EXHIBIT 13


                           R-G FINANCIAL CORPORATION
                               1999 ANNUAL REPORT





Strategic Expansion Into the XXI Century [GRAPHIC-LOGO FOR R&G FINANCIAL]




<PAGE>


                               Table of Contents



  Financial Highlights                1


  Profile                             3


  Letter to Stockholders              5


  Strategic Growth                    17


  Board of Directors                  20


  Key People                          22


  Financials                          23


  Stockholder Information             83

<PAGE>


MISSION STATEMENT


         WE WILL STRIVE FOR LONG-TERM  FINANCIAL  STRENGTH AND  PROFITABILITY BY
CENTERING  OUR STRATEGY ON CUSTOMER  SATISFACTION,  BEING OUR  CUSTOMERS'  FIRST
CHOICE FOR SERVICE AND SOLUTIONS.

Providing  borrowers with competitive  prices,  a variety of loan programs,  and
service which is prompt, courteous and responsive to the unique characteristics
of every customer.

We seek to be a high-performance  financial  organization that delivers one-stop
financial  services to its clients;  that is  recognized as the best provider of
value-added,  service oriented financial  services;  and that offers services of
unmatched quality in terms of accessibility, responsiveness and turnaround time.
The key to our  success  is  effective  execution,  every  day,  everywhere.  By
everyone.

We will achieve these goals by making available a growing number of services and
products  within  an  environment  that is  both  technologically  advanced  and
friendly, and by creating a work environment where all team members care and are
committed individually and as a team to do their best.

What makes us a leader is not what we say, but what we do and the way we do it.

<PAGE>


Financial Highlights
(Dollars in Thousands, except for per Share Data)

<TABLE>
<CAPTION>

                                      Percent
                                      Increase              1999                  1998                   1997
                                      vs. 1998
------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>                   <C>                     <C>
Loan Production                           39%             1,977,322             1,426,069               906,324

Gross Revenues                            29                233,953               180,767               138,440

Net Earnings                              21                 41,335                34,034                23,497

Total Assets                              42              2,911,993             2,044,781             1,510,745

Return on Assets                         (12)                  1.72%                 1.95%                 1.85%

Servicing Portfolio                       28              6,177,511             4,827,798             3,000,888

Efficiency Ratio                         (12)                 54.39%                48.55%                50.28%

Spread Income                             29                 56,578                43,973                36,530

Fee Income                                25                 70,811                56,470                41,105

Shareholders Equity                       22                269,535               221,162               138,054

Common Shareholders
  Equity per Share                        13                   6.79                  5.99                  4.88

Return on Common Equity                   (5)                 20.23%                21.32%                18.69%

Diluted Earnings
  per Common Share                        14                   1.28                  1.12                  0.81

Cash Dividends Declared
  per Common Share                        34                  0.149                 0.111                 0.065

Market Value per Share                   (45)                 11.50                 21.00                  9.63

</TABLE>


[GRAPHIC- GRAPH DEPICTING REVENUES]
[GRAPHIC- GRAPH DEPICTING NET INCOME]
[GRAPHIC- GRAPH DEPICTING ASSETS]

                                        1
<PAGE>


[GRAPHIC- GRAPH DEPICTING LOAN PORTFOLIO]
[GRAPHIC- GRAPH DEPICTING DEPOSITS]
[GRAPHIC- GRAPH DEPICTING STOCKHOLDERS EQUITY]


                                       2
<PAGE>

Profile

         The Company was  organized  in 1972 as R-G  Mortgage  Corp.  In 1996 we
organized R-G Financial as a bank holding company, and went public on August 22,
1996.  R-G  Financial  has $2.9  billion in assets and  operates  53 banking and
mortgage  banking  branches in 29 locations in Puerto Rico and two  locations in
New York.

R-G Financial has the following financial services  companies:  R-G Premier Bank
of Puerto Rico,  R-G Mortgage  Corp.,  and Champion  Mortgage  Corp.  located in
Puerto Rico, and Continental  Capital Corp. located in New York. R-G Mortgage is
the second largest mortgage  originator in Puerto Rico, and R-G Premier Bank has
been one of the fastest growing commercial banks in the island during the last 5
years.  R-G Financial as a holding  company is the fourth largest  locally owned
financial  institution  in Puerto  Rico.  R-G  Financial  manages a $6.2 billion
servicing portfolio and is growing  originations due to a strong housing market,
low interest rates, and  state-of-the  art technology.  R-G Financial has a $1.1
billion  residential  portfolio,  $321.2 million in a commercial real estate and
construction  portfolio,  $54.2 million in commercial business loans and leases,
and $37.7 in  personal  loans and credit  cards.  Its $1.0  bi-llion  investment
portfolio consists primarily of tax-exempt  mortgage-backed  securities and U.S.
Government  agency   securities.   Approximately   1,300   professionals  and  a
sophisticated  computer  center  support the  activities of the  operation.  R-G
Financial  common and preferred  stocks are publicly  traded on the Nasdaq Stock
Market under the symbols "RGFC", "RGFCP" and "RGFCO", respectively.


                                       3
<PAGE>



[GRAPHIC-MAP OF PUERTO RICO DEPICTING COMPANY BRANCH LOCATIONS]
[GRAPHIC-MAP OF LONG ISAND, NEW YORK DEPICTING COMPANY BRANCH LOCATIONS]


                                       4
<PAGE>


Letter to Stockholders
Executive Overview

Dear Fellow Stockholders:

I am pleased to report another year of accomplishments for R-G Financial. During
1999 we achieved record double-digit earnings growth and significantly  enhanced
the fundamentals of our business. We increased our loan portfolio substantially,
strengthened  our balance sheet, and increased the efficiency of our operations.
At the same time, we continued to deliver an exceptionally high level of service
through the Bank and our mortgage banking companies, both in Puerto Rico and the
mainland.


For  several  reasons  1999  was an  outstanding  year for  R-G.  The  Company's
recurring  earnings and dividend  distribution  reached record highs.  Strategic
initiatives  added strength and depth to the Company,  like our expansion to the
United  States  through the  acquisition  of  Continental  Capital Corp. in Long
Island,  New  York.  The  importance  of  the  Long  Island  banking  market  is
underscored  by its sheer size.  With a population of seven  million  (including
Brooklyn and Queens) Long Island is the  equivalent to the 12th largest state in
the United  States.  Each of the four  counties in Long Island is among the 25th
largest in the  nation,  with two of the four  having  median  household  income
higher than the U.S.  average of $36,656,  with effective  total income of $51.4
billion. These are prosperous  markets that we service with two branches located
in the Nassau and Suffolk counties and one additional branch opened in Queens in
January 2000. This operation will provide the necessary economic support for our
entrance to the U.S. market through an operation which has been profitable since
it was formed,  supporting our pro-

[GRAPHIC-  GRAPHIC  PORTRAIT  OF  VICTOR J.  GALAN,  R-G  FINANCIAL  CORPORATION
 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER]

                                       5
<PAGE>


posed expansion to the Hispanic population in the US.

Above  all,  1999  was a year in  which we  added a  substantial  number  of new
customers and increased our assets,  deposits and capital to record levels.  New
banking branches were opened in Plaza del Sol Shopping Center in Bayamon,  Plaza
Inter-americana  in Rio Piedras,  and Plaza Las Americas,  the largest  shopping
center in Puerto Rico with more than two million  square feet of commercial  and
office space, located in the center of the city of San Juan. We now have a total
of three  branches in Bayamon with our latest  branch  opening in this city,  to
better serve and fully  satisfy the banking  needs of our customers in this part
of the metro area.  Also during 1999, we completed the  construction  of another
new branch in Caguas,  one of the largest cities of Puerto Rico, that we already
opened in January  2000,  and  completed a major  remodeling of our San Patricio
Shopping  Center branch located in the Caparra  section of the city of San Juan.
This expansion should support additional growth of deposits and loans in general
since each  branch,  in addition  to the  banking  business,  has  mortgage  and
consumer centers and a commercial lending section seeking new loans, in addition
to the standard drive-in  facilities and automatic teller machines.  Also during
this  period,  we opened new branches of Champion  Mortgage in Bayamon,  Caguas,
Aguadilla and Guayama, increasing the total number of Champion Mortgage branches
to six at the end of 1999 from two the prior  year.  The  strategies  underlying
these  achievements  are  equally  notable  because  they  form the basis of our
business plan for future growth that we continue to successfully implement.

How good a year was it?
First, look at the recurring numbers:

         o  $41.3 million net income
         o  21% earnings increase
         o  14% earnings per share increase
         o  20.23% return on equity
         o  $2.9 billion in total assets
         o  1.72% return on assets
         o  53 loan  production and banking offices located in Puerto Rico and
            the U.S.
         o  Record annual loan production of $2.0 billion.

1999 was a banner year for R-G. Our  profits,  volume of loan  originations  and
assets all reached new highs.  In addition we increased our servicing  portfolio
to $6.2  billion,  a record

[GRAPHIC - CUSTOMER USING AN ATM]

                                        6
<PAGE>


amount for the Company.  We are currently  servicing more than 200,000 customers
through our mortgage and commercial banking operation.

The  stock  market  was  not  favorable   for  financial   stocks  during  1999,
particularly  in Puerto  Rico,  and our stock  price  fell from a high of $21 to
$11.50,  an approximate  50%  reduction,  bringing the stock price close to book
value.  We believe  our stock  price is  undervalued  now,  representing  a real
purchase opportunity for investors.

The management  team of the Company will continue  striving for company  growth,
profitability and stockholders'  value. We believe the continued  achivements of
these objectives will once again be reflected in a more appropiate  valuation of
our stock.

As part of our strategy we have hedged for this  increasing  interest rate cycle
through the  implementation  of three main  initiatives  during  recent  years -
increasing amounts of recurring income to be generated by our loan and servicing
portfolio,  which we increased to record levels at the end of 1999 ($1.6 billion
and $6.2  billion,  respectively);  increasing  our  commercial  loan  portfolio
(comprised  primarily of adjustable rate loans),  which we increased 67% to $280
million  during  1999 as a  result  of our  commercial  banking  expansion;  and
establishing a low-cost  structure in our mortgage banking business,  permitting
it to be profitable  even though we might experience a lower volume of new  loan
originations.  In addition we have  introduced new products  during the last few
years - such as  corporate  lending and sub prime and home equity  loans - which
represent  significant  sources of revenue for R-G. This should  maintain profit
growth in the future.

Puerto Rico's economy appears poised for sustained growth in the first decade of
the 21st century.  The construction  industry is expected to continue  expanding
during the next years - particularly in homebuilding - mostly due to demographic
changes.  Demand for  additional  housing  is  abundant  - for  families  of new
formation,  step up buyers seeking  better  housing and second homes,  and empty
nesters  looking for smaller units,  mostly luxury  apartments,

[GRAPHIC-  QUOTE- We  believe  that the  economy  in Puerto  Rico and the United
 States will continue to perform strongly in 2000.]


                                       7
<PAGE>


while they sell their  existing  larger homes -  completing  the cycle of family
growth and real estate needs.  Investment in homebuilding,  which reached an all
time high of $3.0  billion  in fiscal  1999,  exceeded  investment  in  tourism,
manufacturing,  industrial,  and commercial  development  combined. An important
aspect of this investment is that practically all of it was done with capital of
local investors who are mostly financed by institutions like ours.

We believe that the economy of Puerto Rico and the United  States will  continue
to perform  strongly  during  2000,  with  inflation  remaining  under  control,
permitting  interest  rates to  eventually  stabilize.  This  will  provide  the
economic support for another vigorous and profitable  business cycle, which will
be  beneficial  to  institutions  like ours  dedicated  primarily to real estate
finance.

We believe that the Company's strong position in the mortgage  sector,  combined
with its rapidly expanding  banking operation will continue  producing asset and
earnings  growth in the future.  This should cause the value of our common stock
to increase.

The 1999 Year in Review

Record Financial Results

Earnings for 1999 rose to a record of $41.3  million,  increasing  21% from 1998
earnings of $34.0 million. On a per share basis (diluted),  R-G Financial earned
$1.28 in 1999,  compared to $1.12 the  previous  year,  an increase of 14%.  Our
compounded  annual growth rate for the period  1979-99 was 42.5%,  and 36.4% for
the period  since  August 22,  1996 when we became a public  company.  Since our
initial  public  offering,   we  have  generated   additional  capital  for  our
shareholders of $90 million and increased assets by $1.9 billion, representing a
total growth of 86% in capital and 177% in assets, while paying dividends to our
common  stockholders in the amount of $10.8 million.  We believe that this rapid
growth is  attributable  to three  strategies in particular - our  investment in
technology,  promotional  campaigns  and  advertising;   geographical  expansion
through the opening of new branches in Puerto Rico and in the United States; and
the development of a strong sales culture.  This has resulted in improved market
share in mortgage, commercial and consumer lending, as well as banking deposits.

[GRAPHIC - CUSTOMER USING AN ATM]

                                       8
<PAGE>

Total gross  revenues  for 1999  amounted to $234.0  million  compared to $180.8
million for 1998. Net revenues after  deducting our cost of interest were $127.4
million,  compared to $100.4 million in 1998. A significant  portion of our 1999
net revenues  consisted of net  interest  income  totaling  $56.6  million.  Net
interest  income for 1999 was up by 29% from the 1998 level.  The balance of our
net revenues,  amounting to $70.8 million, consisted of fees generated primarily
from the servicing of our mortgage portfolio, the origination and sale of loans,
and banking services.

The  level of fee  income  in 1999 was 25%  higher  than in  1998.  The  Company
achieved  solid  gains in  virtually  all  categories  -  mortgage  and  banking
operations,  electronic banking, trusts, commercial loans, and credit cards - as
a direct result of providing a unique line of banking  products and personalized
services.

We increased  dividends  to $0.149 per share from $0.111 per share in 1998.  For
the quarter  ended  December 31, 1999,  the dividend was  increased to $0.18 per
share on an annual basis,  a 34%  annualized  increase from the prior  quarterly
dividend.  This was our 13th consecutive increase since the Company went public.
In  addition,  since  January  2000 we  offer a stock  reinvestment  plan to our
stockholders  as a simple method of reinvesting  cash dividends in common stock.
(Refer to our Prospectus on this plan)

Shareholders'  equity of $269.5  million as of December 31, 1999 was up 22% from
$221.2  million in 1998.  Core capital  represented  9.35% of our total  assets,
significantly   above  the  average  commercial  bank,  and  risk-based  capital
represented  16.47%  (on a  consolidated  basis),  substantially  exceeding  the
minimums required by our regulators.

[GRAPHIC - GRAPH OF MORTGAGE SERVICING PORTFOLIO]

                                       9
<PAGE>


Branch Expansion Program

During  1999 we  opened  three  successful  banking  offices  with  the  goal of
increasing commercial and retail core deposits.  During 1999, these new branches
generated deposits in the amount of $29 million, surpassing our own projections.

In our market,  branch  availability  and location  still  influence  consumers'
decisions  about which bank to do business with.  Branches are also important to
many of our commercial  customers  who, to a large extent,  still value and need
physical access. All our branches are strategically located,  mostly in shopping
centers,  and  are  designed  to be  selling  platforms  for  cross-selling  and
relationship  building.  We have created,  in fact, a network of physical  sites
where we can interact with our customers.  This personal  presence  allows us to
consolidate our franchise in banking and mortgage banking.

At the close of the year we had 22 branches of R-G Premier  Bank, 23 branches of
R-G Mortgage and 6 branches of Champion Mortgage (a subsidiary of R-G Mortgage),
each  working in tandem in 29  different  locations  across the island of Puerto
Rico.  In addition  we had two  offices of  Continental  Capital  Corp.  in Long
Island,  New  York.  About  884  employees  were  assigned  to  branches,   loan
origination and processing,  59 to operations,  236 to loan administration,  and
the balance to general  administrative and finance,  which results in a total of
1,293 employees.

[GRAPHIC - R-G ATM CARD]
[GRAPHIC - R-G PREMIER BANK OF PUERTO RICO BANNER]
[GRAPHIC - R-G PLAZA LOGO ON BUILDING]

                                       10
<PAGE>


With this expansion, we have completed a substantial part of our proposed branch
distribution since the most important economic areas of Puerto Rico are covered.
Future growth of physical  locations will be at a slower pace since we have some
other marketing  alternatives  available to cover the remaining territory of the
island in which we do not have physical locations.

Record Loan Production and
Assets Growth

Loan production - comprised of  residential  and commercial  mortgage  lending,
consumer  and  business  lending - reached  an all time high of $2.0  billion in
1999.  This  represented  a 39% increase  from the $1.4 billion of production in
1998.  We achieved this  substantial  growth  through a very strong  advertising
effort using print and broadcast media, a substantial  expansion in branches and
increased telemarketing.

Our residential,  commercial and construction mortgage  originations  translated
into a market share of 30%, based on an estimated  total mortgage market of $5.3
billion  in  Puerto  Rico  last  year,  increasing  from  28%  the  prior  year.
Significant  opportunities  remain for even  greater  market  share in  mortgage
lending.

Champion  Mortgage,  a subsidiary of R-G Mortgage,  achieved  excellent results,
producing a record volume of non-conforming,  including  sub-prime,  residential
mortgage loan originations. In view of the initial success of this operation, we
expanded its scope of business to include a full line of mortgage products.  Our
intention  is to  separate  this part of our  business  in order to focus on the
requirements  of this very  special  market  niche.  During 1999 we opened a new
Champion  Mortgage  branch in Bayamon,  a new branch in Caguas,  a new branch in
Aguadilla, and a new branch in Guayama. In addition, we are presently evaluating
five other locations.

[GRAPHIC - GRAPH OF TOTAL LOAN PRODUCTION]

                                       11
<PAGE>


Our  residential  portfolio  at the  end of 1999  totaled  $1.1  billion,  a 48%
increase from $754 million in 1998.  The average yield for 1999 was 7.42%.  This
portfolio included $1.1 billion of residential first mortgages and $13.0 million
of second mortgages.

During  1998  we  expanded  our  services  by  organizing  a  Construction  Loan
Department  to work  primarily  with real estate  developers.  Previously we had
focused exclusively on financing  individual  residential  construction.  As of
December 31, 1999, we had outstanding loans of $44.6 million, plus commitments
for future funding of $50.6 million.

Our  commercial  loan  portfolio,  including  commercial  mortgages  and leases,
increased to $280.3 million at year-end, an increase of 67% from the prior year.
This increase was due mostly to the introduction of customized  commercial loans
structured to fit borrowers'  needs.  Most of this portfolio is structured  with
interest rate floors,  and generates yields that adjust with fluctuations in the
Prime Rate or LIBOR.  Our  consumer  portfolio,  which  includes  collateralized
consumer loans and credit cards,  amounted to $114.6 million at the end of 1999.
This  portfolio  generated an average yield of 11.24% which improved the average
return of our total portfolio and our spread income.

Other than auto lending, a business in which we are not involved for the moment,
during  1999 we  completed  the  full  line of  products  necessary  to  compete
effectively  either in the asset or the liability side of our banking  business.
We are  able  to  provide  our  clients  this  line of  products  as part of our
cross-selling program.

We expanded our  servicing  portfolio to 107,000  loans with a total  balance of
$6.2  billion,  an increase of $1.3  billion,  or 28% from 1998. We estimate the
total value of our  servicing  portfolio  at $111.0  million as of December  31,
1999, or $26.8 million above the value reflected in our books under Statement of
Financial   Accounting   Standards  No.  125.  This  extra  value  is  primarily
represented by portfolio not capitalized in our books.  Our servicing  portfolio
continues to be a strong source of revenue.  Servicing income increased to

[GRAPHIC  - QUOTE- We are  providing  a unique  line of  banking  products  and
 personalized services.]

                                       12

<PAGE>


$27.1 million in 1999 from $16.0 million in 1998.

We strengthened our credit loss reserves during the year, increasing the reserve
for loan losses to $9.0  million,  a 11% increase from $8.1 million the previous
year. Reserves  approximate 75% of total non-performing loans as of December 31,
1999,  excluding our residential loan portfolio,  where losses have historically
been minimal.

Loans sold during 1999 were  substantial,  totaling $904.5 million.  These sales
consisted of $287.9 million of residential FHA and VA mortgage loans securitized
and sold in GNMA Pools,  and $616.6  million of residential  conventional  loans
mainly sold to the government  sponsored  agencies (Fannie Mae and Freddie Mac).
Our  ability  to  sell  conventional  mortgage  loans  was  made  easier  by the
installation  of scoring  systems  directly  connected with both  entities.  The
direct  connection  allows for faster  response  about loan  approvals,  shorter
processing  time, and immediate  delivery to the secondary market once the loans
are closed.

Our securities  portfolio increased by 63% in 1999, growing to $1.0 billion from
$639.7 million in 1998. These investments  represented 36% of total assets as of
December  31,  1999,  and with a yield of 6.30%,  generated  revenues  of $43.8
million.  Most of these securities are tax-free  federally  guaranteed bonds and
GNMA's.  This  contributed  to the  Company's  reduction in taxes for 1999 to an
effective tax rate of 23% from 24.5% in 1998.

Liquid assets constituted 13.28% of our total assets at year-end, even though we
closed new loans  totaling  $2.0  billion  during the year.  Assets grew by $867
million during 1999 to a record $2.9 billion. This growth was financed by a $323
million increase in deposits,  a $260 million increase in repurchase  agreements
and a $204  million  increase in lines of credit with banks and the Federal Home
Loan Bank of New York. The balance was financed  through  profits,  loan payoffs
and sales, and funds generated by our preferred stock issue of $25 million last
December. The proceeds of this issue, with a gross return to investors of 7.75%,
were  allocated  to increase the capital of the Bank.  At  year-end,  our unused
lines of credit,  (including  lines of

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<PAGE>


credit with the Federal Home Loan Bank),  totaled $446.9 million.  We had $429.4
million of excess collateral available to cover advances from these lines, with
the collateral  primarily  available from our  residential  mortgage  portfolio,
providing us with additional liquidity to continue our fast growth.

Record Deposits

Deposits  were at a record level at the end of 1999,  increasing  by 32% to $1.3
billion  from  $1.0  billion  in  1998.  This  growth  was  mainly  due to three
initiatives:  a very strong  promotional  campaign  designed  to  generate  core
deposits  and to  expand  our  Private  Banking  business;  the  opening  of new
branches;  and the  expansion of our existing  locations.  New deposits with our
Private  Banking  Group  rose  substantially,  and these  accounts  will lead to
additional business in 2000 as the Private Banking Group provides other products
and services to these customers, such as sale of investments,  mutual funds, and
savings and retirement products such as IRAs and Keogh plans.

We are providing a unique line of banking products and personalized  services in
"niche"  savings  programs.  These  programs are designed for customers who seek
high yields,  diversity of products and access to electronic  banking  services,
but who also want their  accounts  to be  FDIC-insured.  The  average per branch
deposit size  increased 20% to $60.5 million in 1999 from $50.3 million in 1998,
even though we opened three new branches during the year. Our average per branch
deposit  size  exceeds  the average per branch  deposits  in Puerto  Rico.  Core
deposits,   primarily   consisting  of  saving  and  direct  deposit   accounts,
represented  59.7% of our total deposits (also above the average for the banking
industry  in  Puerto  Rico).  Brokered  deposits  were  only  9.6% of our  total
deposits.  Our share of the total  deposit  market in Puerto Rico  increased  to
4.50%  from  4.34% in 1998,  while our  share of the  primary  markets  we serve
(northern Puerto Rico plus Caguas,  Ponce, and Mayaguez) increased to 5.76% from
5.39%.

New Services and State
of the Art Technology

The  introduction  of  Interactive  Internet  Banking as part of our strategy to
combine "bricks and web" has been a total success,  and we continue

[GRAPHIC - QUOTE- The  introduction of Interactive  Internet  Banking as part of
 our strategy has been a total success.]

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<PAGE>


to be one of the few banks in Puerto Rico providing  Internet Banking (including
bill payments) while expanding physical  locations.  We are moving a step closer
to creating a true virtual bank. With a virtual bank, most  transactions done at
any  physical  branch  can  instead be  performed  from one's home or office via
computer.  Access to  Internet  has grown  faster than  anticipated.  Statistics
indicate that there are over 450,000 persons currently connected to the Internet
in Puerto Rico. As a result of this  widespread  acceptance,  online banking has
experienced  steady growth.  Web based banking provides us with the potential to
increase  revenues - by attracting new clients while retaining our existing ones
- and decrease operating and transaction costs, thereby improving  efficiencies.
Please be sure to visit us on the web at www.rgonline.com. With this product, we
are offering our customers the full gamut of technological services - electronic
commerce,  home banking,  Internet for mortgage and other loan  applications  as
well as banking transactions, and imaging, as well as our voice response system,
ATM's and platform branch automation. With a push of a button, click of a mouse,
or phone call, our customers can access their  accounts and Company  information
24 hours a day,  7 days a week,  either  through  our  voice-activated  response
system,  offering a 24-hour  toll-free  telephone  account  information  access,
through home banking, or through interactive Internet banking.

The transition into the new millennium was a safe,  uneventful  situation,  with
complete absence of glitches. We want to congratulate all our staff for the easy
transition that never posed a serious disruption to our business, making the Y2K
transition  a success.  Also we want to thank our

[GRAPHIC - GRAPHIC OF R-G ONLINE WEB PAGE]

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<PAGE>


customers for keeping their trust and money in the Bank.

We are pleased with the Company's  results for 1999. We significantly  increased
loan originations and, from our internal loan production, added to our inventory
$660 million of unsold loans in our balance  sheet to expand our  earning-assets
base. As a result, total assets grew to a record $2.9 billion, and our servicing
portfolio increased to a record $6.2 billion.  Total assets under administration
(including our servicing  portfolio)  grew to $9.1 billion during 1999,  rising
32%  from  the  prior  year.  All  of  these  accomplishments  led  to a  strong
improvement  in revenues and net income for 1999. We are  optimistic  that these
accomplishments will also translate into increased profitability in the future.

The Company  will  continue  to  emphasize  strong  capital  ratios,  good asset
quality,  expense control,  and increased spread and fee income as key financial
sources of future success.  Our competitive  advantage is a talented,  motivated
and highly trained staff that is directed by an excellent  management  team that
is compensated  through carefully  designed incentive  programs.  Employees are
committed to delivering exceptional products and services to our customers.  R-G
is already a widely recognized  financial brand with a significant  franchise in
the Puerto Rico market.

Our appreciation to our valued customers for their patronage,  to our great team
of people  for being the very best at what they do, to our  directors  for their
exceptional  dedication to the Company's  success,  and to our  stockholders for
their confidence and support.

All of us at R-G look forward to
adding value to our investment as shareholders today,  tomorrow, as well as into
the new century.  We thank you for your help,  encouragement and support. We are
committed to delivering improving returns for our stockholders.



/s/ Victor J. Galan
-------------------
Victor J. Galan
Chairman of the Board and
Chief Executive Officer
R-G Financial Corporation



[GRAPHIC-PHOTO  OF VICTOR J. GALAN, R-G FINANCIAL  CORPORATION  CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE  OFFICER,  AND RAMON PRATS, VICE CHAIRMAN OF THE BOARD
AND EXECUTIVE VICE PRESIDENT]


                                       16
<PAGE>


Strategic Growth

At the beginning of a new millennium we face new  challenges and  opportunities.
As we open a new century,  the banking  industry sets its eyes on  consolidation
and the  enhancement of technology.  Staying ahead is now pressed by the need to
be prepared.  It is essential  that R-G maintain its  leadership  in banking and
mortgage products,  but also in technology and services.  We must Keep pace with
technology if we are to provide the most  complete and advanced  services to our
customers  and to  provide  the  tools  that our team  needs  to  fulfill  their
expectations.


In 2000 we will continue  implementing  our strategic  plan that consists of the
following key elements:

1.       Continue  to  expand  the  Company's   branch  network  into  desirable
         locations in Puerto Rico and the United  States in order to gain access
         to additional retail funding sources and loan business.

2.       Retain a portion  of our  residential,  commercial  and  consumer  loan
         production  volume and the associated  servicing  (thereby  benefitting
         from economies of scale);

3.       Continue  to  utilize  advanced   technology  and  automated  processes
         throughout the Company's  business to improve customer service,  reduce
         the cost of loan production and servicing, and increase efficiencies.

4.       Cross-sell  retail and private banking  services to the Company's large
         base of mort-

                                       17
<PAGE>

         gage customers, including the Hispanic market in the United States.

5.       Expand to other  sources of income as allowed by local  regulations  in
         the immediate future,  such as affiliation with insurance companies and
         securities firms.

As  time  becomes  a  more  valued  commodity  in  daily  life,  customers  will
increasingly   demand  faster,   more  convenient   service.   Only  the  latest
state-of-the-art technology will be able to satisfy these client expectations.


[GRAPHIC - COMPUTER WITH R-G WEB PAGE ON COMPUTER SCREEN]

                                       18
<PAGE>



                   [GRAPHIC - CORPORATE STRUCTURE FLOW CHART]




                                       19
<PAGE>



                             Corporate Information
                               BOARD OF DIRECTORS


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

Ramon Prats
Vice Chairman of the Board
and Executive Vice President

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

Ana M. Armendariz
Treasurer of the Board and Senior Vice President of Finance RGM

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

Eduardo McCormack
Retired Businessman.
Previously worked for Bacardi Corp. in
various capacities.

Victor L. Galan
Vice President
Champion Mortgage



                     [GRAPHIC - PORTRAITS OF R-G BOARD OF DIRECTORS]


                                       20
<PAGE>


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

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

Juan J. Diaz
Retired businessman.
Former Senior Vice President
of Loan Administration of R-G.

Pedro Ramirez
President & CEO of Empresas Nativas, Inc.,
local real estate
development firm.

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

Ileana M. Colon Carlo
Chief  Administration
and  Financial  Officer
of  McConnell  &  Valdes,  legal counsels.
Former Comptroller General of the Commonwealth of Puerto Rico.


                     [GRAPHIC - PORTRAITS OF R-G BOARD OF DIRECTORS]



                                       21
<PAGE>


                                   Key People
                     Officers of R-G Financial Corporation:

SENIOR MANAGEMENT TEAM

VICTOR J. GALAN, Chairman, President and CEO

RAMON PRATS, Executive Vice President

JOSEPH R. SANDOVAL, Senior Vice President and Chief Financial Officer

RAMON PEREZ, Senior Vice President Loan Administration RGM

MARIO RUIZ, Senior Vice President Secondary Market RGM

ANA M. ARMENDARIZ, Senior Vice President Finance RGM

IVAN VELEZ, Senior Vice President Operations RGPB

JOSE  L. ORTIZ, Vice President Finance RGPB

WILLIAM MARTINEZ, Vice President Administration RGM

SONIA I. VAZQUEZ,  Vice President and General Auditor

MIKE WALLACE, Jr. CEO, Continental Capital Corp.


PRODUCTION GROUP

DENNIS C. TRISTANI, Senior Vice President Commercial Lending RGPB

FELIPE FRANCO,  Senior Vice President Consumer Lending RGPB

ROBERTO CORDOVA, Senior Vice President Loan Production RGM

STEVEN VELEZ, Senior Vice President Underwriting & Technology RGM

EDWIN REYES, Vice President Branch Administration RGPB

VICTOR L. GALAN, Vice President  Champion Mortgage

RICARDO AGUDO, Vice President New Housing RGM

JEANNETE MIRO, Vice President Marketing RGPB

ISMENIA ISIDOR, Vice President Closings Department RGM

VICTOR IRIZARRY, Senior Vice President Construction and Corporate Banking

LOURDES GONZALEZ, Vice President Retail Construction Lending

MARY ROSALES, Vice President  Interim Construction Lending

MIKE MCHUGH, President Continental Capital Corp.


                                       22
<PAGE>

SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA OF R&G FINANCIAL

The following table presents selected  consolidated  financial and other data of
R&G Financial for each of the five years in the period ended  December 31, 1999.
The selected consolidated  financial data should be read in conjunction with the
Consolidated  Financial Statements of R&G Financial,  including the accompanying
Notes,   presented  elsewhere  herein.  In  the  opinion  of  management,   this
information  reflects  all  adjustments,  consisting  only of  normal  recurring
accruals and adjustments, necessary for a fair presentation.

<TABLE>
<CAPTION>

At or For the Year Ended December 31,
                                                            1999        1998        1997          1996         1995
                                                            ----        ----        ----          ----         ----
(Dollars in Thousands, except for per share data)
 <S>                                                   <C>          <C>          <C>          <C>          <C>
             Selected Balance Sheet Data:
     Total assets(1) ..............................   $2,911,993   $2,044,782   $1,510,746   $1,037,798   $  853,206
     Loans receivable, net ........................    1,563,007    1,073,668      765,059      603,751      473,841
     Mortgage loans held for sale .................       77,277      117,126       46,885       54,450       21,318
     Mortgage-backed and investment securities
      held for trading ............................       43,564      450,546      401,039      110,267      113,809
     Mortgage-backed securities available for sale       712,705       95,040       46,004       50,841       61,008
     Mortgage-backed securities held to maturity ..       23,249       28,255       33,326       37,900       41,731
     Investment securities available for sale .....      258,164       59,502       75,863       30,973        3,280
     Investment securities held to maturity .......        5,438        6,344       10,693        5,270        2,046
     Servicing asset ..............................       84,253       58,221       21,213       12,595        8,210
     Cash and cash equivalents(2) .................       65,996      103,728       68,366       98,856      104,195
     Deposits .....................................    1,330,506    1,007,297      722,418      615,567      518,187
     Securities sold under agreements to repurchase      731,341      471,422      433,135       97,444       98,483
     Notes payable ................................      132,707      182,748      103,453      126,842       77,130
     Other borrowings(3) ..........................      408,843      130,000       91,359       65,463       71,315
     Stockholders' equity .........................      269,535      221,162      138,054      115,633       66,385
     Common Stockholders' equity per share(4) .....   $     6.79   $     5.99   $     4.88   $     4.09   $     3.55

  Selected Income Statement Data:

Revenues:
 Net interest income after provision for loan losses   $  52,053    $  37,373    $  30,160   $  24,665   $  20,323
 Loan administration and servicing fees ............      27,109       15,987       13,214      13,029      11,030
 Net gain on sale of loans .........................      37,098       34,955       23,286      12,351       8,384
 Other(5) ..........................................       6,604        5,528        4,605       3,872       4,028
                                                       --------------------------------------------------------------
 Total revenue .....................................     122,864       93,843       71,265      53,917      43,765
                                                       --------------------------------------------------------------
Expenses:
 Employee compensation and benefits ................      24,433       17,095       13,653      10,794       8,284
 Office occupancy and equipment ....................      11,289        8,987        7,131       5,531       4,711
 SAIF special assessment ...........................        --           --                      2,508
 Other administrative and general ..................      33,568       22,687       18,252      15,424      13,731
                                                       --------------------------------------------------------------
                        Total expenses .............      69,290       48,769       39,036      34,257      26,726
                                                       --------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

                                                                     At or For the Year Ended December 31,
                                                            1999        1998        1997         1996         1995
                                                            ----        ----        ----         ----         ----
                                                                  (Dollars in Thousands, except for per share data)
 <S>                                                   <C>          <C>          <C>          <C>          <C>
Income before minority interest in the Bank and
Income taxes .......................................      53,574       45,074       32,229      19,660      17,039
Minority interest in the Bank's earnings ...........        --           --                        538         743
Income taxes .......................................      12,239       11,040        8,732       5,922       5,847
                                                       --------------------------------------------------------------
Net income .........................................      41,335       34,034       23,497      13,200      10,449
                                                       --------------------------------------------------------------
Less: Dividends on preferred stock .................      (3,754)      (1,234)        --          --          --
Net income available to common stockholders ........   $  37,581    $  32,800    $  23,497   $  13,200   $  10,449
Diluted earnings per share (4) .....................   $    1.28    $    1.12    $    0.81   $    0.59   $    0.56

</TABLE>


                                       23
<PAGE>



At or For the Year Ended December 31,
(Dollars in Thousands, except for per share data)

<TABLE>
<CAPTION>

                                                                1999         1998            1997           1996          1995
                                                                ----         ----            ----           ----          ----
<S>                                                        <C>            <C>            <C>            <C>            <C>
Selected Operating Data(6):

Performance Ratios and Other Data:
  Mortgage loans originated and purchased ..............   $ 1,610,945    $ 1,237,415    $   758,486    $   480,525    $  327,107
  Mortgage servicing portfolio .........................     6,177,511      4,827,798      3,000,888      2,550,169     2,298,200
  Return on average assets(6) ..........................          1.72%          1.95%          1.85%          1.38%         1.47%
  Return on average common equity(6) ...................         20.23          21.32          18.69          15.54         17.08
  Equity to assets at end of period ....................          9.26          10.82           9.13          11.14          7.78
  Interest rate spread(7) ..............................          2.40           2.43           2.88           3.00          2.93
  Net interest margin(7) ...............................          2.60           2.72           3.12           3.24          3.26
  Average interest-earning assets to average
    interest-bearing liabilities .......................        104.21         105.93         104.61         104.60        106.50
  Total non-interest expenses to average total assets ..          2.88           2.80           3.08           3.59          3.80
  Full-service Bank offices ............................         22             20             15             15            14
  Mortgage offices (8) .................................         31             23             19             16            13
  Cash dividends declared per common share(4)(9) .......           .149           .111           .065           .069      --
Asset Quality Ratios(10):
  Non-performing loans to total loans at end of period .          3.66%          4.08%          3.89%          3.09%         2.18%
  Non-performing assets to total assets at end of period          2.26           2.41           2.12           1.90          1.32
  Allowance for loan losses to total loans
  at end of period .....................................           .55           0.74           0.87           0.55          0.72
  Allowance for loan losses to total non-performing
  loans at end of period ...............................         15.11          17.92          22.34          17.64         33.19
  Net charge-offs to average loans outstanding .........          0.25           0.55           0.40           0.75          0.08
Bank Regulatory Capital Ratios(11):
  Tier 1 risk-based capital ratio ......................         12.36%         13.41%         13.10%         13.91%        10.53%
  Total risk-based capital ratio .......................         13.08          14.46          14.00          14.79         11.66
  Tier 1 leverage capital ratio ........................          7.07           8.04           7.34           8.45          6.25
</TABLE>


(Footnotes on Following Page)
                                       24
<PAGE>

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

(1)      At December  1999, R&G Mortgage and the Bank had total assets of $715.7
         million and $2.3 billion, respectively, before consolidation.

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

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

(4)      Per  share   information   for  all   periods   presented   takes  into
         consideration  a 2 for 1 stock split paid in June 1998 and an 80% stock
         dividend paid in September 1997.

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

(6)      With the exception of end of period ratios, all ratios for R&G Mortgage
         are based on the average of month end balances while all ratios for the
         Bank are based on average daily balances.

(7)      Interest rate spread represents the difference  between R&G Financial's

         weighted  average  yield on  interest-earning  assets and the  weighted
         average  rate on  interest-bearing  liabilities.  Net  interest  margin
         represents net interest income as a percent of average interest-earning
         assets.   See  "Management's   Discussion  and  Analysis  of  Financial
         Condition and Results of Operations of R&G Financial."

(8)      Includes 6 branches of Champion  Mortgage  Corporation,  R&G Mortgage's
         wholly owned mortgage banking subsidiary, and 2 branches of Continental
         Capital Corp., the Bank's wholly owned mortgage  banking  subsidiary in
         New York.  Also includes 16 R&G Mortgage  facilities  which are located
         within the Bank's offices.

(9)      Includes  $500,000 or $0.025 per share paid on the Class A Common Stock
         in March 1996 prior to the Company's initial public offering. Amount is
         based on weighted average number of shares of Common Stock (Class A and
         Class B) outstanding.

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

(11)     All of such ratios were in compliance with the applicable  requirements
         of the FDIC.

                                       25
<PAGE>

General

        R&G Financial, through its subsidiaries,  is primarily engaged in a wide
range of real estate  secured  lending  activities,  including the  origination,
servicing,  purchase  and sale of  mortgages on  single-family  residences,  the
securitization  and sale of various  mortgage-backed  and related securities and
the holding and  financing  of mortgage  loans and  mortgage-backed  and related
securities  for  sale or  investment.  R&G  Financial  also  originates  for its
portfolio  commercial  real  estate  loans,   residential   construction  loans,
commercial business loans and consumer loans.  Finally, R&G Financial provides a
variety of trust and investment services to its customers.

        R&G  Financial  has  generally  sought to  achieve  long-term  financial
strength and  profitability  by  increasing  the amount and stability of its net
interest  income and other  non-interest  income.  R&G  Financial  has sought to
implement this strategy by (i)  establishing  and  emphasizing the growth of its
mortgage banking  activities,  including  growing its loan servicing  operation;
(ii)  expanding its retail  banking  franchise (the Bank has expanded its branch
system  from two offices at February  1990 to 22 offices at December  31,  1999)
through possible branch acquisition  opportunities that may arise or the opening
of new  branches,  all 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. R&G Financial attempts to
control its overall operating  expenses,  notwithstanding R&G Financial's recent
growth and expansion activities.

Asset and Liability Management
General.

        Changes  in  interest  rates  can  have  a  variety  of  effects  on R&G
Financial's business. In particular, changes in interest rates affect the volume
of mortgage loan originations,  the interest rate spread on loans held for sale,
the  amount  of gain on the sale of  loans,  the  value of R&G  Mortgage's  loan
servicing  portfolio and the Bank's net interest income. A substantial  increase
in  interest  rates  could  also  affect  the  volume  of  R&G  Mortgage's  loan
originations  for both the Bank and third  parties  by  reducing  the demand for
mortgages for home purchases, as well as the demand for refinancings of existing
mortgages.  Conversely,  a substantial decrease in interest rates will generally
increase the demand for  mortgages.  To the extent that interest rates in future
periods were to increase  substantially,  R&G  Financial  would  expect  overall
originations to decline.  A decrease in the volume of R&G  Financial's  mortgage
originations could result in a decrease in the amount of R&G Mortgage's mortgage
origination income and portfolio generated net interest income to the Bank.

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

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

                                       26

<PAGE>

and current market conditions and interest rates.

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

        A more  conventional  but limited  IRRBICO  monitoring  tool involves an
analysis  of the  extent to which  assets and  liabilities  are  "interest  rate
sensitive" and measuring an institution's  interest rate  sensitivity  "gap." An
asset or liability is said to be interest rate sensitive  within a specific time
period if it will mature or reprice  within that time period.  The interest rate
sensitivity "gap" is defined as the difference between  interest-earning  assets
and  interest-bearing  liabilities  maturing  or  repricing  within a given time
period. A gap is considered  positive when the amount of interest rate sensitive
assets  exceeds  the amount of interest  rate  sensitive  liabilities.  A gap is
considered  negative  when the amount of  interest  rate  sensitive  liabilities
exceeds  interest  rate  sensitive  assets.  During a period of rising  interest
rates, a negative gap would tend to adversely affect net interest income,  while
a  positive  gap would tend to result in an  increase  in net  interest  income.
During a period of falling  interest  rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to affect
net  interest   income   adversely.   At  December  31,  1999,  R&G  Financial's
interest-bearing  liabilities  which mature or reprice  within one year exceeded
R&G Financial's  interest-earning  assets with similar characteristics by $691.8
million,  or 23.76% of total  assets.  While a  conventional  gap measure may be
useful,  it is limited in its ability to predict trends in future  earnings.  It
makes no presumptions  about changes in prepayment  tendencies,  deposit or loan
maturity  preferences  or  repricing  time lags that may occur in  response to a
change in the interest rate environment.

R&G Mortgage.

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

        A  mortgage-banking  company is generally  exposed to interest rate risk
from the time the interest rate on the customer's  mortgage loan  application is
established  through the time the mortgage  loan closes,  and until the time the
company  commits to sell the  mortgage  loan.  In order to limit R&G  Mortgage's
exposure to interest  rate risk through the time the mortgage  loan closes,  R&G
Mortgage  generally  does not  lock-in  or  guarantee  the  customer  a specific
interest rate on such loans through the closing date but rather offers customers
an interest  rate that will be based on a  prevailing  market rate that  adjusts
weekly.  Moreover,  in order to limit R&G  Mortgage's  exposure to interest rate
risk  through the time the loan is sold or  committed  to be sold,  R&G Mortgage
may, depending upon market conditions,  enter into forward commitments to sell a
portion of its  mortgage  loans to investors  for delivery at a future time.  At
December 31, 1999, R&G Mortgage had $58.6 million of pre-existing commitments by
third-party  investors  to  purchase  mortgage  loans. To

                                       27
<PAGE>


the extent that R&G Mortgage  originates  or commits to originate  loans without
pre-existing commitments by investors to purchase such loans or is not otherwise
hedged against changes in interest rates ("unhedged  loans"),  R&G Mortgage will
be subject to the risk of gains or losses  through  adjustments  to the carrying
value of loans held for sale or on the actual sale of such loans (the value of
unhedged loans fluctuates inversely with changes in interest rates).

        Finally,  R&G  Mortgage  carries an  inventory  of  mortgage-backed  and
related securities  (primarily  fixed-rate GNMA  certificates).  Generally,  the
value of fixed-rate mortgage-backed securities declines when interest rates rise
and,  conversely,  increases when interest rates fall. At December 31, 1999, R&G
Mortgage held $43.6 million of  mortgage-backed  and related  securities (all of
which carried fixed  interest  rates) which were  classified as held for trading
and  reported  at fair  value,  with  unrealized  gains and losses  included  in
earnings.  Accordingly,  declines in the value of R&G Mortgage's securities held
for trading could have a negative impact on R&G Financial's  earnings regardless
of whether any  securities  were actually  sold. On January  1,1999 R&G Mortgage
reclassified  $427.4  million  of  mortgage-backed  securities  from  trading to
available for sale upon adoption of a new accounting pronouncement. The adoption
of this Statement had no effect on the results of operations of the Company. See
Recent Accounting Pronouncements.

        In order to hedge the interest rate risk with respect to R&G  Mortgage's
mortgage-backed  and related  securities  portfolio,  R&G Mortgage may utilize a
variety of interest rate contracts such as interest rate swaps,  collars,  caps,
options or  futures  (primarily  Eurodollar  certificates  of  deposit  and U.S.
Treasury note contracts).  R&G Mortgage will use such hedging  instruments based
upon market  conditions  as well as the level of market  rates of  interest.  In
determining the amount of its portfolio to hedge, R&G Mortgage will consider the
volatility of prices of its mortgage-backed and related securities (Puerto Rican
tax-exempt GNMAs are generally less volatile than their U.S. counterparts).  For
taxable GNMAs, R&G Mortgage enters into forward sales commitments for 30, 60 and
90 days to reduce its  interest  rate risk.  R&G  Mortgage may also use interest
rate swaps,  caps,  collars,  options and futures to effectively fix the cost of
short-term  funding  sources  which  are  used  to  originate  and  or  purchase
interest-earning  assets with longer  effective  maturities,  such as  mortgage-
backed  securities and fixed rate residential  mortgage loans held prior to sale
in the secondary market.  Such agreements thus reduce the impact of increases in
interest  rates by  preventing  R&G  Mortagage  from  having to replace  funding
sources at a higher cost prior to the time that the interest-earning asset which
was originated or purchased with such source  matures,  reprices or is sold, and
thus can be replaced with a higher-yielding asset.

        At December 31, 1999 R&G Mortgage was a party to two interest  rate swap
agreements. An interest rate swap is an agreement where one party (generally the
Company) agrees to pay a fixed-rate of interest on a notional  principal  amount
to a second party (generally a broker) in exchange for receiving from the second
party  a   variable-rate   of  interest  on  the  same  notional  amount  for  a
predetermined  period of time.  No actual assets are exchanged in a swap of this
type and  interest  payments  are  generally  netted.  R&G  Mortgage's  existing
interest rate swap agreements have an aggregate notional amount of approximately
$70.0 million and expire in December 2009. With respect to such agreements,  R&G
Mortgage makes fixed interest payments of 5.60% and receives payments based upon
the three-month London Interbank Offer Rate ("Libor"). The net interest received
relating  to  R&G   Mortgage's   fixed-pay   interest  rate  swaps  amounted  to
approximately $107,000 and $248,000 during the years ended December 31, 1999 and
1998,  respectively.  Such  interest rate  contracts  have reduced the imbalance
between R&G Mortgage's interest-earning assets and interest-bearing  liabilities
within shorter maturities, thus reducing R&G Mortgage's exposure to increases in
interest rates that may occur in the future.

        The Bank.

        The results of operations of the Bank are substantially dependent on its
net interest income,  which is the difference between the interest income earned
on  its   interest-earning   assets  and  the  interest   expense  paid  on  its
interest-bearing  liabilities. At December 31, 1999, the Bank's interest-earning
assets  included a  portfolio  of loans  receivable,  net of $1.7  billion and a
portfolio of investment  securities and  mortgage-backed  securities

                                       28
<PAGE>


(including held to maturity and available for sale) of $522.6  million.  Because
the Bank's  interest-earning  assets have longer  effective  maturities than its
interest-bearing  liabilities,  the yield on the Bank's  interest-earning assets
generally  will  adjust  more  slowly  than  the  cost  of its  interest-bearing
liabilities and, as a result,  the Bank's net interest income generally would be
adversely  affected by increases in interest  rates and  positively  affected by
comparable  declines in interest  rates.  In addition to affecting  net interest
income,  changes  in  interest  rates  also can  affect  the value of the Bank's
interest-earning  assets,  which  are  comprised  of fixed  and  adjustable-rate
instruments.  At  December  31,  1999,  $493.9  million  or 94.5% of the  Bank's
mortgage-backed and investment  securities were classified as available for sale
and  reported at fair value,  with  unrealized  gains and losses  excluded  from
earnings  and reported net of taxes in other  comprehensive  income,  a separate
component of stockholders' equity.

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

        External hedging involves the use of interest rate swaps, collars, caps,
options  and  futures  to  reduce  interest  rate  risk  on all  mortgage-backed
securities  (excluding CMOs) which are available for sale. At December 31, 1999,
mortgage-backed  securities  available  for  sale  had a fair  value  of  $235.7
million.

        The Bank generally uses interest rate swaps, collars,  caps, options and
futures to effectively fix the cost of short-term funding sources which are used
to purchase  interest-earning  assets with longer effective maturities,  such as
mortgage-backed  securities and fixed-rate  residential  mortgage loans which do
not meet the criteria for sale to the FNMA or the FHLMC in the secondary market.
Such  agreements  reduce the impact of increases in interest rates by preventing
the Bank from  having to replace  funding  sources at a higher cost prior to the
time that the interest-earning asset which was acquired with such source matures
or reprices and thus can be replaced with a higher-yielding asset.

        At December  31, 1999,  the Bank was a party to six  interest  rate swap
agreements.  The Bank's existing interest rate swap agreements have an aggregate
notional amount of  approximately  $85.0 million and expire between October 2000
and  December  2009.  With  respect to such  agreements,  the Bank makes  fixed
interest  payments ranging from 4.70% to 6.09% and receives  payments based upon
the three-month Libor and Libid. The net expense related to the Bank's fixed-pay
interest rate swaps amounted to  approximately  $422,000,  $198,000 and $293,000
during the years  ended  December  31,1999,  1998 and 1997,  respectively.  Such
interest  rate  contracts   have  reduced  the  imbalance   between  the  Bank's
interest-earning   assets  and   interest-bearing   liabilities  within  shorter
maturities,  thus,  reducing the Bank's  exposure to increases in interest rates
that may occur in the future.

     As discussed  above,  the Bank may also enter into interest rate,  collars,
caps, options and futures. However, at December 31,1999 the Bank was not a party
to any such interest rate contracts.

                                       29
<PAGE>

The following table  summarizes the  anticipated  maturities or repricing of R&G
Financial's  interest-earning  assets  and  interest-bearing  liabilities  as of
December 31, 1999,  based on the  information  and  assumptions set forth in the
notes below.

<TABLE>
<CAPTION>

                                                      Four to    More Than     More Than
(Dollars in Thousands)                Within Three    Twelve    One Year to   Three Years   Over Five
                                         Months       Months    Three Years  to Five Years    Years        Total
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>
 Interest-earning assets(1):

Loans receivable:
   Residential real estate loans     $   36,328   $  102,833   $  233,868   $  184,472   $  555,371   $1,112,872
   Construction loans                    22,013       11,283       11,283           --           --       44,579
   Commercial real estate loans         222,656          633        1,246          693          808      226,036
   Consumer loans                        26,428       32,981       45,037       20,292       10,398      135,136
   Commercial business loans             21,100       16,998       13,225        2,785          123       54,231
Mortgage loans held for sale             20,137       57,140           --           --           --       77,277
Mortgage-backed securities(2)(3)        142,664      404,320       55,004       42,788      134,742      779,518
Investment securities(3)                 56,476       49,944      113,735       39,459        3,987      263,601
Other interest-earning assets(4)         23,744           --           --           --           --       23,744
                                     ----------------------------------------------------------------------------
   Total                             $  571,546   $  676,132   $  473,398   $  290,489   $ 705,429    $2,716,994
                                     ----------------------------------------------------------------------------
Interest-bearing liabilities:

Deposits(5):
   NOW and Super NOW accounts(6)     $    6,624   $   18,575   $   20,421   $   16,541   $   70,516   $  132,677
   Passbook savings accounts(6)           2,842        8,232       20,500       16,400       65,602      113,576
   Regular and commercial checking(6)     7,880       22,063       24,254       19,645       83,753      157,595
   Certificates of deposit              223,955      536,948       77,900       71,252       11,974      922,029
FHLB advances                           264,500      104,500        5,000       10,000           --      384,000
Securities sold under agreements
    to repurchase(7)                    746,341           --           --           --           --      746,341
Other borrowings(8)                      82,050       25,000       35,500           --           --      142,550
                                     ----------------------------------------------------------------------------
      Total                           1,334,192      715,318      183,575      133,838      231,845    2,598,768
                                     ----------------------------------------------------------------------------

Effect of hedging instruments          (140,000)      30,000       30,000           --       80,000           --
                                     $1,194,192   $  745,318   $  213,575    $ 133,838    $ 311,845   $2,598,768

Excess (deficiency) of interest-
earning assets over interest-
bearing liabilities                  $ (622,646)  $  (69,186)   $ 259,823   $  156,651    $ 393,584   $  118,226


Cumulative excess (deficiency) of
  interest-earning assets over
  interest-bearing liabilities       $ (622,646)  $ (691,832)  $ (432,009)  $ (275,358)   $ 118,226
Cumulative excess (deficiency) of
    interest-earning assets over
    interest-bearing liabilities as
    a percent of total assets           (21.38)%      (23.76)%     (14.84)%      (9.46)%       4.06%

</TABLE>

                                       30
<PAGE>

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

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

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

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

(5)  Does not include non-interest-bearing deposit accounts.

(6)  Although the Bank's  negotiable  order of withdrawal  ("NOW") and Super NOW
     accounts,  passbook savings  accounts and checking  accounts are subject to
     immediate  withdrawal,  management  considers a substantial  amount of such
     accounts  to  be  core  deposits  having   significantly  longer  effective
     maturities  based on the Bank's  retention  of such  deposits  in  changing
     interest rate environments.  The table assumes that funds will be withdrawn
     from  the  Bank at  annual  rates  for NOW  accounts  and for  regular  and
     commercial checking accounts, ranging from 10% for 0-12 months, 19% for 1-5
     years, 41% for 5-10 years,  65% for 10-20 years and 100%  thereafter;  and,
     for passbook savings accounts, ranging from 5% for 0-12 months, 20% for 1-5
     years, 40% for 5-10 years, 65% for 10-20 years and 100% thereafter.

(7)  Includes federal funds purchased.

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

        Although  "gap"  analysis is a useful  measurement  device  available to
management in determining  the existence of interest rate  exposure,  its static
focus as of a particular date makes it necessary to utilize other  techniques in
measuring  exposure to changes in interest rates.  For example,  gap analysis is
limited  in its  ability  to  predict  trends  in future  earnings  and makes no
assumptions  about  changes in prepayment  tendencies,  deposit or loan maturity
preferences or repricing time lags that may occur in response to a change in the
interest  rate  environment.  As a result,  R&G  Financial,  through  simulation
models,  also analyzes on a monthly basis the estimated  effects on net interest
income under  multiple  rate  scenarios,  including  increases  and decreases in
interest  rates  amounting to 200 and 100 basis  points.  The IRRBICO  regularly
reviews  interest rate risk by forecasting  the impact of  alternative  interest
rate scenarios on net interest  income and by evaluating such impact against the
maximum potential changes in net interest income. The following table sets forth
at December 31, 1999 the  estimated  percentage  change in R&G  Financial's  net
interest income based on the indicated changes in interest rates.

                                 NET INTEREST INCOME
          -----------------------------------------------------------------
               Change in             Expected
            Interest Rates         Net Interest     Amount      Percentage
          (in Basis Points)(1)      Income(2)      of Change      Change
          -----------------------------------------------------------------
                                 (Dollars in Thousands)
                 +200             $  46,282    $  (17,588)      (27.54)%
                 +100                55,314        (8,556)      (13.40)
             Base Scenario           63,870            --           --
                 -100                71,028         7,158        11.21
                 -200                75,809        11,939        18.69



(1)    Assumes  an  instantaneous  uniform  change  in  interest  rates  at  all
       maturities.
(2)    Net interest income amounts exclude amortization of deferred loan fees.

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

                                       31
<PAGE>

        Changes in Financial Condition
        General.

        At December  31, 1999,  R&G  Financial's  total assets  amounted to $2.9
billion, as compared to $2.0 billion at December 31, 1998. The $867.2 million or
42.4%  increase  in total  assets  during the year ended  December  31, 1999 was
primarily the result of a $489.3 million or 45.6% increase in loans  receivable,
net, a $210.7 million or 38.6% increase in  mortgage-backed  securities held for
trading  and  available  for sale,  and a $198.7  million or 333.9%  increase in
investment securities available for sale.

        Cash and Money Market Investments.

        Cash  and  money  market  investments  (consisting  of cash and due from
banks, securities purchased under agreements to resell, time deposits with other
financial  institutions  and federal  funds sold)  amounted to $66.0 million and
$103.7 million as of December 31, 1999 and 1998, respectively.

        Loans Receivable and Mortgage Loans Held for Sale.

        At December 31, 1999, R&G Financial's loans receivable,  net amounted to
$1.6 billion or 53.7% of total  assets,  as compared to $1.1 billion or 52.5% as
of December  31,  1998.  The growth in R&G  Financial's  loans  receivable,  net
reflects R&G  Financial's  strategy of increasing its loans held for investment,
including  residential  mortgage,  construction,   commercial  real  estate  and
commercial  business  loans.  During the years ended December 31, 1999, 1998 and
1997,  total  loans  originated  and  purchased  by the  Bank  (including  loans
originated  by R&G  Mortgage on behalf of the Bank)  amounted  to $1.1  billion,
$755.5 million and $435.4 million, respectively.

        At December 31, 1999, R&G Financial's  allowance for loan losses (all of
which is maintained in the Bank's loan portfolio)  totaled $9.0 million,  which
represented a $916,000 or 11.4%  increase from the level  maintained at December
31,  1998.  At  December  31,  1999,  R&G  Financial's   allowance   represented
approximately   0.55%  of  the  total  loan   portfolio   and  15.11%  of  total
non-performing  loans, as compared to 0.74% and 17.92% at December 31, 1998. The
increase in the  allowance for loan losses is  attributable  to the provision of
$4.5 million for loan losses  during the year,  which  exceeded net  charge-offs
amounting to approximately $3.6 million. During the year ended December 31,1999,
the Company  experienced a reduction in net  charge-offs of  approximately  $2.1
million compared to the year ended December 31,1998.

        Management of R&G Financial  believes that its allowance for loan losses
at  December  31,  1999 was  adequate,  based  upon,  among  other  things,  the
significant  level of  single-family  residential  loans within R&G  Financial's
portfolio  (as  compared to  commercial  real  estate,  commercial  business and
consumer  loans,  which are considered by management to carry a higher degree of
credit risk) and the low level of loan charge-offs  normally  experienced by the
Company with respect to its loan portfolio.  However, there can be no assurances
that additions to such allowance will not be necessary in future periods,  which
could adversely affect R&G Financial's results of operations.

        At December 31, 1999 and 1998,  mortgage loans held for sale amounted to
$77.3 million and $117.1  million,  respectively.  Mortgage  loans held for sale
primarily reflects loans which are in the process of being securitized and sold.
The level of mortgage  banking  activities is highly  dependent  upon market and
economic factors.

       Securities Held for Trading, Available for Sale and Held for Investment.

        R&G  Financial   maintains  a  substantial  portion  of  its  assets  in
mortgage-backed  and investment  securities  which are classified as either held
for trading,  available for sale or held to maturity.  At December 31, 1999, R&G
Financial's  aggregate  mortgage-backed  and investment  securities totaled $1.0
billion or 35.8% of total  assets,  as  compared  to $639.7  million or 31.3% at
December 31, 1998, respectively.

        Securities held for trading consist  primarily of FHA and VA loans which
have been  securitized as GNMA pools and are being held for sale to institutions
in the secondary market. At December 31, 1999 and 1998, all such securities were
held by R&G  Mortgage.  Securities  held for trading are  reported at fair value
with unrealized gains and losses included in earnings.

        Securities  available  for sale consist of  mortgage-backed  and related
securities (tax exempt GNMA pools,  FNMA and

                                       32
<PAGE>

FHLMC certificates as well as CMOs and CMO residuals) and U.S. Government agency
securities,  held by the Bank or R&G  Mortgage.  At December  31, 1999 and 1998,
securities  available  for sale  totaled  $970.9  million  and $154.5  million,
respectively.  Securities  available  for sale are  reported  at fair value with
unrealized  gains and losses  excluded  from  earnings,  and  reported  in other
comprehensive income, a separate component of stockholders' equity.

        Securities held to maturity consist of mortgage-backed securities (GNMA,
FNMA and FHLMC  certificates),  Puerto  Rico  Government  obligations  and other
Puerto Rico securities, all of which were held by the Bank. At December 31, 1999
and 1998,  securities held to maturity  totaled $28.6 million and $34.6 million,
respectively.  Securities  held to maturity are accounted for at amortized cost.
At December 31, 1999 and 1998, R&G Financial's securities held to maturity had a
market value of $28.7 million and $34.6 million, respectively.

Mortgage Servicing Asset.

        As of  December  31, 1999 and 1998,  R&G  Financial  reported  servicing
assets  of  $84.3  million  and  $58.2  million,   respectively.  R&G  Financial
recognizes both purchased and originated  mortgage servicing rights as assets in
its Consolidated Financial Statements. R&G Financial evaluates the fair value of
its servicing asset on a quarterly basis to determine any potential  impairment.
Any future  decline in  interest  rates  which  results  in an  acceleration  in
mortgage  loan  prepayments  could  have an  adverse  effect on the value of R&G
Financial's  mortgage  servicing rights,  which is dependent upon the cash flows
from the underlying mortgage loans.

Deposits.

        At December 31, 1999, deposits totaled $1.3 billion, as compared to $1.0
billion at December 31, 1998.  The $323.2  million or 32.1% increase in deposits
during the year ended  December  31, 1999 was  primarily  due to  promotions  in
connection  with  new  accounts  and  competitive  pricing.  One of  the  Bank's
strategies  is to  increase  its core  deposits,  which  provide a source of fee
income and the ability to cross-sell  other products and services.  As a result,
core  deposits  (consisting  of  passbook,  NOW and Super NOW,  and  regular and
commercial  checking accounts as well as certificates of deposit under $100,000)
increased from $711.0 million or 70.6% of total deposits at December 31, 1998 to
$794.2 million or 59.7% of total deposits at December 31, 1999.

Borrowings.

        Other than deposits, R&G Financial's primary sources of funds consist of
securities  sold under  agreements  to repurchase  (consisting  of agreements to
purchase  on  a  specified  later  date  the  same  or  substantially  identical
securities) ("repurchase agreements"). At December 31, 1999 and 1998, repurchase
agreements totaled $731.3 million and $471.4 million, respectively.

        Notes payable consist  primarily of warehouse lines of credit (which are
used to fund loan  commitments of R&G Mortgage) and Section 936 promissory notes
(which represents a low cost source of short and intermediate-term funds for the
Bank).  At December 31,  1999,  notes  payable  amounted to $132.7  million,  as
compared to $182.7  million at December  31,  1998.  The $50.0  million or 27.4%
decrease in notes payable  during the year ended  December 31, 1999  reflected a
$50.1 million or 50.8% decrease in warehousing lines.

        Advances from the FHLB of New York amounted to $384.0 million and $121.0
million at December 31, 1999 and 1998, respectively.  At December 31, 1999, FHLB
advances were scheduled to mature at various dates commencing on January 3, 2000
until December 18, 2003, with an average interest rate of 5.75%.

Stockholders' Equity.

         Stockholders' equity increased from $221.2 million at December 31, 1998
to $269.5  million at December 31, 1999.  The $48.4 million or 21.9% increase in
stockholders'  equity  during  1999 was  primarily  due to the  issuance  of $25
million of 7.75%  non-cumulative,  perpetual  Monthly  Income  Preferred  Stock,
Series B (the "Series B Preferred  Stock"),  and the $41.3 million of net income
for the year.  The increases in  stockholders'  equity were  slightly  offset by
dividends  paid during the year of $8.0 million on common and  preferred  stock,
and a decrease in unrealized gains on securities available for sale, from a $1.4
million gain at December 31, 1998 to a $7.8 million loss at December 31,1999.

                                       33
<PAGE>


Results of Operations

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

        R&G  Financial's   major  business   activities   consist  of:  (i)  the
origination  by R&G  Mortgage  of real  estate  mortgage  loans for sale and the
servicing by R&G Mortgage of real estate  mortgage loans for third parties;  and
(ii)  attracting  deposits  from the  general  public and using  such  deposits,
together with other borrowings,  for investment principally by the Bank in loans
(single-family  residential mortgage loans,  construction loans, commercial real
estate  loans,   commercial   business  loans  and  consumer   loans),   and  in
mortgage-backed  and investment  securities.  To a much more limited extent, R&G
Financial also provides trust and investment  services to the public through the
Bank's Trust Department.

         The following table reflects the principal  revenue sources of the Bank
and R&G Mortgage  and the  percentage  contribution  of each  component  for the
periods presented.

<TABLE>
<CAPTION>

                                                                      Year Ended December 31,

                                                      1999                    1998                   1997
(Dollars in Thousands)                          Amount     Percent      Amount    Percent     Amount     Percent
 <S>                                           <C>           <C>       <C>          <C>       <C>          <C>
The Bank:
Net interest income after
   provision for loan losses                  $ 45,344      36.90%    $ 31,193     33.24%    $ 25,544     35.84%
Loan administration and servicing fees             476       0.39           --     --              --     --
Net gain on sale of loans                        9,559       7.78       12,191     12.99        5,436      7.63
Net gain on sale of investment securities           20       0.02          278      0.30          107      0.15
Other income(1)                                  5,380       4.38        4,780      5.09        2,915      4.09
                                             ------------------------------------------------------------------
                                                60,779      49.47       48,442     51.62       34,002     47.71
                                             ------------------------------------------------------------------
R&G Mortgage:

Net interest income                              6,708       5.46        6,180      6.58        4,616      6.48
Loan administration and servicing fees          26,633      21.68       15,987     17.04       13,214     18.54
Net gain on origination and sale of loans       27,541      22.41       22,472     23.95       18,597     26.10
Other income(1)                                  1,203       0.98          762      0.81          836      1.17
                                              ------------------------------------------------------------------
                                                62,085      50.53       45,401     48.38       37,263     52.29
                                              ------------------------------------------------------------------
                                              $122,864     100.00%    $ 93,843  100.00% $      71,265    100.00%
                                              ------------------------------------------------------------------
</TABLE>


         (1) Comprised of service charges, fees and other for the Bank and other
miscellaneous revenue sources for the Bank and R&G Mortgage.

                                       34

<PAGE>


        R&G Financial  reported net income of $41.3  million,  $34.0 million and
$23.5  million  during  the  years  ended  December  31,  1999,  1998 and  1997,
respectively.  Net income  increased  by $7.3  million or 21.5%  during the year
ended December 31, 1999, as compared to 1998, due to a $12.6 million increase in
net interest  income and a $14.3 million  increase in total other income,  which
were partially offset by a $20.5 million  increase in total operating  expenses.
Net income  increased by $10.5  million or 44.8% during the year ended  December
31, 1998,  as compared to 1997,  due to a $7.4 million  increase in net interest
income and a $15.4 million increase in total other income,  which were partially
offset by a $9.7 million increase in total operating expenses.

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

        Net interest  income  totaled  $56.6  million,  $43.9  million and $36.5
million during the years ended December 31, 1999,  1998 and 1997,  respectively.
Net interest  income  increased by $12.6  million or 28.7% during the year ended
December 31,  1999,  as compared to the year ended  December  31,  1998,  due to
significant  increases in the average balance of interest-earning  assets, which
compensated  for a decrease in the ratio of average  interest-earning  assets to
average interest-bearing liabilities from 105.93% in 1998 to 104.21% in 1999, as
well as a decline in the  Company's  interest  rate spread from 2.43% in 1998 to
2.40% in 1999. Net interest income increased by $7.4 million or 20.4% during the
year  ended  December  31,  1998,  due to an  increase  in the ratio of  average
interest-earning assets to average interest-bearing liabilities from 104.61% for
1997 to  105.93%  for 1998,  which was  partially  offset by a  decrease  in R&G
Financial's  interest  rate-spread  from  2.88% for 1997 to 2.43% for 1998.

                                       35
<PAGE>


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

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                              1999                                1998
                                                   Average              Yield/      Average                  Yield/
                                                   Balance   Interest  Rate (1)     Balance      Interest   Rate (1)
                                                    -------   --------  --------     -------      --------   --------
(Dollars in Thousands)
 <S>                                             <C>            <C>         <C>     <C>           <C>           <C>
        Interest-Earning Assets:

Cash and cash equivalents(2)                    $   15,963     $  840      5.26%   $   25,731    $   1,341     5.21%
Investment securities held for trading                  --         --        --           344           19     5.52
Investment securities available for sale           124,559      7,834      6.29        57,042        3,337     5.85
Investment securities held to maturity               6,271        330      5.26         9,485          544     5.74
Mortgage-backed securities held for trading         33,245      1,871      5.63       406,123       24,876     6.13
Mortgage-backed securities available for sale      502,176     31,989      6.37        38,608        2,645     6.85
Mortgage-backed securities held to maturity         29,684      1,763      5.94        31,095        1,877     6.04
Loans receivable, net(3)(4)                      1,446,575    117,304      8.11     1,037,829       89,044     8.58
FHLB of New York stock                              17,777      1,210      6.81         8,517          614     7.21
                                               ---------------------------------------------------------------------
        Total interest-earning assets            2,176,250   $163,141     7.50%     1,614,774    $ 124,297     7.70%
                                               ---------------------------------------------------------------------
Non-interest-earning assets                        228,253                          129,498
                                               ---------------------------------------------------------------------
        Total assets                            $2,404,503                        $ 1,744,272
                                               =====================================================================
Interest-Bearing Liabilities:

Deposits                                       $ 1,153,537   $ 53,643      4.65%   $  826,487   $   38,439     4.65%
Securities sold under agreements to
repurchase(5)                                      491,230     27,474      5.59       416,249       23,876     5.74
Notes payable                                      212,028     13,634      6.43       186,147       12,641     6.79
Subordinated debt(6)                                     -          -         -         1,469          148    10.07
Other borrowings(7)                                231,616     11,812      5.10        94,025        5,220     5.55
        Total interest-bearing liabilities       2,088,411  $ 106,563      5.10%    1,524,377   $   80,324     5.27%
                                               ---------------------------------------------------------------------

Non-interest-bearing liabilities                    75,291                             46,025
                                               ---------------------------------------------------------------------
     Total liabilities                           2,163,702                          1,570,402
Stockholders' equity                               240,801                            173,870
                                               ---------------------------------------------------------------------
     Total liabilities and stockholders'
     equity                                    $ 2,404,503                        $ 1,744,272
                                               =====================================================================
Net interest income; interest rate spread(8)                $  56,578      2.40%                 $  43,973     2.43%
                                               =====================================================================
Net interest margin(8)                                                     2.60%                               2.72%
                                               =====================================================================
Average interest-earning assets to average
                interest-bearing liabilities                             104.21%                             105.93%
                                               =====================================================================
</TABLE>

(footnotes on following page)

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                                 1997
                                                   Average                 Yield/
                                                   Balance      Interest  Rate (1)
(Dollars in Thousands)                             -------      --------  --------
 <S>                                            <C>            <C>           <C>

        Interest-Earning Assets:

Cash and cash equivalents(2)                   $   30,967     $   1,674     5.41%
Investment securities held for trading              5,466           328     6.00
Investment securities available for sale           51,105         3,205     6.27
Investment securities held to maturity             15,095           777     5.15
Mortgage-backed securities held for trading       249,930        17,174     6.87
Mortgage-backed securities available for sale      44,693         3,200     7.16
Mortgage-backed securities held to maturity        35,642         2,152     6.04
Loans receivable, net(3)(4)                       732,064        68,514     9.36
FHLB of New York stock                              4,710           311     6.60
                                              -----------------------------------
        Total interest-earning assets           1,169,672     $  97,335     8.32%
                                              -----------------------------------
Non-interest-earning assets                        98,880
                                              -----------------------------------
        Total assets                          $ 1,268,552
                                              ===================================
Interest-Bearing Liabilities:

Deposits                                      $   668,704    $   32,434     4.85%
Securities sold under agreements to
repurchase(5)                                     226,771        13,483     5.95
Notes payable                                     151,440         9,616     6.35
Subordinated debt(6)                                3,250           324     9.97
Other borrowings(7)                                67,973         4,948     7.28
                                              -----------------------------------
        Total interest-bearing liabilities      1,118,138    $   60,805     5.44%
                                              -----------------------------------

Non-interest-bearing liabilities                   24,680
     Total liabilities                          1,142,818
Stockholders' equity                              125,734
                                              -----------------------------------
     Total liabilities and stockholders'
     equity                                   $ 1,268,552
                                              ===================================
Net interest income; interest rate spread(8)                  $  36,530     2.88%
                                              ===================================
Net interest margin(8)                                                      3.12%
                                              ===================================
Average interest-earning assets to average
                interest-bearing liabilities                              104.61%
                                              ===================================
</TABLE>

(footnotes on following page)
                                       36
<PAGE>

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

(1)      At December 31, 1999, the yields earned and rates paid were as follows:
         cash  and  cash  equivalents,  5.37%;  investment  securities  held  to
         maturity,  5.91%;  investment  securities  available  for sale,  6.76%;
         mortgage-backed  securities  held for trading,  6.41%;  mortgage-backed
         securities  available for sale,  6.71%;  mortgage  loans held for sale,
         8.18%;  loans receivable,  net, 8.36%;  FHLB of New York stock,  6.75%;
         total interest-earning assets, 7.68%; deposits,  4.84%; securities sold
         under  agreements to repurchase,  5.89%;  notes payable,  6.58%;  other
         borrowings, 5.31%; total interest-bearing liabilities,  5.34%; interest
         rate spread, 2.34%.

(2)      Comprised  of cash  and due  from  banks,  securities  purchased  under
         agreements to resell,  time deposits with other banks and federal funds
         sold.
(3)      Includes mortgage loans held for sale and non-accrual loans.
(4)      Interest  income on loans  include  loan fees  amounting  to  $295,000,
         $367,000 and $366,000  during the years ended  December 31, 1999,  1998
         and 1997,  respectively  or .25%,  .41% and .53% of interest  income on
         loans during such respective periods.
(5)      Includes federal funds purchased.
(6)      Represents a seven-year subordinated capital note of the Bank issued in
         1991,  which was  subject to an annual  sinking  fund  requirement  and
         matured in 1998.
(7)      Comprised of  long-term  debt,  advances  from the FHLB of New York and
         other borrowings.
(8)      Interest rate spread represents the difference  between R&G Financial's

         weighted  average  yield on  interest-earning  assets and the  weighted
         average  rate on  interest-bearing  liabilities.  Net  interest  margin
         represents net interest income as a percent of average interest-earning
         assets.


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

<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                       1999 vs. 1998                           1998 vs. 1997
                                                    Increase / Decrease         Total       Increase / Decrease           Total
                                                           Due to             Increase             Due to                Increase
(Dollars in Thousands)                              Rate        Volume       (Decrease)      Rate          Volume       (Decrease)

        Interest-Earning Assets:

<S>                                             <C>          <C>            <C>            <C>          <C>            <C>
Cash and cash equivalents(1)                    $     8      $    (509)     $   (501)      $  ( 50 )    $   ( 283 )    $  ( 333 )
Investment securities held for trading               --            (19)          (19)          ( 2 )        ( 307 )       ( 309 )
Investment securities available for sale            547          3,950         4,497         ( 239 )          372           133
Investment securities held to maturity              (30)          (184)         (214)           56          ( 289 )       ( 233 )
Mortgage-backed securities held for trading        (165)       (22,840)      (23,005)      ( 3,031)        10,733         7,702
Mortgage-backed securities available for sale    (2,415)        31,759        29,344         ( 119 )        ( 436 )       ( 555 )

</TABLE>



<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                       1999 vs. 1998                           1998 vs. 1997
                                                    Increase / Decrease         Total       Increase / Decrease           Total
                                                           Due to             Increase             Due to                Increase
(Dollars in Thousands)                              Rate        Volume       (Decrease)      Rate          Volume       (Decrease)
<S>                                            <C>           <C>            <C>        <C>              <C>            <C>
        Interest-Earning Assets:

Mortgage-backed securities held to maturity         (29)           (85)         (114)           --          ( 275 )       ( 275 )
Loans receivable, net(2)                         (6,810)        35,070       28,260        ( 8,087 )       28,617        20,530
FHLB of New York stock                              (72)           668           596            52            251           303
                                               --------------------------------------------------------------------------------
   Total interest-earning assets               $ (8,966)     $  47,810      $ 38,844   $  ( 11,420 )    $  38,383      $ 26,963
                                               --------------------------------------------------------------------------------
Interest-Bearing Liabilities:

Deposits                                        $    (7)     $  15,211      $ 15,204   $  ( 1,648 )     $   7,653      $  6,005
Securities sold under agreements to repurchase     (703)         4,301         3,598        ( 873 )        11,266        10,393
Notes payable                                      (765)         1,758           993          821           2,204         3,025
Subordinated debt(3)                                  -           (148)         (148)           2           ( 178 )       ( 176 )
                                               --------------------------------------------------------------------------------
Other borrowings(4)                              (1,047)         7,639         6,592      ( 1,624 )         1,896           272
                                               --------------------------------------------------------------------------------
   Total interest-bearing liabilities           $(2,522)     $  28,761      $ 26,239   $  ( 3,322 )     $  22,841      $ 19,519
                                               --------------------------------------------------------------------------------
Increase in net interest income                                             $ 12,605                                   $  7,444
                                               --------------------------------------------------------------------------------
</TABLE>


(Footnotes on following page)

<PAGE>


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

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

(2)  Includes mortgage loans held for sale.

(3)  Represents  a  seven-year  subordinated  capital note of the Bank issued in
     1991,  which was subject to an annual sinking fund  requirement and matured
     in 1998.

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

                                       37

<PAGE>

Interest Income.

        Total  interest  income  increased by $38.8  million or 31.3% during the
year ended  December  31, 1999 as compared to the year ended  December 31, 1998,
and increased by $27.0 million or 27.7% during the year ended  December 31, 1998
over the year ended  December 31, 1997.  Interest  income on loans,  the largest
component of R&G Financial's interest-earning assets, increased by $28.3 million
or 31.7%  during the year ended  December 31, 1999 as compared to the year ended
December 31, 1998,  and increased by $20.5 million or 30.0% during 1998 over the
year ended  December 31,  1997.  Such  increases  were  primarily  the result of
increases  in the  average  balance of loans  receivable  of $408.7  million and
$305.8 million during the years ended December 31, 1999 and 1998,  respectively.
One of R&G  Financial's  strategies  in  recent  years  has  been  to  grow  R&G
Financial's loans held for investment.

        Interest income on mortgage-backed and investment securities (which, for
purposes of this discussion, includes securities held for trading, available for
sale and held to maturity)  increased by $10.5  million or 31.5% during the year
ended  December 31, 1999 as compared to the year ended  December  31, 1998,  and
increased by $6.5 million or 24.1% during the year ended  December 31, 1998 over
the  year  ended  December  31,  1997.  The  increase  in  interest   income  on
mortgage-backed  and  investment  securities  during the year ended December 31,
1999 was  primarily due to a $89.3  million  increase in the average  balance of
mortgage-backed  securities,  together  with a  $64.0  million  increase  in the
average  balance of  investment  securities  during the period.  The increase in
investment  securities reflects purchases of approximately $208.3 million during
1999,  net  of  maturities  and  sales.  The  increase  in  interest  income  on
mortgage-backed  and investment  securities  during 1998 was due primarily to an
increase in the average balance of mortgage-backed securities of $156.2 million.

        Interest income on cash and cash equivalents (consisting of cash and due
from banks,  securities  purchased under  agreements to resell,  certificates of
deposit with other financial  institutions  and federal funds sold) decreased by
$501,000  or 37.4%  during the year ended  December  31, 1999 as compared to the
year ended December 31, 1998, and decreased by $333,000 or 19.9% during the year
ended  December  31,  1998.  The  decrease  during 1999 was due  primarily  to a
decrease in the average balance of cash and cash  equivalents  during the period
of $9.8  million.  The decrease in interest  earned on money market  investments
during  1998  reflected  a decrease  in the  average  balance  of $5.2  million,
together with a decrease in the yield from 5.41% to 5.21%.  The  fluctuations in
yields  earned by R&G  Financial  on its money  market  investments  reflect the
general  fluctuations in short-term  market rates of interest during the periods
presented.

        Interest Expense.

        Total  interest  expense  increased by $26.2 million or 32.7% during the
year ended  December 31, 1999, as compared to the year ended  December 31, 1998,
and increased by $19.5 million or 32.1%

                                       38
<PAGE>


during the year ended  December 31,  1998.  Interest  expense on  deposits,  the
largest component of R&G Financial's interest-bearing liabilities,  increased by
$15.2  million or 39.6% during the year ended  December 31, 1999, as compared to
the year ended  December 31, 1998, and increased by $6.0 million or 18.5% during
the year ended December 31, 1998. The increases in interest  expense on deposits
during  the  years  ended  December  31,  1999 and 1998  were due  primarily  to
increases  in the  average  balance of  deposits  of $327.1  million  and $157.8
million during such respective periods.

        Interest expense on repurchase  agreements  increased by $3.6 million or
15.1% during the year ended  December  31,  1999,  as compared to the year ended
December 31, 1998, and increased by $10.4 million or 77.1% during the year ended
December 31, 1998.  The increase in interest  expense on  repurchase  agreements
during  1999  was  due  primarily  to an  increase  in the  average  balance  of
repurchase agreements  outstanding of $75.0 million,  which was partially offset
by a decrease in the average rate paid thereon of 15 basis points.  The increase
in interest expense on repurchase agreements during 1998 was primarily due to an
increase in the average balance of repurchase  agreements  outstanding of $189.5
million,  which was  partially  offset by a decrease  in the  average  rate paid
thereon of 21 basis points. R&G Financial  generally uses repurchase  agreements
to repay  warehouse  lines of credit  which are used to fund loan  originations.
These  repurchase   agreements  are  mainly  collateralized  by  mortgage-backed
securities  held for trading and available  for sale.  The  fluctuations  in the
average  balance of  repurchase  agreements  during  the  periods  presented  is
therefore  mainly a function both of the amount of originations by R&G Financial
as  well as the  level  of  mortgage-backed  securities  held  for  trading  and
available for sale which are available to collateralize such agreements.

        Interest  expense on notes  payable  (consisting  of warehouse and other
lines of credit and promissory  notes)  increased by $993,000 or 7.9% during the
year ended  December 31, 1999, as compared to the year ended  December 31, 1998,
and increased by $3.0 million or 31.5% during the year ended  December 31, 1998.
The increases  during the years ended  December 31, 1999 and 1998 were primarily
due to increases in the average balance of such lines of $25.9 million and $34.7
million,  respectively,  as R&G Mortgage made increased use of such lines due to
increased mortgage loan originations in such years.

        Interest expense on other borrowings (consisting principally of advances
from the FHLB of New York)  increased by $6.6 million or 126.3%  during the year
ended  December 31, 1999, as compared to the year ended  December 31, 1998,  and
increased  by $96,000  or 1.8%  during the year ended  December  31,  1998.  The
increase in interest  expense on other  borrowings  during 1999 and 1998 was due
primarily  to an increase in the average  balance of such  borrowings  due to an
increased use of FHLB advances to fund increased loan production in the Bank.

        Provision for Loan Losses.

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

        R&G Financial  made  provisions to its allowance for loan losses of $4.5
million, $6.6 million and $6.4 million during the years ended December 31, 1999,
1998 and 1997, respectively.

        The  decrease  in the  provision  for loan  losses  taken by the Company
during 1999 was primarily due to a reduction in net charge-offs during the year.
Net  charge-offs  to average  loans  outstanding  decreased  to .25% during 1999
compared to .55% during the year ended  December  31,  1998.  This  reduction is
associated  with the  adoption  in prior  years of more  stringent  underwriting
procedures to address problems experienced  generally in the market for personal
loans in such years, as well as an emphasis in collateralized lending instead of
unsecured personal loans.

        The provision for loan losses taken by the Company during 1998 was based
primarily on the increase in the

                                       39
<PAGE>

Company's loan  portfolio  during the period as a result of a 40.3 % increase in
the Company's loan portfolio  during 1998, as well as increased net  charge-offs
associated primarily with consumer loans.

Management believes that its allowance for loan losses at December 31, 1999, was
adequate based upon, among other things,  the significant level of single-family
residential  loans within R&G  Financial's  portfolio (as compared to commercial
real estate,  commercial  business and consumer  loans,  which are considered by
management  to carry a higher  degree of credit  risk) and the low level of loan
charge-offs  normally  experienced  by the  Company  with  respect  to its  loan
portfolio.  Nevertheless,  there can be no  assurances  that  additions  to such
allowance will not be necessary in future periods, particularly if the growth in
R&G Financial's real estate lending,  including  commercial lending,  continues.

Non-Interest Income.

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

                                                    Year Ended December 31,
                                                 1999         1998       1997
                                                 ----         ----       ----
(Dollars in Thousands)
 Net gain on origination and sale of loans     $37,098     $34,955     $23,286
 Loan administration and servicing fees         27,109      15,987      13,214
 Service charges, fees and other                 6,604       5,528       4,605
                                               ---------------------------------
          Total other income                   $70,811     $56,470     $41,105
                                               ---------------------------------


        Total non-interest income increased by $14.3 million or 25.4% during the
year ended  December  31, 1999,  as compared to the prior year and  increased by
$15.4 million or 37.4% during the year ended December 31, 1998. Net gain on sale
of loans amounted to $37.1  million,  $35.0 million and $23.3 million during the
years ended December 31, 1999, 1998 and 1997, respectively.  Net gain on sale of
loans  reflects  the  income  generated  from R&G  Financial's  origination  and
purchase  of  single-family  residential  real estate  loans and the  subsequent
securitization and sale of such loans. During the years ended December 31, 1999,
1998 and 1997, R&G Mortgage  originated  and purchased  $878.8  million,  $670.6
million  and $470.9  million,  respectively,  and sold  $671.2  million,  $493.0
million and $246.1 million of mortgage  loans,  respectively.  In addition,  the
Bank sold $183.5  million,  $282.0  million and $118.2 million of loans from its
portfolio  during such  respective  periods.  R&G Financial's  mortgage  banking
operations are highly dependent upon market and economic conditions.

        During the years ended  December 31, 1999,  1998 and 1997, R&G Financial
recognized  net profit (loss) on trading  securities of ($21,000),  $6.0 million
and $9.7  million,  respectively,  which  are  included  in net gains on sale of
loans. Such gains and losses primarily reflect  fluctuations in the market value
of FHA and VA loans  which  have  been  securitized  into  GNMA  mortgage-backed
securities  and are being  held for  trading.  The  decrease  in net  profits in
trading  securities in 1999 is primarily related to a $407.0 million decrease in
mortgage-backed  securities  held for trading due to the adoption of SFAS No.134
effective January 1, 1999.  Pursuant to the adoption of SFAS No. 134, on January
1, 1999 the Company reclassified approximately $427.4 million of mortgage-backed
securities  from trading to available  for sale.  The decrease in net profits in
trading securities in 1998 is primarily related to a decrease in the origination
and purchase of exempt FHA and VA loans in such year, which is primarily related
to the changes in the tax  exemption  on the  interest  generated  by such loans
which  went into  effect on August 1,

                                       40
<PAGE>


1997.  As a result of  changes in the tax
exemption of such loans,  only loans granted for the purchase of new housing are
exempt under the current tax law.  Previously,  loans for  refinancing  purposes
were exempt as well.

        During the years ended  December 31, 1999,  1998 and 1997, R&G Financial
recognized  loan  administration  and  servicing  fees of $27.1  million,  $16.0
million and $13.2 million, respectively. The increase in loan administration and
servicing fees over the periods  reflects the increase in R&G  Financial's  loan
servicing  portfolio  from 50,979 loans with an aggregate  principal  balance of
$2.6  billion at January 1, 1997 to 107,302  loans with an  aggregate  principal
balance of $6.2  billion at December 31,  1999,  which  includes the purchase in
November  1998 of a mortgage loan  servicing  portfolio  from another  financial
institution, comprised of approximately 33,000 loans with an aggregate principal
balance of $1.1 billion.

Service charges,  fees and other amounted to $6.6 million, $5.5 million and $4.6
million during the years ended December 31, 1999,  1998 and 1997,  respectively.
The $1.1  million or 19.5% and the $923,000 or 20.0%  increases  during 1999 and
1998,  respectively,  were primarily due to increased service charges associated
with new deposit  products and an increasing  deposit base, as well as increases
in the loan portfolio during such years.

        Non-Interest Expenses.

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

                                        Year Ended December 31,
                                    --------------------------------
                                    1999         1998           1997
                                    ----         ----           ----
                                              (In Thousands)
Employee compensation
and benefits                     $24,433        $17,095        $13,653

Office occupancy and
equipment                         11,289          8,987          7,131
Other administrative
and general                       33,568         22,687         18,252
        Total non-interest
        expenses                 $69,290        $48,769        $39,036


        Total  non-interest  expenses increased by $20.5 million or 42.1% during
the year ended  December  31, 1999,  as compared to the year ended  December 31,
1998,  and increased by $9.7 million or 24.9% during the year ended December 31,
1998 over 1997.  The increase in total  non-interest  expenses  during the years
ended  December  31,  1999 and 1998  reflect  general  growth  in the  Company's
operations,  increases  in total loan  production  during  such years as well as
increased costs associated with the opening of new branch offices and remodeling
work at six branch locations.

        The year  ended  December  31,  1999  represents  the first full year of
operations of Fajardo  Federal Savings Bank,  F.S.B.,  merged into the Bank upon
acquisition on August 31, 1998. In addition,  operations of Continental  Capital
Corp., the Company's newly acquired subsidiary in Huntington  Station,  New York
effective  October 1, 1999,  was also a  significant  reason for the increase in
expenses during the year ended December 31, 1999 when compared to the year ended
December 31, 1998.


        Employee  compensation  and benefits  expense amounted to $24.4 million,
$17.1 million and $13.6 million during the years ended  December 31, 1999,  1998
and 1997,  respectively.  The $7.3  million or 42.9%  increase  in such  expense
during the year ended December 31, 1999 is primarily associated with an increase
in the number of employees  as a result of new branch  openings,  and  increased
bonus payments  associated with increased loan production  during 1999. The $3.4
million or 25.2%  increase in such  expense  during the year ended  December 31,
1998 is  primarily  associated  with an increase in the number of  employees  to
accomodate higher loan production during the year, as well as to increased bonus
payments associated with the increased loan production during the year.

        Office occupancy and equipment  expense amounted to $11.3 million,  $9.0
million and $7.1 million  during the years ended  December  31,  1999,  1998 and
1997,  respectively.  The $2.3 million or 25.6% increase in office occupancy and
equipment  expenses during the year ended December 31, 1999 is primarily related
to the operation of five additional  branches  completed  during fiscal 1998 and
the opening of three  additional  branches  during the year. The $1.9 million or
26.0%  increase  in  expenses  during  1998 is related to the opening of

                                       41
<PAGE>


and the  completion  in late  1997 of the  remodeling  work at the six  branches
acquired in 1995.

        Other  administrative  and general expenses,  which consist primarily of
advertising,  license and  property  taxes,  amortization  of  servicing  asset,
insurance,  telephone,  printing and supplies and other miscellaneous  expenses,
amounted to $33.6  million,  $22.7  million and $18.3  million  during the years
ended December 31, 1999, 1998 and 1997, respectively. The $10.9 million or 48.0%
and the $4.4 million or 24.3%  increase in such expenses  during the years ended
December 31, 1999 and 1998,  respectively,  is also  primarily  associated  with
increased loan  production and new additional  branch offices during such years,
as well as the result of general  growth in the  operations of R&G Financial and
the addition of new products and services offered. In addition,  the Company had
a $4.4 million  increase in  amortization  expenses during 1999 of the Company's
servicing asset,  primarily  associated with the purchase in late 1998 of a $1.1
billion servicing portfolio from another financial institution.

Income Taxes.

        R&G  Financial's  income tax provision  amounted to $12.2 million during
the year ended  December  31,  1999,  as compared to income tax expense of $11.0
million  and $8.7  million  during the years ended  December  31, 1998 and 1997,
respectively.  R&G Financial's  effective tax rate amounted to 22.8%,  24.5% and
27.1% during the years ended December 31, 1999, 1998 and 1997, respectively. The
decrease in R&G  Financial's  effective tax rate is due primarily to an increase
in  the  Company's  exempt  interest  income  and,  to  a  lesser  extent,   the
implementation of certain tax planning strategies during such years.

Liquidity and Capital Resources
Liquidity.

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

        R&G  Financial's  liquidity  management  is both a daily  and  long-term
function of funds management. Liquid assets are generally invested in short-term
investments  such as securities  purchased under  agreements to resell,  federal
funds sold and certificates of deposit in other financial  institutions.  If R&G
Financial requires funds beyond its ability to generate them internally, various
forms of both short and long-term  borrowings  provide an  additional  source of
funds.  At December  31, 1999,  R&G  Financial  had $175.0  million in borrowing
capacity  under unused  warehouse and other lines of credit,  $261.8  million in
borrowing  capacity  under  unused lines of credit with the FHLB of New York and
$10  million  available  unused fed funds  lines of credit.  R&G  Financial  has
generally not relied upon brokered  deposits as a source of liquidity,  and does
not anticipate a change in this practice in the foreseeable future.

        At  December  31,  1999,  R&G  Financial  had  outstanding   commitments
(including  unused lines of credit) to originate  and/or  purchase  mortgage and
non-mortgage  loans of $79.6  million.  The  Company  also has  agreements  with
developers to facilitate the mortgage  loans to qualified  buyers of new housing

                                       42
<PAGE>

units on residential  projects amounting to $546.8 million.  All such agreements
are subject to  prevailing  market  rates at time of closing with no market risk
exposure to the Company or with firm  back-to-back  commitments  in favor of the
mortgagee.  Finally, the Company had certificates of deposit which are scheduled
to mature  within one year  totaling  $755.6  million at December 31, 1999,  and
borrowings that are scheduled to mature within the same period amounting to $1.2
billion. R&G Financial  anticipates that it will have sufficient funds available
to meet its current loan commitments.

Capital Resources.

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

        The FDIC also  requires that banks meet a risk-based  capital  standard.
The  risk-based  capital  standard for banks  requires the  maintenance of total
capital (which is defined as Tier I capital and supplementary  (Tier 2) capital)
to risk  weighted  assets  of 8%. In  determining  the  amount of  risk-weighted
assets, all assets,  plus certain  off-balance sheet assets, are multiplied by a
risk-weight of 0% to 100%,  based on the risks the FDIC believes are inherent in
the type of asset or item.  The  components of Tier I capital are  equivalent to
those discussed above under the 3% leverage capital standard.  The components of
supplementary   capital  include  certain  perpetual  preferred  stock,  certain
mandatory  convertible  securities,  certain  subordinated debt and intermediate
preferred stock and general allowances for loan and lease losses.  Allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward supplementary capital cannot exceed 100% of core capital. At December 31,
1999,  the Bank met  each of its  capital  requirements,  with  Tier I  leverage
capital, Tier I risk-based capital and total risk-based capital ratios of 7.07%,
12.36% and 13.08%, respectively.

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

Inflation and Changing Prices

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

The Year 2000 Issue

        Year 2000 issues result from the inability of many computer  programs or
computerized  equipment to accurately calculate,  store or use data for the year
2000 or later. These potential  shortcomings could result in a system failure or
miscalculations causing disruptions of operation,  including among other things,
a  temporary  inability  to  process  transactions,   track  important

                                       43
<PAGE>


customer information,  provide convenient access to this information,  or engage
in normal  business  operations.  While  lingering  concern exists about certain
dates during Year 2000, the most significant  date,  January 1, 2000, has passed
without incident. As a result of its diligent efforts, the Company is pleased to
report no interruptions of business or financial losses resulting from Year 2000
Issues.

        The costs of addressing the Year 2000 issue were approximately $300,000,
most of which were  incurred  during  1999.  Most of such  costs  were  directly
related  to  the  costs  of  replacing  existing  equipment,  primarily  desktop
computers,  which were already  fully  depreciated  on the  Company's  financial
statements. Accordingly, the Company's Year 2000 costs expensed during 1999 were
insignificant.

Recent Accounting Pronouncements

        Set forth below are recent  accounting  pronouncements  which may have a
future effect on R&G Financial's operations. These pronouncements should be read
in conjunction with the significant  accounting policies which R&G Financial has
adopted that are set forth in R&G Financial's  Notes to  Consolidated  Financial
Statements.

        In June 1998,  the Financial  Accounting  Standards  Board (FASB) issued
SFAS No.133-  "Accounting for Derivative  Instruments  and Hedging  Activities."
This  Statement  requires  that an entity  recognize all  derivatives  as either
assets or liabilities  in the statement of financial  position and measure those
instruments  at fair value.  If certain  conditions are met, a derivative may be
specifically  accounted as a hedge . The accounting for changes in fair value of
a  derivative  (that is,  gains and losses)  depends on the  intended use of the
derivative and the resulting designation.

        This  Statement was  effective  for all fiscal  quarters of fiscal years
beginning  after  June 15,  1999.  In June  1999,  the FASB  voted to delay  the
effective  date of  this  Statement  to all  fiscal  quarters  of  fiscal  years
beginning after June 15, 2000.  Initial  application of this Statement should be
as of the  beginning  of an  entity's  fiscal  quarter;  on that  date,  hedging
relationships must be designated anew and documented  pursuant to the provisions
of this Statement.

        Management  is  evaluating  its  hedging  strategy  in light of this new
pronouncement to establish the initial designation of its hedging activities and
determine  the effect and timing of  adoption.  However,  due to the  relatively
limited  extent to which the  Company is using  derivative  instruments  and the
simple nature of the instruments used,  management does not expect the impact of
adoption to be significant.

                                       44
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

                                                   [PRICEWATERHOUSECOOPERS LOGO]


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

In our opinion, the accompanying  consolidated statements of financial condition
and the related consolidated  statements of income, of comprehensive  income, of
changes in stockholders equity and of cash flows present fairly, in all material
respects,  the financial position of R&G Financial Corporation (the Company) and
its  subsidiaries  as of December  31,  1999 and 1998,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1999, in comformity with generally accepted accounting  principles.
These financial  statements are the  responsability of the Companys  management;
our responsability is to express an opinion on theses financial statements based
on our audits.  We conducted our audits of these  statements in accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.


/S/PricewaterhouseCoopers, LLP
------------------------------
PricewaterhouseCoopers, LLP
San Juan, Puerto Rico

February 10, 2000

Certified Public Accountants
(of Puerto Rico)
License No. 216 Expires on December 1, 2001
Stamp 1603133 of the P.R. Society
of Certified Public Accountants has been affixed
to the file copy of this report

                                       45

<PAGE>


R&G Financial Corporation
Consolidated Statements of Financial Condition
December 31, 1999 and 1998

<TABLE>
<CAPTION>

                                                                          1999              1998
                                                                        --------          --------
 <S>                                                                <C>                <C>
   Assets
Cash and due from banks                                            $   42,251,508     $   51,804,750
Money market investments:
        Securities purchased under agreements to resell                        --         11,544,123
        Time deposits with other banks                                 23,744,037         30,361,527
        Federal funds sold                                                     --         10,018,048
Mortgage loans held for sale, at lower of cost or market               77,277,133        117,126,040
Mortgage - backed securities held for trading, at fair value           43,563,817        450,546,034
Mortgage - backed securities available for sale, at fair value        712,705,165         95,040,331
Mortgage - backed securities held to maturity, at amortized
cost (estimated market value: 1999 - $23,305,029;
1998 - $28,260,925)                                                    23,249,247         28,255,518
Investment securities available for sale, at fair value               258,163,657         59,502,140
Investment securities held to maturity, at amortized cost
(estimated market value: 1999 - $5,403,755;
1998 - $6,378,634)                                                      5,437,630          6,343,929
Loans receivable, net                                               1,563,006,802      1,073,668,278
Accounts receivable, including advances to investors, net              16,230,457          9,665,290
Accrued interest receivable                                            22,386,746         12,505,431
Servicing asset                                                        84,252,506         58,221,052
Premises and equipment                                                 19,459,353         12,962,435
Other assets                                                           20,264,778         17,216,602
                                                                   --------------     --------------
                                                                   $2,911,992,836     $2,044,781,528
                                                                   ==============     ==============

   Liabilities and Stockholders' Equity

Liabilities:
  Deposits                                                         $1,330,506,368     $1,007,297,304
  Federal funds purchased                                              15,000,000                 --
  Securities sold under agreements to repurchase                      731,341,340        471,421,726
  Notes payable                                                       132,707,001        182,747,956
  Advances from FHLB                                                  384,000,000        121,000,000
  Other borrowings                                                      9,842,894          9,000,000
  Accounts payable and accrued liabilities                             33,917,329         28,020,080
  Other liabilities                                                     5,142,627          4,132,603
                                                                   --------------     --------------
                                                                    2,642,457,559      1,823,619,669
                                                                   --------------     --------------

Commitments and contingencies                                                  -                   -

Stockholders' equity:
  Preferred stock, $.01 par value, 10,000,000 shares authorized:
     7.40% Monthly Income Preferred Stock, Series A,
       $25 liquidation value, 2,000,000 shares issued
       and outstanding                                                 50,000,000         50,000,000
     7.75% Monthly Income Preferred Stock, Series B,
       $25 liquidation value, 1,000,000 shares issued
       and outstanding                                                 25,000,000                  -

</TABLE>


<TABLE>
<CAPTION>
                                                                       1999              1998
                                                                      --------          --------

 <S>                                                              <C>                <C>
ommon stock:
         Class A - $.01 par value, 40,000,000 shares authorized,
             18,440,556 issued and outstanding in 1999 and 1998           184,406            184,406
         Class B - $.01 par value, 30,000,000 shares authorized,
                 10,217,731 issued and outstanding in 1999
                 (1998 - 10,146,091)                                      102,177            101,461
         Additional paid-in capital                                    40,753,856         41,544,378
         Retained earnings                                            156,193,131        124,418,278
         Capital reserves of the Bank                                   5,095,658          3,547,798
         Accumulated other comprehensive (loss) income                 (7,793,951)         1,365,538
                                                                  ----------------------------------
                                                                      269,535,277        221,161,859
                                                                  ----------------------------------
                                                                  $ 2,911,992,836    $ 2,044,781,528
                                                                  ==================================
</TABLE>




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

                                       46
<PAGE>


R&G Financial Corporation
Consolidated Statements of Income
December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                1999                   1998                    1997
                                                              ---------              --------                --------
<S>                                                 <C>                     <C>                      <C>
Interest income:

   Loans                                            $       117,304,300     $       89,043,798       $       68,513,571
   Money market and other investments                        10,243,856              5,855,157                6,295,443
   Mortgage-backed securities                                35,593,191              29,397,985              22,525,876
                                                            -----------------------------------------------------------
      Total interest income                                 163,141,347             124,296,940              97,334,890
                                                            -----------------------------------------------------------
Less - interest expense:
   Deposits                                                  53,643,104              38,439,016              32,434,559
   Securities sold under agreements to repurchase            27,474,602              23,875,744              13,483,500
   Notes payable                                             13,633,767              12,641,438               9,615,560
   Secured borrowings                                                 -                      -                3,583,471
   Other                                                     11,812,100               5,367,631               1,688,034
                                                            -----------------------------------------------------------
                                                            106,563,573              80,323,829              60,805,124
                                                            -----------------------------------------------------------
Net interest income                                          56,577,774              43,973,111              36,529,766
Provision for loan losses                                     4,525,000               6,600,000               6,370,000
                                                            -----------------------------------------------------------
Net interest income after provision for loan losses          52,052,774              37,373,111              30,159,766
                                                            -----------------------------------------------------------
Non-interest income:
   Net gain on origination and sale of loans                 37,098,218              34,955,583              23,286,444
   Loan administration and servicing fees                    27,109,051              15,986,831              13,213,948
   Service charges, fees and other                            6,603,998               5,527,860               4,604,670
                                                            -----------------------------------------------------------
                                                             70,811,267              56,470,274              41,105,062
                                                            -----------------------------------------------------------
   Total revenues                                           122,864,041              93,843,385              71,264,828
                                                            -----------------------------------------------------------

Non-interest expenses:
   Employee compensation and benefits                        24,432,771              17,094,783              13,652,754
   Office occupancy and equipment                            11,289,365               8,986,953               7,131,497
   Other administrative and general                          33,567,706              22,687,336              18,251,497
                                                            -----------------------------------------------------------
                                                             69,289,842              48,769,072              39,035,748
                                                            -----------------------------------------------------------
Income before income taxes                                   53,574,199              45,074,313              32,229,080
                                                            -----------------------------------------------------------
Income tax expense:
   Current                                                    8,905,520               6,814,496               6,263,549
   Deferred                                                   3,333,687               4,226,020               2,468,319
                                                            -----------------------------------------------------------
                                                             12,239,207              11,040,516               8,731,868
                                                            -----------------------------------------------------------
   Net income                                        $       41,334,992      $       34,033,797      $       23,497,212
                                                            -----------------------------------------------------------
   Less: Preferred stock dividends                           (3,753,819)             (1,233,819)                      -
                                                            -----------------------------------------------------------

   Net income available to common stockholders       $       37,581,173      $       32,799,978      $       23,497,212
                                                     ==================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                1999                   1998                    1997
                                                              --------               --------                --------
 <S>                                                 <C>                     <C>                      <C>
Earnings per common share:

   Basic                                                   $       1.31            $       1.15             $       .83
                                                          -------------------------------------------------------------
   Diluted                                                 $       1.28            $       1.12             $       .81
                                                          -------------------------------------------------------------
</TABLE>

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

                                       47
<PAGE>


R&G Financial Corporation
Consolidated Statements of Comprehensive Income
December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                  1999                 1998                 1997
                                                                --------             --------             --------
<S>                                                   <C>                     <C>                    <C>
Net income                                            $       41,334,992      $      34,033,797      $       23,497,212
                                                      ------------------------------------------------------------------
Other comprehensive income, before tax:
Unrealized (losses) gains on securities:
   Arising during period                                     (15,975,369)               516,061               2,275,009
   Less: Reclassification adjustments for
      losses (gains) included in net income                      959,813               (278,028)               (107,430)
                                                      ------------------------------------------------------------------
                                                             (15,015,556)               238,033               2,167,579
                                                      ------------------------------------------------------------------
Income tax  benefit (expense)related to items
    of other comprehensive income                              5,856,067                (92,833)               (845,356)
                                                      ------------------------------------------------------------------
Other comprehensive income (loss), net of tax                 (9,159,489)               145,200               1,322,223
                                                      ------------------------------------------------------------------
Comprehensive income, net of tax                      $       32,175,503      $      34,178,997      $       24,819,435
                                                      ==================================================================
</TABLE>


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

                                       48
<PAGE>


R&G Financial Corporation
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                         Preferred Stock             Common Stock                  Common Stock
                                                                                        Class A                       Class B
                                                     Shares       Amount         Shares         Amount        Shares       Amount
 <S>                                                  <C>           <C>           <C>            <C>          <C>         <C>

Balance at December 31, 1996                                                      5,122,377    $  51,223     2,735,839    $   27,360

Transfer to capital reserves
Common stock split on September 25, 1997:
        Stock split                                                               4,097,901       40,980     2,188,635        21,885
        Cash paid in lieu of fractional shares
Cash dividends declared on common stock
Net income
Other comprehensive income, net of tax
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1997                                                      9,220,278       92,203     4,924,474        49,245
                                                    --------------------------------------------------------------------------------
Transfer to capital reserves
Common stock split on June 25, 1998                                               9,220,278       92,203     4,924,474       49,245
Issuance of common stock on
        July 31,1998 to acquire Fajardo Federal                                                                297,143        2,971
Issuance of Series A Preferred Stock                 2,000,000   $ 50,000,000
Cash dividends declared:
        Common stock
        Preferred stock
Net income
Other comprehensive income, net of tax
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1998                         2,000,000     50,000,000    18,440,556      184,406    10,146,091       101,461
                                                    --------------------------------------------------------------------------------
Issuance of Series B Preferred Stock                 1,000,000     25,000,000
Issuance of Common Stock                                                                                        71,640           716
Transfer to capital reserves
Cash dividends declared:
        Common stock
        Preferred stock
Net income
Other comprehensive loss, net of tax
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1999                         3,000,000     75,000,000    18,440,556     $184,406     10,217,731  $   102,177
                                                    ================================================================================
</TABLE>


R&G Financial Corporation
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                       Accumulated
                                                    Additional            Capital   other comprehensive    Retained
                                                  Paid-in Capital        reserves      income (loss)       earnings        Total
 <S>                                                  <C>             <C>                <C>           <C>           <C>
Balance at December 31, 1996                         $ 38,410,683    $  1,460,707       $  (101,885)  $  75,784,804 $ 115,632,892

Transfer to capital reserves                                              754,465                          (754,465)
Common stock split on September 25, 1997:
        Stock split                                       (62,865)
        Cash paid in lieu of fractional shares                                                              (12,659)      (12,659)
Cash dividends declared on common stock                                                                  (2,385,752)   (2,385,752)
Net income                                                                                               23,497,212    23,497,212
Other comprehensive income, net of tax                                                    1,322,223                     1,322,223
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1997                           38,347,818       2,215,172         1,220,338      96,129,140   138,053,916
                                                    --------------------------------------------------------------------------------
Transfer to capital reserves                                            1,332,626                        (1,332,626)
Common stock split on June 25, 1998                     (141,448)
Issuance of common stock on
        July 31,1998 to acquire Fajardo Federal         5,258,874                                                       5,261,845
Issuance of Series A Preferred Stock                   (1,920,866)                                                     48,079,134
Cash dividends declared:
        Common stock                                                                                     (3,178,214)   (3,178,214)
        Preferred stock                                                                                  (1,233,819)   (1,233,819)
Net income                                                                                               34,033,797    34,033,797
Other comprehensive income, net of tax                                                      145,200                       145,200
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1998                           41,544,378       3,547,798         1,365,538     124,418,278   221,161,859
                                                    --------------------------------------------------------------------------------
Issuance of Series B Preferred Stock                   (1,078,356)                                                     23,921,644
Issuance of Common Stock                                  287,834                                                         288,550
Transfer to capital reserves                                            1,547,860                        (1,547,860)
Cash dividends declared:
        Common stock                                                                                     (4,258,460)   (4,258,460)
        Preferred stock                                                                                  (3,753,819)   (3,753,819)
Net income                                                                                               41,334,992    41,334,992
Other comprehensive loss, net of tax                                                     (9,159,489)                   (9,159,489)
                                                    --------------------------------------------------------------------------------
Balance at December 31, 1999                         $ 40,753,856    $  5,095,658     $  (7,793,951)  $ 156,193,131 $ 269,535,277
                                                    ================================================================================

</TABLE>


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

                                       49


R&G Financial Corporation
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                      1999                 1998             1997
                                                                    --------             --------         --------
 <S>                                                              <C>                <C>                <C>
ash flows from operating activities:
Net income                                                       $  41,334,992      $  34,033,797      $  23,497,212
                                                                 ----------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
     Depreciation and amortization                                   3,912,603          3,059,742          2,659,888
     Amortization of premium (accretion of
     discount) on investments and
     mortgage - backed securities, net                                 236,184            (86,761)          (371,816)
Amortization of servicing rights                                     7,382,649          2,994,307          1,837,414
Provision for loan losses                                            4,525,000          6,600,000          6,370,000
Provision for bad debts in accounts receivable                         546,851            300,000            300,000
Gain on sales of mortgage loans                                     (4,935,775)        (7,785,630)        (2,721,154)
Loss (gain) on sales of investment securities
     available for sale                                                959,813           (278,028)          (107,430)
(Increase) decrease in mortgage loans held for sale               (117,118,689)       (70,240,717)         7,564,836
Net increase in mortgage-backed
     securities held for trading                                   (43,936,589)      (105,247,419)      (291,540,928)
Net decrease in investment securities
     held for trading                                                       --            581,332            769,495
Increase in interest and accounts receivable                       (16,176,210)        (4,590,500)        (5,607,804)
(Increase) decrease in other assets                                 (4,570,159)         1,678,184         (2,840,360)
(Decrease) increase in notes payable and
     other borrowings                                              (40,518,153)        83,295,337        (15,989,480)
Increase in accounts payable
     and accrued liabilities                                        10,832,064         11,113,881          5,027,646
Increase (decrease) in other liabilities                             1,010,024            702,593           (394,179)
                                                                 -----------------------------------------------------
 Total adjustments                                                (197,850,387)       (77,903,679)      (295,043,872)
                                                                 -----------------------------------------------------
Net cash used in operating activities                             (156,515,395)       (43,869,882)      (271,546,660)
                                                                 -----------------------------------------------------
Cash flows from investing activities:
Purchases of investment securities available for
      sale and held to maturity                                   (230,790,182)       (72,532,667)       (83,021,527)
Proceeds from sales and redemptions of
      investment securities available for sale                     108,459,617         92,867,182         36,265,089
Proceeds from maturities of investment
     securities held to maturity                                       409,000          4,715,420                 --
Principal repayments on mortgage-backed
     securities                                                     40,875,059         13,955,086          9,475,202
Proceeds from sale of loans                                        135,632,084        254,011,245        120,955,837
Net originations of loans                                         (730,796,715)      (573,657,277)      (286,229,017)
Purchases of FHLB stock, net                                       (21,420,300)        (6,211,400)          (658,757)
Net assets acquired, net of cash received                           (4,638,371)         4,287,492                 --
Acquisition of premises and equipment                               (8,694,453)        (5,936,102)        (3,914,192)
Acquisition of servicing rights                                    (23,979,840)       (40,002,361)       (10,455,392)
                                                                 -----------------------------------------------------
Net cash used in investing activities                             (734,944,101)      (328,503,382)      (217,582,757)
                                                                 -----------------------------------------------------
</TABLE>


                                  (Continued)

                                       50
<PAGE>


R&G Financial Corporation
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>


(Continued)                                                           1999                 1998             1997
<S>                                                              <C>                <C>                <C>
Cash flows from financing activities:
     Payments on term notes                                      $ (23,600,000)     $          --      $  (2,400,000)
     Increase in deposits, net                                     323,209,064        263,743,668        106,851,013
     Increase in securities sold under agreements
        to repurchase, net                                         259,919,614         38,287,220        335,690,058
     Increase (decrease) in federal funds purchased                 15,000,000        (10,000,000)        10,000,000
     Payments on secured borrowings                                         --                 --        (16,103,451)
     Advances from FHLB, net                                       263,000,000          75,300,000        27,000,000
     Repayment of subordinated notes                                        --          (3,250,000)               --
     Net proceeds from issuance of
        Preferred Stock                                             23,921,644         48,079,134                 --
     Proceeds from issuance of common stock                            288,550                 --                 --
     Capital contribution to subsidiary                                     --            (12,000)                --
     Cash dividends  - common stock                                 (4,258,460)        (3,178,214)        (2,385,752)
                     - preferred stock                              (3,753,819)        (1,233,819)                --
     Payment of cash in lieu of fractional shares
        on stock split                                                      --                 --            (12,659)
                                                                 -----------------------------------------------------
     Net cash provided by financing activities                     853,726,593        407,735,989        458,639,209
                                                                 -----------------------------------------------------
     Net (decrease) increase in cash and cash equivalents          (37,732,903)        35,362,725        (30,490,208)
     Cash and cash equivalents at beginning of year                103,728,448         68,365,723         98,855,931
                                                                 -----------------------------------------------------
     Cash and cash equivalents at end of year                    $  65,995,545      $ 103,728,448      $  68,365,723
                                                                 =====================================================

Cash and cash equivalents include:
     Cash and due from banks                                     $  42,251,508      $  51,804,750      $  32,607,001
     Securities purchased under agreements to resell                        --         11,544,123         16,000,000
     Time deposits with other banks                                 23,744,037         30,361,527         16,758,722
     Federal funds sold                                                     --         10,018,048          3,000,000
                                                                 -----------------------------------------------------
                                                                  $ 65,995,545      $ 103,728,448       $ 68,365,723
                                                                 =====================================================
</TABLE>


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

                                       51
<PAGE>


R&G Financial Corporation
Consolidated Statements of Financial Condition
December 31, 1999, 1998 and 1997

1. Reporting Entity and Significant Accounting Policies

Reporting entity

         The  accompanying  consolidated  financial  statements of R&G Financial
Corporation  (the  Company)  include the  accounts of R&G  Mortgage  Corp.  (R&G
Mortgage),  a Puerto Rico corporation,  and R-G Premier Bank of Puerto Rico (the
Bank), a commercial bank chartered under the laws of the  Commonwealth of Puerto
Rico.

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

         R&G  Mortgage  is  also   engaged  in  the   business  of   originating
non-conforming  conventional  first mortgage loans on residential real estate (1
to 4 families),  including B&C credit  quality loans,  through its  wholly-owned
subsidiary Champion Mortgage Corporation.

         The Bank provides a full range of banking  services  through twenty two
branches located mainly in the  northeastern  part of the Commonwealth of Puerto
Rico. As discussed in Note 15 to the consolidated financial statements, the Bank
is subject  to the  regulations  of  certain  federal  and local  agencies,  and
undergoes periodic examinations by those regulatory agencies.

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

Significant Accounting Policies

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

Basis of consolidation

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

Use of estimates in the preparation
of financial statements

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



R&G Financial Corporation
Consolidated Statements of Financial Condition
December 31, 1999, 1998 and 1997

Securities purchased under agreements to resell

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

Investment securities

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

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

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

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

Premiums are  amortized  and discounts are accreted as an adjustment to interest
income over the life of the related

                                       52
<PAGE>


securities using a method that approximates
the interest method. Realized gains or losses on securities classified as either
available  for  sale or held to  maturity  are  reported  in  earnings.  Cost of
securities sold is determined on the specific identification method.

         Mortgage-backed  securities that are held for sale in conjunction  with
mortgage banking activities were classified as trading securities until December
31,  1998 in  accordance  with SFAS  No.65.  On  January 1,  1999,  the  Company
reclassified  approximately  $427.4 million of  mortgage-backed  securities from
trading to available  for sale in  connection  with the adoption of SFAS No. 134
-Accounting for Mortgage-Backed  Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage  Banking  Enterprise.  This Statement
amended SFAS No. 65 to require that after the  securitization  of mortgage loans
held for sale, an entity  engaged in mortgage  banking  activities  classify the
resulting  mortgage-backed  securities or other  retained  interest based on its
ability and intent to sell or hold those investments,  conforming the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage  banking  enterprise  with the  subsequent  accounting for securities
retained  after the  securitization  of other types of assets by a  non-mortgage
banking enterprise.  The adoption of this Statement had no effect on the results
of operations of the Company.

Loans and allowance for loan
losses

         Loans are stated at their outstanding  principal balance, less unearned
interest,  deferred loan  origination  fees and allowance for loan losses.  Loan
origination  and commitment  fees and costs  incurred in the  origination of new
loans are deferred and amortized  over the life of the loans as an adjustment of
interest yield using the interest method. Unearned interest on installment loans
is recognized as income under a method which  approximates  the interest method.
Interest on loans not made on a discounted  basis is credited to income based on
the loan principal outstanding at stated interest rates.

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

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


Interest income

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

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

Mortgage loans held for sale

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

                                       53
<PAGE>


Loan servicing fees

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

Allowance for doubtful accounts

         The allowance for doubtful  accounts is determined  based on experience
and results  mainly from expenses  incurred in the  foreclosure  of property not
reimbursed by insurers on loans serviced for others.

Servicing rights

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

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

         For purposes of measuring  impairment,  mortgage  servicing  rights are
stratified by loan on the basis of interest  rates.  An impairment is recognized
whenever the  prepayment  pattern of the mortgage loan  indicates  that the fair
value of the related mortgage servicing rights is less than its carrying amount.
An  impairment  is  recognized  by charging  such excess to income.  The Company
determined  that no reserve for  impairment was required as of December 31, 1999
or 1998.  As of  December  31,  1999 and  1998,  the fair  value of  capitalized
mortgage  servicing  rights  was  approximately   $87,140,000  and  $59,880,000,
respectively. In determining fair value, the Company considers the fair value of
servicing rights with similar risk characteristics.

Accounting for transfers and
servicing of financial assets and
extinguishment of liabilities

         The Company recognizes on its financial statements financial assets and
servicing assets  controlled by the Company,  and derecognizes  financial assets
when control has been  surrendered.  The Company  follows the specific  criteria
established in SFAS No. 125- Accounting for Transfers and Servicing of Financial
Assets and  Extinguishment  of  Liabilities,  to determine when control has been
surrendered in a transfer of financial assets. Liabilities are derecognized when
they are extinguished.

         Liabilities and derivatives incurred or obtained by the Company as part
of a transfer of  financial  assets are  initially  measured  at fair value,  if
practicable.  Servicing  assets and other retained  interests in the transferred
assets are measured by  allocating  the  previous  carrying  amount  between the
assets sold, if any, and retained  interests,  if any,  based on their  relative
fair values at the date of the transfer.


Transfers of receivables with
recourse

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

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

Sale of servicing rights

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

                                       54
<PAGE>


Foreclosed real estate held for sale

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

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

Premises and equipment

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

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

Goodwill and other intangibles

         On October  7, 1999 the  Company  acquired  Continental  Capital  Corp.
(Continental  Capital) at a cost of approximately $5.3 million.  The acquisition
was  accounted  under  the  purchase  method  of  accounting  resulting  in  the
recognition of negative goodwill of approximately $1.0 million.  Total assets of
Continental Capital at the time of acquisition were approximately $21.2 million.

         On July 31, 1998, the Company  acquired  Fajardo  Federal Savings Bank,
F.S.B.   (Fajardo  Federal)  at  a  cost  of  approximately  $5.9  million.  The
acquisition was accounted under the purchase method of accounting,  resulting in
the  recognition  of goodwill of  approximately  $3.1  million.  Total assets of
Fajardo Federal at the time of acquisition were approximately $28.9 million.

         Goodwill also resulted from the  acquisition of the Bank and a mortgage
banking institution in prior years.

         Goodwill  is  amortized   over  a  fifteen  year  period.   Accumulated
amortization  amounted to $2,271,000  and $1,757,000 as of December 31, 1999 and
1998, respectively.

         In  addition,  the Company has  recorded  as a deposit  intangible  the
premium paid by the Bank over the value of deposits acquired  resulting from the
purchase of certain branches from a commercial bank in 1995. The premium paid is
being  amortized  over a 10 year period.  Accumulated  amortization  amounted to
approximately $642,000 and $477,000 at December 31, 1999 and 1998, respectively.


Securities sold under agreements
to repurchase

         The Company sells securities under agreements to repurchase the same or
similar  securities.  The Company retains  effective control over the securities
pledged as collateral on these agreements.  Accordingly,  amounts received under
these agreements represent short-term  borrowings and the securities  underlying
the agreements remain in the asset accounts.

Interest rate risk management

         The Company  enters into  interest  rate caps,  swaps,  options  and/or
futures  contracts  (primarily based on Eurodollar  certificates of deposits and
U.S. Treasury Notes) to manage its interest rate exposure.  Such instruments are
designated  as hedges  against  future  fluctuations  in the  interest  rates of
specifically identified assets or liabilities.  Options and futures are reported
at fair value within investments in the accompanying  consolidated  statement of
financial condition; related gains or losses are reported in the statement of
income.

                                       55
<PAGE>


         Interest rate swaps are not recognized in the consolidated statement of
financial  condition and are not marked to market.  Net interest  settlements on
interest rate swaps are recorded as adjustments to interest income or expense.

Employee benefits

         The Company and its subsidiaries have no post retirement  benefit plans
for its employees as of December 31, 1999.

Income taxes

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

Capital reserve

         The  Banking  Act of the  Commonwealth  of  Puerto  Rico,  as  amended,
requires  that a  minimum  of 10% of net  income of the Bank be  transferred  to
capital  surplus until such surplus  equals the sum of the Banks paid-in  common
and preferred stock capital.

Stock option plan

         As discussed in Note 16 to the consolidated  financial statements,  the
Company  adopted a Stock  Option  Plan in June 1996 and  granted  stock  options
thereunder to certain  employees in conjunction with the Companys initial public
offering.  Compensation  cost on employee  stock  option  plans is measured  and
recognized  for any excess of the quoted  market price of the Companys  stock at
the  grant  date over the  amount  an  employee  must pay to  acquire  the stock
(intrinsic  value-based  method of  accounting).  Generally,  stock  options are
granted with an exercise  price equal to the face value of the stock at the date
of the grant and, accordingly,  no compensation cost is recognized.  The Company
complies  with the  disclosure  provisions  of SFAS  No.  123 -  Accounting  for
Stock-Based Compensation.

Fair value of financial
instruments

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

Earnings per share

         Basic  earnings per common share is computed by dividing net income for
the year by the weighted average number of shares outstanding during the period.
Outstanding  stock  options  granted  under the  Companys  Stock Option Plan are
included in the  weighted  average  number of shares for purposes of the diluted
earnings per share computation.


Statement of cash flows

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

Accounting for derivative
instruments and hedging
activities

         In June 1998, the Financial  Accounting  Standards  Board (FASB) issued
SFAS No.133-Accounting for Derivative Instruments and Hedging Activities.

         This  Statement  requires that an entity  recognize all  derivatives as
either assets or liabilities in the statement of financial  position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically  accounted as a hedge.  The accounting for changes in fair value
of a derivative  (that is, gains and losses)  depends on the intended use of the
derivative and the resulting designation.

         This  Statement was  effective for all fiscal  quarters of fiscal years
beginning after June 15, 1999. In June 1999, the FASB delayed the effective date
of this Statement to all fiscal  quarters of fiscal years  beginning  after June
15, 2000.

         Management  is  evaluating  its  hedging  strategy in light of this new
pronouncement to establish the initial

                                       56
<PAGE>


designation  of its hedging  activities  and  determine the effect and timing of
adoption.  However, due to the relatively limited extent to which the Company is
using  derivative  instruments  and the simple nature of the  instruments  used,
management does not expect the impact of adoption to be significant.

Adoption of new accounting
standards

         On  January  1,1998,  the  Company  adopted  SFAS  No.  130-  Reporting
Comprehensive Income. This Statement requires (1) the classification of items of
other  comprehensive  income by their nature in a financial  statement;  (2) the
display of the accumulated balance of other comprehensive income by their nature
in a  financial  statement;  and (3) the display of the  accumulated  balance of
other  comprehensive  income  separately  from retained  earnings and additional
paid-in  capital in the equity  section of the statement of financial  position.
For the  Company,  unrealized  gains and losses on certain  investments  in debt
securities  was the only  other  comprehensive  income  item to be  included  in
comprehensive  income, which is now reported with the statement of comprehensive
income.  The  adoption  of this  Statement  affected  only  financial  statement
presentation.

         On January 1, 1998 the Company also adopted SFAS No. 131 -  Disclosures
about Segments of an Enterprise and Related Information. This Statement requires
that a public business  enterprise report financial and descriptive  information
about  its  reportable  segments.   Operating  segments  are  components  of  an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly by the chief  operating  decision  maker in deciding how to
allocate resources and in assessing performance.

         The  adoption  of this  Statement  affected  only  financial  statement
presentation and disclosure. The required disclosures are provided in Note 24 to
the consolidated financial statements.

Reclassifications

         Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 financial statement presentation.

                                       57

<PAGE>


2. Mortgage Loans Held for Sale

     Mortgage loans held for sale consist of:
                                        December 31,
                                   1999            1998

       Conventional loans    $ 54,853,175      $ 93,021,032
       FHA/VA loans            22,423,958        24,105,008
                             ------------      ------------
                             $ 77,277,133      $117,126,040
                             ============      =============

The aggregate amortized cost and approximate market value of loans held for sale
as of December 31, 1999 are as follows:

          Amortized       Gross unrealized    Gross unrealized     Approximate
            cost           holding gains        holding losses     market value

        $77,277,133         $ 2,242,465         $ (803,495)         $78,716,103

Substantially  all of the loans are pledged to secure  various  borrowings  from
lenders under mortgage  warehousing  lines of credit (see Note 9). The following
table  summarizes the components of gain on sale of mortgage loans held for sale
and mortgage-backed securities held for trading:

<TABLE>
<CAPTION>

                                                                         Year ended December 31,
                                                               1999              1998               1997
<S>                                                       <C>                <C>                <C>
Proceeds from sales of mortgage loans
        and mortgage-backed securities                    $ 855,471,398      $ 783,914,438      $ 369,267,397
Mortgage loans and mortgage-
        backed securities sold                             (832,057,042)      (761,449,308)      (359,001,427)
Gain on sales, net                                           23,414,356         22,465,130         10,265,970
Deferred fees earned, net of loan origination costs
        and commitment fees paid                             13,685,619          6,207,098          3,235,381
                                                             37,099,975         28,672,228         13,501,351
Net unrealized (loss) profit on
        trading securities                                      (21,288)         6,005,327          9,677,663
Net gain on origination and sale of
        mortgage loans                                       37,078,687         34,677,555         23,179,014

Gains on sales of investment securities available
        for sale from non-mortgage banking activities            19,531            278,028            107,430
                                                          ---------------------------------------------------
                                                          $  37,098,218      $  34,955,583      $  23,286,444
                                                          ===================================================
</TABLE>


         Total gross loan origination  fees totaled  approximately $ 28,442,000,
$20,270,000 and  $13,683,000  during the years ended December 31, 1999, 1998 and
1997, respectively. Gross gains of $32,261,508, $25,445,179 and $11,532,566, and
gross losses of $8,847,152, $2,980,049 and $1,266,596 were realized on the above
sales during the years ended December 31, 1999, 1998 and 1997, respectively.

                                       58
<PAGE>


3.       Investment Securities

                                                    December 31,
                                               1999             1998
Mortgage-backed securities held for trading

     CMO Residuals (interest only)         $         --      $  7,146,762
     GNMA Certificates                       43,563,817       443,399,272
                                           $ 43,563,817      $450,546,034


The carrying value and estimated fair value of investment  securities  available
for sale and held to maturity by category and  contractual  maturities are shown
below. The fair value of investment  securities is based on quoted market prices
and dealer  quotes  except for the  investment  in Federal Home Loan Bank (FHLB)
stock  which is valued at its  redemption  value.  Expected  maturities  on debt
securities will differ from contractual  maturities  because  borrowers may have
the  right to call or  repay  obligations  with or  without  call or  prepayment
penalties.

<TABLE>
<CAPTION>

                                                                           December 31,
                                                              1999                            1998
                                                    Amortized         Fair           Amortized          Fair
                                                      cost            value             cost            value
                                                      ----            -----             ----            -----
 <S>                                              <C>              <C>              <C>              <C>
ortgage-backed securities available for sale

CMO residuals (interest only) and other
      mortgage-backed securities                 $ 20,709,050     $ 22,772,039     $  7,845,382     $  9,661,171
                                                 ---------------------------------------------------------------
FNMA certificates:
              Due from five to ten years              740,977          718,979               --               --
              Due over ten years                  110,854,889      109,705,450        8,091,335        8,161,704
                                                 ---------------------------------------------------------------
                                                  111,595,866      110,424,429        8,091,335        8,161,704
FHLMC certificates:
              Due from one to five years               98,693           98,882           89,209           90,765
              Due from five to ten years            1,891,072        1,840,979          240,394          244,140
              Due over ten years                   14,586,274       14,036,216       21,368,689       21,723,711

                                                   16,576,039       15,976,077       21,698,292       22,058,616
 GNMA certificates-                              ---------------------------------------------------------------
                Due over ten years                570,748,830      563,532,620       55,158,840       55,158,840

                                                 $719,629,785     $712,705,165     $ 92,793,849     $ 95,040,331
                                                 ===============================================================
</TABLE>

                                       59
<PAGE>

<TABLE>
<CAPTION>

                                                                           December 31,
                                                              1999                              1998
                                                 Amortized           Fair           Amortized           Fair
                                                    cost             value            cost              value
                                                    ----             -----            ----              -----
 <S>                                            <C>              <C>              <C>              <C>
  Investment securities available for sale

U.S. Treasury securities:
     Due within one year                       $  4,998,011     $  4,944,500     $         --     $         --
     Due from one to five years                          --               --        4,995,028        4,990,625
                                                  4,998,011        4,944,500        4,995,028        4,990,625
U.S. Government and Agencies securities:
     Due from one to five years                 133,955,940      130,950,440       38,100,000       38,106,648
     Due from five to ten years                  92,236,888       89,443,550        5,010,140        5,000,000
                                                226,192,828      220,393,990       43,110,140       43,106,648
                                               ---------------------------------------------------------------
FHLB stock                                       32,825,167       32,825,167       11,404,867       11,404,867
                                               ---------------------------------------------------------------
                                               $264,016,006     $258,163,657     $ 59,510,035     $ 59,502,140
                                               ===============================================================

  Mortgage-backed securities held to maturity

GNMA certificates:
     Due from one to five years                $    15,478       $    16,601     $    27,227     $    29,201
     Due from five to ten years                 10,659,910        10,390,712      13,024,960      12,751,640
     Due over ten years                          2,132,629         2,074,108       2,359,713       2,306,529
                                                12,808,017        12,481,421      15,411,900      15,087,370
                                               ---------------------------------------------------------------
FNMA certificates-
     Due over ten years                         10,252,615        10,643,767      12,607,700      12,944,020
                                               ---------------------------------------------------------------
FHLMC certificates-
     Due over ten years                            188,615           179,841         235,918         229,535
                                               ---------------------------------------------------------------
                                               $23,249,247       $23,305,029     $28,255,518     $28,260,925
                                               ===============================================================
</TABLE>


                                       60
<PAGE>

<TABLE>
<CAPTION>
                                                                    December 31,
                                                        1999                             1998
                                            Amortized           Fair          Amortized          Fair
                                              cost             value            cost            value
                                              ----             -----            ----            -----
 <S>                                       <C>              <C>               <C>           <C>
nvestment securities held to maturity

 U.S. Treasury securities-
     Due within one year                       $     -     $          -       $   194,892  $    196,000
 U.S. Government and Agencies securities-
     Due within one year                             -                -           204,167       204,167
 Puerto Rico Government and Agencies
 obligations:
     Due from one to five years              1,280,000        1,272,000                 -             -
Due from five to ten years                   4,157,630        4,131,755         5,944,870     5,978,467
                                             5,437,630        5,403,755         5,944,870     5,978,467
                                          ---------------------------------------------------------------
                                          $  5,437,630     $  5,403,755      $  6,343,929  $  6,378,634
                                          ===============================================================
</TABLE>



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

<TABLE>
<CAPTION>
                                                                      December 31,
                                                           1999                            1998
                                                     Gross unrealized                Gross unrealized
                                                  Gains           Losses          Gains           Losses
                                                  -----           ------          -----           ------
 <S>                                          <C>              <C>              <C>            <C>
ecurities held to maturity:
     Puerto Rico and United States
     Government obligations                  $         -      $    (33,875)    $    39,705    $    (5,000)
Mortgage-backed securities                       392,274          (336,492)        338,294       (332,887)
                                             $   392,274      $   (370,367)    $   377,999    $  (337,887)
                                             ---------------------------------------------------------------
Securities available for sale:
     U.S. Government obligations             $     9,000      $ (5,861,349)    $     6,648    $   (14,543)
     Mortgage-backed securities                2,570,658        (9,495,278)      2,276,566        (30,084)
                                             ---------------------------------------------------------------
                                             $ 2,579,658      $(15,356,627)    $ 2,283,214    $   (44,627)
                                             ===============================================================
</TABLE>


During 1997 the Company had proceeds from the sale of investment securities held
for trading of approximately  $10,083,000;  gains realized on such sales totaled
approximately  $31,000;  no  losses  were  realized.  There  were  no  sales  of
investment  securities  held for trading during 1999 and 1998.  During the years
ended  December 31, 1999,  1998 and 1997,  proceeds  from the sale of securities
available  for  sale  totaled   approximately   $88,760,000,   $45,917,000   and
$7,915,000,   respectively;   gross  gains   realized  on  such  sales   totaled
approximately  $1,392,000,  $278,000 and  $107,000,  respectively;  gross losses
realized in 1999 were approximately  $2,352,000; no losses were realized in 1998
and 1997.


During 1999, the Company reclassified  $9,296,000 (1998- $55,159,000) securities
held for trading to available for sale.

As discussed in Notes 7, 8, 9 and 10 to the consolidated  financial  statements,
as of December 31, 1999 the Company had investment  securities,  mortgage-backed
securities and mortgage loans amounting to approximately $1.3 billion pledged to
secure  certain  deposits,  securities  sold  under  agreements  to  repurchase,
advances from the FHLB, notes payable, and irrevocable standby letters of credit
issued by the FHLB.

                                       61
<PAGE>



4. Loans and Allowance for Loan Losses

        Loans consist of the following:



                                                      December 31,
                                              1999                   1998
                                              ----                   ----
Real estate loans:
   Residential - first mortgage        $  1,097,891,436       $    735,457,756
   Residential - second mortgage             13,028,816             18,633,916
   Land                                       1,952,043                337,250
   Construction                              95,201,185             34,391,170
   Commercial                               226,036,358            121,393,030
                                          1,434,109,838            910,213,122
                                       ----------------------------------------
Undisbursed portion of loans in process     (50,622,579)           (18,170,178)
Net deferred loan fees                         (436,852)              (166,056)

                                          1,383,050,407            891,876,888
                                       ----------------------------------------
Other loans:
 Commercial                                  54,230,506             46,532,311
 Consumer:
   Loans secured by deposits                 20,538,734             17,225,437
   Loans secured by real estate              76,944,484             85,054,815
   Other                                     37,653,140             41,381,304
 Unamortized discount                          (356,142)              (163,499)
 Unearned interest                              (83,722)              (183,546)

                                            188,927,000            189,846,822
                                       ----------------------------------------
   Total loans                            1,571,977,407          1,081,723,710
                                       ----------------------------------------
Allowance for loan losses                    (8,970,605)            (8,055,432)

                                       $  1,563,006,802       $  1,073,668,278

                                       ========================================



The changes in the allowance for loan losses follow:

                                           Year ended December 31,
                                     1999            1998            1997

Balance, beginning of year     $ 8,055,432      $ 6,771,702      $ 3,331,645
Provision for loan losses        4,525,000        6,600,000        6,370,000
Acquired reserves                       --          364,064               --
Loans charged-off               (4,439,807)      (6,012,792)      (5,376,573)
Recoveries                         829,980          332,458        2,446,630
Balance, end of year           $ 8,970,605      $ 8,055,432      $ 6,771,702
                               ===============================================


Recoveries  during the year ended December 31, 1997 include $2 million  received
from the Companys fidelity  insurance carrier as part of a settlement of a claim
filed by the  Company  in late 1996.  The  amount  received  was  recorded  as a
recovery of loans previously charged-off.

As of December 31, 1999 and 1998 the Company had commercial  loans classified as
impaired  totaling  $928,000  and  $1,021,000,  respectively.  No  reserves  for
impairment  were  necessary  as of  such  dates  since  the  fair  value  of the
collaterals securing such loans exceeded their outstanding balances.


As of December 31, 1999,  1998 and 1997,  loans on which the accrual of interest
income had been discontinued amounted to approximately $59,014,000,  $44,526,000
and $30,086,000,  respectively.  The additional  interest income that would have
been  recognized  during  1999,  1998 and 1997 had  these  loans  been  accruing
interest  amounted to  approximately  $ 1,637,000,  $1,408,000  and  $1,095,000,
respectively.  The Company has no material  commitments to lend additional funds
to borrowers whose loans were in non-accruing status at December 31, 1999.

                                       62
<PAGE>

5. Mortgage Loan Servicing

The Companys fees for servicing mortgage loans generally range from .25% to .50%
on the declining  outstanding principal balances of the mortgage loans serviced.
Servicing fees are collected on a monthly basis out of payments from mortgagors.
The servicing agreements are terminable by permanent investors for cause without
penalty or after  payment of a  termination  fee  ranging  from .5% to 1% of the
outstanding  principal  balance of the loans. At December 31, 1999 and 1998, the
mortgage loans servicing portfolio amounted to approximately  $6,177,511,000 and
$4,827,798,000,   respectively,   including  approximately   $1,069,100,000  and
$754,623,000,  respectively,  serviced  for the  Bank,  and  $486,199,000  under
sub-servicing contracts at December 31, 1999.

The changes in the servicing asset of the Company follows:

                                            Year ended December 31,
                                      1999            1998            1997

Balance at beginning of period   $ 58,221,052    $ 21,212,998    $ 12,595,020
Rights originated                  14,072,094      11,845,775       8,057,574
Rights purchased                   19,342,009      28,156,586       2,397,818
Scheduled  amortization            (7,382,649)     (2,994,307)     (1,837,414)

 Balance at end of period        $ 84,252,506    $ 58,221,052    $ 21,212,998
                                 =============================================


Among the  conditions  established  in its  various  servicing  agreements,  the
Company  is  committed  to  advance  from its own funds any  shortage  of moneys
required  to  complete  timely  payments to  investors  in GNMA  mortgage-backed
securities issued and in its FNMA and FHLMC portfolio. At December 31, 1999, the
mortgage  loan  portfolio  serviced for GNMA,  FNMA and FHLMC and subject to the
timely payment commitment amounted to approximately $2,880,069,000, $537,881,000
and  $981,168,000,  respectively  (1998  -  $2,575,794,000,   $219,178,000,  and
$831,184,000).

Total funds  advanced as of  December  31, 1999 in relation to such  commitments
amount to $2,693,000 , $6,740,000 and $1,501,000 for escrow advances,  principal
and interest advances and foreclosure advances, respectively (1998 - $1,458,000,
$3,429,000 and $757,000).

In connection  with mortgage  servicing  activities,  the Company holds funds in
trust for investors  representing amounts collected primarily for the payment of
principal,  interest,  real estate taxes and insurance premiums.  Such funds are
deposited in separate  custodial bank  accounts,  some of which are deposited in
the Bank.  At December  31,  1999 and 1998,  the related  escrow  funds  include
approximately $92,361,000 and $109,857,000, respectively, deposited in the Bank;
these funds are  included in the  Companys  consolidated  financial  statements.
Escrow funds also include  approximately  $16,826,000 and $6,732,000 at December
31, 1999 and 1998,  respectively,  deposited  with other banks and excluded from
the Companys assets and liabilities.



6.       Premises and Equipment

        Premises and equipment consist of:

                                       Estimated
                                      useful lives          December 31,
                                        (Years)         1999            1998

Buildings                                 20      $  1,895,066    $         --
Furniture and fixtures                     5        22,398,620      17,588,015
Leasehold improvements                    10        11,952,402       7,966,402
Autos                                      5           544,355         487,562
                                                    36,790,443      26,041,979
                                                  -----------------------------
Less -  Accumulated
        depreciation and amortization              (17,331,090)    (13,079,544)
                                                  -----------------------------
                                                  $ 19,459,353    $ 12,962,435
                                                  =============================

                                       63
<PAGE>


7. Deposits

        Deposits are summarized as follows:

                                            December 31,
                                   1999                    1998

Passbook savings             $  113,576,010           $ 106,389,879

NOW accounts                     38,764,771              34,954,647
Super NOW accounts               93,912,535              81,511,705
Regular checking accounts
(non-interest bearing)           54,020,104              46,328,445
Commercial checking accounts
(non-interest bearing)          103,575,340             126,171,795
                                290,272,750             288,966,592
                            ---------------------------------------
Certificates of deposit:
   Under  $ 100,000             390,314,490             315,641,230
  $100,000 and over             531,714,386             294,270,322
                                922,028,876             609,911,552
                            ---------------------------------------
Accrued interest payable          4,628,732               2,029,281
                            $ 1,330,506,368         $ 1,007,297,304
                            =======================================


The weighted  average stated  interest rate on all deposits at December 31, 1999
and 1998 was 4.84% and 4.50%, respectively.

As of December 31, 1999, the Company had delivered investment
securities held to maturity with an amortized cost of approximately $4.2 million
as collateral for public funds deposits.

At December 31, 1999  scheduled  maturities  of  certificates  of deposit are as
follows:

                        2000        $755,614,168
                        2001          46,841,853
                        2002          32,263,785
                        2003          31,574,142
                        2004          39,153,143
                        Thereafter    16,581,785

                                    $922,028,876
                                    ============


                                       64
<PAGE>

8. Securities Sold Under Agreements to Repurchase

At December 31, 1999,  repurchase  agreements  mature within ninety days, except
for repurchase agreements totaling $70,000,000 maturing in December 2000.

Information on these agreements follows:

<TABLE>
<CAPTION>

                                                                           December 31,
                                                        1998                                    1997

                                                            Approximate market                        Approximate market
                                              Repurchase   and carrying value of      Repurchase    and carrying value of
                                              liability    underlying securities      liability     underlying securities
                                              ---------    ---------------------      ---------     ---------------------
 <S>                                       <C>                <C>                   <C>                  <C>
Type of security

 U.S. Government and Agencies securities  $  124,392,000     $   123,548,392       $    6,967,000       $   7,151,947
 GNMA                                        570,743,356         590,468,925          439,960,446         448,732,603
 CMO Residuals                                 8,162,280           4,592,934            8,162,280           5,848,724
 FHLMC                                        15,763,948          16,053,021           12,682,000          12,983,712
 FNMA                                         12,279,756          13,699,487            3,650,000           3,216,694
                                          ---------------------------------------------------------------------------
                                          $  731,341,340     $   748,362,759       $  471,421,726       $ 477,933,680
                                          ===========================================================================
</TABLE>


Maximum amount of borrowings  outstanding at any month-end  during 1999 and 1998
under  the  agreements  to  repurchase  were   $643,352,000  and   $471,422,000,
respectively.  The approximate average aggregate  borrowings  outstanding during
the periods  were  $482,335,000  and  $410,701,000,  respectively.  The weighted
average  interest  rate of such  agreements  was 5.92% and 5.42% at December 31,
1999 and 1998, respectively;  the weighted average rate during 1999 and 1998 was
5.59% and 5.74%, respectively.

The securities  underlying such agreements were delivered to, and are being held
by, the dealers with whom the  securities  sold under  agreements  to repurchase
were transacted.  The dealers may have sold, lent, or otherwise disposed of such
securities to other parties in the normal course of their  operations,  but have
agreed to resell the Company the same or similar securities at the maturities of
the agreements.

Since repurchase agreements are short-term commitments to borrow funds, they can
be assumed to reprice at least quarterly.  Therefore, the outstanding balance of
repurchase agreements is estimated to be its fair value.

                                       65
<PAGE>


9.       Notes Payable

        Notes payable consist of:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                      1999            1998
 <S>                                                             <C>               <C>
arehousing lines, bearing interest at floating rates
ranging from 1.125% to 1.25% over the counterpartys
cost of funds (6.78% in 1999 and 6.43% in 1998)                 $  48,507,001     $  98,647,956

Lines of credit with banks for an aggregate of $25
million bearing  interest at floating rates ranging
from 1.375% to 1.75% over the counterpartys cost of funds
7.25% in 1999),  collateralized by mortgage servicing
rights with a fair value of approximately $35,000,000              23,700,000                 -

Promissory notes maturing in 1999 paying semiannual
interest at fixed annual rates ranging from 6.20% to 7.15%                 -         23,600,000

Promissory notes maturing in 2000 paying semiannual
interest at fixed annual rates ranging from 5.60% to 6.30%         15,000,000        15,000,000

Promissory note maturing in 2000 paying quarterly
interest at a floating rate of 84% of the three month
Libor rate less .125%  (4.99% at December 31, 1999
and  4.36% at December 31, 1998)                                   10,000,000        10,000,000

Promissory note maturing in 2001 paying quarterly
interest at a floating rate of  96% of the three month
Libid  rate (5.81% at December 31, 1999 and 4.95%
at December 31, 1998)                                              25,000,000        25,000,000

Promissory note maturing in 2001 paying semiannual
interest at a fixed annual rate of 6.52%                           10,500,000        10,500,000


                                                               $  132,707,001    $  182,747,956
                                                               ================================
</TABLE>



As of  December  31,  1999,  the Company  had  various  credit  line  agreements
permitting the Company to borrow up to $223.4 million in warehousing  lines with
banks;  the unused portion of  warehousing  lines totaled  approximately  $174.9
million.   Warehousing  lines  at  December  31,  1999  are   collateralized  by
approximately $44.2 million in mortgage loans,  mortgage servicing rights with a
fair  value  of $8  million,  and a  general  assignment  of  mortgage  payments
receivable.  These  borrowings  bear interest at rates related to the respective
counterpartys  cost of funds.  Several  credit line  agreements  impose  certain
requirements on the Company of which the most important include  maintaining net
worth and debt  service  over  certain  defined  minimums,  and  limitations  on
indebtedness and declaration of dividends.  At December 31, 1999 the Company was
in compliance with the loan requirements.

                                       66
<PAGE>


The following  information relates to borrowings of the Company under the credit
line agreements:
                                                           December 31,
                                                           ------------
 (Dollars in Thousands)                                1999            1998
                                                       ----            ----
Maximum aggregate borrowings
  outstanding at any month-end                        $ 233,100    $ 161,060

Approximate average aggregate borrowings
  outstanding during the year                         $ 140,548    $ 102,047

  Weighted average interest rate during
     the year computed on a monthly basis                6.35%       7.07%

  Weighted average interest rate at end of year          6.87%       6.43%


Certain promissory notes include pledge agreements where the Company has pledged
certain  negotiable  securities as a guarantee for payment of some of the notes.
The pledge agreements  provide that the value of the pledged securities must not
fall below 105% of the  principal  balance of the  promissory  note plus accrued
interest on such amount.  In the event that the securities value falls below the
stated percentage, the Company must deliver additional negotiable securities. At
December 31, 1999 securities pledged in relation to this requirement  consist of
investment   and   mortgage-backed   securities   with  an  amortized   cost  of
approximately  $14.3 million and approximate  market value of $14.2 million.  At
December 31, 1999 floating rate notes in the aggregate amount of $35,000,000 and
fixed rate notes of  $10,500,000  are  guaranteed by letters of credit issued by
the FHLB -NY.

        Promissory notes by maturity as of December 31, 1999 follows:

                              2000     $25,000,000
                              2001      35,500,000

                                       $60,500,000
                              ====================

                                       67

10.  Advances from The Federal Home Loan Bank of New York

Advances  from the FHLB totaled $384 million and $121 million as of December 31,
1999 and 1998,  respectively.  At December 31, 1999 advances from FHLB mature at
various dates  commencing on January 3, 2000 until  December 18, 2003,  and bear
interest at various  rates  ranging from 4.22% to 6.43%.  The  weighted  average
stated  interest  rate on advances from the FHLB was 5.75% and 5.25% at December
31, 1999 and 1998, respectively.

The Bank receives  advances from the FHLB under an Advances,  Collateral  Pledge
and Security Agreement (the Agreement), which allows the Company to borrow up to
$645.8  million as of December 31, 1999.  The unused  portion under such line of
credit  was  approximately  $261.8  million.  Under the  Agreement,  the Bank is
required to maintain a minimum  amount of  qualifying  collateral  with a market
value  of at least  110% of the  outstanding  advances.  In  addition,  the Bank
maintains  standby  letters of credit with the FHLB  amounting to  approximately
$47.1 million at December 31, 1999. At December 31, 1999 the specific collateral
(principally  in the form of first mortgage  notes)  amounting to  approximately
$504.9  million was pledged to the FHLB as part of the  Agreement  and to secure
standby  letters  of credit.  At  December  31,  1999,  the market  value of the
collateral  indicated  above was sufficient to comply with the provisions of the
Agreement.

11. Income Taxes

Under the Puerto Rico tax law a companys  tax  liability  will be the greater of
the tax  computed  under the regular tax system or the  alternative  minimum tax
(AMT) system.  The AMT is imposed based on 22% of regular  taxable  income after
certain adjustments for preference items. An AMT credit may be claimed in future
years for tax paid on an AMT basis in excess of the regular tax basis. Under the
Puerto Rico Income Tax Law entities are not  entitled to file  consolidated  tax
returns.

The Bank is subject to Puerto  Rico  income tax on its income  derived  from all
sources  within and  outside  Puerto  Rico.  The Bank is also  subject to United
States  income taxes on certain types of income from such source.  However,  any
United States income tax paid by the Bank is, subject to certain  conditions and
limitations,  creditable as a foreign tax credit  against its Puerto Rico income
tax liability.

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

        Deferred tax liabilities (assets) are as follows:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                              1999               1998
 <S>                                                      <C>               <C>
Deferred tax liabilities:

 Unrealized gain on securities held for trading          $    101,782      $  6,038,762
 Reserve for bad debts                                           --              19,371
 CMO residuals (IOs)                                        4,387,577         1,778,693
 Servicing asset                                            8,260,486         4,839,238
 Securitization gains on mortgage -backed securities        4,710,779              --
 Unrealized gain on securities available for sale                --             873,049
                                                           17,460,624        13,549,113
                                                        -------------------------------
</TABLE>


<TABLE>
<CAPTION>

                                                                    December 31,
                                                              1999               1998

 <S>                                                      <C>               <C>
Deferred tax assets:

Deferred loan origination income, net                          (1,974)         (313,111)
 Allowance for loan losses                                 (3,498,536)       (2,799,369)
 Contingency reserve                                             --            (234,000)
 AMT credits                                               (1,191,200)         (124,937)
 Other foreclosed property reserve                            (38,571)             --
 Recourse contingency                                            --             (61,653)
 Reserve for bad debts                                       (253,664)             --
 Unrealized losses on securities available for sale        (4,983,018)             --
 Deferred gains on sale of investment securities             (183,336)         (183,336)
                                                          (10,150,299)       (3,716,406)
                                                        -------------------------------
Net deferred tax liability                               $  7,310,325      $  9,832,707
                                                        ===============================
</TABLE>


                                       68
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                1999                       1998                   1997
                                                                    % of pretax              % of pretax             % of pretax
                                                           Amount      income      Amount       income      Amount       income
<S>                                                     <C>              <C>     <C>              <C>     <C>               <C>
(Dollars in Thousands)

Computed income tax at statutory rate                   $ 20,894         39%     $ 17,579         39%     $ 12,569          39%
 Effect on provision of:
 Tax-exempt interest                                      (5,629)       (10)       (7,084)       (15)       (2,947)         (9)
 Adjustment for tax  differences expected to reverse
   at tax rates lower than the statutory rate             (2,040)        (4)           --         --            --          --
 Discount on tax credits purchased                          (506)        (1)         (385)        (1)       (1,006)         (3)
 Other  (non-taxable) / non-deductible
   items, net                                               (480)        (1)          931          2           116          --
                                                        -------------------------------------------------------------------------
                                                        $ 12,239         23%     $ 11,041         25%     $  8,732          27%
                                                        =========================================================================
</TABLE>


         In early February 1998,  the Puerto Rico Treasury  Department  began an
         income tax  examination  of R&G  Mortgages  and the  Bank's  income tax
         returns for the year 1995.  Management  believes that this  examination
         should not result in any  significant  adverse  effect on the Company's
         financial condition or results of operations.


12. Stockholders' Equity

         On  April  16,  1998 the  Company's  Board of  Directors  authorized  a
two-for-one  stock  split of the  Company's  $.01 par value  Class A and Class B
common stock (the common stock). The stock split was effected,  on June 25, 1998
in the form of a stock  dividend  of one share for each  share held of record on
June 12, 1998.  Prior to the  declaration  of the stock  split,  the Company had
14,144,752  shares  of  common  stock  outstanding.  As a result  of the  split,
14,144,752  shares were issued and $141,448  were  transferred  from  additional
paid-in-capital  to  common  stock.  On July  15,  1997 the  Company's  Board of
Directors  authorized a nine-for-five stock split of the Company's common stock.
The stock  split  was  effected  on  September  25,  1997 in the form of a stock
dividend of four  shares of common  stock for each five shares held of record on
September 15, 1997. Prior to the declaration of the stock split, the Company had
7,858,216  shares  of  common  stock  outstanding.  As a  result  of the  split,
6,286,536  shares were  issued and  $62,865  were  transferred  from  additional
paid-in-capital  to common stock. The stock splits did not dilute  shareholders'
voting rights or their proportionate interest in the Company. All per share data
included herein has been adjusted to reflect the stock splits.

         The Company's  average number of common shares  outstanding used in the
computation of basic earnings per common share was 28,632,768  (1998-28,413,314;
1997-28,289,504);  the weighted  average  number of shares  outstanding  for the
computation of diluted earnings per share was 29,334,224 (1998 -29,169,314; 1997
-29,042,504)  after giving effect to outstanding stock options granted under the
Company's  Stock  Option  Plan.  During 1999,  cash  dividends of $.14875  (1998
-$0.111375;  1997  -$0.084375)  per common share  amounting to $4,258,460  (1998
-$3,178,214; 1997 -$2,385,752) were paid.

                                       69
<PAGE>


13. Non-interest Expenses

    Non-interest expenses consist of the following:


<TABLE>
<CAPTION>

                                                          Year ended December 31,
                                                   1999            1998            1997
<S>                                          <C>              <C>               <C>
 Stationary and supplies                     $  2,018,569     $ 1,548,459       1,640,131
 Advertising and promotion                      5,718,016       4,277,685       3,154,189
 Telephone                                      1,585,587       1,004,213         871,029
 License and other taxes                        2,693,461       2,074,144       1,595,276
 Deposit insurance                                514,473         401,933         346,625
 Other insurance                                  801,334         661,951         590,066
 Legal and other professional services          2,254,510       2,169,209       2,193,687
 Amortization of mortgage servicing asset       7,382,649       2,994,307       1,837,414
 Goodwill amortization                            514,293         393,507         307,233
 Guaranty fees                                  2,060,884       1,366,296       1,246,300
 Other                                          8,023,930       5,795,632       4,469,547
                                              $33,567,706     $22,687,336     $18,251,497
</TABLE>


14. Related Party Transactions

The  Company  leases  some of its  facilities  from an  affiliate,  mostly  on a
month-to-month basis. The annual rentals under these agreements during 1999 were
approximately $1,736,000 (1998- $ 1,566,000).

Loans to  directors,  officers  and  employees  of the Company  were made in the
ordinary course of business. Interest rates on such loans were substantially the
same as those prevailing at the time for comparable  transactions with unrelated
parties  and did not  involve  more  than a normal  risk of  collectibility.  At
December  31,  1999 the  aggregate  amount  of loans  outstanding  to  officers,
directors,  and principal  stockholders of the Company and its subsidiaries were
insignificant.

15. Regulatory Requirements

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

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

The Bank is incorporated  under the Puerto Rico Banking Act, as amended,  and is
subject to extensive  regulation  and  examination  by the  Commissioner  of the
Officer of Financial  Institutions of the  Commonwealth of Puerto Rico, the FDIC
and certain requirements established by the Federal Reserve Board.

The mortgage banking business  conducted by R&G Mortgage is subject to the rules
and regulations of FHA, VA, FNMA,  FHLMC, GNMA and the Commissioner with respect
to  originating,  processing,  selling  and  servicing  mortgage  loans  and the
issuance and sale of mortgage-backed  securities. R&G Mortgages affairs are also


subject to supervision and examination by FNMA, FHA, FHLMC,  GNMA, HUD and VA at
all times to assure  compliance  with the applicable  regulations,  policies and
procedures.  Mortgage  origination  activities are subject to, among others, the
Equal Credit Opportunity Act, Federal  Truth-in-Lending  Act and the Real Estate
Settlement  Procedures  Act  and the  regulations  promulgated  thereunder.  R&G
Mortgage is a U.S.  Department of Housing and Urban  Development  (HUD) approved
non-supervised mortgagee.

                                       70
<PAGE>

The Company is subject to various regulatory capital  requirements  administered
by the federal  banking  agencies.  Under capital  adequacy  guidelines  and the
regulatory  framework  for  prompt  corrective  action,  the  Company  must meet
specific capital guidelines that involve  quantitative  measures of the Companys
assets,  liabilities  and certain  off-balance  sheet items as calculated  under
regulatory   accounting   practices.    The   Companys   capital   amounts   and
classifications  are also subject to  qualitative  judgments  by the  regulators
about  components,  risk weightings,  and other factors.  Quantitative  measures
established  by regulation to ensure capital  adequacy  requires the Company and
the Bank to maintain  minimum  amounts and ratios (set forth in the table below)
of total and Tier I capital (as  defined in the  regulations)  to  risk-weighted
assets  (as  defined),  and of Tier I capital to  average  assets (as  defined).
Failure to meet capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Companys financial statements.  As of December 31,
1999,  the  Company  meets  all  capital  adequacy  requirements  to which it is
subject.

As of December 31, 1999, the most recent  notification from the FDIC categorized
the  Bank  as  well  capitalized  under  the  regulatory  framework  for  prompt
corrective  action. To be categorized as well capitalized the Bank must maintain
minimum total  risk-based,  Tier I risk-based and Tier I leverage  ratios as set
forth  in the  table  below.  There  are no  conditions  or  events  since  that
notification that management believes have changed the Banks category.

The following  table reflects the Companys and the Banks actual capital  amounts
and ratios, and applicable  regulatory capital requirements at December 31, 1999
and 1998:

<TABLE>
<CAPTION>
                                                                                              To be well capitalized
                                                                           For capital       under prompt corrective
                                                      Actual            adequacy purposes       action provisions
                                                Amount      Ratio       Amount       Ratio     Amount         Ratio
                                                ------      -----       ------       -----     ------         -----
(Dollars in Thousands)
 <S>                                           <C>           <C>        <C>            <C>    <C>               <C>
As of December 31, 1999
Total capital (to risk weighted assets):
         Consolidated                         $271,716      16.47%     $131,966        8%          N/A          N/A
         R-G Premier Bank only                $161,754      13.08%     $ 98,921        8%     $123,651           10%
Tier I capital (to risk weighted assets):
         Consolidated                         $262,746      15.93%     $ 65,983        4%          N/A          N/A
         R-G Premier Bank only                $152,784      12.36%     $ 49,460        4%     $ 74,190            6%
Tier I capital (to average assets):
         Consolidated                         $262,746       9.35%     $112,368        4%          N/A          N/A
         R-G Premier Bank only                $152,784       7.07%     $ 86,453        4%     $108,066            5%

        As of December 31, 1998
Total capital (to risk weighted assets):
         Consolidated                         $215,287      14.28%     $120,638        8%          N/A          N/A
         R-G Premier Bank only                $110,501      14.46%     $ 61,124        8%     $ 76,405           10%
Tier I capital (to risk weighted assets):
         Consolidated                         $207,232      13.74%     $ 60,319        4%          N/A          N/A
         R-G Premier Bank only                $102,446      13.41%     $ 30,562        4%     $ 45,843            6%
Tier I capital  (to average assets):
         Consolidated                         $207,232      10.88%     $ 76,172        4%          N/A          N/A
         R-G Premier Bank only                $102,446       8.04%     $ 50,993        4%     $ 63,741            5%
</TABLE>

                                       71
<PAGE>

16. Stock Option Plan

The Company  has a Stock  Option  Plan,  which is designed to attract and retain
qualified personnel in key positions,  provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company,  and reward key employees for  outstanding  performance  and the
attainment of targeted  goals. An amount of Company common stock equal to 10% of
the  aggregate  number of Class B Shares  sold in the  Companys  initial  public
offering  (241,500  shares,  equivalent to 869,400 shares after giving effect to
stock splits) were authorized  under the Stock Option Plan,  which may be filled
by authorized but unissued  shares,  treasury shares or shares  purchased by the
Company  on the open  market or from  private  sources.  The Stock  Option  Plan
provides for the grant of stock  options at an exercise  price equal to the fair
market value of the Class B shares at the date of the grant.  Stock  options are
available  for grant to key  employees of the Company and any  subsidiaries.  No
options  were  issued  prior to the  public  offering.  In  connection  with the
Companys  initial  offering on August  27,1996,  the Company awarded options for
200,000 shares  (720,000 shares as adjusted for stock splits) to 28 employees of
R&G Mortgage  and the Bank at the initial  public  offering  price of $14.50 per
share.  In January 1997 the Company  awarded  options for an  additional  10,000
shares (36,000 shares as adjusted for stock splits) to a certain  employee.  The
maximum term of the options  granted are ten years.  Under the provisions of the
Stock Option Plan, options can be exercised as follows:  20% after one year, 40%
after two years, 60% after three years, 80% after four years and 100% after five
years. As of December 31, 1998 none of the options granted have been exercised.


        Stock  options  granted,  cancelled  and  exercised  during 1999 were as
follows:
                                                                  Weighted
                                                               Average Price

 Outstanding stock options, January 1, 1999     756,000       $    4.1568

 Granted                                         96,000       $   16.1250

 Exercised                                      (71,640)      $    4.0278

 Cancelled                                      (25,200)      $    4.0278

Outstanding stock options, December 31, 1999    755,160       $    5.6948



The  Company  adopted  in  1996  the  disclosure  provisions  of SFAS  No.  123-
Accounting for Stock-Based Compensation (SFAS 123). Accordingly, no compensation
cost has been  recognized for the Companys  Stock Option Plan. Had  compensation
cost for the Companys Stock Option Plan been determined  based on the fair value
of the options at the grant date consistent with the provisions of SFAS 123, the
Companys net  earnings  and earnings per share for the years ended  December 31,
1999 and 1998 would have been reduced to the pro forma amounts  indicated below:

                                                 1999            1998

Net earnings - as reported                  $ 41,334,992    $ 34,033,797

Net earnings - pro forma                    $ 41,180,478    $ 33,879,283

Basic earnings per share - as reported      $       1.31    $       1.15

Basic earnings per share - pro forma        $       1.31    $      1.15


                                                 1999            1998

Diluted earnings per share - as reported    $       1.28    $       1.12

Diluted earnings per share - pro forma      $       1.28    $       1.12



The fair value of the option  grants were  estimated  on the date of the
grant using the Black-Scholes  option pricing model with the following  weighted
average assumptions:

Stock Price and Exercise  Price - $14.50 for options  granted based on the terms
of the awards.

Expected Option Term - 6 years.

Expected Volatility - 42.54% for options granted calculated using weekly closing
prices of three peer financial  institutions given the Companys limited publicly
trading history.

Expected  Dividend  Yield -  Calculated  as the  annualized  quarterly  dividend
closest to the grant date divided by the stock price on the grant date.

Risk-Free  Interest Rate - 6.48% for options granted determined as the yield, on
the date of grant, on a U.S.  Treasury zero coupon bond with a maturity equal to
the expected term of the option.

                                       72
<PAGE>

17. Profit Sharing Plan

The Company has a profit sharing plan (the Plan) which covers  substantially all
regular  employees.  Annual  contributions  to the  Plan are  based on  matching
percentages  up to 5% of  employee  salaries,  based on the  employees  years of
service and on operational  income, as defined by the Plan, and are deposited in
a trust.  Contributions  to the Plan during the years ended  December  31, 1999,
1998 and  1997  amounted  to  approximately  $120,000,  $103,000,  and  $79,000,
respectively.


18. Commitments and Contingencies

        Commitments to buy and sell GNMA certificates

As of  December  31,  1999,  the  Company  had open  commitments  to issue  GNMA
certificates in the amount of $52.0 million.

        Commitments to sell mortgage loans

As of December 31, 1999 the Company had  commitments  to sell mortgage  loans to
third party investors amounting to $64.8 million.

        Lease commitments

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

As of December 31, 1999, minimum annual rental commitments under  noncancellable
operating  leases for certain office space and equipment,  including leases with
an affiliate, were as follows:

                        Year          Amount

                        2000    $   3,444,327
                        2001        3,265,865
                        2002        3,137,709
                        2003        2,793,145
                        2004        2,538,732
                 Later years       13,525,469

                                $  28,705,247


        Rent expense amounted to approximately $4,081,000 in 1999, $3,097,000 in
1998 and $2,483,000 in 1997.

        Litigation

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

        Others

At December 31, 1999 the Company is liable  under  limited  recourse  provisions
resulting from the sale of loans to several  investors  principally  FHLMC.  The
principal balance of these loans, which are serviced by the Company,  amounts to
approximately $646.3 million at December 31, 1999. Liability,  if any, under the
recourse  provisions  at December  31, 1999 is  estimated  by  management  to be
insignificant.



19. Supplemental Disclosure on the Statements of Cash Flows

During 1999, 1998 and 1997, the Company paid interest amounting to approximately
$99,587,000,  $79,576,000  and  $60,846,000,  respectively,  and income taxes of
approximately $8,241,000, $4,306,000 and $9,699,000, respectively.

During  1999,  1998 and 1997  the  Company  retained  as  investment  securities
approximately  $106,237,000,   $0  and  $11,346,000,   respectively,   of  loans
securitized from its mortgage loan portfolio.

                                       73
<PAGE>

20. Financial Instruments with Off-Balance Sheet
Risk and Concentrations of Credit Risk

In the normal  course of business,  the Company uses various  off-balance  sheet
financial  instruments  to satisfy the  financing  needs of its customers and to
reduce its own  exposure to  fluctuations  in interest  rates.  These  financial
instruments  include loan  commitments  and interest  rate  exchange  agreements
(swaps).  These instruments involve, to varying degrees,  elements of credit and
interest rate in excess of the amount  recognized in the statements of financial
condition. The contract or notional amounts of these instruments,  which are not
included in the  statements  of  financial  condition,  are an  indicator of the
Companys activities in particular classes of financial instruments.

The Companys exposure to credit loss in the event of nonperformance by the other
party  to  the  financial  instruments  for  commitments  to  extend  credit  is
represented by the contractual notional amount of those instruments. The Company
uses the same credit  policies in making  commitments  as it does for on-balance
sheet instruments.  For interest rate swaps, the contract or notional amounts do
not represent exposure to credit loss.  Instead,  the amount potentially subject
to credit loss is substantially less.

Contractual  commitments to extend credit are legally binding agreements to lend
money to customers at  predetermined  interest  rates for a specified  period of
time.  Since many of the loan  commitments  may expire without being drawn upon,
the  total  commitment  amount  does  not  necessarily   represent  future  cash
requirements.

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

Interest  rate swap  agreements  involve the exchange of fixed and floating rate
interest payment obligations  without the exchange of the underlying  principal.
Entering  into  interest  rate  agreements  involves  the risk of  dealing  with
counterparties  and their ability to meet the terms of the  contracts,  and also
the interest rate risk associated with unmatched positions.

The total  amounts  of  financial  instruments  with  off-balance  sheet risk at
December 31, 1999 follows:

Financial  instruments  whose contract  amounts represent potential credit risk:
    Commitments to extend credit  excluding the undisbursed  portion of loans
    in process:

 Unused lines of credit                                       $       29,016,736
--------------------------------------------------------------------------------
Financial instruments whose notional or contractual
amounts exceed the amount of potential credit risk:

Interest rate swap contracts                                  $      155,000,000
--------------------------------------------------------------------------------

A detail of interest  rate swaps by  contractual  maturity at December  31, 1999
follows:


               National                        Pay Fixed      Receive
                Amount         Maturity          Rate      Rate Floating
                ------         --------          ----      -------------
         $  10,000,000    October 24, 2000       5.20%   84% of 3 month Libid
            25,000,000    September 10, 2001     6.09%   96% of 3 month Libid
            15,000,000    January 26, 2001       5.59%      3 month Libor
            15,000,000    September 17, 2002     5.79%      3 month Libid
            10,000,000    September 15, 2003     4.70%      3 month Libor
            70,000,000    December 8, 2009       5.60%      3 month Libor
            10,000,000    December 15, 2009      5.69%      3 month Libor

                                       74
<PAGE>

The  following  table  summarizes  the  changes  in  notional  amounts  of swaps
outstanding during 1999:

 Beginning balance     $  205,000,000
 New Swaps                 80,000,000
 Maturities              (130,000,000)
                       --------------
 Ending balance        $  155,000,000
                       ==============

 As of December 31, 1999, interest rate swap maturities are as follows:

                        2000    $  10,000,000
                        2001       40,000,000
                        2002       15,000,000
                        2003       10,000,000
                        2009       80,000,000
                        ---------------------
                                $ 155,000,000
                        =====================


Expected   maturities   will   differ   from   contracted   maturities   because
counterparties  to the  agreements  may have the right to call the swaps.  As of
December 31,1999 swap agreements with a notional amount of $105,000,000 had call
options at various dates commencing on September 2000 through December 2000.

Net interest  settlements  on swap  agreements  are recorded as an adjustment to
interest expense on notes payable and repurchase  agreements.  Net interest paid
during  1999  and  1997  amounted  to   approximately   $315,000  and  $293,000,
respectively;  net interest  received  amounted to approximately  $50,000 during
1998.

21. Supplemental Income Statement Information

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

    Total employee costs and other expenses before capitalization follow:

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                                  1999           1998             1997

<S>                                           <C>             <C>             <C>
Employee costs                                $39,738,671     $30,013,967     $21,368,723
Other administrative and general expenses     $37,366,087     $25,906,635     $22,662,971

</TABLE>


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


<TABLE>
<CAPTION>

                                                             Year ended December 31,
                                                       1999           1998             1997
 <S>                                                <C>             <C>             <C>
Offset against mortgage loan sales and fees        $ 7,069,831     $ 2,623,316     $ 2,931,394
Offset against interest income on loans            $ 3,210,847     $ 3,113,946     $ 2,122,727
Capitalized as part of loans held for sale and
loans held for investment                          $ 8,823,603     $10,401,221     $ 7,073,322

</TABLE>


                                       75
<PAGE>


22. Fair Value of Financial Instruments

The estimated fair value of the Company's  financial  instruments as of December
31 are as follows:

<TABLE>
<CAPTION>

                                                               1999                           1998
                                                                     Estimated                        Estimated
                                                    Carrying            Fair         Carrying           Fair
                                                     Value             Value           Value            Value
                                                     -----             -----           -----            -----
  (Dollars in Thousands)

 Financial Assets
<S>                                               <C>            <C>             <C>              <C>
Cash and due from banks                           $   42,252     $    42,252     $    51,805      $    51,805
Money market investments                              23,744          23,744          51,924           51,924
Mortgage loans held for sale                          77,277          78,716         117,126          118,455
Mortgage-backed securities held for trading           43,564          43,564         450,546          450,546
Investment and mortgage-backed securities
  available for sale                                 938,044         938,044         143,137          143,137
Investment  in Federal Home Loan Bank stock           32,825          32,825          11,405           11,405
Investment and mortgage-backed securities
  held to maturity                                    28,687          28,687          34,599           34,640
Loans, net                                         1,563,007       1,549,772       1,073,668        1,108,684
Accounts receivable                                   38,617          38,617          22,171           22,171

Financial Liabilities

Deposits:
  Non-interest bearing demand                     $  157,595     $   157,595     $   172,500      $   172,500
  Savings and NOW accounts                           246,253         232,283         222,856          212,797
  Certificates of deposit                            922,029         920,829         609,912          620,383
Securities sold under agreements to repurchase       731,341         731,341         471,422          471,422
Notes payable                                        132,707         132,278         182,748          182,191
Advances from FHLB                                   384,000         383,850         121,000          118,856
Other borrowings                                       9,843           9,843           9,000            9,000
Accounts payable and accrued liabilities              33,917          33,917          28,020           28,020
Unrecognized financial instruments -

  Interest rate swap agreements in a net
  receivable (payable) position*                  $       65     $     5,616     $      (111)     $     1,855

</TABLE>



* The amount shown under "carrying  amount"  represents net accrual arising from
those unrecognized financial instruments.

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

Short-term financial instruments

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


Investment securities

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

                                       76
<PAGE>

Loans

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

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

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

Deposits

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

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

Borrowings

The fair value of  promissory  notes  included in notes  payable,  advances from
FHLB,  subordinated  notes and other secured  borrowings  was  determined  using
discounted cash flow analysis over the remaining term of the  obligations  using
market rates for similar instruments.

Interest rate swap agreements

The fair value of  interest  rate swap  agreements  was  determined  taking into
account the current  interest rates at December 31, 1999. This value  represents
the  estimated  amount  the  Company  would pay to  terminate  the  contract  or
agreement taking into account current interest rates and, when appropriate,  the
current credit worthiness of the counterparties.

Limitations

Fair value  estimates  are made at a specific  point in time,  based on relevant
market  information  and  information  about the  financial  instruments.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument.  Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding


future   expected   loss   experience,   current   economic   conditions,   risk
characteristics  of various  financial  instruments,  and other  factors.  These
estimates  are  subjective  in nature and involve  uncertainties  and matters of
significant judgment and therefore cannot be determined with precision.  Changes
in assumptions could significantly affect the estimates.

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

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

                                       77
<PAGE>


23. R&G Financial Corporation (Holding Company Only)
Financial Information

The following condensed financial information presents the financial position of
R&G Financial Corporation (the Holding Company) only as of December 31, 1999 and
1998 and the results of its  operations and its cash flows for each of the three
years ended on December 31,1999:

Statements of Financial Conditions
                                                           December 31,
                                                       1999            1998
        Assets
Cash                                             $    119,380     $    145,314
Investment in R-G Premier Bank, at equity         157,038,667      114,706,236
Investment in R&G Mortgage, at equity             127,314,792      106,307,634
Accounts receivable - subsidiaries                    139,156           69,828
Other assets                                          116,442           32,234
                                                 -----------------------------
   Total assets                                  $284,728,437     $221,261,246
                                                 =============================
Liabilities and Stockholders Equity

Advances from subsidiaries                       $ 15,000,000     $         --
Other liabilities and accrued expenses                193,160           99,387
Stockholders equity                               269,535,277      221,161,859
                                                 -----------------------------
   Total liabilities and stockholders equity     $284,728,437     $221,261,246
                                                 =============================

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                           1999            1998           1997
 <S>                                                   <C>             <C>             <C>
ncome:
  Dividends from subsidaries                          $        --     $ 2,404,787     $ 2,953,225
  Management fees                                         555,371         384,638         423,178
                                                      -------------------------------------------
                                                          555,371       2,789,425       3,376,403
                                                      -------------------------------------------
Operating expenses                                        505,183         349,669         384,707
                                                      -------------------------------------------
Income before income taxes and equity
        in undistributed earnings of subsidiaries          50,188       2,439,756       2,991,696
                                                      -------------------------------------------
Income taxes                                               14,053           9,477           8,079
                                                      -------------------------------------------
Income before equity in undistributed earnings
        of subsidiaries                                    36,135       2,430,279       2,983,617
                                                      -------------------------------------------
Equity in undistributed earnings of subsidiaries       41,298,857      31,603,518      20,513,595
                                                      -------------------------------------------
Net income                                            $41,334,992     $34,033,797     $23,497,212
                                                      ===========================================
</TABLE>


The Holding  Company had no operations  during the years ended  December
31, 1999, 1998 and 1997.


The  principal  source of income for the Holding  Company  consists of dividends
from R-G  Premier  Bank of Puerto  Rico and R&G  Mortgage  Corp.  The payment of
dividends  by the  Bank  to the  Holding  Company  may be  affected  by  certain
regulatory requirements and policies, such as the maintenance of certain minimum
capital levels.

                                       78
<PAGE>


<TABLE>
<CAPTION>

                                                                          Year ended December 31,
                                                                1999              1998             1997
<S>                                                        <C>               <C>               <C>
Statements of Cash Flows

Cash flows from operating activities:

   Net income                                              $ 41,334,992      $ 34,033,797      $ 23,497,212
                                                           -------------------------------------------------
   Adjustments to reconcile net income to cash
   provided by (used in) operating activities:
   Equity in undistributed earnings of subsidiaries         (41,298,857)      (31,603,518)      (20,513,595)
   (Increase) decrease in accounts
        receivable - subsidiaries                               (69,328)          353,350          (423,178)
   Increase in other assets                                     (84,208)          (32,234)               --
   Increase in other liabilities and
        accrued expenses                                         93,773            58,013            26,505
                                                           -------------------------------------------------
   Total adjustments                                        (41,358,620)      (31,224,389)      (20,910,268)
                                                           -------------------------------------------------
   Net cash (used in) provided by operating activities          (23,628)        2,809,408         2,586,944
                                                           -------------------------------------------------
Cash flows from investing activities:
  Capital contribution to subsidiary                                 --           (12,000)               --
  Cash investment in R-G Premier Bank
  pursuant to acquisition of Fajardo Federal                         --          (639,322)               --
Investment in Bank common stock                             (39,212,500)      (19,370,000)               --
Investment in R-G Mortgage common stock                              --      (29,055, 000)               --
Collections of advances to subsidiaries                              --                --           290,000
Dividends on common stock from subsidiaries                   8,012,279         2,122,649                --
                                                          -------------------------------------------------
   Cash (used in) provided by investing activities          (31,200,221)      (46,953,673)          290,000
                                                          -------------------------------------------------
Cash flows from financing activities:
Issuance of common stock                                        288,550                --                --
Net proceeds from issuance of preferred stock                23,921,644        48,079,134                --
Cash dividends                                               (8,012,279)       (4,412,033)       (2,385,752)
Net advances from subsidiaries                               15,000,000                --                --
Repayment of advances from subsidiaries                              --                --          (666,975)
Payment of cash in lieu of fractional shares
        on stock split                                               --                --           (12,659)
Net cash provided by (used in) financing
                                                           -------------------------------------------------
   activities                                                31,197,915        43,667,101        (3,065,386)
                                                           -------------------------------------------------
Net decrease in cash                                            (25,934)         (477,164)         (188,442)
Cash at beginning of year                                       145,314           622,478           810,920
                                                           -------------------------------------------------
Cash at end of year                                        $    119,380      $    145,314      $    622,478
                                                           =================================================
</TABLE>

                                       79
<PAGE>


24. Industry Segments

The  following  summarized  financial  information  presents  the results of the
Companys  operations  for the three year period ended  December  31,1999 for its
traditional banking and mortgage banking activities:

<TABLE>
<CAPTION>

                                                                      1999                                    1998
                                                                                 Segment                                 Segment
                                                     Bank         Mortgage       Totals        Bank        Mortgage       Totals
 <S>                                             <C>           <C>           <C>           <C>           <C>           <C>
evenues:
Net interest income after provision for
    loan losses                                 $ 45,326,068  $  6,726,706  $ 52,052,774  $ 31,279,733  $  6,093,378  $ 37,373,111
Non-interest income:
    Net gain on origination and sale of loans      7,922,662    29,156,025    37,078,687    12,542,960    22,120,015    34,662,975
    Net gain on sales of investment securities
      available for sale                              19,531          --          19,531       278,028          --         278,028
Loan administration and servicing fees                  --      29,037,883    29,037,883          --      17,340,415    17,340,415
Service charges, fees and other                    6,135,232     1,892,304     8,027,536     5,433,556     1,383,042     6,816,598
                                                ------------------------------------------------------------------------------------
                                                  59,403,493    66,812,918   126,216,411    49,534,277    46,936,850    96,471,127
                                                ------------------------------------------------------------------------------------
Non-interest expenses:

Salaries and employee benefits                    12,733,017    11,699,754    24,432,771     9,169,292     7,925,491    17,094,783
Office occupancy and equipment                     7,538,952     3,750,413    11,289,365     5,917,063     3,069,890     8,986,953
Other                                             14,433,103    21,765,464    36,198,567    11,232,822    13,420,625    24,653,447
                                                ------------------------------------------------------------------------------------
                                                  34,705,072    37,215,631    71,920,703    26,319,177    24,416,006    50,735,183
                                                ------------------------------------------------------------------------------------
Income before income taxes
                                                $ 24,698,421  $ 29,597,287  $ 54,295,708  $ 23,215,100  $ 22,520,844  $ 45,735,944
                                                ====================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                     1997
                                                                                Segment
                                                        Bank        Mortgage    Totals
 <S>                                               <C>           <C>           <C>
evenues:
Net interest income after provision for
    loan losses                                   $ 25,543,992  $  4,615,774  $ 30,159,766
Non-interest income:
    Net gain on origination and sale of loans        5,436,030    18,596,684    24,032,714
    Net gain on sales of investment securities
      available for sale                               107,430          --         107,430
Loan administration and servicing fees                    --      14,079,644    14,079,644
Service charges, fees and other                      3,431,241     1,142,014     4,573,255
                                                  ----------------------------------------
                                                    34,518,693    38,434,116    72,952,809
                                                  ----------------------------------------
Non-interest expenses:

Salaries and employee benefits                       7,654,668     5,998,086    13,652,754
Office occupancy and equipment                       4,660,583     2,470,914     7,131,497
Other                                                9,564,598     9,799,853    19,364,451
                                                  ----------------------------------------
                                                    21,879,849    18,268,853    40,148,702
                                                  ----------------------------------------
Income before income taxes
                                                  $ 12,638,844  $ 20,165,263  $ 32,804,107
                                                  ========================================
</TABLE>


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

<TABLE>
<CAPTION>

                                                    Year ended December 31,
                                              1999          1998             1997
 <S>                                      <C>             <C>            <C>
Revenues:

Total revenues for reportable segments   $126,216,411    $ 96,471,127   $ 72,952,809
Elimination of intersegment revenues       (3,352,370)     (2,627,742)    (1,687,981)
                                         --------------------------------------------
Total consolidated revenues              $122,864,041    $ 93,843,385   $ 71,264,828
                                         ============================================
</TABLE>


                                       80
<PAGE>


<TABLE>
<CAPTION>

                                                                           Year ended December 31,
                                                                  1999               1998            1997
 <S>                                                          <C>               <C>               <C>
 Income before income taxes:

Total income before income taxes for reportable segments     $ 54,295,708      $ 45,735,944      $ 32,804,107
Elimination of intersegment profits                              (216,326)         (311,962)         (190,320)
Unallocated corporate expenses                                   (505,183)         (349,669)         (384,707)
                                                             -------------------------------------------------
Income before income taxes, consolidated                     $ 53,574,199      $ 45,074,313      $ 32,229,080
                                                             =================================================
</TABLE>




Total assets of the Company among its industry  segments and a reconciliation of
reportable  segment  assets  to the  Companys  consolidated  total  assets as of
December 31, 1999 and 1998 follows:

                                                       December 31,
                                                 1999               1998
Assets:
Bank                                     $ 2,285,371,757      $ 1,413,439,195
Mortgage                                     741,260,519          656,598,961
                                         ------------------------------------
Total assets for reportable segments       3,026,632,276        2,070,038,156
Parent company assets                            116,442               32,234
Elimination of intersegment balances        (114,755,882)         (25,288,862)
                                         ------------------------------------
Consolidated total assets                $ 2,911,992,836      $ 2,044,781,528
                                         ====================================

25. Quarterly Financial Data (Unaudited):


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


(Dollars in Thousands, Except for per share data)

<TABLE>
<CAPTION>

                                                                1999
                                           March 31      June 30      Sept. 30        Dec. 31
                                           --------      -------      --------        -------
<S>                                       <C>           <C>           <C>           <C>
Interest income                           $ 35,385      $ 36,437      $ 43,946      $ 47,373
Interest expense                            22,151        23,909        28,142        32,361
Net interest income                         13,234        12,528        15,804        15,012
Provision for loan losses                   (1,300)       (1,100)       (1,000)       (1,125)
Income before income taxes                  14,839        13,882        13,906        10,947
Income tax expense                          (3,689)       (2,072)       (3,789)       (2,689)
Net income                                  11,150        11,810        10,117         8,258
Net income per common share - Basic       $    .36      $    .38      $    .32      $    .25
Net income per common share - Diluted     $    .35      $    .37      $    .31      $    .25
</TABLE>


(Continued)

                                       81
<PAGE>


(Dollars in Thousands, Except for per share data)

<TABLE>
<CAPTION>


                                                                 1998
                                           March 31      June 30       Sept. 30      Dec. 31
<S>                                       <C>           <C>           <C>           <C>
Interest income                           $ 27,776      $ 29,946      $ 33,179      $ 33,395
Interest expense                           (17,790)      (19,134)      (21,443)      (21,956)
Net interest income                          9,986        10,812        11,736        11,439
Provision for loan losses                   (1,500)       (1,500)       (1,500)       (2,100)
Income before income taxes                  10,736         9,994        12,347        11,997
Income tax expense                          (3,256)       (2,023)       (3,810)       (1,951)
Net income                                   7,480         7,971         8,537        10,046
Net income per common share - Basic       $    .26      $    .28      $    .29      $    .32
Net income per common share - Diluted     $    .26      $    .27      $    .28      $    .31

</TABLE>





                                       82
<PAGE>


                            Stockholder Information


Corporate Office
R-G Plaza
280 JT Pinero Ave.
San Juan,
Puerto Rico 00918
tel. (787) 758-2424

US Operations
1841 New York Avenue
Huntington Station
New York 11746
(631) 549-8188

Annual Meeting
April 26, 2000
10:00 a.m. Atlantic time
Bankers Club
Hato Rey, Puerto Rico

Special Counsel
Elias, Matz, Tiernan &
Herrick L.L.P.
734 15th Street N.W. -
12th Floor
Washington, DC 20005

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

Transfer Agent and Registrar
American Stock Transfer
& Trust Co.
40 Wall Street-46th floor
New York,
New York 10005

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

Market Makers
Friedman Billings Ramsey & Co.
1001 19th Street
North Arlington,
VA 22209

PaineWebber Incorporated of PR
American International Plaza
Penthouse Floor
250 Munoz Rivera Ave.
San Juan, Puerto Rico 00918


Sandler O'Neill & Partners
2 World Trade Center
104th Floor
New York, N.Y. 10048

General Inquiries & Reports

R-G  Financial  is required to file an annual  report on Form 10K for its fiscal
year ended December 31, 1999 with the Securities and Exchange Commision.  Copies
of its Annual Report and  quarterly  reports may be obtained  without  charge by
contacting:  Investor  Relations  Department,  Attention Ms. Luz Damarys  Quiles
Tel.: (787) 756-2801

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

The 1999 Annual Report from R-G Financial  Corporation was designed and produced
by Adworks, San Juan, Puerto Rico.


                                       83
<PAGE>

Stock Listings
Symbol:  RGFC-NASDAQ
         RGFCP-NASDAQ
         RGFCO-NASDAQ

At December 31, 1999, the Company had 227 stockholders of record, which does not
take into  consideration  investors who hold their stock  through  brokerage and
other firms.  The high and low prices and dividends  paid per share (as adjusted
for stock  splits paid in 1998) for the  Company's  stock  during  each  quarter
during the last two fiscal years were as follows.


<TABLE>
<CAPTION>

                     Mar 31    Jun 30    Sep 30    Dec 31    Mar 31   Jun 30   Sep 30    Dec 31
                     1998      1998      1998      1998      1999     1999     1999      1999
 <S>                  <C>       <C>       <C>       <C>       <C>      <C>      <C>       <C>

High                 17.25     21.50     21.25     21.50     21.50    19.375   18.1875   16
Low                  9.625     16.407    15.0625   12.25     17.75    14.25    12.1875   9.875
Dividends Paid       0.02500   0.02687   0.02875   0.03075   0.033    0.03575  0.0385    0.0415
</TABLE>



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R&G Plaza
280 Jesus T. Pinero Ave.
San Juan, Puerto Rico 00918

Tel. (787) 758-2424

[GRAPHIC - R-G COMPANY LOGO]