million, or 105%, over the
prior comparable period, which was due both to the volume of loans originated
and sold as well as the increased profits made on loans sold. Loan
administration and servicing fees also increased by $412,000, or 5%, over the
prior comparable period, due to the growth in the loan servicing portfolio.

Total expenses increased by $3.3 million, or 16%, during the three months
ended March 31, 2001 over the prior comparable period, primarily due to a $2.3
million, or 24%, increase in other administrative and general expenses,
primarily due to reserves for impairment of servicing rights, increased
amortization of servicing and increased advertising expenses to promote
increased loan production.

Changes in Financial Condition. At March 31, 2001, total assets amounted
to $3.7 billion, as compared to $3.1 billion at March 31, 2000. The $549.6
million, or 17.6%, increase in total assets between the comparable periods was
primarily the result of a $425.9 million, or 41.6%, increase in mortgage-backed
and investment securities available for sale, an $87.2 million, or 582.9%,
increase in mortgage-backed securities held for trading and a $54.5 million, or
55.7%, increase in mortgage loans held for sale, which more than offset a $52.3
million, or 3%, decline in loans receivable, net.

At March 31, 2001, total deposits totaled $1.7 billion, an increase of
$305.1 million, or 21.3%, when compared to March 31, 2000. In addition, at March
31, 2001, R&G Financial had $1.5 billion of borrowings (consisting of securities
sold under agreements to repurchase, notes payable, FHLB advances and other
borrowings), as compared to $1.4 billion at March 31, 2000. R&G Financial
utilized deposits (primarily certificates of deposit) and FHLB advances to fund
its growth during the period.

At March 31, 2001, R&G Financial's allowance for loan losses totaled $12.1
million, which represented a $470,000, or 4.1%, increase from the level
maintained at December 31, 2000. At March 31, 2001, R&G Financial's allowance
represented approximately 0.66% of the total loan portfolio and 11.25% 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 1.49%
and 61.2%, respectively, at March 31, 2001. The increase in the allowance for
loan losses reflects the increase in R&G Financial's commercial real estate and
construction loan portfolio as well as the increase in R&G Financial's
non-performing loans during the year.

Non-performing loans amounted to $107.3 million at March 31, 2001, an
increase of $47.9 million when compared to $59.4 million at December 31, 1999.
However, $40.1 million, or 84%, of such increase consisted of residential
mortgage loans, which resulted to a large extent from increased delays over the
period in the foreclosure process in Puerto Rico. Because of the nature of the
real estate collateral,
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R&G Financial has historically experienced a low level of loan charge-offs. R&G
Financial's aggregate charge-offs amounted to 0.35% during the first quarter of
2001, 0.17% during 2000 and 0.25% during 1999. 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 increased from 3.66% to 5.38% from December 31, 1999 to December 31, 2000
and to 5.83% at March 31, 2001, the increase in the ratio was made larger than
it would otherwise have been due to significant loan securitizations during the
last two quarters of 2000 and the first quarter of 2001, which reduced the
amount of loans considered in the calculation of the ratio. Without giving
effect to loan securitizations, during the three months ended March 31, 2001 and
the year ended December 31, 2000, the ratio of non-performing loans would have
been 4.60% and 4.37%, respectively.

Stockholders' equity increased from $308.8 million at December 31, 2000 to
$389.5 million at March 31, 2001. The $80.6 million, or 26.1%, increase was due
primarily to net income recognized during the period.

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MANAGEMENT

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

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

Victor J. Galan........................... 67 Chairman of the Board and Chief Executive
Officer
Ramon Prats............................... 51 Vice Chairman of the Board and President
Joseph R. Sandoval........................ 37 Senior Vice President and Chief Financial
Officer
Ana M. Armendariz......................... 68 Director and Treasurer
Enrique Umpierre-Suarez................... 59 Director and Secretary
Victor L. Galan........................... 37 Director and Vice President of Loan
Production Marketing and Business
Development -- R&G Mortgage
Pedro Ramirez............................. 58 Director
Laureno Carus Abarca...................... 71 Director
Eduardo McCormack......................... 72 Director
Gilberto Rivera-Arreaga................... 51 Director
Benigno R. Fernandez...................... 60 Director
Ileana M. Colon-Carlo..................... 52 Director
Roberto Gorbea............................ 59 Director
Mario Ruiz................................ 38 Executive Vice President -- R-G Premier
Bank
Steven Velez.............................. 43 Executive Vice President -- R&G Mortgage
Victor M. Irizarry........................ 52 Senior Vice President and Chief Lending
Officer -- R-G Premier Bank
Pedro J. Serralles, IV.................... 52 Principal -- R&G Investments Corporation
Jean Francois Dumazet..................... 35 President -- Home and Property Insurance
Corporation
Michael Wallace, Jr....................... 39 Chief Executive Officer -- Continental
Capital Corporation

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

(1) As of February 29, 2001

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

Victor J. Galan. Mr. Galan is Chairman of the Board and Chief Executive
Officer of R&G Financial, positions he has held since R&G Financial's
incorporation in March 1996. Mr. Galan also served as R&G Financial's President
from its incorporation until January 2001. Mr. Galan is the founder and Chairman
of the Board of R&G Mortgage, a position he has held since 1972. Mr. Galan is
also the Chairman of the Board and Chief Executive Officer of R-G Premier Bank,
a position he has held since R-G Premier Bank was first acquired by R&G Mortgage
in February 1990, Chairman of the Board of Mortgage Store of Puerto Rico, Inc.,
a subsidiary of R&G Mortgage, since the inception of its predecessor in October
1997 (Mortgage Store of Puerto Rico, Inc. and its predecessor, "The Mortgage
Store") and Chairman of the Board of Continental since its acquisition in
October 1999.

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

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

Ana M. Armendariz. Ms. Armendariz has been a Director and Treasurer of R&G
Financial since April 1996 and Secretary, Senior Vice President and Controller
of R&G Mortgage since January 1984 and Senior Vice President and Controller of
The Mortgage Store since October 1997. Ms. Armendariz is a Selling Stockholder.

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

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

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

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

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

Gilberto Rivera-Arreaga. Mr. Rivera-Arreaga has been a Director of R&G
Financial since April 1996 and a Director of R&G Mortgage and R-G Premier Bank
since June 1996. Mr. Rivera-Arreaga has been Executive Vice President of the
National College of Business & Technology, Inc., a post-secondary

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institution with campuses in Bayamon and Arecibo, Puerto Rico, since 1993. Prior
thereto, Mr. Rivera-Arreaga engaged in the private practice of law in Bayamon,
Puerto Rico.

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

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

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

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

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

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

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

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

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

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DESCRIPTION OF CAPITAL STOCK

GENERAL

The following is a summary of certain rights and privileges of R&G
Financial's Common Stock and preferred stock. Statements in this summary are
qualified in their entirety by reference to R&G Financial's Certificate of
Incorporation and to the General Corporation Law of Puerto Rico.

COMMON STOCK

R&G Financial's Common Stock is divided into 40,000,000 shares of Class A
common stock, of which as of March 31, 2001, 18,440,556 were owned by Victor J.
Galan, Chairman of the Board and Chief Executive Officer of R&G Financial, and
30,000,000 shares of Class B common stock, of which as of such date, 10,237,675
shares of Class B common stock were outstanding and held by members of the
general public. The authorized number of shares of Class B common stock was
increased to 40,000,000 shares by action of R&G Financial's stockholders at a
special meeting held on June 12, 2001.

R&G Financial's shares of Class B common stock are listed on the Nasdaq
National Market under the symbol "RGFC." R&G Financial's Common Stock does not
represent non-withdrawable capital, is not an account of an insurable type, and
is not insured by the FDIC.

Subject to the rights of the holders of preferred stock to elect directors
under certain circumstances, the holders of R&G Financial's Common Stock possess
exclusive voting rights in R&G Financial. They elect the Board of Directors and
act on such other matters as are required to be presented to them under Puerto
Rico law or R&G Financial's Certificate of Incorporation or as are otherwise
presented to them by the Board of Directors. Except for matters where applicable
law requires the approval of one or both classes of common stock voting as
separate classes, holders of shares of Class A common stock and shares of Class
B common stock generally vote as a single class on all matters submitted to a
vote of the shareholders, including the election of directors. Holders of shares
of Class A common stock are entitled to two votes per share and holders of
shares of Class B common stock are entitled to one vote per share.

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

Subject to any dividend preferences which may be established with respect
to any series of preferred stock, holders of shares of Class A common stock and
Class B common stock are entitled to share ratably, as a single class, in
dividends when and as declared by the Board of Directors out of funds legally
available for the payment of dividends.

In the event of the liquidation, dissolution or distribution of assets of
R&G Financial, the holders of its Common Stock would be entitled to receive all
of its assets available for distribution, after payment or provision for payment
of all debts and liabilities and liquidation distributions due to holders of R&G
Financial's preferred stock. The holders of R&G Financial's Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock have a priority
over the holders of R&G Financial's Common Stock in the event of a liquidation,
dissolution or distribution of assets.

Holders of R&G Financial's Common Stock are not entitled to preemptive
rights with respect to any shares which may be issued in the future. R&G
Financial's Common Stock is not subject to redemption.

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PREFERRED STOCK

R&G Financial has authorized 10,000,000 shares of preferred stock, par
value $0.01 per share. R&G Financial has issued 2,000,000 shares of Series A
Preferred Stock, 1,000,000 shares of Series B Preferred Stock and 2,760,000
shares of Series C Preferred Stock, each of which ranks pari passu with respect
to each other series of preferred stock. Except with respect to the dividend
rate and redemption and maturity dates, each series of preferred stock has terms
which are substantially the same. R&G Financial may issue other series of
preferred stock with such preferences and designations as the Board of Directors
may from time to time determine. The Board of Directors can, without stockholder
approval, issue preferred stock with voting, dividend, liquidation and
conversion rights as it may deem appropriate under the circumstances.

RESTRICTIONS ON ACQUISITION OF R&G FINANCIAL

Restrictions in the Certificate of Incorporation and Bylaws. A number of
provisions of R&G Financial's Certificate of Incorporation and Bylaws deal with
matters of corporate governance and certain rights of stockholders. The
following discussion is a general summary of certain provisions of the
Certificate of Incorporation and Bylaws which might be deemed to have a
potential "anti-takeover" effect. Reference should be made in each case to such
Certificate of Incorporation and Bylaws, copies of which are incorporated by
reference as exhibits to the registration statement of which this prospectus is
a part.

Board of Directors. R&G Financial's Certificate of Incorporation contains
provisions relating to the Board of Directors and provides, among other things,
that the Board of Directors shall be divided into three classes as nearly equal
in number as possible with the term of office of one class expiring each year.
Cumulative voting in the election of directors is prohibited. Directors may be
removed with or without cause at a duly constituted meeting of stockholders
called expressly for that purpose. Any vacancy occurring in the Board of
Directors for any reason (including an increase in the number of authorized
directors) may be filled by the affirmative vote of a majority of the directors
then in office, though less than a quorum of the Board, or by the sole remaining
director, and a director appointed to fill a vacancy shall serve for the
remainder of the term to which the director being replaced had been elected, and
until his successor has been elected and qualified.

R&G Financial's Bylaws govern nominations for election to the Board, and
provide that nominations for election to the Board of Directors may be made by
the nominating committee of the Board of Directors or by a stockholder eligible
to vote at an annual meeting of stockholders who has complied with specified
notice requirements. Written notice of a stockholder nomination must be
delivered to, or mailed to and received at, the principal executive offices not
later than ninety days prior to the anniversary date of the mailing of the proxy
materials in connection with the immediately preceding annual meeting and, with
respect to an election to be held at a special meeting of stockholders, no later
than the close of business on the tenth day following the date on which notice
of such meeting is first given to stockholders.

Limitation of Liability. R&G Financial's Certificate of Incorporation
provides that the personal liability of the directors and officers for monetary
damages shall be limited to the fullest extent permitted by the General
Corporation Law of the Commonwealth of Puerto Rico ("Puerto Rico Corporate
Law").

Indemnification of Directors, Officers, Employees and Agents. R&G
Financial's Bylaws provide that R&G Financial shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding of R&G Financial, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of R&G Financial, or is or was
serving at its written request as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the fullest extent authorized by Puerto Rico Corporate Law. Notwithstanding the
foregoing, R&G Financial shall not be liable for any amounts which may be due to
any person in connection with a settlement of any action, suit or proceeding
effected without the prior written consent of R&G Financial or any action, suit
or proceeding initiated by any person seeking
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indemnification without the prior written consent of R&G Financial. R&G
Financial's Bylaws also provide that reasonable expenses incurred by a director,
officer, employee or agent of R&G Financial in defending any civil, criminal,
suit or proceeding may be paid by R&G Financial in advance of the final
disposition of such action, suit or proceeding.

Special Meetings of Stockholders and Stockholder Proposals. R&G
Financial's Bylaws provide that special meetings of stockholders, for any
purpose or purposes, may be called only by the Chairman of the Board, the
President or by the affirmative vote of a majority of the Board of Directors
then in office. Only such business as shall have been properly brought before an
annual meeting of stockholders shall be conducted at the annual meeting. In
order to be properly brought before an annual meeting, business must either be
brought before the meeting by or at the direction of the Board of Directors or
otherwise by a stockholder who has given timely notice thereof (along with
specified information) in writing. For stockholder proposals to be included in
our proxy materials, the stockholder must comply with all the timing and
informational requirements of the Securities Exchange Act of 1934, as amended.
With respect to stockholder proposals to be considered at the annual meeting of
stockholders but not included in R&G Financial's proxy materials, the
stockholder's notice must be delivered to or mailed and received at R&G
Financial's principal executive offices not later than 90 days prior to the
anniversary date of the mailing of the proxy materials in connection with the
immediately preceding annual meeting.

Amendment of Certificate of Incorporation and Bylaws. R&G Financial's
Certificate of Incorporation generally provides that any amendment of the
Certificate must be first approved by a majority of the Board of Directors and,
to the extent required by law, then by the holders of a majority of the votes
eligible to be cast in an election of directors, except that the approval of
shares representing 75% of the votes eligible to be cast in an election of
directors, as well as such additional vote of the preferred stock as may be
required by the provisions of any series thereof, is required for any amendment
concerning R&G Financial's directors, bylaws, limitation on liability of
directors and officers and amendments, unless any such proposed amendment is
approved by a vote of two-thirds of the Board of Directors then in office. R&G
Financial's Bylaws may be amended by the Board or by the stockholders. Such
action by the stockholders requires the affirmative vote of the holders of a
majority of the votes eligible to be cast generally in an election of directors,
except that the approval of shares representing 75% of the votes eligible to be
cast generally in an election of directors is required for any amendment to the
Bylaws which is inconsistent with the provisions in R&G Financial's Certificate
of Incorporation, which address the foregoing provisions and which are not
approved by the affirmative vote of two-thirds of R&G Financial's Board of
Directors then in office.

Other Restrictions on Acquisition of R&G Financial. Under the Change in
Bank Control Act, or CIBCA, a notice must be submitted to the Federal Reserve
Board if any person, or group acting in concert, seeks to acquire 10% or more of
R&G Financial's shares of common stock outstanding, unless the Federal Reserve
Board finds that the acquisition will not result in a change of control of R&G
Financial. Under the CIBCA, the Federal Reserve Board has 60 days within which
to act on such notices, taking into consideration certain factors, including the
financial and managerial resources of the acquiror, the convenience and needs of
the communities served by R&G Financial and R-G Premier Bank, and the antitrust
effects of the acquisition. Under the Bank Holding Company Act, any company
would be required to obtain prior approval from the Federal Reserve Board before
it may obtain control of R&G Financial. Control generally is defined to mean the
beneficial ownership of 25% or more of any class of R&G Financial's voting
securities. Under the Puerto Rico Banking Act, a notice must be submitted to the
OCFI not less than 60 days prior to the consummation of any transfer of R&G
Financial stock if, after such transfer, the transferee (including any group
acting in concert) will own more than 5% of R&G Financial's outstanding voting
stock. Such transfer will require the approval of the OCFI if it will result in
a change of control of R&G Financial. A transfer will be presumed to result in a
change of control if, as a result of such transfer, a person or group that did
not own more than 5% of R&G Financial's outstanding voting stock prior to such
transfer owns more than 5% of such stock. In acting upon any such request for
approval, the OCFI must take into consideration factors such as the experience
and moral and financial responsibility of the transferee, its impact on the
operations of R-G Premier Bank, whether the change of

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control threatens the interest of R-G Premier Bank's depositors, creditors or
shareholders and any public interest considerations.

TAXATION

GENERAL

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

This summary is based on the tax laws of Puerto Rico and the United States
Internal Revenue Code of 1986, as amended (the "Code"), as in effect on the date
of this prospectus, as well as regulations, including existing and proposed
regulations of the U.S. Department of the Treasury ("Treasury Regulations"),
administrative pronouncements and judicial decisions available on or before such
date and now in effect. All of the foregoing are subject to change, which change
could apply retroactively.

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

UNITED STATES TAXATION

The following discussion addresses only Class B common stock held by
initial purchasers as capital assets within the meaning of Section 1221 of the
Code. As used herein, the term "U.S. Holder" means a beneficial owner of Class B
common stock that is, for United States federal income tax purposes, an
individual who is a citizen or resident of the United States, a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia, an estate the income of which is subject to United States federal
income taxation regardless of its source, or a trust if a court within the
United States is able to exercise primary supervision over its administration
and one or more United States persons have authority to control all substantial
decisions of the trust. The term "U.S. Holder" does not include individual
Puerto Rico residents who are not citizens or residents of the United States nor
does it include PR Corporations. As used herein, the term "Puerto Rico U.S.
Holder" means an individual U.S. Holder who is a bona fide resident of Puerto
Rico during the entire taxable year.

DISTRIBUTIONS

General. Dividends on the Class B common stock will constitute gross
income from sources outside the United States if less than 25% of the gross
income from all sources of R&G Financial for the three-year period ending with
the close of the taxable year preceding the declaration of such dividends (or
for such part of such period as R&G Financial has been in existence) was or was
treated as effectively connected with a trade or business within the United
States. Since its incorporation in 1996, less than 25% of R&G Financial's gross
income has been effectively connected in the conduct of a trade or business in
the United States, and R&G Financial expects to satisfy such gross income test
on an ongoing basis. Accordingly, dividends on the Class B common stock
distributed by R&G Financial will constitute gross

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

U.S. Holders Other Than Puerto Rico U.S. Holders. Subject to the passive
foreign investment company ("PFIC") rules discussed below, distributions made in
respect of Class B common stock, including the amount of any Puerto Rico taxes
withheld on the distribution, will be includable in the gross income of a U.S.
Holder, other than a Puerto Rico U.S. Holder, as foreign source gross income to
the extent the distributions are paid out of current or accumulated earnings and
profits of R&G Financial as determined for United States federal income tax
purposes. The dividend is ordinary income that you must include in income when
you receive the dividend, actually or constructively. These dividends will not
be eligible for the dividends received deduction generally allowed to U.S.
Holders that are corporations. To the extent, if any, that the amount of any
distribution by R&G Financial exceeds its current and accumulated earnings and
profits as determined for United States federal income tax purposes, the excess
will be treated first as a tax-free return of capital to the extent of the U.S.
Holder's tax basis in the Class B common stock and thereafter as capital gain.

Subject to certain conditions and limitations contained in the Code, the
Puerto Rico income tax imposed on dividends distributed by R&G Financial in
accordance with Puerto Rico law will be eligible for a deduction or a credit
against the U.S. Holder's United States federal income tax liability. For
purposes of calculating a U.S. Holder's United States foreign tax credit
limitation, dividends distributed by R&G Financial will generally constitute
foreign source "passive income" or foreign source "financial services income,"
which is treated separately from other types of income.

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

PR Corporations. In general, distributions of dividends made by R&G
Financial on the Class B common stock to a PR Corporation will not, in the hands
of the PR Corporation, be subject to United States income tax if the dividends
are not effectively connected with a United States trade or business of the PR
Corporation. The Code provides rules for PR Corporations and their U.S.
shareholders that are "Controlled Foreign Corporations," "Personal Holding
Companies," "Foreign Personal Holding Companies," or "Passive Foreign Investment
Companies."

SALES, EXCHANGES OR OTHER DISPOSITIONS

U.S. Holders Other Than Puerto Rico U.S. Holders. Subject to the PFIC
rules discussed below, a U.S. Holder, other than a Puerto Rico U.S. Holder, will
recognize capital gain or loss on the sale or other disposition of Class B
common stock, in an amount equal to the difference between the U.S. Holder's
adjusted tax basis in the Class B common stock and the amount realized on the
sale or other disposition.

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

Puerto Rico U.S. Holders. Subject to the PFIC rules discussed below, in
general, gain from the sale or exchange of the Class B common stock by a Puerto
Rico U.S. Holder with a tax home in Puerto Rico will constitute income from
sources within Puerto Rico, will not be includable in the stockholder's gross
income, and will be exempt from United States federal income taxation provided
that either (i) an income tax equal to at least 10% of the gain derived from
such a sale is actually paid to Puerto Rico with respect to that gain, or (ii)
R&G Financial derived more than 50% of its gross income, over the three-year
period ending with the close of R&G Financial's taxable year immediately
preceding the year in which the sale occurred, from the active conduct of a
trade or business in Puerto Rico. No deduction or credit will be allowed that is
allocable to or chargeable against amounts so excluded from the Puerto Rico U.S.
Holder's

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gross income. Redemptions of the Class B common stock that are not treated as
sales or exchanges under Section 302 of the Code will generally be subject to
income tax under the Code as dividends.

PR Corporations. In general, any gain derived by a PR Corporation from the
sale or exchange of the Class B common stock will not, in the hands of the PR
Corporation, be subject to United States income tax if the gain is not
effectively connected with a United States trade or business of the PR
Corporation. The Code provides special rules for PR Corporations and their U.S.
shareholders that are "Controlled Foreign Corporations," "Personal Holding
Companies," "Foreign Personal Holding Companies," or "Passive Foreign Investment
Companies."

PASSIVE FOREIGN INVESTMENT COMPANY RULES

The Code provides special rules for distributions received by U.S. Holders
on stock of a PFIC as well as amounts received from the sale or other
disposition of PFIC stock.

Based upon certain proposed Treasury Regulations under the PFIC provisions
of the Code (the "Proposed Regulations"), R&G Financial believes that it is not
and has not been a PFIC for any of its prior taxable years and expects to
conduct its affairs in a manner so that it will not meet the criteria to be
considered a PFIC in the foreseeable future. If, contrary to R&G Financial's
expectation, the Class B common stock were considered to be shares of a PFIC for
any fiscal year, a U.S. Holder would generally be subject to special rules with
respect to certain distributions ("excess distribution") by R&G Financial to the
U.S. Holder and any gain realized on the sale or other disposition of Class B
common stock. An "excess distribution" is, generally, any distributions received
by the U.S. Holder on the Class B common stock in a taxable year that are
greater than 125% of the average annual distributions received by the U.S.
Holder in the three preceding taxable years, or the U.S. Holder's holding period
for the Class B common stock, if shorter.

Under these rules, (1) the excess distribution or gain would be allocated
ratably over the U.S. Holder's holding period for the Class B common stock, (2)
the amount allocated to the current taxable year and any taxable year prior to
the first taxable year in which R&G Financial is a PFIC would be taxed as
ordinary income, and (3) the amount allocated to each of the other taxable years
would, with certain exceptions, be subject to tax at the highest rate of tax in
effect for the applicable class of taxpayer for that year, and an interest
charge for the deemed deferral benefit would be imposed on the resulting tax
attributable to each such year.

As an alternative to these rules, U.S. Holders may, in certain
circumstances, elect a mark-to-market treatment with respect to their Class B
common stock.

Notwithstanding the foregoing rules for U.S. Holders, the Proposed
Regulations generally provide that Puerto Rico U.S. Holders would be subject to
the rules described above only to the extent that any excess distribution or
gain is allocated to a taxable year during which the individual held the Class B
common stock and was not a bona fide resident of Puerto Rico during the entire
taxable year or, in certain cases, a portion thereof.

INFORMATION REPORTING AND BACKUP WITHHOLDING

If you are a noncorporate U.S. Holder or a Puerto Rico U.S. Holder, you
will be subject to information reporting requirements, on Internal Revenue
Service Form 1099, with respect to (i) dividend payments or other taxable
distributions made to you within the United States, and (ii) the payment of
proceeds to you from the sale of the Class B common stock effected at a United
States office of a broker.

Additionally, backup withholding at a rate of 31% may apply to such
payments to a noncorporate U.S. Holder or a Puerto Rico U.S. Holder that: (i)
fails to provide an accurate taxpayer identification number; (ii) is notified by
the Internal Revenue Service that he or she has failed to report all interest
and dividends required to be shown on such person's federal income tax returns;
or (iii) in certain circumstances, fails to comply with applicable certification
requirements.

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A taxpayer generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed such taxpayer's income tax liability by
filing a refund claim with the United States Internal Revenue Service.

PUERTO RICO TAXATION

A "Puerto Rico corporation" is used to refer to a corporation organized
under the laws of Puerto Rico and for purposes of the following discussion, a
"foreign corporation" is a corporation organized under the laws of a
jurisdiction other than Puerto Rico.

DISTRIBUTIONS

General. Distributions of cash or other property made by R&G Financial on
the Class B common stock will be treated as dividends to the extent that R&G
Financial has current or accumulated earnings and profits. To the extent that a
distribution exceeds R&G Financial's current and accumulated earnings and
profits, the distribution will be first applied against and reduce the adjusted
tax basis of the Class B common stock in the hands of the holder and then be
treated as gain on the sale or exchange of the Class B common stock as described
below.

Generally, a dividend paid by a Puerto Rico corporation will constitute
income from sources within Puerto Rico unless the corporation has derived less
than 20% of its gross income from sources within Puerto Rico for the three
taxable years preceding the year of the declaration of the dividend or for such
part of such period as the corporation has been in existence. R&G Financial has
represented that it has derived more than 20% of its gross income from Puerto
Rico sources on an annual basis since its incorporation in 1996.

Individual Residents of Puerto Rico and Puerto Rico Corporations. In
general, individuals who are residents of Puerto Rico will be subject to a
special 10% income tax (the "10% Special Tax") on dividends paid on the Series B
Common Stock. This tax is required to be withheld by R&G Financial unless an
individual elects for this withholding not to apply, and is therefore required
to include the amount of the dividend as ordinary income taxable at the normal
income tax rates, which may be up to 33%.

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

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

United States Citizens Not Residents of Puerto Rico. Dividends paid on the
Class B common stock to a United States citizen who is not a resident of Puerto
Rico will be subject to the 10% Special Tax which will be withheld by R&G
Financial. These individuals may elect for the withholding not to apply, and
will be taxed thereon at the normal income tax rates. In the event such
individuals opt out of the 10% Special Tax, a separate 10% withholding tax will
be required on the amount of the dividend unless the individual timely files
with R&G Financial a withholding exemption certificate to the effect that the
individual's gross income from sources within Puerto Rico during the taxable
year does not exceed $1,300 if single or $3,000 if married.

Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. Dividends paid on the Class B common stock to any individual who is not a
citizen of the United States and who is not a resident of Puerto Rico will
generally be subject to a 10% tax, which will be withheld at source by R&G
Financial.

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Foreign Corporations. A foreign corporation that is engaged in a trade or
business in Puerto Rico will be subject to the normal corporate income tax rates
applicable to Puerto Rico corporations (including the dividends received
deduction) on its net income that is effectively connected with the trade or
business in Puerto Rico. This income will include net income from sources within
Puerto Rico and certain items of net income from sources outside Puerto Rico
that are effectively connected with the trade or business in Puerto Rico.

A foreign corporation that is not engaged in a trade or business in Puerto
Rico will be subject to a 10% withholding tax on dividends received on the Class
B common stock.

Partnerships. Partnerships are generally taxed in the same manner as
corporations. Accordingly, the preceding discussion with respect to corporations
is equally applicable in the case of most partnerships.

TAXATION OF GAINS UPON SALES OR EXCHANGES

General. The sale or exchange of Class B common stock will give rise to
gain or loss equal to the difference between the amount realized on the sale or
exchange and the tax basis of the Class B common stock in the hands of the
holder. Any gain or loss that is required to be recognized will be a capital
gain or loss if the Class B common stock is held as a capital asset by the
holder and will be a long-term capital gain or loss if the stockholder's holding
period of the Class B common stock exceeds six months.

Individual Residents of Puerto Rico and Puerto Rico Corporations. If the
stockholder is an individual and the gain is a long-term capital gain realized
on transactions effected in taxable years commencing after March 31, 2001, the
stockholder may opt to tax the gain at a rate of 10% (20% for transactions
effected in taxable years beginning before April 1, 2001). If the stockholder is
a Puerto Rico corporation and the gain is a long-term capital gain realized on
transactions effected in taxable years commencing after March 31, 2001, the gain
will qualify for an alternative tax rate of 12.5% (25% for transactions effected
in taxable years beginning before April 1, 2001).

United States Citizens Not Residents of Puerto Rico. A United States
citizen who is not a resident of Puerto Rico will not be subject to Puerto Rico
income tax on the sale or exchange of Class B common stock if the gain resulting
therefrom constitutes income from sources outside Puerto Rico. Generally, gain
on the sale or exchange of Class B common stock will be considered to be income
from sources outside Puerto Rico if all rights, title and interest in or to the
Class B common stock are transferred outside Puerto Rico, and if the delivery or
surrender of the instruments that evidence the Class B common stock is made to
an office of a paying or exchange agent located outside Puerto Rico. If the gain
resulting from the sale or exchange constitutes income from sources within
Puerto Rico, an amount equal to 10% of the payments received with respect to
transactions effected in taxable years commencing after March 31, 2001 will be
withheld at the source (the withholding rate will be 20% with respect to
payments related to transactions effected in taxable years beginning before
April 1, 2001); and if the gain constitutes a long-term capital gain, it will be
subject to a tax at a maximum rate of 10% or 20%, as previously described for
individuals who are residents of Puerto Rico. The amount of tax withheld at
source will be creditable against the shareholder's Puerto Rico income tax
liability.

Individuals Not Citizens of the United States and Not Residents of Puerto
Rico. An individual who is not a citizen of the United States and who is not a
resident of Puerto Rico will be subject to the rules described above under
"-- United States Citizens Not Residents of Puerto Rico." However, if the gain
resulting from the sale or exchange of Class B common stock constitutes income
from sources within Puerto Rico, an amount equal to 25% of the payments received
will be withheld at the source; provided, that if the gain resulting from the
sale or exchange represents a capital gain from sources within Puerto Rico, the
individual will generally be subject to tax on this gain at a fixed rate of 29%.
The amount of tax withheld at source will be creditable against the
shareholder's Puerto Rico income tax liability.

Foreign Corporations. A foreign corporation that is engaged in a trade or
business in Puerto Rico will generally be subject to Puerto Rico corporate
income tax on any gain realized on the sale or exchange of Class B common stock
if the gain is from sources within Puerto Rico or is effectively connected with
a

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trade or business in Puerto Rico. Any such gain will be taxed at 12.5% if it is
a long-term capital gain realized on transactions effected in taxable years
commencing after March 31, 2001 (25% for transactions effected in taxable years
beginning before April 1, 2001).

In general, foreign corporations that are engaged in a trade or business in
Puerto Rico will also be subject to a 10% branch profits tax.

A foreign corporation that is not engaged in a trade or business in Puerto
Rico will generally be subject to a corporate income tax rate of 29% on any
capital gain realized on the sale or exchange of Class B common stock if the
gain is from sources within Puerto Rico. If the gain resulting from the sale or
exchange constitutes income from sources within Puerto Rico, an amount equal to
25% of the payments received will be withheld at the source and be creditable
against the shareholder's Puerto Rico income tax liability. In the case of such
foreign corporation, no income tax will be imposed if the gain constitutes
income from sources outside Puerto Rico.

A bill has been introduced in the Puerto Rico Legislature which would make
the reductions in the capital gains tax rates effective for transactions
effected after March 31, 2001, regardless of the commencement date of the
taxpayer's taxable year.

SELLING STOCKHOLDERS

Victor J. Galan, the Chairman of the Board and Chief Executive Officer of
R&G Financial, owns 18,440,556 shares of Class A common stock. In connection
with the offering, Mr. Galan intends to convert 2,000,000 shares of his Class A
common stock into an equal number of shares of Class B common stock (2,300,000
shares if Mr. Galan's portion of the over-allotment option is exercised in
full). Mr. Galan intends to sell in the offering for his own account all but
54,000 of the shares of Class B common stock so converted. In connection with
this offering, Ana M. Armendariz, a Director of R&G Financial and executive
officer of R&G Mortgage, is fully exercising an option previously granted by Mr.
Galan, pursuant to which she will acquire from Mr. Galan the other 54,000 shares
of Class B common stock. Ms. Armendariz is selling in this offering all 54,000
shares of Class B common stock so received. Mr. Galan and Ms. Armendariz are
collectively referred to herein as the "Selling Stockholders." Upon completion
of the offering, Mr. Galan will own 16,440,556 shares of Class A common stock,
which will represent 53.6% of our outstanding Common Stock (16,140,536 shares,
or 52.1%, if the underwriters' over-allotment option is exercised in full).

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UNDERWRITING

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

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

UBS Warburg LLC............................................. 2,311,500
Keefe, Bruyette & Woods, Inc. .............................. 1,138,500
CIBC World Markets Corp. ................................... 100,000
A.G. Edwards & Sons, Inc. .................................. 100,000
Brean Murray & Co., Inc. ................................... 50,000
Legg Mason Wood Walker, Incorporated........................ 50,000
Morgan Keegan & Company, Inc. .............................. 50,000
Putnam Lovell Securities Inc. .............................. 50,000
Raymond James & Associates, Inc. ........................... 50,000
Sandler O'Neill & Partners L.P. ............................ 50,000
Tucker Anthony Incorporated................................. 50,000
---------
Total............................................. 4,000,000
=========

If the underwriters sell more shares of Class B common stock than the total
number set forth in the table above, the underwriters have a 30-day option to
buy on a pro rata basis up to an additional 300,000 shares of Class B common
stock from us and up to an additional 300,000 shares of Class B common stock
from one of the Selling Stockholders, Mr. Galan, at the public offering price
less the underwriting discounts and commissions, to cover these sales. If any
shares of Class B common stock are purchased under these options, the
underwriters will severally purchase shares of Class B common stock in
approximately the same proportion as set forth in the table above.

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

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

Per Share................................. $ 0.825 $ 0.825 $ 0.825 $ 0.825
Total........................... $1,650,000 $1,897,500 $1,650,000 $1,897,500

We estimate that the total expenses of this offering payable by us,
excluding underwriting discounts and commissions, will be about $312,000.

Shares of Class B common stock sold by the underwriters to the public will
initially be offered at the public offering price set forth on the cover of this
prospectus. Any shares of Class B common stock sold by the underwriters to
securities dealers may be sold at a discount of up to $0.50 per share from the
public offering price. Any of these securities dealers may resell any shares of
Class B common stock purchased from the underwriters to other brokers or dealers
at a discount of up to $0.10 per share from the public offering price. If all of
the shares of Class B common stock are not sold at the public offering price,
the representatives of the underwriters may change the offering price and the
other selling terms.

We and each of our senior executive officers and directors, including each
of the Selling Stockholders, have agreed with the underwriters not to sell,
offer or agree to sell, hypothecate, contract to sell, grant any option to sell
or otherwise dispose of, directly or indirectly, or enter into any agreement or
arrangement that has the effect of transferring the economic effects of holding,
any shares of our common stock or securities convertible into or exchangeable
for our common stock or warrants or other rights to purchase our common stock or
any of our other securities that are substantially similar to our common stock
or

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permit the registration under the Securities Act of 1933, as amended, of any
shares of our common stock during the period from the date of this prospectus
continuing through the date 90 days after the date of the closing of this
offering, without the prior written consent of UBS Warburg LLC.

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

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

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

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

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Securities and Exchange Commission allows R&G Financial to "incorporate
by reference" the information it files with them, which means R&G Financial can
disclose important information to you by referring to these documents. The
information included in the following documents is incorporated by reference and
is considered a part of this prospectus. The most recent information that R&G
Financial files with the SEC automatically updates and supersedes previously
filed information. R&G Financial has previously filed the following documents
with the SEC and is incorporating them by reference into this prospectus:

- Annual Report on Form 10-K for the year ended December 31, 2000, as
amended;

- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, as
amended;

- Proxy Statement for Special Meeting of Stockholders held on June 12, 2001;
and

- Form 8-K filed on June 12, 2001.

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R&G Financial also incorporates by reference all documents filed by it
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 after the date of this prospectus and until all the shares being offered by
this prospectus are sold.

R&G Financial will provide, at no cost, to each person, including a
beneficial owner, to whom this prospectus is delivered, upon written or oral
request, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to these documents unless such exhibits are specifically
incorporated by reference into such documents. Requests for copies should be
directed to R&G Financial, Attention: Enrique Umpierre-Suarez, Secretary, 280
Jesus T. Pinero Avenue, San Juan, Puerto Rico 00918; telephone number: (787)
758-2424.

WHERE YOU CAN FIND MORE INFORMATION

R&G Financial files annual, quarterly and current reports, proxy statements
and other information with the SEC. R&G Financial has also filed with the SEC a
registration statement on Form S-3 to register the Class B common stock being
offered in this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information included in the
registration statement. For further information about R&G Financial and the
shares of Class B common stock offered in this prospectus, you should refer to
the registration statement and its exhibits.

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

LEGAL MATTERS

The validity of the Class B common stock will be passed upon for R&G
Financial by Kelley Drye & Warren LLP, Vienna, Virginia, and for the
underwriters by Sullivan & Cromwell, New York, New York. The validity of the
Class B common stock will be passed upon as to matters of Puerto Rico law for
R&G Financial by McConnell Valdes, San Juan, Puerto Rico. Kelley Drye & Warren
LLP and Sullivan & Cromwell will rely as to all matters of the laws of the
Commonwealth of Puerto Rico upon the opinion of McConnell Valdes. As of the date
of this prospectus, certain members of Kelley Drye & Warren LLP owned in the
aggregate approximately 9,690 shares of Class B common stock.

EXPERTS

The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K/A of R&G Financial Corporation for
the year ended December 31, 2000 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

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(RPG Fin. Corp. Logo)