UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

 [ X ]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                  For the fiscal year ended: December 31, 1999

                                       OR

 [   ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934

                          Commission File No.: 0-21137

                            R&G FINANCIAL CORPORATION
--------------------------------------------------------------------------------

             (Exact name of registrant as specified in its charter)


              Puerto Rico                                     66-0532217
--------------------------------------------------------------------------------
     (State or other jurisdiction                         (I.R.S. Employer
   of incorporation or organization)                     Identification Number)


              280 Jesus T. Pinero Avenue
            Hato Rey, San Juan, Puerto Rico                      00918
-------------------------------------------------------------------------------

                 (Address of Principal                        (Zip Code)
                  Executive Offices)

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

           Securities registered pursuant to Section 12(b) of the Act:
                                 Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

                 Class B Common Stock (par value $.01 per share)
--------------------------------------------------------------------------------
                                (Title of Class)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.    Yes [X]  No [_]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 28, 2000,  the aggregate  value of the  9,853,147  shares of Class B
Common  Stock of the  Registrant  issued and  outstanding  on such  date,  which
excludes  365,304 shares held by all directors and officers of the Registrant as
a group, was approximately $91.1 million. This figure is based on the last known
trade price of $9.25 per share of the Registrant's Class B Common Stock on March
28, 2000.

Number of  shares  of Class B Common  Stock  outstanding  as of March 28,  2000:
10,218,451

                       DOCUMENTS INCORPORATED BY REFERENCE

         List hereunder the following  documents  incorporated  by reference and
the Part of the Form 10-K into which the document is incorporated:

(1)      Portions of the Annual Report to Stockholders for the fiscal year ended
         December 31, 1999 are incorporated into Parts II and IV.

(2)      Portions of the  definitive  proxy  statement for the Annual Meeting of
         Stockholders are incorporated into Part III.

<PAGE>
PART I

Item 1. Business

                                     General

         R&G Financial  Corporation  (the  "Company" or "R&G  Financial") is the
holding company for R&G Mortgage  Corp., a Puerto Rico mortgage  banking company
("R&G  Mortgage")  and R-G Premier Bank of Puerto Rico, a Puerto  Rico-chartered
commercial bank (the "Bank"). The Company was organized under Puerto Rico law in
March 1996.  R&G Mortgage was organized in 1972 and the  predecessor of the Bank
was organized in 1983. In July 1996,  the Company  acquired the 88.1%  ownership
interest in the common stock of the Bank and the 100% ownership  interest in the
common stock of R&G  Mortgage  held by the  Company's  Chairman of the Board and
Chief Executive Officer,  Mr. Victor J. Galan, in exchange for shares of Class A
common  stock  of  the  Company.  In  August  1996,  the  Company  conducted  an
underwritten  public  offering of Class B common stock.  In December  1996,  the
Company  acquired the remaining 11.9% ownership  interest in the common stock of
the Bank.  At December 31, 1999,  the Company had total  consolidated  assets of
$2.9 billion, total consolidated  borrowings of $1.3 billion, total consolidated
deposits of $1.3 billion, and total consolidated  stockholders' equity of $269.5
million.

         In October 1999, the Company  entered the United States market with the
acquisition by the Bank of  Continental  Capital Corp.  ("Continental"),  a Long
Island,  New  York-based  mortgage  banking  company.  With the  acquisition  of
Continental,  the Company plans to expand its  operations in the United  States,
concentrating  initially  in New York and then into other  markets to the extent
that the Company is  presented  with  appropriate  expansion  opportunities.  In
addition to considering other mortgage banking companies,  the Company will also
seek to acquire a financial  institution  in the United States to take advantage
of the same  synergies  between its  operations as it has  experienced in Puerto
Rico.

         R&G Financial  competes for business in Puerto Rico by providing a wide
range of financial  services to  residents of all of Puerto  Rico's major cities
through  branch  offices and mortgage  banking  facilities at 23 locations.  The
operations of both R&G Mortgage and the Bank have expanded  substantially during
the  1990's,  due  in  large  part  to R&G  Mortgage's  emergence  as a  leading
originator of loans secured by  single-family  residential  properties in Puerto
Rico.  During  the  year  ended  December  31,  1999,  R&G  Mortgage  originated
approximately  30% of all  single-family  residential loans originated in Puerto
Rico,  which has resulted in  significant  growth in its servicing  portfolio as
well as facilitated rapid expansion of the Bank's franchise and operations.  R&G
Financial's  servicing  portfolio has increased  393.9% since  December 31, 1991
and, at December 31, 1999, R&G Financial serviced approximately 107,302 accounts
with an aggregate  loan balance of $6.2  billion.  The Bank's asset size,  which
amounted to $2.3 billion at December 31, 1999,  has  increased by $2.26  billion
since R&G Mortgage became  affiliated with the Bank in February 1990,  while the
branch office network had increased from two to 22 offices.

         R&G  Financial  has  generally  sought to achieve  long-term  financial
strength and  profitability  by  increasing  the amount and stability of its net
interest income and non-interest income. R&G

                                        1

<PAGE>

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

         The Company is subject to regulation  and  supervision  by the Board of
Governors of the Federal Reserve System ("Federal Reserve Board") and is subject
to various  reporting  and other  requirements  of the  Securities  and Exchange
Commission ("SEC").

         R&G  Mortgage.  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  which are either  insured  by the  Federal
Housing  Administration  ("FHA") or  guaranteed  by the Veterans  Administration
("VA").  To a lesser extent,  R&G Mortgage is also engaged in the origination of
subprime--credit  quality--residential  mortgage  loans  through a wholly  owned
subsidiary  ("Champion  Mortgage  Corporation")  which  commenced  operations in
October 1997.  Approximately  20% of loan originations made by Champion Mortgage
consist of subprime residential  mortgage loans.  Pursuant to agreements entered
into   between  R&G   Mortgage   and  the  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 the Bank.  The 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 or other  underwriting
technicalities  at the time of  origination.  Jumbo loans may be  packaged  into
collateralized   mortgage   obligations  ("CMOs")  and  sold  while  loans  with
underwriting   technicalities  may  be  cured  through  payment  experience  and
subsequently  sold. During the years ended December 31, 1999, 1998 and 1997, R&G
Mortgage  originated a total of $1.0 billion,  $914.1 million and $598.2 million
of loans, respectively. These aggregate originations include loans originated by
R&G Mortgage directly for the Bank of $437.1 million,  $450.6 million and $285.8
million during such respective periods, or 43.4%, 49.3% and 47.8%, respectively,
of total originations.

         R&G Mortgage pools FHA/VA loans into  mortgage-backed  securities which
are guaranteed by the Government National Mortgage Association  ("GNMA"),  which
securities  are  sold  to  securities   broker  dealers  and  other   investors.
Conventional  loans may either be sold  directly to agencies such as the Federal
National  Mortgage  Association  ("FNMA")  and the  Federal  Home Loan  Mortgage
Corporation ("FHLMC") or to private investors, or which may be pooled into FNMA-
or  FHLMC-backed   mortgage-backed   securities  which  are  generally  sold  to
investors. During the years ended December 31, 1999, 1998 and 1997, R&G Mortgage
sold $671.2 million, $493.0 million and

                                        2

<PAGE>

$246.1 million of loans, respectively, which includes loans securitized and sold
but does not include  loans  originated  for the Bank or loans  securitized  for
other  institutions.  R&G Mortgage generally retains the servicing function with
respect to the loans  which have been  securitized  and sold.  R&G  Mortgage  is
subject to regulation and  examination by the FHA,  FNMA,  FHLMC,  GNMA, VA, the
Department  of  Housing  and Urban  Development  ("HUD")  and the  Office of the
Commissioner of Financial Institutions ("OCFI") of Puerto Rico.

         R&G Premier Bank. The Bank's principal  business consists of attracting
deposits from the general public and  tax-advantaged  funds from eligible Puerto
Rico  corporations  and using such  deposits,  together with funds obtained from
other  sources,  to originate  (through R&G Mortgage) and purchase loans secured
primarily  by   residential   real  estate  in  Puerto  Rico,  and  to  purchase
mortgage-backed  and other  securities.  To a lesser extent but with  increasing
emphasis  over the past few  years,  the Bank also  originates  consumer  loans,
commercial  business  loans and loans  secured by commercial  real estate.  Such
loans offer higher  yields,  are generally for shorter terms and  facilitate the
Bank's  provision of a full range of financial  services to its  customers.  The
Bank also  offers  trust  services  through  its Trust  Department.  Total  loan
originations by the Bank during the years ended December 31, 1999, 1998 and 1997
amounted to $382.0 million, $129.1 million and $89.0 million,  respectively. The
Bank's  deposits  are  insured  by the  Federal  Deposit  Insurance  Corporation
("FDIC")  and it is regulated  and  examined by the FDIC as its primary  federal
regulatory agency as well as by the OCFI.

                           Mortgage Banking Activities

         Loan Originations, Purchases and Sales. During the years ended December
31, 1999,  1998 and 1997,  R&G  Financial  originated  a total of $1.1  billion,
$914.1 million and $598.2 million of residential  mortgage loans,  respectively.
These aggregate  originations  include loans originated by R&G Mortgage directly
for the Bank of $437.1  million,  $450.6  million and $285.8  million during the
years ended December 31, 1999, 1998 and 1997, respectively of such originations,
or 43%, 49% and 48%, respectively,  of total originations.  The loans originated
by R&G Mortgage for the Bank are comprised primarily of conventional residential
loans and, to a lesser extent, consumer loans secured by real estate.

         R&G Financial is engaged to a significant  extent in the origination of
FHA-insured  and  VA-guaranteed   single-family   residential  loans  which  are
primarily   securitized  into  GNMA  mortgage-backed   securities  and  sold  to
institutional and/or private investors in the secondary market. During the years
ended December 31, 1999, 1998 and 1997, R&G Financial originated $288.8 million,
$255.6  million  and  $280.1  million,  respectively,  of  FHA/VA  loans,  which
represented  27.3%,  28.0% and 46.8%,  respectively,  of total loans  originated
during such respective periods.

         R&G Financial also originates  conventional  single-family  residential
loans which are either insured by private mortgage insurers or do not exceed 80%
of the  appraised  value of the  mortgaged  property.  During  the  years  ended
December 31, 1999,  1998 and 1997,  R&G  Financial  originated  $738.6  million,
$610.4 million and $265.9 million, respectively, of conventional single-family

                                        3

<PAGE>



residential   mortgage   loans.   Substantially   all  conforming   conventional
single-family  residential  loans  are  securitized  and  sold in the  secondary
market,  while  substantially  all  non-conforming   conventional  single-family
residential  loans  are  originated  by R&G  Mortgage  on behalf of the Bank and
either held by the Bank in its  portfolio  or  subsequently  securitized  by R&G
Mortgage and sold in the secondary market. All non-conforming conventional loans
originated  by R&G  Mortgage  through  Champion  Mortgage  are held by  Champion
Mortgage in its portfolio or subsequently sold in the secondary market.

         Non-conforming  loans  generally  consist  of  loans  which,  primarily
because of size or other underwriting  technicalities which may be cured through
seasoning,  do not satisfy the  guidelines for resale of FNMA,  FHLMC,  GNMA and
other private secondary market investors at the time of origination.  Management
believes  that  these  loans  are  essentially  of the same  credit  quality  as
conforming  loans.  During the years ended  December  31,  1999,  1998 and 1997,
non-conforming  conventional  loans represented  approximately 38%, 44% and 39%,
respectively,  of R&G  Financial's  total volume of mortgage  loans  originated,
substantially  all of which were  originated  by R&G  Mortgage  on behalf of the
Bank. During the years ended December 31, 1999, 1998 and 1997, 86.6%,  85.5% and
77.5% of loans  originated  by R&G  Mortgage on behalf of the Bank  consisted of
single-family  residential  loans during such respective  periods.  R&G Mortgage
originates  single-family  residential,  construction and commercial real estate
loans  on  behalf  of the Bank  pursuant  to the  terms  of a Master  Production
Agreement  between R&G Mortgage and the Bank.  See "- Lending  Activities of the
Bank - Origination, Purchase and Sale of Loans."

         While R&G Financial makes available a wide variety of mortgage products
designed to respond to consumer needs and competitive  conditions,  it currently
emphasizes  15-year and 30-year  conventional  first  mortgages  and 15-year and
30-year  FHA loans and VA loans.  Substantially  all of such  loans  consist  of
fixed-rate  mortgages.  The  average  loan size for  FHA/VA  mortgage  loans and
conventional mortgage loans is approximately $87,000 and $68,000, respectively.

         R&G Financial  also offers second  mortgage loans up to $125,000 with a
maximum term of 15 years.  The maximum  loan-to-appraised  value ratio on second
mortgage loans permitted by R&G Financial is generally 75% (including the amount
of any first  mortgage).  In  addition,  R&G  Financial  also offers real estate
secured  consumer  loans up to  $40,000  with a maximum  term of 10  years.  The
maximum  loan-to-appraised  value ratio on real estate  secured  consumer  loans
permitted  by R&G  Financial is generally  80%. R&G  Financial  will secure such
loans with either a first or second mortgage on the property.

         The Company's loan origination  activities in Puerto Rico are conducted
out of R&G Mortgage offices and mortgage banking centers.  Residential  mortgage
loan applications are attributable to walk-in customers,  existing customers and
advertising and promotion, referrals from real estate brokers and builders, loan
solicitors and mortgage brokers.  At December 31, 1999, R&G Mortgage employed 80
loan  originators  who  are  compensated  in part on a  commission  basis.  Loan
origination  activities  of the Company in the U.S.  (through  Continental)  are
conducted primarily through loan solicitors.

                                        4

<PAGE>



         Loan   origination   activities   performed  by  the  Company   include
soliciting,  completing and processing  mortgage loan applications and preparing
and organizing the necessary loan documentation.  Loan applications are examined
for compliance with underwriting  criteria and, if all requirements are met, the
Company issues a commitment to the prospective borrower specifying the amount of
the loan and the loan origination  fees,  points and closing costs to be paid by
the borrower or seller and the date on which the commitment expires.

         R&G Mortgage also  purchases FHA loans and VA loans from other mortgage
bankers for resale to institutional investors and other investors in the form of
GNMA  mortgage-backed  securities.  R&G  Mortgage's  strategy is to increase its
servicing  portfolio primarily though internal  originations  through its branch
network and, to a lesser  extent,  purchases  from third  parties.  Purchases of
loans from other  mortgage  bankers in the  wholesale  loan market is  generally
limited to FHA loans and VA loans and such purchases provide R&G Mortgage with a
source of low cost  production  that allows R&G Mortgage to continue to increase
the size of its servicing  portfolio.  R&G Mortgage  purchased  $307.8  million,
$207.1  million and $158.5  million of loans from third parties during the years
ended December 31, 1999, 1998 and 1997, respectively.

                                        5

<PAGE>

         The following table sets forth loan  originations,  purchases and sales
from its mortgage banking business by R&G Financial for the periods indicated.

<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                            ---------------------------------------------

                                                                1999             1998             1997
                                                            ---------------------------------------------
                                                                         (Dollars in Thousands)
<S>                                                         <C>              <C>                <C>
Loans Originated For the Bank:
  Conventional loans(1):
    Number of loans..................................            5,067            4,918            3,390
    Volume of loans..................................         $404,886         $402,447         $233,488
  FHA/VA loans:
    Number of loans..................................               --               --               --
    Volume of loans..................................               --               --               --
  Consumer loans(2):
    Number of loans..................................            1,499            2,268            2,318
    Volume of loans..................................           32,219          $48,155          $52,287
  Total loans:
    Number of loans..................................            6,566            7,186            5,708
    Volume of loans..................................         $437,105         $450,602         $285,775

    Percent of total volume..........................              32%              40%              38%
For Third Parties:
  Conventional loans(1):
    Number of loans..................................            4,882            2,989              444
    Volume of loans..................................         $333,673         $207,937          $32,419
  FHA/VA loans:
    Number of loans..................................            3,315            3,298            4,107
    Volume of loans..................................         $288,752         $255,601         $280,053
  Total loans:
    Number of loans..................................            8,197            6,287            4,551
    Volume of loans..................................         $622,425         $463,538         $312,472
    Percent of total volume..........................              46%              41%              41%
                                                           ----------      -----------        ---------
      Total loan originations........................       $1,059,530         $914,140         $598,247
                                                             =========          =======          =======
Loans Purchased For R&G Mortgage:
Number of loans......................................            3,418            2,506            2,052
  Volume of loans(3).................................         $307,819         $207,070         $158,456
  Percent of total volume............................              22%              19%              21%
    Total loan originations and purchases............       $1,367,349       $1,121,210         $756,703
                                                             =========        =========          =======
GNMA Pools Purchased for R&G Mortgage:
  Volume of loans                                              $22,487 $             --         $ 51,537
</TABLE>

                                        6

<PAGE>
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                            ---------------------------------------------

                                                                1999             1998             1997
                                                            ---------------------------------------------
                                                                         (Dollars in Thousands)
<S>                                                         <C>              <C>                <C>
Loans Sold To Third Parties(4):
  Conventional loans(1):
    Number of loans..................................            6,511            2,513              429
    Volume of loans..................................         $470,443         $194,909          $39,495
  FHA/VA loans:
    Number of loans..................................            4,255            4,413            2,775
    Volume of loans..................................         $373,730         $298,108         $206,643
  Total loans:
    Number of loans..................................            9,434            6,926            3,204
    Volume of loans(3)...............................         $844,173         $493,017         $246,138
    Percent of total volume..........................               62%              44%              33%
                                                             ---------      -----------         --------
Adjustments:
  Loans originated for the Bank......................        ($437,105)       ($450,602)       $(285,775)
  Loans amortization.................................      (    38,863)          (1,479)          (5,086)
                                                              ---------      -----------        --------
Increase in loans held for sale......................        $  69,695        $ 176,112         $271,241
                                                              ========         ========          =======
Average Initial Loan Origination Balance:
  The Bank:
    Conventional loans(1)............................              $80              $82         $     69
    FHA/VA loans.....................................               --               --               --
  Third Parties:
    Conventional loans(1)............................              $68              $70         $     73
    FHA/VA loans.....................................               87               78               68
  Total
    Conventional loans(1)............................              $74              $77              $69
    FHA/VA loans.....................................               87               78               68
Refinancings(5):
  The Bank...........................................               72%              74%              70%
  Third Parties......................................               49%              44%              31%
</TABLE>

-----------------
(1)      Includes non-conforming loans.
(2)      All of such loans were secured by real estate.
(3)      Includes  $123.2 million of loans  purchased from another  institution,
         and securitized and sold to the same financial institution during 1999.
(4)      Includes loans converted into mortgage-backed securities.
(5)      As a percent of the total dollar volume of mortgage loans originated by
         R&G Mortgage for the Bank (excluding  consumer loans) or third parties,
         as the  case  may be.  In the  case of the  Bank,  refinancings  do not
         necessarily  represent  refinancings  of loans  previously  held by the
         Bank.

                                        7

<PAGE>
         All loan  originations,  regardless of whether  originated  through the
Company or purchased from third parties, must be underwritten in accordance with
R&G Financial's underwriting criteria, including loan-to-appraised value ratios,
borrower  income  qualifications,  debt  ratios  and  credit  history,  investor
requirements,  necessary  insurance  and property  appraisal  requirements.  R&G
Financial's  underwriting standards also comply with the relevant guidelines set
forth by HUD, VA, FNMA,  FHLMC,  bank regulatory  authorities,  private mortgage
investment conduits and private mortgage insurers, as applicable.  The Company's
underwriting   personnel,   while  operating  out  of  its  loan  offices,  make
underwriting  decisions  independent of the Company's  mortgage loan origination
personnel.

         Typically,  when a mortgage  loan is  originated,  the borrower pays an
origination  fee.  These  fees  are  generally  in the  range of 0% to 7% of the
principal  amount of the mortgage  loan,  and are payable at the closing of such
loan. The Company receives these fees on mortgage loans  originated  through its
retail  branches.  The Company may charge  additional fees depending upon market
conditions and  regulatory  considerations  as well as the Company's  objectives
concerning  mortgage loan  origination  volume and pricing.  The Company  incurs
certain costs in originating mortgage loans,  including overhead,  out-of-pocket
costs and, in some  cases,  where the  mortgage  loans are subject to a purchase
commitment from private investors,  related commitment fees. The volume and type
of mortgage loans and of commitments made by investors vary with competitive and
economic  conditions  (such as the level of interest rates and the status of the
economy in general),  resulting in  fluctuations  in revenues from mortgage loan
originations.  Generally accepted  accounting  principles  ("GAAP") require that
general operating expenses incurred in originating  mortgage loans be charged to
current  expense.  Direct  origination  costs  and  origination  income  must be
deferred and amortized using the interest method, until the repayment or sale of
the related  mortgage loans.  Historically,  the value of servicing rights which
result from R&G  Financial's  origination  activities has exceeded the net costs
attributable to such activities.

         R&G Financial  customarily  sells most of the loans that it originates,
except  for  those  originated  on  behalf of the Bank  pursuant  to the  Master
Production  Agreement with R&G Mortgage.  See "-Lending Activities of the Bank -
Origination, Purchases and Sales of Loans." The loans originated by R&G Mortgage
(including  FHA loans,  VA loans and  conventional  loans)  are  secured by real
property  located in Puerto Rico and  constitute  "eligible  investments"  which
results in favorable tax treatment  under U.S. and Puerto Rico tax laws.  See "-
Puerto Rico Secondary  Mortgage Market and Favorable Tax Treatment."  During the
years ended December 31, 1999, 1998 and 1997, R&G Financial sold $721.0 million,
$493.0 million and $246.1 million of loans,  respectively,  which includes loans
securitized  and sold but does not include  loans  originated by R&G Mortgage on
behalf of the Bank or loans securitized for other institutions.  With respect to
such loan sales,  $399.3  million or 55.4%,  $298.1  million or 60.5% and $206.6
million or 83.9% consisted of GNMA-guaranteed  mortgage-backed securities of FHA
loans or VA loans  packaged into pools of $1 million or more ($2.5 million to $5
million for serial notes as described  below) by R&G Mortgage.  These securities
were sold primarily to securities  broker-dealers  and other investors in Puerto
Rico.

                                        8

<PAGE>

         Certain GNMA-guaranteed mortgage-backed securities sold by R&G Mortgage
are in the form of GNMA  serial  notes  which  permit  the  investor  to receive
interest  monthly and to select among  several  expected  maturity  dates of the
notes included in an issue,  with each maturity  having a specific  yield.  GNMA
serial notes are sold in pools of $2.5 million to $5 million.  GNMA serial notes
are  sold to  securities  broker-dealers  in  packages  consisting  of  notes of
different  yields and  maturities,  which range from one to 30 years and have an
average  maturity of 12 years,  taking into account  historical  experience with
prepayments of the underlying  mortgages.  The rates on the serial notes or GNMA
pools  must be 1/2 of 1% less than the  rates on the  mortgages  comprising  the
pool.  Upon  completion  of  the  necessary   processing,   the  GNMA-guaranteed
mortgage-backed securities are either offered to the public directly through the
Bank's Trust Department or indirectly through securities broker-dealers.  During
the years ended  December 31,  1999,  1998 and 1997,  R&G  Mortgage  issued GNMA
mortgage-backed securities totaling approximately $392.6 million, $371.1 million
and $397.2 million,  respectively,  including $174.0 million, $148.3 million and
$335.5 million GNMA serial notes, respectively.

         Conforming  conventional  loans  originated or purchased by the Company
are generally sold directly to FNMA, FHLMC or private  investors for cash or are
grouped  into pools of $1 million or more in  aggregate  principal  balance  and
exchanged for FNMA or FHLMC-issued mortgage-backed securities, which the Company
sells to securities  broker-dealers.  In connection with any such exchanges, the
Company pays guarantee fees to FNMA and FHLMC.  The issuance of  mortgage-backed
securities  provides  R&G with  flexibility  in selling the  mortgages  which it
originates  or purchases and also  provides  income by increasing  the value and
marketability of the loans.

         Mortgage loans that do not conform to GNMA, FNMA or FHLMC  requirements
(so-called  "non-conforming  loans") are  generally  originated on behalf of the
Bank by R&G  Mortgage  and  either  retained  in the Bank's  portfolio,  sold to
financial  institutions or other private  investors or securitized into "private
label" CMOs through  grantor trusts or other mortgage  conduits and sold through
securities broker-dealers.  Non-conforming loans consist of jumbo loans or loans
that do not  satisfy  all  requirements  of FNMA,  FHLMC and GNMA at the time of
origination  of  the  loan  (such  as  missing  tax  returns,   slightly  higher
loan-to-value ratios, etc.).

         Each CMO normally  consists of several  classes of senior,  subordinate
and residual certificates. The residual certificates evidence a right to receive
payments on the  mortgage  loans after  payment of all  required  amounts on the
senior and subordinate  certificates then due. Some form of credit  enhancement,
such as an insurance policy,  letter of credit or subordination,  will generally
be used to increase  the credit  rating of the senior  certificates  and thereby
improve  their  marketability.  R&G  Mortgage and the Bank have made no sales of
CMOs  in  securitization  transactions  during  1997  through  1999.  When  such
transactions  are made,  either the Bank or R&G Mortgage  generally  retains the
residual certificates issued by the respective trusts as well as the subordinate
certificates issued in such transactions.  As of December 31, 1999, R&G Mortgage
held residual certificates issued in CMO transactions involving R&G Mortgage and
the Bank  with a fair  value of $4.6  million.  In  addition,  the Bank held CMO
subordinated certificates and residual certificates from one of its

                                        9

<PAGE>

issues with a fair value of $9.3 million at December 31, 1999. See "- Investment
Activities."  Currently a liquid  secondary  market for  subordinate or residual
certificates  does not exist in Puerto Rico. The value of residual  certificates
is  subject to  substantial  fluctuations  as a result of changes in  prevailing
interest rates.  However,  such residuals often exhibit elasticity and convexity
characteristics which R&G Financial can utilize to hedge other components of its
portfolio.  See "Management's Discussion and Analysis of Financial Condition and
Results of Operation" incorporated by reference in Item 7 hereof.

         While  R&G   Financial's   exchanges  of  mortgage  loans  into  agency
securities  and sales of mortgage  loans are  generally  made on a  non-recourse
basis,  the Company also engages in the sale or exchange of mortgage  loans on a
recourse  basis.  In the  past,  recourse  sales  often  involved  the  sale  of
non-conforming  loans to FNMA,  FHLMC  and  local  financial  institutions.  R&G
Financial  estimates the fair value of the retained  recourse  obligation at the
time mortgage loans are sold. Normally,  the fair value of any retained recourse
is immaterial  because R&G Mortgage's  loss  experience has been minimal.  As of
December 31, 1999, R&G Financial had reserves for possible losses related to its
recourse  obligations of $428,000.  At December 31, 1999, R&G Mortgage had loans
in its servicing  portfolio with provisions for recourse in the principal amount
of  approximately  $646.3  million,  as  compared  to $507.4  million and $374.4
million as of December 31, 1998 and 1997,  respectively.  Of the recourse  loans
existing at December 31, 1999,  approximately $340.2 million in principal amount
consisted  of loans sold to FNMA and FHLMC and  converted  into  mortgage-backed
securities  of such  agencies,  and  approximately  $306.1  million in principal
amount consisted of non-conforming loans sold to other private investors.

         R&G  Mortgage  renders  securitization  services  with  respect  to the
pooling of some of the Bank's  mortgage loans into  mortgage-backed  securities.
With  respect  to  the  securitization   services  rendered,  the  Bank  pays  a
securitization  fee of 25  basis  points.  In  addition,  the  Bank  acts as the
custodial  agent  for R&G  Mortgage  of  certain  documentation  related  to the
issuance  by R&G  Mortgage  of GNMA or FHLMC  mortgage-backed  certificates.  In
consideration  of these  services,  the Bank  receives an annual fee of $5.0 for
each mortgage note included in a  mortgage-backed  certificate for which it acts
as custodian.  See "- Regulation - R&G Financial - Limitations  on  Transactions
with Affiliates."

         Loan Servicing.  R&G Financial  acquires  servicing  rights through its
mortgage loan  originations  (including  originations on behalf of the Bank) and
purchases  from third  parties.  The  Company  generally  retains  the rights to
service mortgage loans sold, which it has originated or purchased,  and receives
the related  servicing fees. Loan servicing  includes  collecting  principal and
interest  and  remitting  the  same to the  holders  of the  mortgage  loans  or
mortgage-backed  securities to which such mortgage loan relates,  holding escrow
funds for the payment of real estate taxes and  insurance  premiums,  contacting
delinquent  borrowers,  supervising  foreclosures  in the  event  of  unremedied
defaults and generally administering the loans. The Company receives annual loan
servicing  fees  ranging  from  0.25%  to  0.50%  of the  declining  outstanding
principal balance of the loans serviced plus any late charges.  In general,  the
Company's servicing agreements are terminable

                                       10

<PAGE>

by the investor for cause without  penalty or after payment of a termination fee
ranging  from 0.5% to 1.0% of the  outstanding  principal  balance  of the loans
being serviced.

         R&G Financial's  servicing  portfolio has grown  significantly over the
past several years.  At December 31, 1999, R&G Financial's  servicing  portfolio
totaled $6.2 billion and  consisted of a total of 107,302  loans.  These amounts
include  R&G   Mortgage's   servicing   portfolio   totaling  $5.7  billion  and
Continental's  servicing portfolio totaling $486.2 million at December 31, 1999.
At December 31, 1999, R&G Financial's  servicing portfolio included $1.1 billion
of  loans  serviced  for the Bank or 17.3%  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.  Most of R&G Financial's
mortgage  servicing  portfolio is comprised of mortgages  secured by real estate
located in Puerto Rico.

         The Bank sells to R&G  Mortgage the  servicing  rights to all first and
second mortgage loans secured by residential properties which become part of the
Bank's loan portfolio.  R&G Mortgage services all other loans held in the Bank's
loan portfolio (including  single-family  residential loans retained by the Bank
and certain  commercial  real estate  loans),  although  R&G  Mortgage  does not
actually  acquire such servicing  rights.  The Bank pays R&G Mortgage  servicing
fees with  respect to the loans  serviced by R&G Mortgage on behalf of the Bank.
In addition, the Bank processes payments of all loans originated by R&G Mortgage
on behalf of the Bank. In connection therewith, R&G Mortgage pays the Bank a fee
equal to between  $0.50 and $1.00 per loan.  See "- Regulation - R&G Financial -
Limitations on Transactions with Affiliates."

         R&G  Financial's  mortgage  loan  servicing  portfolio  is  subject  to
reduction  by reason of normal  amortization,  prepayments  and  foreclosure  of
outstanding mortgage loans.  Additionally,  R&G Financial may sell mortgage loan
servicing rights from time to time.

                                       11

<PAGE>

         The following table sets forth certain information  regarding the total
loan servicing portfolio of R&G Financial for the periods indicated.
<TABLE>
<CAPTION>

                                                                                  Year Ended December 31,
                                                                      ---------------------------------------------------

                                                                        1999                1998                1997
                                                                      ---------------------------------------------------
                                                                               (Dollars in Thousands)
<S>                                    <C>                            <C>                 <C>                <C>
Composition of Servicing Portfolio at End of
Period:
  Conventional and other mortgage loans(1).................           $3,095,920          $2,105,290         $ 1,148,739
  FHA/VA loans.............................................            3,081,590           2,722,508           1,852,149
                                                                       ---------           ---------           ---------
    Total servicing portfolio(2)...........................           $6,177,511          $4,827,798         $ 3,000,888
                                                                       =========           =========           =========
Activity in the Servicing Portfolio:
  Beginning servicing portfolio............................           $4,827,798          $3,000,888         $ 2,550,169
  Add: Loan originations and purchases.....................            1,610,945           1,237,415             762,496
         Servicing of portfolio loans acquired(3)..........              552,235           1,109,825               5,301
  Less: Sale of servicing rights(4)........................               55,515                   -                   -
         Run-offs(5).......................................              757,952             520,330             317,078
                                                                      ----------          ----------          ----------
  Ending servicing portfolio...............................           $6,177,511          $4,827,798         $ 3,000,888
                                                                       =========           =========           =========
  Number of loans serviced(6)..............................              107,302              95,946              56,442
  Average loan size(6).....................................           $       58          $       50         $        53
  Average servicing fee rate(6)............................                    0.530%              0.510%              0.532%
</TABLE>

---------------------
(1)      Includes non-conforming loans.

(2)      At the dates shown,  included $1.1 billion,  $754.6  million and $448.9
         million of loans serviced for the Bank, respectively, which constituted
         17.3%, 15.6% and 15.0% of the total servicing portfolio, respectively.

(3)      Includes $496.5 million related to the servicing  portfolio acquired as
         part of the Company's acquisition of Continental in October 1999, and a
         $1.1  billion  servicing  portfolio  acquired  from  another  financial
         institution in Puerto Rico in November 1998 comprised of  approximately
         32,400 loans.

(4)      Corresponds to loans sold, servicing released, by Continental.

(5)      Run-off  refers  to  regular  amortization  of loans,  prepayments  and
         foreclosures.  Includes transfers in 1998 and 1997 of $67.7 million and
         $49.0   million,   respectively,   of  mortgage   loans  to   financial
         institutions  who acquired  certain  commercial  banks whose loans were
         being serviced by R&G Mortgage.


                                       12

<PAGE>

(6)      At December 31, 1999,  R&G Mortgage was servicing  13,449 loans for the
         Bank with an  average  loan  size of  approximately  $79,000  and at an
         average  servicing  rate of  0.225%.  Amounts  include  late and  other
         miscellaneous charges.

         The following table sets forth certain information at December 31, 1999
regarding the number of, and aggregate  principal balance of, the mortgage loans
serviced by R&G Financial for the Bank and for third parties at various mortgage
interest rates.
<TABLE>
<CAPTION>

                                                                        At December 31, 1999
                            --------------------------------------------------------------------------------------------------------

                                     Loans Serviced                       Loans Serviced                        Total Loans
                                      for the Bank                       for Third Parties                        Serviced
                            --------------------------------   -----------------------------------   -------------------------------

                            Number of          Aggregate          Number of          Aggregate        Number of       Aggregate
                              Loans        Principal Balance        Loans        Principal Balance      Loans     Principal Balance
                            -----------  --------------------  --------------  --------------------  ------------ ------------------
                                 (Dollars in Thousands)                (Dollars in Thousands)            (Dollars in Thousands)
<S>                           <C>              <C>                <C>                <C>             <C>                <C>

Mortgage Interest Rate
Less than 7.00%............      388              43,155          10,233               726,734        10,621              769,889
7.00% - 7.49%..............    3,844             340,595          19,194             1,179,857        23,038            1,520,452
7.50% - 7.99%..............    4,415             371,811          22,184             1,441,225        26,599            1,813,036
8.00% - 8.49%..............    2,271             183,546          14,541               807,272        16,812              990,818
8.50% - 8.99%..............    1,792             116,873          13,155               516,080        14,947              632,953
9.00% - 9.49%..............      296              15,103           4,850               149,408         5,146              164,511
9.50% - 9.99%..............      393              14,921           4,173               105,821         4,566              120,742
10.00% - 10.49%............      124               4,067           1,700                49,008         1,824               53,075
10.50% - 10.99%............      193               4,930           1,009                26,768         1,202               31,698
11.00% or more.............      179               5,296           2,368                75,041         2,547               80,337
                             -------           ---------         -------            ----------       -------            ---------
                              13,895           1,100,297          93,407             5,077,214       107,302            6,177,511
                              ======           =========          ======             =========       =======            =========
</TABLE>

         The amount of principal  prepayments  on mortgage loans serviced by R&G
Financial  was $162.6  million,  $96.5  million and $87.2  million for the years
ended  December  31,  1999,  1998  and  1997,  respectively.   This  represented
approximately  2.6%, 2.6% and 2.9% of the aggregate principal amount of mortgage
loans  serviced  during such periods.  The primary means used by R&G Mortgage to
reduce the  sensitivity  of its  servicing fee income to changes in interest and
prepayment rates is the development of a strong internal origination  capability
that has allowed R&G Financial to continue to increase the size of its servicing
portfolio even in times of high prepayments.

         Servicing   agreements  relating  to  the  mortgage-backed   securities
programs of FNMA,  FHLMC and GNMA,  and  certain  other  investors,  require R&G
Financial to advance funds to make  scheduled  payments of principal,  interest,
taxes and insurance, if such payments have not been received from the borrowers.
During the years ended  December 31, 1999,  1998 and 1997,  the monthly  average

<PAGE>

amount of funds advanced by R&G Financial  under such  servicing  agreements was
$5.5 million, $2.3 million and $1.6 million, respectively. Funds advanced by R&G
Financial  pursuant  to  these  arrangements  are  generally  recovered  by  R&G
Financial within 30 days.

         In connection with its loan servicing  activities,  R&G Financial holds
escrow funds for the payment of real estate taxes and  insurance  premiums  with
respect to the mortgage loans it services.

                                       13

<PAGE>

At December 31, 1999,  R&G Financial  held $109.2  million of such escrow funds,
$92.4  million of which were  deposited  in the Bank and $16.8  million of which
were deposited with other  financial  institutions.  The escrow funds  deposited
with the Bank lower its overall cost of funds and is a means of  compensating it
for processing mortgages checks received by R&G Mortgage, while the escrow funds
deposited with other  financial  institutions  serve as part of R&G  Financial's
compensating  balances  which  permit  the  Company  to borrow  funds  from such
institutions  (pursuant to certain  warehouse lines of credit) at rates that are
lower than would otherwise apply. See "- Sources of Funds - Borrowings."

         The degree of risk associated with a mortgage loan servicing  portfolio
is  largely  dependent  on the  extent  to  which  the  servicing  portfolio  is
non-recourse or recourse. In non-recourse  servicing,  the principal credit risk
to the  servicer  is the  cost of  temporary  advances  of  funds.  In  recourse
servicing,  the  servicer  agrees  to share  credit  risk  with the owner of the
mortgage loans such as FNMA or FHLMC or with an insurer or guarantor.  Losses on
recourse  servicing  occur  primarily  when  foreclosure  sale  proceeds  of the
property  underlying  a defaulted  mortgage  are less than the then  outstanding
principal  balance and accrued  interest of such  mortgage  loan and the cost of
holding and disposing of such  underlying  property.  At December 31, 1999,  R&G
Financial was servicing  mortgage  loans with an aggregate  principal  amount of
$646.3 million on a recourse basis. During the last three years, losses incurred
due to recourse servicing have not been significant.

         R&G  Financial's  general  strategy is to retain the  servicing  rights
related to the mortgage loans it originates and purchases.  Nevertheless,  there
is a market in Puerto Rico for servicing  rights,  which are generally valued in
relation to the present  value of the expected  income  stream  generated by the
servicing  rights.  Among the factors  which  influence the value of a servicing
portfolio are  servicing fee rates,  loan  balances,  loan types,  loan interest
rates,  the expected  average life of the underlying loans (which may be reduced
through  foreclosure or prepayment),  the value of escrow balances,  delinquency
and foreclosure  experience,  servicing costs,  servicing  termination rights of
permanent  investors  and any recourse  provisions.  Although the Company may on
occasion  consider  future  sales  of a  portion  of  its  servicing  portfolio,
management does not anticipate sales of servicing rights to become a significant
part of its operations.

         The market value of, and earnings from, R&G  Financial's  mortgage loan
servicing portfolio may be adversely affected if mortgage interest rates decline
and mortgage loan prepayments  increase. In a period of declining interest rates
and accelerated  prepayments,  income generated from the Company's mortgage loan
servicing  portfolio may also decline.  Conversely,  as mortgage  interest rates
increase,  the market value of the Company's  mortgage loan servicing  portfolio
may be positively affected.  See Note 1 to R&G Financial's Notes to Consolidated
Financial  Statements  for a  discussion  of SFAS No. 125 and the  treatment  of
servicing rights, incorporated by reference into Item 8 hereof.


                                       14

<PAGE>

         Mortgage Loan Delinquencies and Foreclosures. The following table shows
the delinquency  statistics for R&G Mortgage's  servicing portfolio at the dates
indicated.
<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                       --------------------------------------------------------------------------------------

                                                  1999                        1998                          1997
                                       --------------------------------------------------------------------------------------
                                                                                                                 Percent of
                                                      Percent of                   Percent of                    Servicing
                                         Number of    Servicing      Number of      Servicing      Number of     Portfolio
                                           Loans      Portfolio        Loans        Portfolio        Loans
                                       --------------------------------------------------------------------------------------
<S>                                        <C>           <C>            <C>            <C>            <C>            <C>
Loans delinquent for:
  30-59 days..........................     5,334         4.97%          6,276          6.54%          2,531          4.48%
  60-89 days..........................     1,559         1.45           1,545          1.61             572          1.01
  90 days or more.....................     2,109         1.97           1,696          1.77             778          1.38
                                           -----         ----           -----          ----           -----          ----
    Total delinquencies(1)............     9,002         8.39%          9,517          9.92%          3,881          6.87%
                                           =====         ====           =====          ====           =====          ====
Foreclosures pending(2)...............     1,262         1.18%            993          1.03%            681          1.21%
                                           -----         ----          ======          ====           =====          ====
</TABLE>
-------------------------

(1)      Includes  at December  31,  1999,  an  aggregate  of $101.1  million of
         delinquent loans serviced by R&G Mortgage for the Bank, or 1.64% of the
         total servicing  portfolio and $8.8 million of delinquent loans held in
         R&G Mortgage's own portfolio.

(2)      At  December  31,  1999,  the Bank had  foreclosures  pending  on $22.8
         million of loans being  serviced  by R&G  Mortgage,  which  constituted
         0.37% of the servicing portfolio. R&G Mortgage had foreclosures pending
         on $3.9  million  of loans it is  servicing  for its own  portfolio  at
         December 31, 1999.


         While delinquency rates in Puerto Rico are generally higher than in the
mainland  United States,  these rates are not  necessarily  indicative of future
foreclosure  rates or losses on  foreclosures.  Real estate owned as a result of
foreclosures  ("REO") related to R&G Mortgage's  mortgage banking business arise
primarily  through  foreclosure  on mortgage  loans  repurchased  from investors
either  because  of breach of  representations  or  warranties  or  pursuant  to
recourse arrangements. As of December 31, 1999, 1998 and 1997, R&G Mortgage held
REO  with a  book  value  of  approximately  $128,000,  $128,000  and  $165,000,
respectively.  Sales  of REO  resulted  in gains to R&G  Mortgage  of  $209,000,
$26,000 and  $145,000  for the years ended  December  31,  1999,  1998 and 1997,
respectively. There is no liquid secondary market for the sale of R&G Mortgage's
REO.

         With respect to mortgage loans securitized  through GNMA programs,  the
Company is fully  insured as to principal by the FHA and VA against  foreclosure
loans. As a result of these  programs,  foreclosure on these loans had generated
no loss of  principal as of December 31, 1999.  R&G  Mortgage,  however,  incurs
about $3,000 per loan  foreclosed in interest and legal charges  during the time

<PAGE>

between payment by R&G Mortgage and FHA or VA reimbursement. For the years ended
December  31, 1999,  1998 and 1997,  total  expenses  related to FHA or VA loans
foreclosed amounted to $35,000,  $286,000 and $189,000,  respectively.  Although
FNMA and FHLMC are obligated to reimburse the Company for principal and interest
payments advanced by the Company as a servicer

                                       15

<PAGE>

(except  for  recourse  servicing),  the funding of  delinquent  payments or the
exercise of  foreclosure  rights  involves costs to the Company which may not be
recouped. Such nonrecouped expenses have to date been immaterial.

         Any  significant  adverse  economic  developments  in Puerto Rico could
result in an increase in defaults or  delinquencies  on mortgage  loans that are
serviced by R&G Mortgage or held by R&G Mortgage  pending sale in the  secondary
mortgage market, thereby reducing the resale value of such mortgage loans.

         Puerto Rico Secondary  Mortgage Market and Favorable Tax Treatment.  In
general,  the Puerto Rico market for mortgage-backed  securities is an extension
of the United  States market with respect to pricing,  rating of the  investment
instruments,  and other matters. However, United States and Puerto Rico tax laws
provide an  economic  incentive  for  Puerto  Rico  residents  and  Section  936
Corporations   (defined   below)  to  invest  in  certain   mortgage  loans  and
mortgage-backed securities originated in Puerto Rico, including FHA and VA loans
and GNMA  certificates,  thereby tending to increase the secondary market demand
for,  and  the  resale  value  of,  such  mortgage  loans  and   mortgage-backed
securities.  These tax advantages  also  favorably  affect R&G  Financial's  net
interest income by helping create a pool of lower-cost  funds that R&G Financial
can access through financial intermediaries such as banks and broker-dealers and
use to fund mortgage loans and mortgage-backed securities pending sale.

         Under various Puerto Rico industrial  incentives acts (the  "Industrial
Incentives Acts"),  certain investment income earned by qualified  manufacturing
entities  or  service  enterprises  that  have  grants of tax  exemption  issued
thereunder  ("Exempt  Companies"),  is  exempt  from  Puerto  Rico  income  tax.
Investment income that qualifies for this exemption includes interest on certain
mortgage  loans and interest on funds of Exempt  Companies  ("936 Funds") placed
with  eligible   institutions  in  Puerto  Rico  (primarily   savings  and  loan
associations,  commercial  banks and registered  broker-dealers),  provided such
funds  are  invested  in  certain  "eligible   activities"  in  accordance  with
regulations  promulgated  by the  OCFI,  including  certain  mortgage  loans and
mortgage-backed  securities. The Industrial Incentives Acts encourage investment
in  Puerto  Rico  by  allowing  Exempt  Companies  subject  to tax  on  dividend
distributions to reduce the otherwise applicable dividend withholding tax of 10%
(the "Tollgate Tax") on  distributions to shareholders by investing their exempt
industrial  development income ("IDI") in Puerto Rico for fixed periods of time,
generally from five years to ten years.

         An Industrial  Incentive  Act was approved by the  Government of Puerto
Rico effective  January 1, 1998: the Tax Incentive Act of 1998 (the "1998 TIA").
Grants issued under the 1998 TIA provide for a flat rate of tax on the operating
income of Exempt  Companies.  The same types of investment income that qualified
for exemption  under the  Industrial  Incentive  Acts will continue to be exempt
under the 1998 TIA.  Because  grantees of tax exemption  under the 1998 TIA will
not be subject to  Tollgate  Taxes,  they will not have an  incentive  to invest
their IDI in  qualifying  investments  in Puerto  Rico,  as  grantees  under the
Industrial  Incentive Acts presently do in order to reduce their Tollgate Taxes.
It should be noted,  however, that Exempt Companies currently operating pursuant
to grants issued under the  Industrial  Incentives  Acts  generally  will not be
affected by the provisions of the 1998 TIA.  Although such Exempt  Companies may
renegotiate  their  grants under the 1998 TIA, an amount of IDI equal to the IDI
derived in the taxable year preceding the

                                       16

<PAGE>

change to the 1998 TIA (or,  if greater,  the  average  annual IDI by taking the
three years, out of the previous five years,  where the highest amount of IDI is
derived) will continue to be subject to the tax  treatment,  including  Tollgate
Taxes,  provided  in the  Industrial  Incentive  Act under which their grant was
originally issued.

         Most Exempt Companies are United States  corporations  which operate in
Puerto  Rico  under  Section  936 of the Code.  Corporations  that meet  certain
requirements and elect the benefits of Section 936 ("Section 936  Corporations")
are  entitled to credit  against  their  United  States  corporate  income tax a
portion of such tax  attributable  to income  derived from  sources  outside the
United States from the active conduct of a trade or business  within Puerto Rico
or from the sale or  exchange  of  substantially  all assets  used in the active
conduct of such trade or business ("Active Business Income").

         The tax  credit  available  under  Section  936 (the "936  Credit")  is
limited by the amount of credit allowed with respect to Active  Business  Income
under one of two  alternatives  to be  selected  at the option of the  taxpayer.
Under the first  alternative,  the limit is equal to a fixed  percentage  of the
amount of tax credit allowable under prior law (the "Fixed Percentage  Method").
This fixed  percentage  commenced at 60% for taxable years beginning in 1994 and
was reduced by 5% per year until 1998.  For taxable years  beginning on or after
January 1, 1998,  such  percentage  is 40%.  Under the second  alternative  (the
"Economic Activity  Method"),  which is based on the amount of economic activity
conducted by the  taxpayer in Puerto Rico,  the credit may not exceed the sum of
the following three  components:  (i) 60% of the qualified  possession wages and
the allocable fringe benefits paid by the taxpayer,  (ii) applicable percentages
of certain  depreciation  deductions  claimed for  regular  tax  purposes by the
taxpayer with respect to qualified  tangible property and (iii) a portion of the
possession  income taxes paid by the taxpayer except where the taxpayer uses the
profit-split method for determining its income.

         The SBJPA repealed  Section 936, but provided  grandfather  rules under
which a Section 936 Corporation that had elected the benefits of the Section 936
Credit and which was engaged in active trade or business  within  Puerto Rico on
October 13,  1995 (an  "Existing  Claimant")  would be eligible to claim the 936
Credit  attributable  to Active Business  Income during a transition  period.  A
corporation  may also  qualify as an Existing  Claimant  if it acquires  all the
assets of a trade or business of a  corporation  that meets the active  trade or
business requirement and the election requirement is satisfied.

         The  amount  and  computation  method  of the  936  Credit  during  the
transition  period  depends upon whether a Section 936  Corporation is using the
Economic  Activity  Method  or  the  Fixed  Percentage  Method.  A  Section  936
Corporation that is an Existing  Claimant and uses the Economic  Activity Method
may continue to determine its 936 Credit  attributable to Active Business Income
as under present law for taxable  years  beginning  after  December 31, 1995 and
before January 1, 2002. For taxable years  beginning after December 31, 2001 and
before  January 1, 2006,  a Section 936  Corporation's  Active  Business  Income
eligible for the 936 Credit is subject to a cap,  described below. A Section 936
Corporation  that is an  Existing  Claimant  and is using the  Fixed  Percentage
Method may continue to determine its 936 Credit  attributable to Active Business
Income under the existing rules for taxable years  beginning  after December 31,
1995 and before January 1, 1998. For taxable years  beginning after December 31,
1997 and before January 1, 2006, the Section 936

                                       17

<PAGE>

Corporation's Active Business Income that is eligible for the 936 Credit is also
subject to a cap. For taxable years  beginning  after December 31, 2005, the 936
Credit attributable to Active Business Income is scheduled to expire.

         Under the cap rules for both the Economic Activity Method and the Fixed
Percentage  Method,  the  income  eligible  for the 936 Credit is limited to the
"adjusted base period income" of the Section 936 Corporation. Computation of the
"adjusted  base  period  income"  involves  three  steps:  (i) the  Section  936
Corporation base period years are determined (which are, generally, three of the
Section 936 Corporation's five most recent years ending before October 14, 1995,
determined  by  disregarding   the  taxable  years  in  which  the  Section  936
Corporation's  Active  Business  Income was the  highest and the  lowest);  (ii)
Active Business Income of the Section 936 Corporation in each of the base period
years is adjusted for inflation;  and (iii) the income in the base period years,
as adjusted for inflation, is averaged.

         In response to certain  proposals put forth by the Government of Puerto
Rico (the "Puerto Rico  Government  Proposals"),  the SBJPA added Section 30A to
the Code  ("Section  30A").  The Puerto  Rico  Government  Proposals  included a
ten-year  grandfather  period for the  existing 936 Credit and the creation of a
new  tax  credit  for  qualifying  corporations  that  invest  in  "economically
developing  jurisdictions."  Section  30A  incorporates  in part the Puerto Rico
Government  Proposals  and  provides  for  an  income  tax  credit  to  domestic
corporations   operating  in  Puerto  Rico.  This  credit  is  determined  under
guidelines similar to the Economic Activity Method.

         In the absence of the 936 Credit and as a means of  continuing to defer
U.S. income taxation,  subsidiaries of multi-national  companies operating under
Section 936 of the Code may transfer their operations to a corporation organized
under  Puerto  Rico law,  or under  the laws of  foreign  countries.  Generally,
non-U.S.  source  earnings of a non-U.S.  corporation  are not subject to United
States  income  taxes  until  dividends  are  repatriated  to  a  United  States
shareholder.   Under  Section  954  of  the  Code,   foreign   subsidiaries   of
multi-national  companies  whose parent  corporation is incorporated in the U.S.
are not  subject  to  federal  income  tax on  profits  on  products  which they
manufacture.  Though  a  Puerto  Rico  corporation,  or  a  foreign  corporation
operating  in Puerto Rico,  is subject to local Puerto Rico taxes,  the benefits
under  the  Industrial  Incentives  Acts  and the 1998  TIA for  companies  that
manufacture or provide  services in Puerto Rico, would continue to be available.
In  addition,  under  Section  901 and 902 of the Code and  subject  to  certain
limitations and exceptions, U.S. shareholders of a Puerto Rico or other non-U.S.
corporation  would be allowed  to claim a foreign  tax  credit  with  respect to
income tax paid in Puerto Rico. United States shareholders are also not required
to recognize income attributable to manufacturing operations of a Puerto Rico or
other  non-U.S.  corporation  as a  general  rule  under  Subpart F of the Code.
However,  under  Section  367 of the Code,  multi-national  corporations  may be
required to recognize income upon the transfer of operations to a Puerto Rico or
other non-U.S. corporation,  depending upon the nature and value of the property
transferred. Several multi-national 936 Corporations have taken such steps since
the  legislation  with respect to Section 936 was first  introduced  in the U.S.
Congress.

         In July 1997,  the  Government  of Puerto Rico amended the tax law that
provided  Puerto Rico income tax exemption on interest  income  generated by FHA
and VA  loans  secured  by real  estate  property  located  in  Puerto  Rico and
mortgage-backed  securities secured by such mortgage loans ("GNMAs").  Under the
amended law, FHA and VA loans closed prior to August 1, 1997 will

                                       18

<PAGE>

continue  to be  exempt.  The  interest  income  on FHA  and VA  mortgage  loans
originated  on or after  August 1, 1997 for  purposes  other than to finance the
acquisition  of new  housing,  and GNMAs  secured by such  loans,  are no longer
exempt,  and are  taxable  at a  preferential  17% tax rate to  individuals  and
certain  taxpayers  other than  corporations.  FHA and VA loans to  finance  the
purchase of new housing, and GNMAs secured by such loans, continue to be exempt.
Individuals  who are bona fide  residents of Puerto Rico are also not subject to
United States federal  income tax on income from Puerto Rico sources,  including
interest  income  derived from  mortgage  loans  originated in Puerto Rico whose
mortgagors  are residents of Puerto Rico.  The exemption for interest  earned on
qualifying  FHA loans,  VA loans and GNMA  certificates  tends to  increase  the
demand for these  products  and the price R&G  Financial  may obtain  upon their
sale. There can be no assurance that the tax exempt treatment of interest on FHA
and VA loans will not be further reviewed or modified in the future.

         Any  change in  Puerto  Rico's  political  status  could  result in the
elimination or modification of these tax benefits described above.


                   Lending Activities from Banking Operations

         General.  At December 31, 1999, R&G Financial's loans  receivable,  net
totaled $1.6 billion, which represented 53.7% of R&G Financial's $2.9 billion of
total assets.  At December 31, 1999, all but $545,000 of R&G  Financial's  loans
receivable,  net were held by the Bank.  The principal  category of loans in R&G
Financial's portfolio are conventional loans which are secured by first liens on
single-family  residences.  Conventional residential real estate loans are loans
which are  neither  insured by the FHA nor  partially  guaranteed  by the VA. At
December  31,  1999,  all  but  $800,000  of  R&G  Financial's   first  mortgage
single-family  residential  loans  consisted of  conventional  loans.  The other
principal categories of loans in R&G Financial's loans receivable, net portfolio
are  second  mortgage   residential  real  estate  loans,   construction  loans,
commercial real estate loans, commercial business loans and consumer loans.


                                       19

<PAGE>

         Loan  Portfolio  Composition.   The  following  table  sets  forth  the
composition  of R&G  Financial's  loan  portfolio  by type of loan at the  dates
indicated.  Except as noted in the footnotes to the table,  all of the loans are
held in the Bank's loan portfolio.
<TABLE>
<CAPTION>

                                                                          December 31,
                                         -------------------------------------------------------------------------------

                                                   1999                       1998                      1997
                                         ------------------------   -----------------------   ----------------------

                                           Amount        Percent       Amount      Percent       Amount      Percent
                                         ------------  -----------  -----------   ---------   ------------  ---------
                                                                                              (Dollars in Thousands)
<S>                                       <C>               <C>        <C>            <C>        <C>            <C>
Residential real  estate - first
  mortgage(1)............................ $1,099,843       67.75%     $735,795       66.87%     $476,729       61.25%
Residential real estate - second
  mortgage...............................     13,029        0.80        18,634        1.69        17,831        2.29
Retail construction......................     38,950        2.40        23,280        2.12        13,367        1.72
Commercial construction and land
  acquisition............................     78,133        4.81        15,353        1.39         5,785        0.74
Commercial real estate...................    204,155       12.57       117,151       10.65        81,722       10.50
Commercial business......................     54,231        3.34        46,532        4.23        39,128        5.03
Consumer loans:
  Loans secured by deposits..............     20,539        1.27        17,225        1.56        12,472        1.60
  Real estate secured consumer loans.....     76,944        4.74        85,055        7.73        81,252       10.44
  Unsecured consumer loans...............     37,653        2.32        41,381        3.76        50,103        6.43
                                              ------                    ------        ----        ------    --------
    Total loans receivable...............  1,623,477      100.00%    1,100,406      100.00%      778,389      100.00%
                                           ---------      ------     ---------      ------       -------      ------
Less:
  Allowance for loan losses..............   (  8,971)                 (  8,055)                 (  6,772)
  Loans in process.......................    (50,622)                  (18,170)                 (  6,218)
  Deferred loan fees.....................  (     437)                (     166)                      172
  Unearned interest......................  (     440)                (     347)                (     512)
                                           ----------                ----------                ----------
                                             (60,471)                  (26,738)                  (13,330)
                                             --------                  -------                   -------
  Loans receivable, net(2)............... $1,563,007                $1,073,668                  $765,059
                                           =========                 =========                   =======
</TABLE>

<TABLE>
<CAPTION>

                                                                 December 31,
                                             ---------------------------------------------------

                                                    1996                        1995
                                            ----------------------   ---------------------------

                                               Amount      Percent      Amount        Percent
                                            ------------  --------   ------------  -------------

<S>                                          <C>           <C>                          <C>
Residential real  estate - first                                      $282,498
  mortgage(1)............................   $370,876      60.75%                       58.23%
Residential real estate - second
  mortgage...............................     15,757       2.58        14,372           2.96
Retail construction......................      5,351       0.88        15,046           3.10
Commercial construction and land
  acquisition............................      5,700       0.93         5,523           1.14
Commercial real estate...................     69,514      11.39        61,862          12.74
Commercial business......................     31,063       5.09        27,816           5.74
Consumer loans:
  Loans secured by deposits..............      9,409       1.54         7,497           1.55
  Real estate secured consumer loans.....     42,893       7.03        33,381           6.88
  Unsecured consumer loans...............     59,864       9.81        37,180           7.66
                                              ------   --------       -------         ------
    Total loans receivable...............    610,427     100.00%      485,175         100.00%
                                             -------     ------       -------         ------
Less:
  Allowance for loan losses..............     (3,332)                  (3,510)
  Loans in process.......................     (2,430)                  (5,727)
  Deferred loan fees.....................         41                     (266)
  Unearned interest......................    (   955)                  (1,831)
                                                 ---                  -------
                                              (6,676)                 (11,334)
                                               -----                  -------
  Loans receivable, net(2)...............   $603,751                 $473,841
                                             =======                  =======
</TABLE>



(1)      Includes $33.9 million and $49.7 million of  residential  real estate -
         first  mortgage  loans which are held by R&G  Mortgage at December  31,
         1997 and 1996, respectively.

(2)      Does not include mortgage loans held for sale of $77.3 million,  $117.1
         million, $46.9 million, $54.5 million and $21.3 million at December 31,
         1999, 1998, 1997, 1996 and 1995, respectively.



                                       20

<PAGE>

         Contractual  Principal  Repayments  and Interest  Rates.  The following
table sets forth certain  information  at December 31, 1999 regarding the dollar
amount of loans maturing in R&G  Financial's  total loan portfolio  based on the
contractual terms to maturity. Loans having no stated schedule of repayments and
no stated maturity are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                                      Due 1-5 years       Due 5 or more
                                                                          after             years after
                                                 Due 1 year            December 31,         December 31,
                                                  or less                 1999                 1999                 Total(1)
                                                  -------                 ----                 ----                --------
                                                                                 (In Thousands)
<S>                                             <C>                   <C>                   <C>                   <C>
Residential real estate ............            $       57            $    3,638            $1,109,177            $1,112,872
Retail construction ................                38,950                    --                    --                38,950
Commercial real estate(2) ..........                91,208                85,890               105,190               282,288
Commercial business ................                24,428                28,504                 1,298                54,231
Consumer:
  Loans on savings .................                12,627                 7,195                   717                20,539
  Real estate secured consumer loans                   787                 5,986                70,171                76,944
  Unsecured consumer loans .........                 9,187                21,604                 6,862                37,653
                                                ----------            ----------            ----------            ----------
Total(3) ...........................            $  177,245            $  152,817            $1,299,415            $1,623,477
                                                ==========            ==========            ==========            ==========
</TABLE>

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

(1)      Amounts have not been reduced for the allowance for loan losses,  loans
         in process, deferred loan fees or unearned interest.
(2)      Includes $78.1 million of commercial  construction and land acquisition
         loans.
(3)      Does not include mortgage loans held for sale.


                                       21

<PAGE>
         The  following  table sets forth the dollar  amount of total  loans due
after one year from December 31, 1999, as shown in the  preceding  table,  which
have fixed interest rates or which have floating or adjustable interest rates.
<TABLE>
<CAPTION>



                                                                        Floating or
                                                  Fixed rate          adjustable-rate             Total
                                              ------------------  -----------------------   -----------------
                                                                     (In Thousands)
<S>                                              <C>               <C>                         <C>
Residential real estate...................       $1,112,872        $          --               $1,112,872
Retail Construction.......................           38,950                   --                   38,950
Commercial real estate(1).................           87,282              195,006                  282,288
Commercial business.......................           37,280               16,951                   54,231
Consumer:
  Loans on savings........................           20,539                   --                   20,539
  Real estate secured consumer loans......           76,944                   --                   76,944
  Unsecured consumer loans................           37,653                   --                   37,653
                                                 ----------           ----------               ----------
   Total..................................       $1,411,520             $211,957               $1,623,477
                                                  =========              =======                =========
</TABLE>
---------------

(1)      Includes $78.1 million of commercial  construction and land acquisition
         loans.


         Scheduled  contractual  amortization  of  loans  does not  reflect  the
expected term of R&G Financial's  loan  portfolio.  The average life of loans is
substantially less than their contractual terms because of prepayments and, with
respect to  conventional  loans  originated  for the Bank after  February  1994,
due-on-sales  clauses,   which  give  R&G  Financial  the  right  to  declare  a
conventional loan immediately due and payable in the event,  among other things,
that the borrower  sells the real property  subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase when current
mortgage  loan  rates are  higher  than rates on  existing  mortgage  loans and,
conversely,  decrease  when  rates on  existing  mortgage  loans are lower  than
current  mortgage  loan  rates  (due  to  refinancing  of  adjustable-rate   and
fixed-rate loans at lower rates).  Under the latter  circumstance,  the weighted
average  yield on  loans  decreases  as  higher-yielding  loans  are  repaid  or
refinanced at lower rates.

                                       22

<PAGE>

         Origination,  Purchase  and Sales of Loans.  The  following  table sets
forth loan  originations,  purchases and sales from banking  operations  for the
periods indicated.
<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                           ---------------------------------------------------------

                                                                   1999                1998               1997
                                                           ------------------  ------------------  -----------------
                                                                                    (Dollars in Thousands)
<S>                                                              <C>                   <C>                <C>
Loan originations:
Loans originated by R&G Mortgage:
  Residential mortgages................................         $   378,740          $  385,416           $221,451
  Commercial mortgages.................................                  --                 265                555
  Residential construction.............................              26,146              16,766             11,482
  Consumer loans.......................................              32,219              48,155             52,287
    Total loans originated by R&G Mortgage.............             437,105             450,602            285,775
Other loans originated:
  Commercial real estate...............................             175,803              54,426             37,129
  Commercial business..................................              36,222              26,191             15,393
  Construction and development.........................              54,070              11,365                 --
Consumer loans:
  Loans on deposit.....................................              34,758              27,172             19,711
  Real estate secured consumer loans...................                  --                  --                 --
  Unsecured consumer loans.............................              29,631               9,970             16,742
    Total other loans originated.......................             330,484             129,124             88,975
  Loans purchased......................................             279,489             175,735             60,646
    Total loans originated and purchased...............           1,047,078             755,461            435,396
  Loans sold...........................................          (  133,731)           (282,005)          (118,234)
  Loan principal reductions............................          (  253,534)           (142,560)          (134,166)
  Net increase before other items, net.................             659,813             330,896            182,996
  Loans securitized and transferred to
    mortgage-backed securities.........................          (  106,237)                 --                 --
  Net increase in loan portfolio.......................           $ 553,576           $ 330,896           $182,996
</TABLE>


         R&G Financial,  through the Bank,  originates  for both  investment and
sale mortgage  loans secured by residential  real estate  (secured by both first
and second mortgage liens) as well as construction  loans (for  residential real
estate),  commercial real estate loans,  commercial  business loans and consumer
loans.

         R&G Mortgage  assists the Bank in meeting its loan  production  targets
and goals by, among other things,  (i)  advertising,  promoting and marketing to
the general public; (ii) interviewing  prospective  borrowers and conducting the
initial  processing  of the requisite  loan  applications,  consistent  with the
Bank's  underwriting  guidelines;  and (iii) providing  personnel and facilities
with  respect to the  execution  of loan  agreements  approved by the Bank.  R&G
Mortgage performs the foregoing loan origination  services on behalf of the Bank
with respect to residential mortgage loans,

                                       23

<PAGE>

some commercial real estate loans and construction  loans. R&G Mortgage receives
from the Bank 75% of the applicable  loan  origination fee with respect to loans
originated  by R&G  Mortgage  on  behalf  of the Bank.  During  the years  ended
December 31, 1999,  1998 and 1997,  R&G Mortgage  received  $7.5  million,  $7.5
million and $5.2 million, respectively, of loan origination fees with respect to
loans  originated  by R&G  Mortgage  on  behalf  of the  Bank.  These  fees  are
eliminated  in   consolidation   in  R&G  Financial's   Consolidated   Financial
Statements. See "- Regulation - R&G Financial - Limitations on Transactions with
Affiliates."

         The Bank  originates  commercial real estate,  commercial  business and
consumer loans. Applications for commercial real estate, commercial business and
unsecured  consumer  loans are taken at all of the Bank's branch offices and may
be approved by various lending  officers of the Bank within  designated  limits,
which are  established and modified from time to time to reflect an individual's
expertise  and  experience.  All loans in excess of an  individual's  designated
limits are referred to an officer with the requisite authority. In addition, the
Management  Credit  Committee is  authorized  to approve all loans not exceeding
$2.5  million,  and  the  Executive  Committee  of the  Board  of  Directors  is
authorized to approve all loans exceeding $2.5 million.  All loans originated or
purchased by the Bank must be approved by one of the three  committees set forth
above.  Management of the Bank believes that its relatively centralized approach
to  approving  loan   applications   ensures  strict  adherence  to  the  Bank's
underwriting   guidelines   while  still  allowing  the  Bank  to  approve  loan
applications on a timely basis.

         The Bank also  purchases  conventional  loans secured by first liens on
single-family  residential  real estate from unrelated  financial  institutions.
Such loan purchases are underwritten by the Bank pursuant to the same guidelines
as direct loan  originations.  Loans purchased by the Bank are from time to time
securitized  by R&G  Mortgage  and sold by the  Bank.  During  the  years  ended
December 31, 1999,  1998 and 1997, the Bank  purchased  $279.5  million,  $175.7
million and $60.6 million of loans, respectively.

         During the years ended  December  31, 1999,  1998 and 1997,  loans sold
from banking operations were $133.7 million,  $282.0 million and $118.2 million.
These  loans,  which  were  primarily   nonconforming   loans  at  the  time  of
origination,   were   generally   sold  in  packages  in  privately   negotiated
transactions with FNMA and FHLMC.

         The Bank sells to R&G  Mortgage the  servicing  rights to all first and
second mortgage loans secured by residential properties which are or will become
part of the Bank's loan  portfolio  once the Bank has a  commitment  to sell the
loans.  R&G  Mortgage  services  all other  loans held in the  Bank's  portfolio
(including single-family residential loans retained by the Bank, commercial real
estate,  commercial  business and consumer loans (although R&G Mortgage does not
actually  acquire  such  servicing  rights)).  In addition,  the Bank  processes
payments on all loans  serviced by R&G Mortgage on behalf of the Bank.  Finally,
R&G Mortgage renders securitization services with respect to the pooling of some
of the Bank's mortgage loans into  mortgage-backed  securities.  See "- Mortgage
Banking Activities."
                                       24

<PAGE>

         At December 31,1999, R&G Financial's five largest loans-to-one borrower
and their related  entities  amounted to $17.2  million,  $14.0  million,  $12.7
million, $9.6 million and $9.0 million, all of which were performing.

         Single-Family  Residential Real Estate Loans. The Bank has historically
concentrated its lending activities on the origination of loans secured by first
mortgage liens on existing single-family  residences. At December 31, 1999, $1.1
billion or 67.8% of R&G Financial's total loans held for investment consisted of
such loans,  of which all but $800,000  consisted  of  conventional  loans.  The
Bank's first mortgage  single-family  residential  loans consist  exclusively of
fixed-rate  loans with terms of between 15 and 30 years.  As  evidenced  by this
statistic, the Puerto Rico residential mortgage market has not been receptive to
long-term adjustable rate mortgage loans.

         The Bank's first mortgage single-family  residential loans typically do
not exceed 80% of the  appraised  value of the  security  property.  Pursuant to
underwriting guidelines adopted by the Board of Directors,  the Bank can lend up
to 95%  of the  appraised  value  of the  property  securing  a  first  mortgage
single-family  residential  loan  provided  the Bank  obtains  private  mortgage
insurance with respect to the top 25% of the loan.

         The  Bank  also  originates   loans  secured  by  second  mortgages  on
single-family  residential  properties.  At December 31, 1999,  $13.0 million or
0.8% of R&G  Financial's  total loans held for  investment  consisted  of second
mortgage loans on  single-family  residential  properties.  The Bank offers such
second  mortgage  loans in  amounts up to  $125,000  for a term not to exceed 15
years. The loan-to-value  ratio of second mortgage loans generally is limited to
75% of the property's appraised value (including the first mortgage).

         Construction  Loans.  The Bank has been active in originating  loans to
construct  single-family  residences.   These  construction  lending  activities
generally are conducted  throughout Puerto Rico, although loans are concentrated
in areas contiguous to Bank branches.  At December 31, 1999, retail construction
("spot") loans amounted to $39.0 million or 2.4% of R&G Financial's  total loans
held for investment,  while commercial  construction and land acquisition  loans
amounted to $78.1 million or 4.8% of total loans held for investment.

         The Bank offers  construction  loans to  individual  borrowers  for the
purpose  of  constructing  single-family  residences.  Substantially  all of the
Bank's    construction    lending   to    individuals   is   originated   on   a
construction/permanent  mortgage  loan basis.  Construction/permanent  loans are
made to individuals who hold a contract with a general contractor  acceptable to
the Bank to construct their personal  residence.  The construction  phase of the
loan  provides  for monthly  payments on an interest  only basis at a designated
fixed rate for the term of the  construction  period,  which  generally does not
exceed nine months. Thereafter, the permanent loan is made at then market rates,
provided  that such rate  shall not be more  than 2%  greater  than the  interim
construction  rate. R&G Mortgage's  construction  loan  department  approves the
proposed contractors and administers the loan during the construction phase. The
Bank's  construction/permanent  loan  program  has  been  successful  due to its
ability to offer borrowers a single closing and, consequently, reduced costs. At
December 31, 1999,

                                       25

<PAGE>

the Bank's construction loan portfolio included 381 construction/permanent loans
with an aggregate principal balance of $39.0 million.

         The Bank also  originates  construction  loans to developers to develop
single family residential properties. The Bank has organized a Construction Loan
Department to work primarily with real estate developers.  At December 31, 1999,
the  Bank  had  7  residential   construction   loans   outstanding  to  develop
single-family  residences with an aggregate  principal balance of $15.3 million.
Commitments for future funding approximate $34.2 million. In addition,  the Bank
had 9 loans to develop commercial properties with an aggregate principal balance
of $19.1  million.  The loans are  performing in accordance  with their terms at
December 31, 1999.

         In addition to the  foregoing,  at December 31,  1999,  the Bank had 11
land acquisition  loans with  outstanding  balances ranging from $26,000 to $3.0
million, and an aggregate balance of $9.5 million, which were made in connection
with projects to construct single-family residences.  The Bank and the financial
institution  which  made the  interim  construction  loan have  entered  into an
agreement  pursuant to which the Bank is to be paid a percentage of the proceeds
from each home as it is released upon construction and sale. The Bank expects to
make the permanent  construction  loan on some of these projects.  The Bank does
not expect to be active in this business.

         The  Bank   intends  to  continue  to  increase  its   involvement   in
single-family  residential  construction lending. Such loans afford the Bank the
opportunity  to increase the interest rate  sensitivity  of its loan  portfolio.
Construction  lending is generally  considered to involve a higher level of risk
as  compared  to  permanent  single-family   residential  lending,  due  to  the
concentration  of principal in a limited  number of loans and  borrowers and the
effects of general economic  conditions on real estate  developers and managers.
Moreover,  a  construction  loan can  involve  additional  risks  because of the
inherent  difficulty in estimating both a property's  value at completion of the
project and the estimated costs (including  interest) of the project. The nature
of these loans is such that they are  generally  more  difficult to evaluate and
monitor.  The Bank has taken steps to minimize  the  foregoing  risks by,  among
other  things,  limiting  its  construction  lending  primarily  to  residential
properties.  In addition,  the Bank has adopted  underwriting  guidelines  which
impose stringent  loan-to-value  (80% with respect to single-family  residential
real estate),  debt service and other  requirements for loans which are believed
to involve higher elements of credit risk and by working with builders with whom
it has established  relationships  or knowledge  thereof.  At December 31, 1999,
$478,000 of the Bank's construction loans were classified as non-performing.

         Commercial Real Estate Loans.  The Bank also originates  mortgage loans
secured by commercial real estate. At December 31, 1999, $204.2 million or 12.6%
of R&G Financial's  total loans held for investment  consisted of such loans. As
of such date,  the Bank's  commercial  real estate loan  portfolio  consisted of
approximately  1,025 loans with an average  principal  balance of  $199,000.  At
December 31, 1999, $9.0 million of the Bank's  commercial real estate loans were
classified as nonperforming.

                                       26

<PAGE>

         Commercial  real  estate  loans  originated  by the Bank are  primarily
secured by office  buildings,  retail  stores,  warehouses  and general  purpose
industrial  space.  Although terms vary,  commercial real estate loans generally
are  amortized  over a period of 7-15 years and have  maturity  dates of five to
seven  years.  The Bank will  originate  these loans with  interest  rates which
adjust monthly in accordance with a designated  prime rate plus a margin,  which
generally is negotiated at the time of origination. Such loans will have a floor
but no ceiling on the amount by which the rate of  interest  may adjust over the
loan term.  Loan-to-value  ratios on the Bank's commercial real estate loans are
currently  limited to 80% or lower.  As part of the  criteria  for  underwriting
commercial real estate loans, the Bank generally  requires a debt coverage ratio
(the ratio of net cash from  operations  before  payment of debt service to debt
service)  of  1.30 or  more.  It is  also  the  Bank's  general  policy  to seek
additional  protection to mitigate any weaknesses identified in the underwriting
process.  Additional  coverage  may  be  provided  through  mortgage  insurance,
secondary  collateral  and/or  personal  guarantees  from the  principals of the
borrower.

         Commercial real estate lending entails  different and significant risks
when compared to single-family  residential lending because such loans typically
involve  large  loan  balances  to single  borrowers  and  because  the  payment
experience on such loans is typically  dependent on the successful  operation of
the project or the borrower's  business.  These risks can also be  significantly
affected by supply and demand  conditions  in the local  market for  apartments,
offices, warehouses or other commercial space. The Bank attempts to minimize its
risk exposure by limiting the extent of its  commercial  lending  generally.  In
addition, the Bank imposes stringent loan-to-value ratios, requires conservative
debt  coverage  ratios,  and  continually  monitors the  operation  and physical
condition  of the  collateral.  Although  the Bank has  begun  to  increase  its
emphasis  on  commercial  real estate  lending,  management  does not  currently
anticipate  that its  portfolio  of  commercial  real  estate  loans  will  grow
significantly as a percentage of the total loan portfolio.

         Commercial  Business Loans. The Bank offers commercial  business loans,
including  working  capital lines of credit,  inventory and accounts  receivable
loans,  equipment financing (including equipment leases), term loans,  insurance
premiums  loans  and loans  guaranteed  by the  Small  Business  Administration.
Depending on the collateral  pledged to secure the extension of credit,  maximum
loan to value ratios are 75% or less, with exceptions  permitted to a maximum of
80%. Loan terms may vary from one to 15 years.  The interest rates on such loans
are  generally  variable  and are indexed to a  designated  prime  rate,  plus a
margin. The Bank also generally obtains personal  guarantees from the principals
of the borrowers.  At December 31, 1999,  commercial  business loans amounted to
$54.2 million or 3.3% of total loans held for investment.  Although the Bank has
begun to increase its emphasis on commercial  business lending,  management does
not currently  anticipate  that its portfolio of commercial  business loans will
grow significantly as a percentage of the total loan portfolio.

         Consumer Loans. The Bank originates real estate secured consumer loans.
Such loans  generally  have shorter terms and higher  interest  rates than other
mortgage loans. At December 31, 1999, $135.1 million or 8.3% of the Bank's total
loans held for investment  consisted of consumer loans. This amount is comprised
mostly of real  estate  secured  consumer  loans  (which are  originated  by R&G
Mortgage),  but the Bank also offers loans secured by deposit  accounts,  credit
card loans

                                       27

<PAGE>

and other  secured and unsecured  consumer  loans.  Most of the Bank's  consumer
loans  are  secured  and  have  been  primarily   obtained   through   newspaper
advertising,  although  loans  are  also  obtained  from  existing  and  walk-in
customers.   Although   the  Bank  has  begun  to  increase   its   emphasis  on
collateralized  consumer lending,  management does not currently anticipate that
its portfolio of consumer loans will grow  significantly  as a percentage of the
total loan portfolio.

         The Bank  currently  offers loans  secured by deposit  accounts,  which
amounted  to $20.5  million at  December  31,  1999.  Such loans are  originated
generally  for up to  90% of the  account  balance,  with a hold  placed  on the
account restricting the withdrawal of the account balance.  The Bank offers real
estate  secured  loans  in  amounts  up to  75% of the  appraised  value  of the
property,  including the amount of any existing prior liens. Real estate secured
consumer loans have a maximum term of 10 years, which may be extended within the
sole  discretion of the Bank,  and an interest rate which is set at a fixed rate
based on market  conditions.  The Bank  secures  the loan with a first or second
mortgage on the property,  including loans where another  institution  holds the
first mortgage. At December 31, 1999, real estate secured consumer loans totaled
$76.9  million.  At December  31,  1999,  credit card  receivables  totaled $4.9
million.

         Consumer loans  generally have shorter terms and higher  interest rates
than mortgage  loans but generally  involve more credit risk than mortgage loans
because of the type and nature of the  collateral  and,  in certain  cases,  the
absence of collateral.  In addition,  consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely effected by job loss,  divorce,  illness and personal  bankruptcy.  In
many cases,  any repossessed  collateral for a defaulted  consumer loan will not
provide an adequate source of repayment of the outstanding  loan balance because
of improper  repair and  maintenance of the underlying  security.  The remaining
deficiency may not warrant further  substantial  collection  efforts against the
borrower.  At December 31, 1999,  $802,000 of consumer loans were  classified as
non-performing.

Asset Quality

         General.  When a borrower  fails to make a required  payment on a loan,
R&G Financial  attempts to cure the  deficiency  by contacting  the borrower and
seeking payment. Contacts are generally made between the 10th and 15th day after
a  payment  is  due.  In most  cases,  deficiencies  are  cured  promptly.  If a
delinquency extends beyond 15 days, the loan and payment history is reviewed and
efforts are made to collect the loan. While R&G Financial  generally  prefers to
work with borrowers to resolve such problems,  when the account  becomes 90 days
delinquent  in  the  case  of  mortgage  loans,  R&G  Financial  does  institute
foreclosure or other proceedings,  as necessary, to minimize any potential loss.
In the case of consumer  loans,  the Bank refers the file for collection  action
after 60 days.

         Loans secured by real estate are placed on non-accrual  status when, in
the judgment of management,  the probability of collection of interest is deemed
to be  insufficient to warrant  further  accrual.  When such a loan is placed on
non-accrual  status,  previously  accrued but unpaid  interest is deducted  from
interest  income.  As a matter of policy,  the Bank does not accrue  interest on
loans past

                                       28

<PAGE>

due 90 days or more which are secured by real estate.  The Bank generally  takes
the same position in the case of consumer loans.

         Real  estate  acquired  by the Bank as a result  of  foreclosure  or by
deed-in-lieu  of  foreclosure  are  classified  as real estate owned until sold.
Pursuant to a statement of position  ("SOP 92-3"),  which  provides  guidance on
determining the balance sheet treatment of foreclosed assets in annual financial
statements,  there is a rebuttable  presumption that foreclosed  assets are held
for sale and such  assets  are  recommended  to be  carried at the lower of fair
value minus estimated costs to sell the property, or cost (generally the balance
of the loan on the  property  at the  date of  acquisition).  After  the date of
acquisition,  all costs  incurred in  maintaining  the property are expensed and
costs  incurred  for  the  improvement  or  development  of  such  property  are
capitalized  up to  the  extent  of  their  net  realizable  value.  The  Bank's
accounting for its real estate owned complies with the guidance set forth in SOP
92-3.

         The  following  table  sets forth the  amounts  and  categories  of R&G
Financial's  non-performing assets at the dates indicated. R&G Financial did not
have any troubled debt restructurings at any of the periods presented. Except as
otherwise indicated in the footnotes to the table, the non-performing assets are
assets of the Bank.
<TABLE>
<CAPTION>
                                                                            December 31,
                                         ---------------------------------------------------------------------------

                                             1999            1998              1997         1996            1995
                                         ----------     -------------      ------------   ---------      -----------
                                                                (Dollars in Thousands)
<S>                      <C>                 <C>             <C>              <C>          <C>              <C>
Non-accruing loans:
  Residential real estate(1)............     $47,413         $32,973          $21,619      $12,991          $7,921
  Residential construction..............         478             441              368          363              --
  Commercial real estate................       9,005           6,463            6,000        3,141           1,903
  Commercial business...................       1,255           3,224              765          823              --
  Consumer unsecured....................         802           1,358            1,217          686              40
  Other.................................          61              67              117          726              --
                                           ---------        --------           ------       ------           -----
    Total(2)............................      59,014          44,526           30,086       18,730           9,864
                                              ------          ------            -----       ------           -----
Accruing loans greater than 90 days
  delinquent:
  Residential real estate...............          --              --               --           --              --
  Residential construction..............          --              --               --           --             611
  Commercial real estate................          --              --               --           --              --
  Commercial business...................          63              61               54           22               8
  Consumer..............................         274             357              172          134              94
                                             -------         -------           ------        -----          ------
    Total accruing loans greater than
      90 days delinquent................         337             418              226          156             713
                                             -------         -------          -------       ------           -----
    Total non-performing loans..........      59,351          44,944           30,312       18,886          10,577
                                              ------          ------            -----       ------          ------
Real estate owned, net of reserves(3)...       5,852           4,041            1,715          834             654
Other repossessed assets................         466             237               85           31              --
                                              ------         -------               --           --              --
                                               6,318           4,278            1,800        1,800             865
                                                              ------                      --------        --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                      <C>                 <C>             <C>              <C>          <C>              <C>
    Total non-performing assets.........     $65,669         $49,222          $32,112      $19,751         $11,231
                                              ------          ======           ======       ======          ======
    Total non-performing loans as a
      percentage of total loans.........       3.66%           4.08%            3.89%        3.09%           2.18%
                                               =====           ====             ====         ====            ====
    Total non-performing assets as a
      percentage of total assets........       2.26%           2.41%            2.12%        1.90%           1.32%
                                               =====           ====             ====       ======            ====
</TABLE>

                                       29

<PAGE>

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

(1)      Includes residential real estate loans secured by both first and second
         mortgages held by the Bank,  except for $5.9 million,  $4.3 million and
         $2.8 million held by R&G Mortgage at December 31, 1999,  1998 and 1997,
         respectively.  Also includes $6.1 million,  $5.3 million, $2.6 million,
         $1.1  million and $882,000  consumer  loans held by the Bank secured by
         first and second  mortgages on residential  real estate at December 31,
         1999, 1998, 1997, 1996 and 1995, respectively.

(2)      As of December 31, 1999,  comprised of 868 loans secured by residential
         real estate, 66 loans secured by commercial real estate, 7 construction
         loans, 86 commercial business loans and 114 consumer loans.

(3)      Includes  properties  held by R&G  Mortgage of  $128,000,  $128,000 and
         $165,000 as of December 31, 1999,  1998 and 1997,  respectively.  As of
         December  31,  1999,  the Bank  had 48  residential  properties  and 12
         commercial properties aggregating $5.7 million.


         While the level of total  non-performing  assets of R&G  Financial  has
increased on an absolute basis during the periods presented,  from $11.2 million
at December 31, 1995 to $65.7 million at December 31, 1999, R&G  Financial's net
loans receivable portfolio has increased by 230% during this period, from $473.8
million at December 31, 1995 to $1.6 billion at December 31, 1999.  Thus,  total
non-performing  assets as a percent  of total  assets  increased  from  1.32% at
December 31, 1995 to 2.26% at December 31, 1999.

         Non-performing  residential  loans  increased by $14.4 million or 43.8%
from  December  31, 1998 to December  31,  1999.  The  average  loan  balance on
non-performing  mortgage  loans  amounted to $55,000 at December 31, 1999. As of
such date, 528 loans with an aggregate  balance of $29.3 million  (including 119
consumer loans secured by real estate with an aggregate balance of $2.6 million)
were in the process of foreclosure.  The total  delinquency ratio on residential
mortgages,  including loans past due less than 90 days,  increased from 5.49% in
1998 to 7.11% in 1999. The Company's loss  experience on such portfolio has been
minimal over the last several years.

         Non-performing  commercial  real estate loans increased by $2.5 million
or 39.3% from  December  31,  1998 to  December  31,  1999.  The number of loans
delinquent  over 90 days  amounted to 74 loans at  December  31,  1999,  with an
average balance of $122,000. The largest  non-performing  commercial real estate
loan as of December 31, 1999 had a balance of $340,000.

         Non-performing  commercial  business  loans  consist of 86 loans.  Such
loans  include 10 loans with an  aggregate  balance  of  $296,000  which are 90%
guaranteed by the Small Business Administration,  48 commercial leases amounting
to $615,000 and 28 other commercial  business loans with an aggregate balance of
$344,000. These loans have a combined average loan size of $18,000. The majority
of loans in this  portfolio  were  originated  during 1995 and 1996. The largest
non-performing  commercial  business loan as of December 31, 1999 had a $110,000
balance.

                                       30

<PAGE>

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

         The following table sets forth an analysis of R&G Financial's allowance
for loan losses during the periods indicated,  which is maintained on the Bank's
loan portfolio.
<TABLE>
<CAPTION>

                                                             At and For the Year Ended December 31,
                                        ---------------------------------------------------------------------------

                                             1999             1998             1997            1996           1995
                                        --------------  ----------------  --------------  -------------- --------------
                                                                             (Dollars in Thousands)
<S>                                              <C>               <C>            <C>             <C>             <C>
Balance at beginning of period.........          $8,055            $6,772         $ 3,332         $3,510          $2,887
                                                  -----             -----          ------          -----           -----
Charge-offs:
  Residential real estate..............              17                73              13             45              53
  Construction.........................              --                --              --             50              --
  Commercial real estate...............             353                --             170             --              --
  Commercial business..................           1,548             1,485             480            110              91
  Consumer.............................           2,518             4,455           3,953          1,922             365
  Other................................               4                --             761          2,535              --
                                               --------    --------------          ------          -----          ------
    Total charge-offs..................           4,440             6,013           5,377          4,662             509
                                               --------       -----------          ------          -----           -----
Recoveries:
  Residential real estate..............              --                --              21             --               1
  Commercial real estate...............              69                --              50             --              --
  Commercial business..................             332                20              32             31              85
  Consumer.............................             429               312             344            195              96
  Other................................              --                --           2,000             --              --
                                              ---------     -------------           -----             --              --
    Total recoveries...................             830               332           2,447            226             182
                                                -------       -----------          ------         ------           -----
Net charge-offs........................           3,610             5,681           2,930          4,436             327
                                               --------        ----------          ------         ------           -----
Allowance for loan losses acquired from
 Fajardo Federal.......................              --               364              --             --              --
Provision for losses on loans..........           4,525             6,600           6,370          4,258             950
                                               --------         ---------          ------         ------           -----
Balance at end of period...............           8,971          $  8,055         $ 6,772        $ 3,332          $3,510
                                               ========          ========          ======         ======           =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                              <C>               <C>            <C>             <C>             <C>
Allowance for loan losses as a percent
  of total loans outstanding...........               5%               .74            .87%           .55%           0.72%
                                                ========        ==========         ======         ======            ====
Allowance for loan losses as a percent
  of non-performing loans..............           15.11%            17.92%          22.34%         17.64%          33.19%
                                               ========          ========          ======         ======           =====
Ratio of net charge-offs to average
    loans outstanding....................           .25%              .55%           0.40%          0.75%           0.08%
                                             ==========        ==========          ======        =======            ====


</TABLE>

                                       31

<PAGE>

          The following table sets forth  information  concerning the allocation
of R&G Financial's  allowance for loan losses (which is maintained on the Bank's
loan portfolio) by loan category at the dates indicated.
<TABLE>
<CAPTION>
                                                                                                December 31,
                             ----------------------------------------------------------------------------------------

                                        1999                          1998                           1997
                             -------------------------   ---------------------------    -----------------------------

                                           Percent of                     Percent of                      Percent of
                                            Loans in                       Loans in                        Loans in
                                              Each                           Each                            Each
                                           Category to                   Category to                     Category to
                               Amount      Total Loans      Amount        Total Loans      Amount        Total Loans
                             ----------  --------------  ------------  --------------   -----------    --------------
                                                             (Dollars in Thousands)
<S>                            <C>           <C>           <C>              <C>          <C>                 <C>
Residential real estate.....   $1,419        15.82%        $1,272           15.79%       $  593              8.76%
Construction................      186         2.07             46            0.57             7              0.10
Commercial real estate......    3,258        36.32          2,655           32.96         1,386             20.47
Commercial business.........    1,063        11.85          1,033           12.82           806             11.90
Consumer....................    3,045        33.94          3,049           37.86         3,980             58.77
                                -----        -----          -----           -----        ------            ------
Total.......................   $8,971       100.00%        $8,055          100.00%       $6,772            100.00%
                                =====       ======          =====          ======         =====            ======
</TABLE>

<TABLE>
<CAPTION>
                                                     December 31,
                              ---------------------------------------------------------

                                       1996                            1995
                              --------------------------      -------------------------

                                              Percent of                   Percent of
                                               Loans in                     Loans in
                                                 Each                         Each
                                             Category to                   Category to
                                Amount       Total Loans       Amount      Total Loans
                              ---------    -------------     ----------  --------------
                                                (Dollars in Thousands)
<S>                           <C>              <C>           <C>              <C>
Residential real estate.....  $  810           24.31%        $2,094           59.66%
Construction................      51            1.53             32            0.90
Commercial real estate......     489           14.68             --              --
Commercial business.........     109            3.27            782           22.28
Consumer....................   1,873           56.21            602           17.16
                               -----           -----          -----          ------
Total.......................  $3,332          100.00%        $3,510          100.00%
                               =====          ======          =====          ======
</TABLE>
                                       32

<PAGE>



                              Investment Activities

         General. R&G Financial's  securities portfolio is managed by investment
officers in accordance  with a  comprehensive  written  investment  policy which
addresses  strategies,  types and levels of allowable  investments  and which is
reviewed and approved annually by the respective Boards of Directors of the Bank
and  R&G  Mortgage.  The  management  of  the  securities  portfolio  is  set in
accordance  with strategies  developed by the Bank's Interest Rate Risk,  Budget
and Investments Committee ("IRRBICO").

         As discussed  under "- Mortgage  Banking  Activities,"  R&G Mortgage is
primarily engaged in the origination of mortgage loans and the securitization of
such loans into  mortgage-backed  and related securities and the subsequent sale
of such  securities  to  securities  broker-dealers  and other  investors in the
secondary market. As a result of R&G Mortgage's securitization  activities,  R&G
Mortgage maintains a substantial  portfolio of GNMA mortgage-backed  securities.
At December 31, 1999, R&G Mortgage held GNMA  mortgage-backed  securities with a
fair value of $43.6  million  which are  classified  as held for  trading.  Such
securities  generally remain in R&G Mortgage's  portfolio for between 90 and 180
days. In addition, R&G Mortgage held GNMA mortgage-backed securities with a fair
value of $466.2  million which are classified as available for sale. At December
31, 1999,  R&G  Mortgage's  interest-only  residuals,  which are  classified  as
available for sale,  had an amortized  cost of $11.1 million and a fair value of
$10.8 million.

         The  Bank's  Investment  Policy  authorizes  the Bank to invest in U.S.
Treasury   obligations  (with  a  maturity  up  to  five  years),   U.S.  Agency
obligations, FNMA, GNMA and FHLMC mortgage-backed certificates, investment grade
municipal  obligations  (with  a  maturity  of  up  to  five  years),   bankers'
acceptances  and Federal Home Loan Bank ("FHLB") notes (with a maturity of up to
five  years),  investment  grade  commercial  paper  (with a maturity of up to 9
months), federal funds (with a maturity of six months or less),  certificates of
deposit  in  other  financial  institutions   (including  Eurodollar  deposits),
repurchase agreements (with a maturity of six months or less),  investment grade
corporate   bonds   (with  a  maturity  of  five  years  or  less)  and  certain
mortgage-backed derivative securities (with a weighted average life of less than
ten years).

         At December  31, 1999,  the Bank's  securities  portfolio  consisted of
$28.7 million of securities held for investments, consisting of $12.8 million of
tax-free  mortgage-backed  securities,  $10.4 million of other  mortgage  backed
securities,  and $5.4 million of Puerto Rico  Government  obligations  and other
Puerto Rico  securities.  In  addition,  at December  31,  1999,  the Bank had a
securities  portfolio  classified  as  available  for sale with a fair  value of
$493.9  million,   consisting  of  $97.3  million  of  tax-free  mortgage-backed
securities, $126.4 million of other mortgage-backed securities, $32.8 million of
FHLB stock,  $12.0 million of CMOs and  interest-only  securities and residuals,
$4.9 million U.S.  Treasury  securities  and $220.4  million of U.S.  Government
agency securities.

         The  Bank's  Treasury  Department  from time to time  conducts  certain
trading  activities  mainly  through  investments in U.S.  Treasury  securities.
However, at December 31, 1999 no securities for trading were held by the Bank.

                                       33

<PAGE>

         The  following  table  presents  certain   information   regarding  the
composition and period to maturity of R&G Financial's  securities portfolio held
to maturity as of the dates indicated  below.  All of such securities are assets
of the Bank.
<TABLE>
<CAPTION>
                                                                             December 31,
                                    ----------------------------------------------------------------------------------

                                                      1999                                       1998
                                    ---------------------------------------  -----------------------------------------

                                                                  Weighted                                 Weighted
                                       Carrying      Market        Average      Carrying       Market       Average
                                        Value        Value          Yield         Value        Value         Yield
                                    -----------   -----------   -----------  ------------  -----------    -----------
                                                                   (Dollars in Thousands)
<S>                                  <C>          <C>                        <C>            <C>
Mortgage-backed securities:
  GMNA
    Due within one year...........   $       --   $       --           --%   $       --     $     --            --%
    Due from one-five years.......           15           16        10.00            27           29         10.00
    Due from five-ten years.......       10,660       10,391         5.79        13,025       12,752          5.79
    Due over ten years............        2,133        2,074         6.17         2,360        2,306          6.17
FNMA
  Due within one year.............           --           --           --            --           --            --
  Due from one-five years.........           --           --           --            --           --            --
  Due from five-ten years.........           --           --           --            --           --            --
  Due over ten years..............       10,252       10,644         7.09        12,608       12,944          7.13
FHLMC
  Due within one year.............           --           --           --            --           --            --
  Due from one-five years.........           --           --           --            --           --            --
  Due from five-ten years.........           --           --           --            --           --            --
  Due over ten years..............          189          180         5.58           236          230          5.99
Investment Securities:
  Puerto Rico Government
    obligations
  Due within one year.............           --           --           --            --           --            --
  Due from one-five years.........        1,280        1,272         5.85            --           --            --
  Due from five-ten years.........        4,158        4,132         5.95         5,945        5,979          5.80
  Due over ten years..............           --           --           --            --           --            --
  U.S.Treasury and Government
Agency
  Due within one year.............           --           --           --           399          400          5.40
  Due from one-five years.........           --           --           --            --           --            --
  Due from five-ten years.........           --           --           --            --           --            --
  Due over ten years..............           --           --           --            --           --            --
    Total Securities held for           $28,687      $28,709         6.31%      $34,600      $34,640          6.31%
      investment..................
</TABLE>
<PAGE>
 <TABLE>
<CAPTION>
                                                      December 31,
                                       -----------------------------------------

                                                         1997
                                       -----------------------------------------

                                                                      Weighted
                                        Carrying       Market         Average
                                          Value        Value           Yield
                                       ------------ ------------  --------------
                                               (Dollars in Thousands)
<S>                                      <C>          <C>                <C>
Mortgage-backed securities:
  GMNA
    Due within one year...........        $  --       $   --               --%
    Due from one-five years.......           49           50            10.00
    Due from five-ten years.......           --           --               --
    Due over ten years............       18,321       17,705             6.05
FNMA
  Due within one year.............           --           --               --
  Due from one-five years.........           --           --               --
  Due from five-ten years.........           --           --               --
  Due over ten years..............       14,675       15,164             7.17
FHLMC
  Due within one year.............           --           --               --
  Due from one-five years.........           --           --               --
  Due from five-ten years.........           --           --               --
  Due over ten years..............          281          266             6.00
Investment Securities:
  Puerto Rico Government
    obligations
  Due within one year.............        4,433        4,439             6.22
  Due from one-five years.........           --           --               --
  Due from five-ten years.........        5,920        5,910             5.85
  Due over ten years..............           30           30             8.37
  U.S.Treasury and Government
Agency
  Due within one year.............          310          311             6.13
  Due from one-five years.........           --           --               --
  Due from five-ten years.........           --           --               --
  Due over ten years..............           --           --               --
    Total Securities held for
      investment..................      $44,019      $43,875             6.42%
</TABLE>

                                       34
<PAGE>
         The  following  table  presents  certain   information   regarding  the
composition  and period to  maturity  of R&G  Financial's  held for  trading and
available for sale mortgage-backed and investment securities portfolio as of the
dates indicated below.
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                       -----------------------------------------------------------------------------
                                                                      1999                                    1998
                                                       ------------------------------------------  ---------------------------------
                                                                                   Weighted                                Weighted
                                                          Amortized       Fair      Average     Amortized        Fair       Average
                                                             Cost        Value       Yield         Cost          Value       Yield
                                                       -------------  ----------  ----------  ------------   -----------  ----------
                                                                                (Dollars in Thousands)
<S>                                                    <C>           <C>            <C>        <C>           <C>              <C>
Mortgage-Backed Securities Available for Sale:
GNMA
    Due within one year.............................    $     --     $      --        --%        $    --     $     --           --%
    Due from one-five years.........................          --            --        --              --           --           --
    Due from five-ten years.........................          --            --        --              --           --           --
    Due over ten years..............................     570,749       563,533      6.62          55,159       55,159         6.41
  FNMA mortgage-backed securities
    Due within one year.............................          --            --        --               -           --           --
    Due from one-five years.........................          --            --        --              --           --           --
    Due from five-ten years.........................         741           719      6.50              --           --           --
    Due over ten years..............................     110,855       109,705      7.15           8,092        8,161         6.96
  FHLMC mortgage-backed securities
    Due within one year.............................          --            --        --              --           --           --
    Due from one-five years.........................          99            99      8.79              89           91         8.83
    Due from five-ten years.........................       1,891         1,841      6.77             240          244         8.99
    Due over ten years..............................      14,586        14,036      6.87          21,369       21,724         6.86
  CMO residuals and other mortgage-backed
    securities (1)
    Due within one year.............................          --            --        --              --           --           --
    Due from one-five years.........................       8,886         8,886     12.00              --           --           --
    Due from five-ten years.........................          --            --        --              --           --           --
    Due over ten years..............................      11,823        13,886      8.07           7,845        9,661        8.125
Investment Securities Available for Sale(1)
  U.S. Treasury
    Due within one year.............................       4,998         4,945      4.50              --           --           --
    Due from one-five years.........................          --            --        --           4,995        4,991         4.50
    Due from five-ten years.........................          --            --        --              --           --           --
    Due over ten years..............................          --            --        --              --           --           --
  U.S. Government & Agencies
    Due within one year.............................          --            --        --              --           --           --
    Due from one-five years.........................     133,956       130,950      6.19          38,100       38,106         5.64
    Due from five-ten years.........................      92,237        89,444      7.28           5,010        5,000         6.72
    Due over ten years..............................          --            --        --              --           --           --
  FHLB stock........................................      32,825        32,825      6.75          11,405       11,405         7.21
                                                        --------       -------      ----          ------       ------         ----
                                                        $983,646      $970,869      6.75%       $152,304     $154,542         6.41%
                                                         =======       =======      ====         =======      =======         ====
Securities held for trading(2):
  GNMA certificates.................................   $  43,303     $  43,564      5.27%       $427,915     $443,399         6.69%
  CMO certificates..................................          --            --        --              --           --           --
  CMO residuals(4)..................................          --            --        --           7,134        7,147         8.00
  U.S. Treasury Bills...............................          --            --        --              --             --         --
                                                       ---------  ------------   ------- --------------- --------------     ------
                                                       $  43,303     $  43,564      5.27%      $ 435,049     $450,546         6.71%
                                                        ========      ========      ====        ========      =======         ====
</TABLE>

                          (Footnotes on following page)

<PAGE>
<TABLE>
<CAPTION>
                                                                        December 31,
                                                         ----------------------------------------
                                                                           1997
                                                         ----------------------------------------

                                                                                        Weighted
                                                          Amortized       Fair          Average
                                                            Cost         Value           Yield
                                                         -----------   ------------  ------------
<S>                                                    <C>           <C>            <C>
Mortgage-Backed Securities Available for Sale:
GNMA
    Due within one year.............................      $    --       $    --            --%
    Due from one-five years.........................           --            --            --
    Due from five-ten years.........................           --            --            --
    Due over ten years..............................           --            --            --
  FNMA mortgage-backed securities
    Due within one year.............................           --            --            --
    Due from one-five years.........................           --            --            --
    Due from five-ten years.........................           --            --            --
    Due over ten years..............................        9,468         9,670          7.00
  FHLMC mortgage-backed securities
    Due within one year.............................           --            --            --
    Due from one-five years.........................           71            70          9.00
    Due from five-ten years.........................          360           368          9.38
    Due over ten years..............................       27,104        27,513          6.86
  CMO residuals and other mortgage-backed
    securities (1)
    Due within one year.............................           --            --            --
    Due from one-five years.........................           --            --            --
    Due from five-ten years.........................           --            --            --
    Due over ten years..............................        7,007         8,382         8.125
Investment Securities Available for Sale(1)
  U.S. Treasury
    Due within one year.............................          773           772          5.22
    Due from one-five years.........................       30,010        30,100          5.85
    Due from five-ten years.........................           --            --            --
    Due over ten years..............................           --            --            --
  U.S. Government & Agencies
    Due within one year.............................           --            --            --
    Due from one-five years.........................       35,145        35,105          6.06
    Due from five-ten years.........................        5,023         4,981          6.73
    Due over ten years..............................           --            --            --
  FHLB stock........................................        4,906         4,906          6.61
                                                          -------       -------          ----
                                                         $119,867      $121,867          6.44%
                                                          =======       =======          ====
Securities held for trading(2):
  GNMA certificates.................................     $367,177      $377,362          6.78%
  CMO certificates..................................       16,200        15,228          5.95
  CMO residuals(4)..................................        7,630         7,868          8.00
  U.S. Treasury Bills...............................          581           581          5.23
                                                          -------      --------          ----
                                                         $391,588      $401,039          6.77%
                                                          =======       =======          ====
</TABLE>

                          (Footnotes on following page)

                                       35

<PAGE>
---------------

(1)      Comprised of  subordinated  tranches and residuals from the Bank's 1992
         Grantor Trust  residuals  purchased from the Bank in 1995 from its 1993
         CMO Grantor Trust,  residuals  from R&G Mortgage's CMO Grantor  Trusts,
         and interest-only  strips resulting from sales of loans by R&G Mortgage
         and the Bank.

(2)      Except for GNMA  certificates  with a fair value of $1.7  million as of
         December 31, 1997,  all of such  securities  are held in R&G Mortgage's
         securities portfolio.


         A  substantial  portion  of R&G  Financial's  securities  are  held  in
mortgage-backed securities.  Mortgage-backed securities (which also are known as
mortgage participation  certificates or pass-through  certificates)  represent a
participation interest in a pool of single-family or multi-family mortgages, the
principal  and  interest   payments  on  which  are  passed  from  the  mortgage
originators,  through  intermediaries  (generally U.S.  Government  agencies and
government  sponsored  enterprises)  that pool and repackage  the  participation
interests in the form of securities,  to investors  such as R&G Financial.  Such
U.S. Government agencies and government sponsored  enterprises,  which guarantee
the payment of principal and interest to investors, primarily include the FHLMC,
the FNMA and the GNMA.

         The FHLMC is a public corporation  chartered by the U.S. Government and
owned  by  the  12  Federal  Home  Loan  Banks  and  federally-insured   savings
institutions.  The FHLMC issues participation certificates backed principally by
conventional mortgage loans. The FHLMC guarantees the timely payment of interest
and the  ultimate  return of  principal  within one year.  The FNMA is a private
corporation  chartered  by the U.S.  Congress  with a  mandate  to  establish  a
secondary market for conventional mortgage loans. The FNMA guarantees the timely
payment of principal and interest on FNMA securities.  FHLMC and FNMA securities
are not backed by the full faith and credit of the United  States,  but  because
the  FHLMC  and  the  FNMA  are  U.S.  Government-sponsored  enterprises,  these
securities  are  considered  to be among the highest  quality  investments  with
minimal  credit  risks.  The GNMA is a  government  agency  within  HUD which is
intended to help finance  government-assisted  housing programs. GNMA securities
are backed by FHA-insured  and  VA-guaranteed  loans,  and the timely payment of
principal and interest on GNMA  securities are guaranteed by the GNMA and backed
by the full faith and credit of the U.S. Government. Because the FHLMC, the FNMA
and the GNMA were  established  to provide  support  for low- and  middle-income
housing,  there are limits to the maximum  size of loans that  qualify for these
programs.  For  example,  the FNMA and the FHLMC  currently  limit  their  loans
secured by a single-family, owner-occupied residence to $252,700. To accommodate
larger-sized  loans,  and loans that, for other  reasons,  do not conform to the
agency programs,  a number of private  institutions  have established  their own
home-loan origination and securitization programs.

         Mortgage-backed  securities  typically are issued with stated principal
amounts,  and the  securities  are backed by pools of mortgages  that have loans
with interest rates that are within a range

                                       36

<PAGE>



and have varying  maturities.  The  characteristics  of the  underlying  pool of
mortgage,  i.e., fixed-rate or adjustable-rate,  as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed  pass-through
security thus approximates the life of the underlying mortgages.

         R&G  Financial's  securities  portfolio  includes CMOs.  CMOs have been
developed in response to investor  concerns  regarding the  uncertainty  of cash
flows associated with the prepayment option of the underlying  mortgagor and are
typically issued by government agencies,  government  sponsored  enterprises and
special  purpose  entities,  such  as  trusts,   corporations  or  partnerships,
established by financial  institutions or other similar institutions.  A CMO can
be  collateralized by loans or securities which are insured or guaranteed by the
FNMA,  the  FHLMC or the  GNMA.  In  contrast  to  pass-through  mortgage-backed
securities, in which cash flow is received pro rata by all security holders, the
cash  flow  from  the  mortgages  underlying  a CMO is  segmented  and  paid  in
accordance  with a  predetermined  priority  to  investors  holding  various CMO
classes. By allocating the principal and interest cash flows from the underlying
collateral  among the  separate  CMO  classes,  different  classes  of bonds are
created, each with its own stated maturity,  estimated average life, coupon rate
and prepayment characteristics.

         Mortgage-backed  securities  generally  increase  the  quality  of  R&G
Financial's  assets by virtue of the insurance or guarantees that back them, are
more  liquid than  individual  mortgage  loans and may be used to  collateralize
borrowings or other  obligations of R&G Financial.  At December 31, 1999, $128.3
million or 16.3% of R&G  Financial's  mortgage-backed  securities was pledged to
secure various obligations of R&G Financial (excluding repurchase agreements).

         The FDIC has issued a statement  of policy  which  states,  among other
things,  that mortgage  derivative  products  (including CMOs and CMO residuals)
which possess  average life or price  volatility in excess of a benchmark  fixed
rate  30-year  mortgage-backed  pass-through  security are  "high-risk  mortgage
securities," are not suitable  investments for depository  institutions,  and if
considered "high risk" at purchase must be carried in the institution's  trading
account  or as assets  held for sale,  and must be marked to market on a regular
basis. In addition, if a security was not considered "high risk" at purchase but
was later  found to be "high  risk"  based on the  tests,  it may  remain in the
held-to-maturity  portfolio as long as the  institution  has positive  intent to
hold the security to maturity  and has a documented  plan in place to manage the
high risk. At December 31, 1999, the Bank's CMOs, and  interest-only  securities
and  residuals,  which had a fair value of $12.0  million,  were  designated  as
"high-risk mortgage securities" and classified as available for sale.


                                       37

<PAGE>

                                Sources of Funds

         General.  R&G Financial will consider  various sources of funds to fund
its  investment and lending  activities  and evaluates the available  sources of
funds in order to  reduce  R&G  Financial's  overall  funding  costs.  Deposits,
reverse repurchase  agreements,  warehouse lines of credit, notes payable,  FHLB
advances,  subordinated  capital  notes  and  sales,  maturities  and  principal
repayments on loans and securities  have been the major sources of funds for use
in R&G  Financial's  lending  and  investing  activities  and for other  general
business purposes.

         Deposits.  Deposits  are the  major  sources  of the  Bank's  funds for
lending and other  investment  purposes.  Consumer and  commercial  deposits are
attracted  principally  from within the Bank's  primary  market area through the
offering of a broad selection of deposit  instruments,  including passbook,  NOW
and Super NOW,  checking and  commercial  checking and  certificates  of deposit
ranging in terms from 7 days to 10 years.  Included among these deposit products
are $531.7 million of certificates of deposit with balances of $100,000 or more,
which  amounted to 40.0% of the Bank's  total  deposits at  December  31,  1999.
Deposit account terms vary according to the minimum balance  required,  the time
periods  the funds must  remain on deposit and the  interest  rate,  among other
factors.

         The Bank  attempts to price its  deposits  in order to promote  deposit
growth. The Bank regularly evaluates the internal costs of funds,  surveys rates
offered by competing institutions, reviews the Bank's cash flow requirements for
lending and  liquidity and executes  rate changes when deemed  appropriate.  The
Bank does not obtain  funds  through  brokers on a regular  basis,  although  at
December 31, 1999 it held $127.9  million of deposits  acquired from money desks
in the United States.

         The principal  methods  currently  used by the Bank to attract  deposit
accounts   include  offering  a  wide  variety  of  services  and  accounts  and
competitive interest rates. The Bank utilizes  traditional  marketing methods to
attract new customers and savings deposits, including advertising.


                                       38

<PAGE>

         The following  table presents the average  balance of each deposit type
and the  average  rate paid one each  deposit  type of the Bank for the  periods
indicated.
<TABLE>
<CAPTION>


                                                                         December 31,
                                     ----------------------------------------------------------------------------------

                                                1999                        1998                        1997
                                     --------------------------   ------------------------   --------------------------

                                       Average        Average      Average       Average       Average       Average
                                       Balance       Rate Paid     Balance      Rate Paid      Balance      Rate Paid
                                     -----------    -----------  -------------  ----------   -----------    -----------
                                                                   (Dollars in Thousands)
<S>                                  <C>               <C>        <C>              <C>        <C>              <C>
Passbook......................         $112,107        3.74%       $88,754         3.75%     $  75,958         3.79%
NOW and Super NOW
   accounts...................          126,300        3.95         99,336         3.93         86,843         3.84
Checking......................           41,128          --         39,052           --         23,859           --
Commercial checking(1)........          111,146          --         77,329           --         46,301           --
Certificates of deposit.......          762,856        5.83        522,016         5.98        435,743         6.02
                                        -------        ----        -------         ----      ---------         ----
  Total deposits..............       $1,153,537        4.65%      $826,487         4.65%      $668,704         4.85%
                                      =========        ====        =======         ====        =======         ====
</TABLE>
----------------

(1)      Includes  $92.4  million,  $109.9  million and $50.2  million of escrow
         funds  of  R&G  Mortgage  at  December   31,   1999,   1998  and  1997,
         respectively, maintained with the Bank.


         The   following   table  sets  forth  the   maturities  of  the  Bank's
certificates of deposit having principal amounts of $100,000 or more at December
31, 1999.

                                                      Amount
                                                 -----------------

                                                  (In Thousands)
Certificates of deposit maturing:
Three months or less...........................      $117,047
Over three through six months..................       111,089
Over six through twelve months.................       210,528
Over twelve months.............................        93,050
                                                     --------
  Total........................................      $531,714
                                                      =======


         Borrowings.  R&G Financial's  business  requires  continuous  access to
various funding sources, both short and long-term. R&G Mortgage's primary source
of short-term  funds is through sales of securities to investment  dealers under
agreements to repurchase ("reverse repurchase  agreements").  The Bank also from
time to time  utilizes  reverse  repurchase  agreements  when they  represent  a

<PAGE>

competitive  short-term  funding  source.  In  a  reverse  repurchase  agreement
transaction,  R&G  Financial  will  generally  sell a  mortgage-backed  security
agreeing to repurchase either the same or a substantially  identical security on
a specified  later date  (generally  not more than 90 days) at a price less than
the original sales price. The difference in the sale price and purchase price is
the cost of the use of the proceeds.  The mortgage-backed  securities underlying
the  agreements are delivered to the dealers who arrange the  transactions.  For
agreements  in which  R&G  Financial  has  agreed  to  repurchase  substantially
identical securities, the dealers may sell, loan or otherwise dispose of R&G

                                       39
<PAGE>

Financial's  securities in the normal course of their operations;  however, such
dealers or third  party  custodians  safe-keep  the  securities  which are to be
specifically  repurchased  by  R&G  Financial.   Reverse  repurchase  agreements
represent a competitive cost funding source for R&G Financial. Nevertheless, R&G
Financial is subject to the risk that the lender may default at maturity and not
return the collateral.  The amount at risk is the value of the collateral  which
exceeds the balance of the borrowing.  In order to minimize this potential risk,
R&G Financial only deals with large, established investment brokerage firms when
entering into these transactions.  Reverse repurchase transactions are accounted
for as financing  arrangements rather than as sales of such securities,  and the
obligations  to  repurchase  such  securities is reflected as a liability in R&G
Financial's  Consolidated  Financial  Statements.  As of December 31, 1999,  R&G
Financial  had  $731.3  million of reverse  repurchase  agreements  outstanding,
$404.3 million of which represented  borrowings of R&G Mortgage. At December 31,
1999, the weighted average interest rate on R&G Financial's  reverse  repurchase
agreements amounted to 5.92%.

         R&G Financial's  loan  originations are also funded by borrowings under
various  warehouse  lines  of  credit  provided  by  various   commercial  banks
("Warehouse Lines"). At December 31, 1999, R&G Financial was permitted to borrow
under such  Warehouse  Lines up to $223.4  million,  $48.5  million of which was
drawn upon and  outstanding as of such date. The Warehouse Lines are used by the
Company to fund loan  commitments  and must  generally be repaid within 180 days
after the loan is closed or when  payment  from the sale of the  funded  loan is
received,  whichever occurs first.  Until such sale closes,  the Warehouse Lines
provide  that the funded loan is pledged to secure the  outstanding  borrowings.
The Warehouse Lines are also  collateralized by a general assignment of mortgage
payments  receivable  and an assignment of certain  mortgage  servicing  rights.
Certain of these warehousing lines of credit impose restrictions with respect to
the  maintenance  of  minimum  levels  of net  worth  and  working  capital  and
limitations on the amount of  indebtedness  and dividends which may be declared.
Management  of R&G  Financial  believes  that as of December 31, 1999, it was in
compliance with all of such covenants and  restrictions  and does not anticipate
that such covenants and restrictions will limit its operations.

         The interest rate on funds borrowed  pursuant to the Warehouse Lines is
based on Libor  rates plus a  negotiated  amount.  By  maintaining  compensating
balances,  the Company is able to borrow  funds under the  Warehouse  Lines at a
lower interest rate than would otherwise apply. These compensating  balances are
comprised  of a portion of the escrow  accounts  maintained  by the  Company for
principal and interest payments and related tax and insurance  payments on loans
its services.  At December 31, 1999,  the weighted  average  interest rate being
paid by the Company under its Warehouse Lines amounted to 6.78%.

         Although the Bank's primary source of funds is deposits,  the Bank also
borrows funds on both a short and long-term  basis.  The Bank actively  utilizes
936 Notes as a primary  borrowing  source.  The 936 Notes have original terms to
maturity of between five and seven years and bear interest payable quarterly for
variable interest rate notes and semiannually for fixed interest rate notes. The
Bank is able to obtain such low cost funds by investing the proceeds in eligible
activities as  proscribed  under Puerto Rico law,  which provide tax  advantages
under Puerto Rico tax laws and under U.S. federal tax laws for U.S. corporations
which are operating in Puerto Rico pursuant to

                                       40

<PAGE>

Section  936 of the Code.  See " - Mortgage  Banking  Activities  - Puerto  Rico
Secondary  Mortgage  Market and Favorable Tax  Treatment." At December 31, 1999,
$15.0  million of the 936 Notes were  secured by  marketable  securities,  while
$45.5  million were secured by standby  letters of credit  issued by the FHLB of
New York (which are, in turn,  secured by first mortgage  loans,  securities and
cash  deposits).  The 936 Notes contain certain  provisions  which indemnify the
holders thereof from the federal tax liability which would be incurred, plus any
penalties and  interest,  if the Bank did not invest the proceeds as required in
eligible  activities,  and also provide for a "gross up" provision which permits
the Bank to continue the obligation at an adjusted  interest rate based on LIBOR
in the event the  interest  on the 936 Notes is  subject  in whole or in part to
federal  and/or Puerto Rico income tax. At December 31, 1999, the Bank had $60.5
million of 936 Notes  outstanding,  $25.0  million of which mature in 2000,  and
$35.5 million of which mature in 2001.

         The Bank obtains  both  fixed-rate  and  variable-rate  short-term  and
long-term advances from the FHLB of New York upon the security of certain of its
residential first mortgage loans, securities and cash deposits, provided certain
standards  related to the  credit-worthiness  of the Bank have been met. FHLB of
New York advances are available for general business  purposes to expand lending
and investing  activities.  Advances from the FHLB of New York are made pursuant
to several  different credit  programs,  each of which has its own interest rate
and range of  maturities.  At December 31,  1999,  the Bank had access to $645.8
million  in  advances  from  the FHLB of New  York,  and had 26 FHLB of New York
advances aggregating $384.0 million outstanding as of such date, which mature at
various dates commencing in January 3, 2000 through December 18, 2003 and have a
weighted average interest rate of 5.75%. In addition,  at December 31, 1999, the
Bank maintained  $47.1 million in standby letters of credit with the FHLB of New
York, which secured $45.5 million of outstanding 936 Notes payable.  At December
31, 1999, the Bank had pledged specific collateral aggregating $504.9 million to
the FHLB of New York under its  advances  program  and to secure the  letters of
credit.  The Bank  maintains  collateral  with the FHLB of New York in excess of
applicable   requirements  in  order  to  facilitate  any  necessary  additional
borrowings by the Bank in the future.


                                       41

<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
short-term borrowings of R&G Financial at or for the dates indicated.
<TABLE>
<CAPTION>

                                                                     At or For the Year Ended
                                                                           December 31,
                                                         ----------------------------------------------------

                                                              1999               1998               1997
                                                         ----------------  ------------------  ---------------
                                                                       (Dollars in Thousands)
<S>                                                           <C>                 <C>              <C>
R&G Mortgage:
Securities sold under agreements to repurchase:
  Average balance outstanding.......................          $365,177            $354,786         $187,682
  Maximum amount outstanding at any month-end
    during the period...............................           493,527             415,960          385,054
  Balance outstanding at end of period..............           493,527             415,960          385,054
  Average interest rate during the period...........              5.52%               5.73%            6.03%
  Average interest rate at end of period............              6.15%               5.46%            5.85%
Notes Payable:
  Average balance outstanding.......................          $127,565            $102,047          $66,405
  Maximum amount outstanding at any month-end
    during the period...............................           154,922             152,060           93,523
  Balance outstanding at end of period..............            56,907             107,648           24,353
  Average interest rate during the period...........              6.67%               7.07%            6.03%
  Average interest rate at end of period............              6.89%               6.43%            5.85%
The Bank:
FHLB of New York advances:
  Average balance outstanding.......................          $222,575             $94,025          $23,524
  Maximum amount outstanding at any month-end
    during the period...............................           384,000             160,100           42,200
  Balance outstanding at end of period..............           384,000             121,000           42,200
  Average interest rate during the period...........              5.31%               5.55%            5.80%
  Average interest rate at end of period............              5.75%               5.25%            6.03%
Securities sold under agreements to repurchase:
  Average balance outstanding.......................          $187,857             $55,915          $39,090
  Maximum amount outstanding at any month-end
    during the period...............................           327,009              79,513           63,088
  Balance outstanding at end of period..............           327,009              75,222           48,080
  Average interest rate during the period...........              5.77%               5.57%            5.55%
  Average interest rate at end of period............              5.73%               5.35%            5.56%
Notes Payable:
  Average balance outstanding.......................           $84,463             $84,100          $85,034
  Maximum amount outstanding at any month-end
    during the period...............................            84,100              84,100           86,500
  Balance outstanding at end of period..............            75,800              84,100           84,100
  Average interest rate during the period...........              6.53%               6.45%            6.60%
  Average interest rate at end of period............              6.00%               5.74%            5.97%
</TABLE>


                                       42

<PAGE>
                          Trust and Investment Services

         R&G Financial also provides trust and investment  services  through the
Bank's Trust  Department.  Services  offered  include  custodial  services,  the
administration  of IRA accounts  and the sale to  investors  of  mortgage-backed
securities  guaranteed  by GNMA.  As of  December  31,  1999,  the Bank's  Trust
Department  administered  approximately  7,235 trust  accounts,  with  aggregate
assets of $31.2  million as of such  date.  In  addition,  during the year ended
December  31,  1999,  the Bank's  Trust  Department  sold $45.8  million of GNMA
mortgage-backed  securities. The Bank receives fees dependent upon the level and
type of service provided.  The  administration of the Bank's Trust Department is
performed by the Trust Committee of the Board of Directors of the Bank.


                                    Personnel

         As of December 31, 1999,  R&G Financial (on a  consolidated  basis) had
1,293  full-time  employees  and 73 part-time  employees.  The employees are not
represented by a collective bargaining agreement and R&G Financial believes that
it has good relations with its employees.


                                   Regulation

         Set forth below is a brief  description of certain laws and regulations
which,  together  with  the  descriptions  of  laws  and  regulations  contained
elsewhere  herein,  are deemed  material to an investor's  understanding  of the
extent to which R&G  Financial,  R&G  Mortgage and the Bank are  regulated.  The
description of these laws and  regulations,  as well as descriptions of laws and
regulations  contained  elsewhere herein, does not purport to be complete and is
qualified in its entirety by reference to applicable laws and regulations.

R&G Financial

         General. R&G Financial is a registered bank holding company pursuant to
the Bank  Holding  Company Act of 1956,  as amended  (the  "BHCA").  The Company
became a bank holding company in July 1996 through its acquisition of Mr. Victor
Galan's  88.1%  interest in the Bank (which  excludes  his  required  qualifying
shares as a director of the Bank) in exchange for R&G Financial's Class A Common
Stock.  R&G Financial  acquired the  remaining  interest in the Bank in December
1996. R&G  Financial,  as a bank holding  company,  is subject to regulation and
supervision by the Federal Reserve Board and the OCFI. R&G Financial is required
to file annually a report of its operations  with, and is subject to examination
by, the Federal Reserve Board and the OCFI.

         BHCA  Activities  and  Other  Limitations.  The BHCA  prohibits  a bank
holding company from acquiring  direct or indirect  ownership or control of more
than 5% of the  voting  shares of any bank,  or  increasing  such  ownership  or
control of any bank,  without prior approval of the Federal  Reserve  Board.  No
approval under the BHCA is required, however, for a bank holding company

                                       43

<PAGE>

already  owning or  controlling  50% of the  voting  shares of a bank to acquire
additional shares of such bank.

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the  ownership of shares by a bank holding  company in any company,  the
activities of which the Federal  Reserve  Board has  determined to be so closely
related  to  banking  or to  managing  or  controlling  banks  as to be a proper
incident thereto.  In making such  determinations,  the Federal Reserve Board is
required  to  weigh  the  expected  benefit  to  the  public,  such  as  greater
convenience,  increased competition or gains in efficiency, against the possible
adverse effects,  such as undue concentration of resources,  decreased or unfair
competition, conflicts of interest or unsound banking practices.

         The Federal  Reserve  Board has by regulation  determined  that certain
activities are closely related to banking within the meaning of the BHCA.  These
activities  include operating a mortgage company,  such a R&G Mortgage,  finance
company,  credit  card  company,  factoring  company,  trust  company or savings
association;  performing certain data processing  operations;  providing limited
securities  brokerage  services;  acting as an investment or financial  advisor;
acting as an  insurance  agent for certain  types of  credit-related  insurance;
leasing personal property on a full-payout,  non-operating basis;  providing tax
planning and preparation services;  operating a collection agency; and providing
certain  courier  services.  The Federal  Reserve Board also has determined that
certain other activities,  including real estate brokerage and syndication, land
development,  property management and underwriting of life insurance not related
to credit transactions, are not closely related to banking and a proper incident
thereto.

         Limitations  on  Transactions  with  Affiliates.  Transactions  between
financial institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a financial  institution is any company
or entity which  controls,  is controlled by or is under common control with the
financial institution.  In a holding company context, the parent holding company
of a financial  institution  (such as R&G Financial) and any companies which are
controlled  by such parent  holding  company  are  affiliates  of the  financial
institution.  Generally,  Sections 23A and 23B (i) limit the extent to which the
financial  institution or its subsidiaries may engage in "covered  transactions"
with any one affiliate to an amount equal to 10% of such  institution's  capital
stock and surplus,  and contain an aggregate limit on all such transactions with
all  affiliates  to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such  transactions be on terms  substantially the same, or
at least as favorable,  to the  institution or subsidiary as those provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase of assets,  issuance of a guarantee and other similar transactions.  In
addition  to the  restrictions  imposed by Sections  23A and 23B,  no  financial
institution may (i) loan or otherwise extend credit to an affiliate,  except for
any affiliate  which engages only in activities  which are  permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds,  debentures,
notes or similar  obligations of any affiliate,  except for affiliates which are
subsidiaries of the financial institution.

                                       44

<PAGE>
         In addition,  Sections 22(h) and (g) of the Federal  Reserve Act places
restrictions   on  loans  to  executive   officers,   directors   and  principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater  than 10%  stockholder  of a  financial  institution,  and  certain
affiliated  interests  of  either,  may not  exceed,  together  with  all  other
outstanding  loans  to such  person  and  affiliated  interests,  the  financial
institution's  loans  to  one  borrower  limit  (generally  equal  to 15% of the
institution's unimpaired capital and surplus).  Section 22(h) also requires that
loans to directors,  executive  officers and principal  stockholders  be made on
terms  substantially  the same as offered in  comparable  transactions  to other
persons unless the loans are made pursuant to a benefit or compensation  program
that (i) is widely  available to employees of the  institution and (ii) does not
give preference to any director,  executive officer or principal stockholder, or
certain  affiliated  interests  of either,  over other  employees of the savings
institutions.  Section  22(h) also  requires  prior board  approval  for certain
loans. In addition,  the aggregate amount of extensions of credit by a financial
institution to all insiders cannot exceed the institution's  unimpaired  capital
and surplus. Furthermore,  Section 22(g) places additional restrictions on loans
to executive officers.

         R&G  Mortgage  and the Bank are  parties  to various  agreements  which
address how each would  conduct  itself in  specifically  delineated  affiliated
transactions   (the  "Affiliated   Transaction   Agreements").   The  Affiliated
Transaction  Agreements  include a Master  Purchase,  Servicing and  Collections
Agreement (the "Master Purchase  Agreement"),  a Master Custodian  Agreement,  a
Master Production  Agreement,  a Securitization  Agreement and a Data Processing
Computer  Service  Agreement.  The terms of these  agreements were negotiated at
arm's length on the basis that they are  substantially  the same, or at least as
favorable to the Bank, as those prevailing for comparable  transactions with, or
involving, other nonaffiliated companies.

         Pursuant to the Master  Production  Agreement,  the Bank,  on a monthly
basis,  determines its loan production  targets and goals (the "Loan  Production
Goals") and R&G Mortgage assists the Bank to reach its Loan Production Goals by,
among other  things:  (i)  advertising,  promoting  and marketing to the general
public; (ii) interviewing  prospective  borrowers and initial processing of loan
applications,  consistent  with  the  Bank's  underwriting  guidelines  and Loan
Production  Goals  previously  established;  and (iii)  providing  personnel and
facilities  with respect to the execution of any loan agreement  approved by the
Bank.  In  exchange  for  these  services,  the Bank  remits to R&G  Mortgage  a
percentage of the processing or originating  fees charged to the borrowers under
loan agreements, as set forth in the agreements. See "-Lending Activities of the
Bank - Originations, Purchases and Sales of Loans."

         The Master Purchase  Agreement provides for the sale by the Bank to R&G
Mortgage of the servicing  rights to all first and second mortgage loans secured
by residential  properties  which become part of the Bank's loan portfolio.  R&G
Mortgage  services all other loans held in the Bank's loan portfolio  (including
single-family residential loans retained by the Bank and certain commercial real
estate  loans),  although R&G Mortgage does not actually  acquire such servicing
rights.  The  Master  Purchase  Agreement  further  provides  that R&G  Mortgage
exclusively  will service such loans and that the Bank will process  payments of
such loans, all according to a fee schedule. See " - Mortgage Banking Activities
- Loan Originations, Purchases and Sales of Loans."


                                       45

<PAGE>

         Under the Securitization Agreement, R&G Mortgage renders securitization
services with respect to the pooling of some of the Bank's  mortgage  loans into
mortgage-backed  securities.  With respect to securitization  services rendered,
the Bank pays a  securitization  fee of 25 basis  points.  The Master  Custodian
Agreement  provides that the Bank shall be the custodial  agent for R&G Mortgage
of certain  documentation  related to the issuance by R&G Mortgage of GNMA, FNMA
or FHLMC mortgage-backed  certificates.  In consideration of these services, the
Bank  receives  a fee for  each  mortgage  note  included  in a  mortgage-backed
certificate  per  year  for  which  it acts as  custodian,  as set  forth in the
agreement. See "- Mortgage Banking Activities - Loan Originations, Purchases and
Sales of Loans."

         Capital  Requirements.  The Federal  Reserve Board has adopted  capital
adequacy  guidelines  pursuant to which it assesses  the  adequacy of capital in
examining and supervising a bank holding  company and in analyzing  applications
to it under the BHCA.  The Federal  Reserve  Board capital  adequacy  guidelines
generally  require bank holding  companies to maintain total capital equal to 8%
of total risk-adjusted  assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount  consisting  of Tier
II or supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions,  intangibles.  Tier II capital generally  consists of hybrid capital
instruments;  perpetual  preferred stock which is not eligible to be included as
Tier I capital;  term subordinated debt and  intermediate-term  preferred stock;
and,  subject to  limitations,  general  allowances for loan losses.  Assets are
adjusted  under the  risk-based  guidelines to take into account  different risk
characteristics,  with the  categories  ranging from 0% (requiring no additional
capital)  for  assets  such as cash to 100% for the  bulk of  assets  which  are
typically held by a bank holding company, including multi-family residential and
commercial  real estate loans,  commercial  business  loans and consumer  loans.
Single-family  residential  first mortgage loans which are not past-due (90 days
or more) or  non-performing  and which have been made in accordance with prudent
underwriting  standards are assigned a 50% level in the risk-weighing system, as
are certain  privately-issued  mortgage-backed  securities representing indirect
ownership of such loans.  Off-balance sheet items also are adjusted to take into
account certain risk characteristics.

         In addition to the risk-based capital requirements, the Federal Reserve
Board  requires bank holding  companies to maintain a minimum  leverage  capital
ratio of Tier I capital to total  assets of 3.0%.  Total assets for this purpose
does not include goodwill and any other  intangible  assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage  capital ratio
requirement is the minimum for the top-rated bank holding  companies without any
supervisory,  financial or operational weaknesses or deficiencies or those which
are not  experiencing or  anticipating  significant  growth.  Other bank holding
companies  are expected to maintain Tier I leverage  capital  ratios of at least
4.0% to 5.0% or more, depending on their overall condition.

         R&G Financial is in compliance with the above-described Federal Reserve
Board regulatory capital requirements.


                                       46

<PAGE>

         Financial  Support of Affiliated  Institutions.  Under Federal  Reserve
Board  policy,  R&G  Financial  will be expected to act as a source of financial
strength  to  the  Bank  and  to  commit   resources  to  support  the  Bank  in
circumstances  when it might not do so absent  such  policy.  The  legality  and
precise scope of this policy is unclear,  however,  in light of recent  judicial
precedent.  In  addition,  any  capital  loans by a bank  holding  company  to a
subsidiary  bank is  subordinate  in right of payment to deposits and to certain
other  indebtedness  of such  subsidiary  bank.  In the event of a bank  holding
company's  bankruptcy,  any commitment by the bank holding  company to a federal
bank  regulatory  agency to maintain  the capital of a  subsidiary  bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.


         Recent  Legislation.  On November 12, 1999,  the  President  signed the
Gramm-Leach-Bliley   Financial   Modernization   Act  of  1999  into  law.   The
Modernization  Act will (i) allow bank  holding  companies  meeting  management,
capital and Community  Reinvestment  Act standards to engage in a  substantially
broader range of nonbanking activities than currently is permissible,  including
insurance underwriting and making merchant banking investments in commercial and
financial  companies;  if a bank  holding  company  elects to become a financial
holding company, it files a certification,  effective in 30 days, and thereafter
may engage in certain financial activities without further approvals; (ii) allow
insurers and other financial  services  companies to acquire banks; (iii) remove
various  restrictions  that currently apply to bank holding company ownership of
securities  firms and mutual fund  advisory  companies;  and (iv)  establish the
overall  regulatory  structure  applicable to bank holding  companies  that also
engage in insurance and securities  operations.  This part of the  Modernization
Act will become effective on March 13, 2000.

         On January 19, 2000, the Federal  Reserve Board adopted an interim rule
allowing  bank  holding  companies  to submit  certifications  by February 15 to
become financial  holding companies on March 13, 2000. The Federal Reserve Board
also provided  regulations on procedures  which would be used against  financial
holding  companies  which  have  depository   institutions  which  fall  out  of
compliance  with the  management or capital  criteria.  Only  financial  holding
companies can own insurance companies and engage in merchant banking.

         The  Modernization  Act also  modifies  other current  financial  laws,
including laws related to financial privacy and community reinvestment.

The Bank

         General.  The Bank is incorporated under the Puerto Rico Banking Act of
1933,  as amended (the  "Puerto  Rico Banking  Law") and is subject to extensive
regulation  and  examination  by the  OCFI,  the FDIC and  certain  requirements
established by the Federal  Reserve Board.  The federal and Puerto Rico laws and
regulations  which are  applicable to banks  regulate,  among other things,  the
scope of their business, their investments, their reserves against deposits, the
timing of the  availability  of deposited funds and the nature and amount of and
collateral for certain loans.  There are periodic  examinations  by the OCFI and
the FDIC to test the Bank's  compliance  with various  regulatory  requirements.
This  regulation  and  supervision  establishes  a  comprehensive  framework  of
activities in which an institution can engage and is intended  primarily for the
protection of the
                                       47

<PAGE>

insurance  fund  and  depositors.   The  regulatory  structure  also  gives  the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement  activities and examination  policies,  including  policies with
respect to the  classification  of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulation, whether by
the OCFI, the FDIC or the U.S.  Congress or Puerto Rico legislature could have a
material  adverse  impact on R&G  Financial,  R&G  Mortgage,  the Bank and their
operations.

         FDIC Insurance  Premiums.  The Bank  currently  pays deposit  insurance
premiums to the FDIC based on a risk-based  assessment system established by the
FDIC for all Savings Association Insurance Fund ("SAIF") and Bank Insurance Fund
("BIF") member  institutions.  Under  applicable  regulations,  institutions are
assigned to one of three capital groups which is based solely on the level on an
institution's   capital:  "well  capitalized,"   "adequately   capitalized"  and
"undercapitalized".  These three groups are then  divided  into three  subgroups
which  reflect  varying  levels of  supervisory  concern,  from those  which are
considered  to be healthy to those  which are  considered  to be of  substantial
supervisory  concern.  The matrix so created  results  in nine  assessment  risk
classifications,  with  rates  ranging  from .0% for well  capitalized,  healthy
institutions  to  .27%  for   undercapitalized   institutions  with  substantial
supervisory   concerns.   The  Bank  was  classified  as  a   "well-capitalized"
institution  as of December 31, 1999. An  additional  assessment is added to the
regular SAIF-  assessment and the regular  BIF-assessment,  respectively,  until
December  31,  1999,  in order  to  cover  Financing  Corporation  debt  service
payments.  Such additional  assessments amount to 6.3 basis points and 1.3 basis
points for SAIF insured deposits and BIF insured deposits, respectively.

         The FDIC may terminate the deposit insurance of any insured  depository
institution,  including  the Bank,  if it  determines  after a hearing  that the
institution has engaged or is engaging in unsafe or unsound practices,  is in an
unsafe  or  unsound  condition  to  continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.

         Capital Requirements.  The FDIC has promulgated regulations and adopted
a statement of policy  regarding the capital adequacy of  state-chartered  banks
which,  like the Bank, will not be members of the Federal Reserve System.  These
requirements are  substantially  similar to those adopted by the Federal Reserve
Board regarding bank holding companies, as described above.

         The FDIC's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an  additional  cushion  of at least 100 to 200 basis  points for all other
state-chartered,  non-member banks, which effectively increases the minimum Tier
I leverage ratio for such other banks to 4.0% to 5.0% or more.  Under the FDIC's
regulation,  the highest-rated  banks are those that the FDIC determines are not
anticipating or experiencing  significant growth and have well diversified risk,
including no undue interest rate risk exposure,  excellent  asset quality,  high
liquidity, good earnings and, in general, which are considered

                                       48

<PAGE>

a strong  banking  organization  and are rated  composite  1 under  the  Uniform
Financial Institutions Rating System. Leverage or core capital is defined as the
sum of common stockholders' equity (including retained earnings),  noncumulative
perpetual  preferred  stock and  related  surplus,  and  minority  interests  in
consolidated  subsidiaries,  minus all  intangible  assets  other  than  certain
qualifying supervisory goodwill and certain purchased mortgage servicing rights.

         The FDIC also requires that banks meet a risk-based  capital  standard.
The  risk-based  capital  standard for banks  requires the  maintenance of total
capital (which is defined as Tier I capital and supplementary  (Tier 2) capital)
to risk  weighted  assets  of 8%. In  determining  the  amount of  risk-weighted
assets,  all assets,  plus certain off balance sheet assets, are multiplied by a
risk-weight of 0% to 100%,  based on the risks the FDIC believes are inherent in
the type of asset or item.  The  components of Tier I capital are  equivalent to
those discussed above under the 3% leverage capital standard.  The components of
supplementary   capital  include  certain  perpetual  preferred  stock,  certain
mandatory  convertible  securities,  certain  subordinated debt and intermediate
preferred stock and general allowances for loan and lease losses.  Allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward supplementary capital cannot exceed 100% of core capital. At December 31,
1999, the Bank met each of its capital requirements.

         The FDIC and the other federal banking  agencies have published a joint
policy  statement  that  describes the process the banking  agencies will use to
measure  and assess the  exposure of a bank's net  economic  value to changes in
interest rates.  The FDIC and other federal banking agencies have also adopted a
joint policy statement on interest rate risk policy.  Because market conditions,
bank structure,  and bank activities vary, the agencies concluded that each bank
needs to develop its own interest rate risk management  program  tailored to its
needs and circumstances.  The policy statement  describes prudent principles and
practices that are fundamental to sound interest rate risk management, including
appropriate  board and senior  management  oversight  and a  comprehensive  risk
management process that effectively identifies,  measures, monitors and controls
risks.

         Activities and  Investments.  The activities and equity  investments of
FDIC-insured,  state-chartered  banks (which under the Federal Deposit Insurance
Act includes banking  institutions  incorporated  under the laws of Puerto Rico)
are generally  limited to those that are permissible  for national banks.  Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not  prohibited  from,  among other  things,  (i)  acquiring  or  retaining a
majority  interest in a  subsidiary,  (ii)  investing as a limited  partner in a
partnership  the sole purpose of which is direct or indirect  investment  in the
acquisition,  rehabilitation or new construction of a qualified housing project,
provided  that such  limited  partnership  investments  may not exceed 2% of the
bank's total assets,  (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors',  trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
depository institutions,  and (iv) acquiring or retaining the voting shares of a
depository  institution if certain requirements are met. In addition, an insured
state-chartered  bank may not,  directly,  or  indirectly  through a subsidiary,
engage as  "principal"  in any activity that is not  permissible  for a national
bank unless the FDIC has determined that such  activities  would pose no risk to
the
                                       49

<PAGE>

insurance  fund of  which  it is a member  and the  bank is in  compliance  with
applicable  regulatory capital  requirements.  Any insured  state-chartered bank
directly or  indirectly  engaged in any  activity  that is not  permitted  for a
national bank must cease the impermissible activity.

         Puerto Rico Banking Law. As a commercial  bank organized under the laws
of the  Commonwealth,  the  Bank is  subject  to  supervision,  examination  and
regulation by the OCFI pursuant to the Puerto Rico Banking Law.

         The Puerto Rico Banking Law requires that at least ten percent (10%) of
the yearly net income of the Bank be credited  annually to a reserve fund.  This
apportionment  shall be done every year until the reserve fund shall be equal to
the sum of the Bank's paid-in common and preferred stock capital. As of December
31, 1999, the Bank had credited $5.1 million to such reserve fund.

         The Puerto Rico Banking Law also provides that when the expenditures of
a bank are greater than the  receipts,  the excess of the former over the latter
shall be charged against the undistributed profits of the bank, and the balance,
if any, shall be charged  against the reserve fund, as a reduction  thereof.  If
there is no reserve fund  sufficient  to cover such balance in whole or in part,
the  outstanding  amount  shall be charged  against the  capital  account and no
dividend  shall be declared until said capital has been restored to its original
amount and the reserve fund to 20% of the original capital.  In addition,  every
bank is  required by the Puerto  Rico  Banking  Law to maintain a legal  reserve
which shall not be less than 20% of its demand  liabilities,  except  government
deposits (federal,  state and municipal) which are secured by actual collateral.
The reserve is required to be made up of any of the following instruments or any
combination of them: (i) legal tender of the United States; (ii) checks on banks
or trust  companies  located in any part of Puerto  Rico,  to be  presented  for
collection during the day following that on which they are received; (iii) money
deposited  in  other  banks   provided  said  deposits  are  authorized  by  the
Commissioner,  subject to immediate collection;  and (iv) federal funds sold and
securities purchased under agreements to resell,  provided such funds are repaid
on or prior to the close of the next business day.

         Under the Puerto Rico  Banking Law, the Bank is permitted to make loans
to any one person, firm,  partnership or corporation,  up to an aggregate amount
of fifteen  percent  (15%) of the paid-in  capital and reserve fund of the Bank,
plus 15% of 50% of undistributed  earnings for "well capitalized"  institutions.
As of  December  31,  1999,  the legal  lending  limit for the Bank under  these
provisions was  approximately  $20.0 million and its maximum extension of credit
to any one borrower was $17.2  million.  If such loans are secured by collateral
worth at least  twenty-five  percent (25%) more than the amount of the loan, the
aggregate maximum amount may reach one-third of the paid-in capital of the Bank,
plus its  reserve  fund.  There are no  restrictions  on the  amount of loans to
subsidiaries of banks, or loans that are secured by mortgages by real estate, or
loans  that are wholly  secured  by bonds,  securities  and other  evidences  of
indebtedness of the United States or the Commonwealth, or by current debt bonds,
not in default,  of  municipalities  or  instrumentalities  of the Commonwealth.
Loans to non-banking  affiliates of the Bank, are subject however to the lending
limitations  set forth in Sections  23A and 23B of the Federal  Reserve Act. The
Puerto Rico Banking Law also  authorizes the Bank to conduct  certain  financial
and related activities directly or through subsidiaries. The Puerto Rico Banking
Law also  prohibits  Puerto  Rico banks from making  loans  secured by their own
stock, and from purchasing their own stock, unless

                                       50

<PAGE>

such  purchase  is  necessary  to prevent  losses  because of a debt  previously
contracted  in good faith.  The stock so purchased by the bank must be sold in a
private or public sale within one year from the date of  purchase.  The Bank may
repurchase its own stock for the purpose of reducing its capital, subject to the
approval of the OCFI.

         The rate of  interest  that the Bank may charge on  mortgage  and other
types of loans to  individuals  in Puerto Rico is subject to Puerto Rico's usury
laws. Such laws are administered by the Financing  Board,  which consists of the
Commissioner  of  Financial  Institutions,   the  President  of  the  Government
Development  Bank,  the  Chairman  of the  Planning  Board and the  Puerto  Rico
Secretaries of Commerce, Treasury and Consumer Affairs and three representatives
from the private  sector.  The Financing  Board  promulgates  regulations  which
specify  maximum rates on various types of loans to  individuals.  The Financing
Board  eliminated the regulations that set forth the maximum interest rates that
could be charged on consumer  loans,  mortgage loans and commercial  loans.  The
origination charges on residential  mortgage loans may not exceed 6% of the loan
amount.

         Regulatory  Enforcement  Authority.  Applicable  banking  laws  include
substantial  enforcement  powers  available  to federal and Puerto Rico  banking
regulators. This enforcement authority includes, among other things, the ability
to assess civil money penalties, to issue cease-and-desist or removal orders and
to   initiate    injunctive   actions   against   banking    organizations   and
institution-affiliated  parties,  as  defined.  In  general,  these  enforcement
actions may be initiated for  violations of laws and  regulations  and unsafe or
unsound  practices.  Other  actions  or  inactions  may  provide  the  basis for
enforcement  action,   including  misleading  or  untimely  reports  filed  with
regulatory authorities.

R&G Mortgage

         The mortgage banking  business  conducted by R&G Mortgage is subject to
the rules and  regulations  of FHA,  VA,  FNMA,  FHLMC and GNMA with  respect to
originating,  processing,  selling and servicing mortgage loans and the issuance
and sale of mortgage-backed securities. Those rules and regulations, among other
things,  prohibit  discrimination  and establish  underwriting  guidelines which
include  provisions for inspections  and  appraisals,  require credit reports on
prospective  borrowers  and fix maximum  loan  amounts  and,  with respect to VA
loans, fix maximum interest rates.  Moreover,  lenders are required  annually to
submit to FNMA, FHA, FHLMC, GNMA and VA audited financial  statements,  and each
regulatory entity has its own financial requirements. R&G Mortgage's affairs are
also subject to supervision and  examination by FNMA, FHA, FHLMC,  GNMA, HUD and
VA at all times to assure compliance with the applicable  regulations,  policies
and procedures.  Mortgage  origination  activities are subject to, among others,
the Equal Credit  Opportunity  Act,  Federal  Truth-in-Lending  Act and the Real
Estate Settlement Procedures Act and the regulations promulgated thereunder.

R&G Mortgage's  mortgage loan  production  activities are subject to the Federal
Truth-in-Lending   Act   and   Regulation   Z   promulgated   thereunder.    The
Truth-in-Lending  Act  contains  disclosure  requirements  designed  to  provide
consumers with uniform, understandable information with respect to the terms and
conditions of loans and credit transactions in order to give them the ability to
compare credit terms. The  Truth-in-Lending  Act provides  consumers a three day
right to cancel

                                       51

<PAGE>

certain credit transactions, including any refinance mortgage or junior mortgage
loan on a consumer's primary residence.

         R&G  Mortgage is required to comply with the Equal  Credit  Opportunity
Act of 1974, as amended ("ECOA"), and Regulation B promulgated thereunder, which
prohibit creditors from discriminating  against applicants on the basis of race,
color, sex, age or marital status, and restrict creditors from obtaining certain
types of information from loan applicants.  It also requires certain disclosures
by lenders  regarding  consumer rights and requires lenders to advise applicants
of the reasons for any credit denial. In instances where the applicant is denied
credit  or the rate or charge  for loan  increases  as a result  of  information
obtained  from a  consumer  credit  agency,  another  statute,  The Fair  Credit
Reporting Act of 1970, as amended,  requires the lenders to supply the applicant
with the name and address of the reporting agency.

         The Federal Real Estate  Settlement  Procedures Act ("RESPA")  imposes,
among other things,  limits on the amount of funds a borrower can be required to
deposit  with R&G  Mortgage  in any  escrow  account  for the  payment of taxes,
insurance premiums or other charges.

         R&G Mortgage is also subject to  regulation  by the OCFI,  with respect
to,  among  other  things,   licensing   requirements  and  the  record-keeping,
examination  and  reporting  requirements  of the Puerto Rico  Mortgage  Banking
Institutions  Law (the "Mortgage  Banking Law"). R&G Mortgage is licensed by the
OCFI as a mortgage banking institution in Puerto Rico. Such authorization to act
as a mortgage banking  institution must be renewed as of January 1 of each year.
In  the  past,  R&G  Mortgage  has  not  had  any  difficulty  in  renewing  its
authorization  to act as a  mortgage  banking  institution,  and  management  is
unaware of any existing  practices,  conditions or violations which would result
in R&G Mortgage being unable to receive such authorization in the future.

         The Mortgage  Banking Law  requires the prior  approval of the OCFI for
the acquisition of control of any mortgage  banking  institution  licensed under
the Mortgage  Banking  Law.  For purposes of the Mortgage  Banking Law, the term
"control"  means  the  power to  direct or  influence  decisively,  directly  or
indirectly,  the management or policies of a mortgage banking  institution.  The
Mortgage  Banking Law provides that a transaction that results in the holding of
less  than  10% of the  outstanding  voting  securities  of a  mortgage  banking
institution  shall  not be  considered  a change  of  control.  Pursuant  to the
Mortgage Banking Law, upon receipt of notice of a proposed  transaction that may
result in change of control,  the OCFI is obligated to make such  inquires as it
deems necessary to review the  transaction.  Under the Mortgage Banking Law, the
determination  of the OCFI  whether or not to  authorize  a  proposed  change of
control is final and non-appealable.

         As is the case with the Bank,  the rate of interest  that R&G  Mortgage
may charge on mortgage  loans to  individuals  is subject to Puerto Rico's usury
laws.  Such laws are  administered  by the  Financing  Board  which  promulgates
regulations that specify maximum rates on various types of loans to individuals.
Regulation 26-A promulgated by the Financing Board fixes the maximum rate (which
is  adjusted  on a weekly  basis)  which may be  charged  on  residential  first
mortgage loans.

                                       52

<PAGE>

Effective  April 1996, the Financing Board  eliminated the regulations  that set
forth the maximum interest rates that could be charged on non-federal government
guaranteed loans.

Item 2. Properties.

         The  Company's  principal  executive  office is located at 280 Jesus T.
Pinero Avenue,  Hato Ray, San Juan,  Puerto Rico 00918. The following table sets
forth the net book value  (including  leasehold  improvements and equipment) and
certain other  information  with respect to the offices and other  properties of
R&G Financial at December 31, 1999, all of which properties are leased.
<TABLE>
<CAPTION>
                                                                                        Net Book Value
               Description/Address                     Lease Term Expiration             of Property
-----------------------------------------------------------------------------------   -------------------
                                                                                        (In Thousands)
<S>                                                  <C>                                    <C>
The Bank:
Hato Rey Branch(1)(2)(3)                                December 31, 2003                   $1,548
280 Jesus T. Pinero Avenue                           One (1) five year option
Hato Rey, PR 00919

Los Jardines Branch                                     September 4, 2000                      114
Los Jardines de Guaynabo Shopping Center
PR Road No. 20
Guaynabo, PR 00969

San Patricio Branch(4)                                    June 30, 2013                      1,392
San Patricio Plaza
Ortegon Street
Guaynabo, PR 00969

Bayamon Branch(2)(3)                                       May 31, 2001                        206
42-43 Betances Avenue                                One (1) ten year option
Hermanas Davila
Bayamon, PR 00959

Bayamon East Branch(4)                                   January 10, 2001                      363
Road #174, Lot 100                                  Two (2) five year options
Minillas Industrial Park
Bayamon, PR 00959

Arecibo Branch(3)                                       December 31, 2001                      144
Marginal Vista Azul                                 Two (2) five year options
Corner San Daniel Avenue
Arecibo, PR 00612

Manati Branch(3)                                          August 8, 2009                       415
Plaza Puerta del Sol                                Four (4) five year options
PR Road No. 2, Km. 49.7
Manati, PR 00674
</TABLE>


                                       53

<PAGE>
<TABLE>
<CAPTION>
                                                                                        Net Book Value
               Description/Address                     Lease Term Expiration             of Property
-----------------------------------------------------------------------------------   -------------------
<S>                                                  <C>                                    <C>

Carolina Branch(4)                                       July 31, 2003                         248
65th Infantry Avenue
Corner San Marcos Street
Carolina, PR 00985

Trujillo Alto Branch(4)                                 October 31, 2004                       134
Trujillo Alto Shopping Center
Trujillo Alto, PR 00976

Santurce Branch(4)                                       April 30, 2005                        312
1077 Ponce de Leon Avenue                           Two (2) six year options
Santurce, PR 00917

Laguna Gardens Branch(4)                                 April 30, 2004                        113
Laguna Gardens Shopping Center
Isla Verde
Carolina, PR 00979

Plaza Carolina Branch(4)                                  May 31, 2000                         147
Plaza Carolina Mall
Carolina, PR 00985

Norte Shopping Branch(4)                                 April 30, 2000                        140
Norte Shopping Center                              Two (2) five year options
Baldorioty de Castro Avenue
San Juan, PR 00907

Vega Baja Branch(4)                                       May 31, 2003                         321
Cabo Caribe Development                             One (1) five year option
PR Road No. 2, Marginal
Vega Baja, PR 00693

Mayaguez Branch(3)                                       April 30, 2002                        600
McKinley Street                                   Three (3) five year options
Corner Dr. Vady
Mayaguez, PR 00680

Fajardo I Branch(2)(4)                                   March 15, 2003                        354
Garrido Morales Street                             Two (2) five year options
Corner San Rafael
Fajardo, PR 00738

Martinez Nadal Branch(4)                                 June 14, 2003                         543
Paradise Mall                                      Two (2) five year options
Corner Jesus T. Pinero Ave.
Rio Piedras, PR 00925
</TABLE>

                                       54

<PAGE>
<TABLE>
<CAPTION>
                                                                                        Net Book Value
               Description/Address                     Lease Term Expiration             of Property
-----------------------------------------------------------------------------------   -------------------
                                                                                        (In Thousands)
<S>                                                  <C>                                    <C>
Ponce Branch(4)                                        March 31, 2005                          281
Lifetime Building Lot 5                          Two (2) five year options
Industrial San Rafael
Ponce, PR 00731

Fajardo II Branch(4)                                 September 1, 2006                          52
Celis Aguilera #161                              One (1) seven year option
Fajardo, PR 00738

Plaza del Sol Branch(4)                              November 15, 2010                         790
Plaza del Sol Mall                               Two (2) four year options
725 West Main Ave.
Bayamon, PR 00961

Operations Center(2)                                  January 10, 2001                       2,581
Road #174, Lote 100                              Two (2) five year options
Minillas Industrial Park
Bayamon, PR 00959

Plaza Interamericana Branch                          September 30, 2002                      1,253
Plaza Interamericana Mall                        Five (5) five year options
Sein Street and PR Road No. 177
San Juan, PR 00908

Plaza Las Americas Branch                              June 30, 2004                           421
Plaza Las Americas Shopping Center
Hato Rey, PR 00918

Caguas Branch                                         August 25, 2004                          415
PR Road No. 1, Km 33.6                          Three (3) five year options
Villa Blanca Industrial Area
Caguas, Puerto Rico 00725

Branch locations to be                                       --                                268
opened in 2000                                                                             -------
                                                                                            13,155
                                                                                           -------
Continental Capital:
Huntington Office                                            --                                950
1841 New York Avenue
Huntington Station, NY 11746

Bay Shore Office                                      (month-to-month)                          20
1555 Sunrise Hwy.
Bay Shore, NY 11706

Administrative Office                                   October 2004                            45
125 Bayless Rd.                                   One (1) five year option
Melville, NY 11747

Office location to be opened in 2000                                                            35
                                                                                           -------

                                                                                             1,050
                                                                                           -------
</TABLE>
                                            55

<PAGE>
<TABLE>
<CAPTION>
                                                                                        Net Book Value
               Description/Address                     Lease Term Expiration             of Property
-----------------------------------------------------------------------------------   -------------------
                                                                                        (In Thousands)
<S>                                                  <C>                                    <C>

Champion Mortgage:

Hato Rey Branch                                        June 30, 2003                           195
295 Jesus T. Pinero                               One (1) five year option
San Juan, PR 00918

Ponce Branch                                          (month-to-month)                          32
Las Americas Ave
Ext. Buena Vista #25
Ponce, PR 00731

Bayamon Branch                                         March 31, 2004                          107
Street No. 1, #44                                Two (2) five year options
Hermanas Davila
Bayamon, Puerto Rico 00959

Aguadilla Branch                                          May 2006                              57
PR Road No. 2                                     One (1) five year option
Punto Oro Shopping Center
Aguadilla, Puerto Rico 00603

Caguas Branch                                           October 2004                            32
Pino Street, H22                                  Two (2) one year options
Villa Tarabo
Caguas, Puerto Rico 00725

Guayama Branch                                          August 2000                             --
Ashford Ave., #45 South                         Three (3) three year options
Guayama, Puerto Rico 00784
                                                                                           -------
                                                                                               423
                                                                                           -------
R&G Mortgage:


Caguas Office                                          July 31, 2000                            43
D-9 Degetau Street                                One (1) five year option
San Alfonso
Caguas, PR 00725

Los Jardines Office(5)                                 August 1, 2006                           16
Los Jardines de Guaynabo Shopping Center          One (1) five year option
PR Road No. 20
Guaynabo, PR 00969

Hato Rey Office(2)(3)                                December 31, 2002                       4,637
280 Jesus T. Pinero Avenue                       Two (2) five year options
Hato Rey, PR 00919
</TABLE>

                                                     56

<PAGE>
<TABLE>
<CAPTION>
                                                                                        Net Book Value
               Description/Address                     Lease Term Expiration             of Property
-----------------------------------------------------------------------------------   -------------------
                                                                                        (In Thousands)
<S>                                                  <C>                                    <C>

Bayamon Office(2)(3)                                     May 30, 2001                           63
42-43 Betances Avenue                              One (1) ten year option
Hermanas Davila
Bayamon, PR 00959

Arecibo Office(3)                                      January 1, 2002                           6
Marginal Vista Azul                               Two (2) five year options
Corner San Daniel Avenue
Arecibo, PR 00612

Manati Office(3)(6)                                    October 30, 2003                         40
Plaza Puerta del Sol                               One (1) five year option
PR Road No. 2, Km. 49.7
Manati, PR 00674


Mayaguez Office(3)(6)                                  October 30, 2003                         26
McKinley Street                                    One (1) five year option
                                                                                         ---------
Corner Dr. Vady
Mayaguez, PR 00680
                                                                                             4,831
                                                                                         ---------
                                                                                            19,459
                                                                                         =========
</TABLE>

(Footnotes on following page)

                                       57

<PAGE>

(1)      Also serves as the main office of R&G Financial.

(2)      Leased from VIG Leasing,  S.E.,  which is owned by the family of Victor
         J.  Galan,  Chairman  of the Board and Chief  Executive  Officer of R&G
         Financial.

(3)      The Bank and R&G Mortgage  each maintain  separate  offices in the same
         building.

(4)      Facility includes an R&G Mortgage Banking Center.

(5)      The Bank maintains an office at this location in a separate facility.


Item 3.  Legal Proceedings.

         The Company is not involved in any pending legal proceedings other than
nonmaterial legal proceedings occurring in the ordinary course of business.


Item 4.  Submission of Matters to a Vote of Security-Holders.

         Not applicable.

PART II.

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         The information required herein is incorporated by reference from pages
83 and 84 of the Registrant's 1999 Annual Report.

Item 6.  Selected Financial Data.

         The information required herein is incorporated by reference from pages
23 to 25 of the Registrant's 1999 Annual Report.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

         The information required herein is incorporated by reference from pages
26 to 44 of the Registrant's 1999 Annual Report.


                                       58

<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

         The information required herein is incorporated by reference from pages
26 to 31 of the Registrant's 1999 Annual Report.

Item 8.  Financial Statements and Supplementary Data.

         The information required herein is incorporated by reference from pages
45 to 82 of the Registrant's 1999 Annual Report.

Item 9.  Changes in and Disagreements With Accountants on Accounting and
            Financial Disclosure.

         Not applicable.


PART III.

Item 10.  Directors and Executive Officers of the Registrant.

         The information required herein is incorporated by reference from pages
three to eight and 11 of the  Registrant's  Proxy  Statement dated April 4, 2000
("Proxy Statement").

Item 11.  Executive Compensation.

         The information required herein is incorporated by reference from pages
12 to 16 and 19 to 22 of the Registrant's Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

         The information required herein is incorporated by reference from pages
nine to 11 of the Registrant's Proxy Statement.

Item 13.  Certain Relationships and Related Transactions.

         The information required herein is incorporated by reference from pages
16 to 19 of the Registrant's Proxy Statement.


                                       59

<PAGE>

PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         (a)  Documents Filed as Part of this Report

         (1) The following  financial  statements are  incorporated by reference
from Item 8 hereof (see Exhibit 13):

                  Independent Auditors' Report.

                  Consolidated  Statements of Financial Condition as of December
                   31, 1999 and 1998.

                  Consolidated Statements of Income for the Years Ended December
                     31, 1999, 1998 and 1997.

                  Consolidated  Statements  of Cash  Flows for the  Years  Ended
                     December 31, 1999, 1998 and 1997.

                  Consolidated Statements of Changes in Stockholders' Equity for
                     the Years Ended December 31, 1999, 1998 and 1997.

                  Notes to Consolidated Financial Statements.


         (2) All  schedules  for  which  provision  is  made  in the  applicable
accounting  regulation  of  the  SEC  are  omitted  because  of the  absence  of
conditions under which they are required or because the required  information is
included in the consolidated financial statements and related notes thereto.


                                       60

<PAGE>

         (3) The  following  exhibits  are filed as part of this Form 10-K,  and
this list includes the Exhibit Index.


 No.                                       Description
------------     ---------------------------------------------------------------

2.0              Amended  and  Restated  Agreement  and  Plan of  Merger  by and
                 between  R&G  Financial  Corporation,  the Bank and R-G Interim
                 Premier Bank, dated as of September 27, 1996.(1)
3.1              Certificate of Incorporation of R&G Financial Corporation.(2)
3.2              Certificate of Amendment to Certificate of Incorporation of R&G
                 Financial Corporation.(2)
3.2.1            Amended  and  Restated  Certificate  of  Incorporation  of  R&G
                 Financial Corporation(4)
3.3              Bylaws of R&G Financial Corporation.(2)
3.4              Certificate of Resolutions designating the terms of the
                 Series A Preferred Stock.(6)
3.5              Certificate of Resolutions designating the terms of the
                 Series B Preferred Stock.
4.0              Specimen of Stock Certificate of R&G Financial Corporation.(2)
4.1              Form of Series A Preferred  Stock  Certificate of R&G Financial
                 Corporation.(3)
4.2              Form of Series B Preferred  Stock  Certificate of R&G Financial
                 Corporation.(5)
10.1             Master Purchase, Servicing and Collection Agreement between R&G
                 Mortgage and the Bank dated  February  16, 1990,  as amended on
                 April 1, 1991,  December 1, 1991,  February 1, 1994 and July 1,
                 1994.(2)
10.2             Master  Custodian  Agreement  between R&G Mortgage and the Bank
                 dated February 16, 1990, as amended on June 27, 1996.(2)
10.3             Master  Production  Agreement between R&G Mortgage and the Bank
                 dated  February  16,  1990,  as amended on August 30,  1991 and
                 March 31, 1995.(2)
10.4             Data Processing Computer Service Agreement between R&G Mortgage
                 and R-G Premier Bank dated December 1, 1994.(2)
10.5             Securitization  Agreement  by and between R&G  Mortgage and the
                 Bank, dated as of July 1, 1995.(2)
10.6             R&G Financial Corporation Stock Option Plan.(2)(*)
13.0             1999 Annual Report to Stockholders.
21.0             Subsidiaries  of the Registrant - Reference is made to "Item 1.
                 Business" for the required information.
27.0             Financial Data Schedule.
99.1             Valuation  Report on Minority  Interest  of Bank  Stockholders,
                 prepared by Friedman,  Billings, Ramsey & Co., Inc., dated June
                 13, 1996.(2)
99.2             Update to Valuation on Minority Interest of Bank  Stockholders,
                 prepared  by  Friedman,  Billings,  Ramsey & Co.,  Inc.,  dated
                 September 27, 1996.(1)

-------------------------
(1)      Incorporated by reference from the  Registration  Statement on Form S-4
         (Registration   No.   333-13199)  filed  by  the  Registrant  with  the
         Securities and Exchange Commission ("SEC") on October 1, 1996.

                                       61

<PAGE>

(2)      Incorporated by reference from the  Registration  Statement on Form S-1
         (Registration  No.  333-06245)  filed by the Registrant with the SEC on
         June 18, 1996, as amended.
(3)      Incorporated by reference from the Registrant's  Registration Statement
         on Form S-3 (Registration No.  333-60923),  as amended,  filed with the
         SEC on August 7, 1998.
(4)      Incorporated by reference from the Registrant's  Current Report on Form
         8-K filed with the SEC on November 19, 1999.
(5)      Incorporated by reference from the Registrant's  Registration Statement
         on  Form  S-3  (Registration  No.  333-90463),  filed  with  the SEC on
         November 5, 1999.
(6)      Incorporated by reference from the Registrant's  Current Report on Form
         8-K filed with the SEC on August 31, 1998.
(*)      Management contract or compensatory plan or arrangement.


     (3)(b)       Reports on Form 8-K.

                  Current  Report  on Form 8-K  filed  November  19,  1999  with
                  respect to Amended and Restated  Certificate of  Incorporation
                  of Registrant.

                  None.

                                       62

<PAGE>
                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    R&G FINANCIAL CORPORATION


April 5, 2000                       By:    /s/ Victor J. Galan
                                           -------------------
                                           Victor J. Galan
                                           Chairman of the Board, President and
                                           Chief Executive Officer


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.



/s/ Victor J. Galan                              April 5, 2000
--------------------------------------------
Victor J. Galan
Chairman of the Board, President and
 Chief Executive Officer
 (principal executive officer)


/s/ Joseph R. Sandoval                           April 5, 2000
--------------------------------------------
Joseph R. Sandoval
Senior Vice President and Chief Financial
  Officer (principal financial and
  accounting officer)


/s/ Ana M. Armendariz                            April 5, 2000
--------------------------------------------
Ana M. Armendariz
Director and Treasurer



/s/ Ramon Prats                                  April 5, 2000
--------------------------------------------
Ramon Prats
Executive Vice President and Director

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/s/ Enrique Umpierre-Suarez                      April 5, 2000
-------------------------------------------
Enrique Umpierre-Suarez
Director and Secretary


/s/ Victor L. Galan Fundora                      April 5, 2000
-------------------------------------------
Victor L. Galan Fundora
Director


/s/ Juan J. Diaz                                 April 5, 2000
-------------------------------------------
Juan J. Diaz
Director


/s/ Pedro Ramirez                                April 5, 2000
-------------------------------------------
Pedro Ramirez
Director


/s/ Laureno Carus Abarca                         April 5, 2000
-------------------------------------------
Laureno Carus Abarca
Director


/s/ Eduardo McCormack                            April 5, 2000
-------------------------------------------
Eduardo McCormack
Director


/s/ Gilberto Rivera-Arrega                       April 5, 2000
-------------------------------------------
Gilberto Rivera-Arreaga
Director


/s/ Benigno R. Fernandez                         April 5, 2000
-------------------------------------------
Benigno R. Fernandez
Director


/s/ Ileana M. Colon-Carlo                        April 5, 2000
-------------------------------------------
Ileana M. Colon-Carlo
Director

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/s/ Roberto Gorbea                               April 5, 2000
-------------------------------------------
Roberto Gorbea
Director