<PAGE>




                               R-G ANNUAL REPORT




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[GRAPHIC - PHOTO]



mission statement
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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 leaders is not what we say, but what we do and the way we do it.



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                                                            financial highlights
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[GRAPHIC - FINANCIAL CHART]



[GRAPHIC - REVENUE CHART]



[GRAPHIC - NET INCOME CHART]


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[GRAPHIC - LOAN PORTFOLIO CHART]



[GRAPHIC - DEPOSITS CHART]



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                                                            financial highlights
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[GRAPHIC - ASSETS CHART]



[GRAPHIC - STOCKHOLDERS' EQUITY CHART ]



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[GRAPHIC - PHOTOS OF BANKS]


[GRAPHIC - MAP OF PUERTO RICO DEPICTING BANK LOCATIONS]





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                                                                         profile
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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 $3.5  billion in assets and  operates  58  banking  and  mortgage
banking branches in 31 locations in Puerto Rico and four locations in the United
States.


[GRAPHIC - PHOTO]

R-G Financial has the following financial services  companies:  R-G Premier Bank
of Puerto Rico, R-G Mortgage Corp., Mortgage Store of Puerto Rico Inc., and Home
& Property Insurance 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 is one of the fastest growing commercial banks
in the island. R-G Financial as a holding company, is the fourth largest locally
owned financial institution in Puerto Rico. R-G Financial manages a $6.6 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 $1.0
billion  residential  portfolio,  $503.1 million in a commercial real estate and
construction  portfolio,  $59.1 million in commercial business loans and leases,
and $45.6 in  personal  loans and  credit  cards.  Its $1.6  billion  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," "RGFCO" and "RGFCN," respectively.





                                                                               7
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8
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letter to stockholders
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                                 y e a r  2 0 0 0

Dear fellow stockholders:

I am pleased to report another excellent year for R-G Financial.  During 2000 we
achieved  record  earnings and  significantly  enhanced the  fundamentals of our
business.  We increased our loan portfolio,  strengthened our balance sheet, and
increased the efficiency of our operations.  As  significantly,  we demonstrated
that  we are  poised  to  produce  consistent  results  in any  economic  cycle,
including periods of high interest rates.

[GRAPHIC - PHOTO Victor J. Galan]


During  2000,  we  optimized  the  personal  service  provided to our clients by
improving training,  cross-selling,  and the integration of all our services and
products when attending our customers. There is only one sustainable competitive
advantage  for a  company  that  wants  to be a  consistent  winner--"To  be the
best"--in the financial  services  industry.  For R-G Financial,  this means, in
addition  to having  physical  branches,  ATM's,  phone  bank  centers,  and the
Internet,  that people need to provide great sales and services.  Only by having
the best people in our branches,  the best people building our  technology,  and
the best people operating our computers, will we succeed. We know our people are
doing a good job when customers give us more of their  business.  Our goal is to
provide "more banking in less time," something our customers already perceive as
a reality.
                                                                               9

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"During 2000, we achieved record earinings and Significantly
--------------------------------------------------------------------------------

With the decline in market rates of interest  currently  being  experienced,  we
believe that 2001 will provide exceptional  opportunities for R-G Financial.  We
estimate  Puerto  Rico's total  mortgage  market will exceed $6 billion in 2001,
surpassing  the record $5.2 billion  established  in 1998 and year 2000 mortgage
originations  of $4.3  billion.  Through  the end of  February  in 2001,  in R-G
Financial we have already  experienced  record levels of loan  originations  and
closings, surpassing our own expectations.

During 2000, the Company's recurring earnings and dividend  distribution reached
new  highs.  Strategic  initiatives  added  strength  and depth to the  Company,
including our expansion in commercial and construction  lending and our entrance
to the mortgage banking business in the USA, our expansion in consumer  lending,
focusing on personal  mortgage loans,  consumer loans, and credit cards, and the
entrance into the insurance  business  through the  acquisition  of an insurance
agency.  In the  future,  the Company  will  continue  supporting  its growth by
continued expansion in banking, insurance, and later this year, with the opening
of a new securities  company.  Our growth will be supported by  state-of-the-art
technology  and the  best  personal  service  to all our  customers  across  all
divisions.

A new  banking  branch was opened in  Aguadilla  in  January  2001,  and we have
commenced  construction of a second branch location in Mayaguez.  During 2000 we
remodeled  and expanded our existing  location in San Patricio and  converted it
into a full service financial center,  expanded service areas of our branches in

10

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                                                                 [GRAPHIC-PHOTO]

enhanced the fundamentals of our business."
--------------------------------------------------------------------------------


Vega Baja and Trujillo Alto, and began the expansion and remodeling  work of our
Betances  Street branch in Bayamon.  This expansion  should  support  additional
growth of  deposits  and loans in  general.  Each  branch is seeking new banking
businesses  and  relationships,  supported by mortgage,  consumer and commercial
lending centers seeking new loans. Our Hato Rey branch also has been transformed
into a full  financial  center,  in  which  we offer  securities  and  insurance
products.

The  Mortgage  Store  (formerly  Champion  Mortgage)  was  repositioned  from  a
specialty lender in sub-prime and alternate A loans into a full mortgage banking
operation covering a more diversified group of mortgage products. Our purpose is
to cover a larger segment of the market.  We opened new branches of The Mortgage
Store in Rio Grande,  Caguas,  and  Guayama,  increasing  total  Mortgage  Store
branches to seven.

We have  commenced the planning work for the 2001  expansion of our  headquarter
facilities in Hato Rey, in which we will add a second office tower of 85,000 sq.
ft. with  parking  capacity  for 330 cars.  This will  increase  the total space
available in our  headquarters  to 150,000 sq. ft. with 728 parking  spaces.  In
addition,  during 2000 we opened a new branch in Charlotte,  North Carolina,  of
our New York based mortgage banking subsidiary,  Continental Capital.  With this
new branch, we have a total of four branches in the Unites States, including our
existing  facilities in New York (Huntington  Station,  Woodhaven,  and Queens).


                                                                              11

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[GRAPHIC - PHOTO]

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This  strategic  expansion  will  continue,   with  additional  branches  to  be
concentrated  initially in the Eastern part of the United States in areas with a
strong presence of potential new customers.

The 2000 results could be summarized as follows:

o $44 million net income
o 18.00% return on equity
o $3.5 billion in total assets
o 1.34% return on assets
o 58 loan  production  and banking  offices  located in Puerto Rico and the US
o Record internal residential mortgage loan production of $1.1 billion; total
  loan production of $1.7 billion
o $6.6 billion servicing portfolio

We continue striving for growth,  profitability and enhanced stockholders' value
by improving  the  fundamentals  of our business.  I am confident  that with the
continued achievements of these objectives, our stock (recently priced at around
$15-16  per share)  will once  again  reflect a higher  valuation.  Three  major
analysts that follow our stock have each indicated  that, in their opinion,  our
stock price is poised for growth,  based on their  respective  estimates  of our
earnings and our actual stock  valuation which is considered low compared to our
peers.  While we as a matter of  policy  do not  comment  publicly  on  analysts
positions with respect to the Company,  we note that each of these analysts have
extended favorable recommendations on our stock.

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                 "The Company's strong position in the mortgage
                   sector and its expanding banking operation
                  will continue producing asset and earnings growth"
--------------------------------------------------------------------------------

Puerto Rico's  economy  appears  poised for stable growth during the next years.
Puerto Rico achieved an unemployment rate of 8.9% at the end of the last quarter
in 2000,  the lowest  since  data began  being  compiled,  and local  economists
continue  projecting  an  expansion  in our  economy,  supported by increases in
tourism,  commerce,  and  construction,  which will offset recent  reductions in
manufacturing  employment,  mostly  associated with the closing of "old economy"
operations   affected  by  competition   from  low-labor  cost  countries.   The
construction  industry is expected to continue  expanding  during the next year,
particularly  in  homebuilding,  resulting  from  demographic  changes  and  the
expansion of Puerto Rico's infrastructure.

While we enter in a new economic  cycle,  we foresee  inflation  remaining under
control, declining interest rates and improved oil prices, allowing consumers to
have more  disposable  income due to reductions  in the cost of utilities.  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.  With the recent  reductions in interest rates, we expect a
more vigorous refinancing market, resulting in record levels of loan production.

We believe that the Company's strong position in the mortgage  sector,  combined
with its expanding  banking  operation and additional  income from new insurance
and securities  products,  will continue  producing asset and earnings growth in
the future.

                                                                              13

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[GRAPHIC - PHOTO]

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Record Financial Results
Earnings  for 2000 rose to a record of $43.6  million,  increasing  6% from 1999
earnings of $41.3 million, in spite of an unfavorable interest rate environment.
On a per share basis (diluted),  R-G Financial earned $1.31 in 2000, compared to
$1.28 the  previous  year.  Our  compounded  annual  growth  rate for the period
1980-2000  was 35.7%,  and 32.8% 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 $129 million and increased assets by
$2.5 billion, representing a total growth of 124% in capital and 236% in assets,
while  paying  dividends  to our  common  stockholders  in the  amount  of $16.6
million.

Total gross  revenues for 2000  amounted to $314.9  million,  compared to $234.0
million for 1999. Net revenues after  deducting our cost of interest were $144.3
million,  compared to $127.4 million in 1999. A significant  portion of our 2000
net revenues  consisted of net interest income.  Net interest  income,  totaling
$65.0  million for 2000,  was up by 15% from the 1999 level.  The balance of our
net revenues,  amounting to $79.3 million, consisted of fees generated primarily
from the servicing of our mortgage portfolio, the origination and sale of loans,
and banking services.

We increased  dividends  to $0.20 per share from $0.15 in 1999.  For the quarter
ended  December  31, 2000,  the dividend was  increased to $0.06 per share on an


14


[GRAPHIC- Mortgage Servicing Portfolio Graph]

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

annual basis, a 25% annualized increase from the prior quarterly dividend.  This
was our 17th consecutive increase since the Company went public.

Shareholders'  equity of $308.8  million as of December 31, 2000 was up 15% from
$269.5 million in 1999. Core capital  represented 8.44% of our total assets, and
risk-based capital  represented 16.01% (on a consolidated  basis), in each case,
substantially  exceeding  the  minimums  required  by our  regulators.  The Bank
continues to be "well-capitalized", according to FDIC standards.

New Products and Expansion Program
During  the last  two  years,  the  opening  of new  banking  offices  increased
commercial and retail core deposits.  These new branches  generated  incremental
deposits in the amount of $66 million,  surpassing our own  projections,  repre-
senting 19% of our additional growth in deposits during the last year.

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 platforms for  cross-selling  and  relationship
building.  We have  created,  in fact, a network of physical  sites where we can
interact with our customers. The personal presence allows us to continue to grow
our franchise in banking, mortgage banking, investment banking and insurance.


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[GRAPHIC- total loan production graph]

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At the close of the year, we had 23 branches of R-G Premier Bank, 24 branches of
R-G  Mortgage,  and 7  branches  of The  Mortgage  Store  (a  subsidiary  of R-G
Mortgage), each working in tandem in 31 different locations across the island of
Puerto Rico. In addition, we had 4 offices of Continental Capital located in New
York and North  Carolina.  As of such date,  we had 897  employees  assigned  to
branches,  loan  origination  and  processing,  58 to  operations,  108 to  loan
administration,  and the balance to general  administrative  and finance,  which
results in a total of 1,295 employees.

We have introduced new products during the last few years, such as the "Mortgage
2000," a product providing 100% financing in a conforming loan,  "Presta Rapido"
(Quick Loan),  oriented to close a loan in 24 hours,  "Facilito"  (Easy Loan), a
consumer loan secured by real estate, and "RG Max" which provides 100% financing
on new housing loans. These products have resulted in significant new sources of
revenue for the Company.

Loan Production and Assets Growth

Loan  production -- comprised of residential  and commercial  mortgage  lending,
consumer and business  lending -- reached $1.7 billion in 2000. Our residential,
commercial and  construction  mortgage  internal loan  originations  constituted
approximately 22% of the market,  based on an estimated total mortgage market of
$4.3 billion in Puerto Rico last year, compared to 20% in 1999. We achieved this
substantial  growth  through a very strong  advertising  effort  using print and


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               "facilito"
                  "Mortgage 2000"                      [GRAPHIC - PHOTO]
               "R-G Max"
                  "Presta Rapido"

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broadcast   media,   a   substantial   expansion  in  branches   and   increased
telemarketing.

The Mortgage Store, a subsidiary of R-G Mortgage,  achieved  excellent  results,
producing  a  record  volume  of  non-conforming,   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.  During 2000, we
opened three new Mortgage  Store branches and we are presently  evaluating  five
other locations.

Our  residential  portfolio  at the  end of 2000  totaled  $1.4  billion  (which
excludes  certain  significant  loan  securitizations  during the  year),  a 29%
increase from $1.1 billion in 1999.  The average yield on the portfolio for 2000
was 7.78%.  This portfolio  included $1.4 billion of residential first mortgages
and $27.4 million of second mortgages.

During mid 1998,  we expanded our services by  organizing  a  Construction  Loan
Department  to work  primarily  with major real estate  developers.  Outstanding
construction  loans grew 65% to $73.5  million at year-end from $44.6 million in
1999. Commitments for future funding were $125.4 million at December 31, 2000.

Our  commercial  loan  portfolio,  including  commercial  mortgages  and leases,
increased to $363.2  million at  year-end,  an increase of 30% from the previous
year. This increase was due mostly to the continued use of customized


                                                                              17

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"Our target is to double the amount
                       of products with each of our clients."
--------------------------------------------------------------------------------
commercial loans structured to fit borrowers'  needs.  Most of this portfolio is
designed  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 $172.8 million at the end of 2000. This portfolio  generated
an average  yield of 11.24%,  which  improved  the  average  return of our total
portfolio and our spread income.

Our  operations   contain  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  clients with all of our products  through  cross-selling
programs.  Our  target is to double  the  amount  of  products  with each of our
clients  from our  present  average of two.  We hope to achieve  this  through a
strong promotional campaign combined with direct cross-selling to our customers.

We expanded our  servicing  portfolio to 110,874  loans with a total  balance of
$6.6  billion,  an increase of $456.5  million from 1999.  We estimate the total
value of our servicing  portfolio at $127.4  million as of December 31, 2000, or
$32.4  million  above the value  reflected  in our  financial  statements  under
Statement  of  Financial  Accounting  Standards  No.  125.  This extra  value is
primarily  represented by that portion of the portfolio that is not capitalized.
Our servicing portfolio


18

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[GRAPHIC - PHOTO]


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continues to be a strong source of revenue.  Servicing income increased to $30.8
million in 2000 from $27.1 million in 1999.

We strengthened our credit loss reserves during the year, increasing the reserve
for loan losses to $11.6 million,  a 29% increase from $9.0 million the previous
year. Reserves  approximate 74% of total non-performing loans as of December 31,
2000,  excluding our residential  loan portfolio where losses have  historically
been minimal.  Charge-offs to total average loans outstanding decreased to 0.17%
during 2000 from 0.25% in 1999.

Our securities  portfolio increased by 49% in 2000, growing to $1.6 billion from
$1.0 billion in 1999.  These  investments  represented 44% of total assets as of
December  31,  2000,  and with a yield of  6.52%,  generated  revenues  of $72.0
million.  Most of these securities are tax-free  federally  guaranteed bonds and
GNMA's.

Liquid assets constituted 22.7% of our total assets at year-end,  even though we
closed new loans  totaling  $1.7  billion  during the year.  Assets grew by $627
million during 2000 to a record $3.5 billion. This growth was financed by a $346
million increase in deposits,  a $96 million increase in repurchase  agreements,
and a $136  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. At year-end,  our unused lines of credit  (including  lines of credit
with the Federal Home Loan Bank) totaled $342.9 million.


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                             COMMERCIAL
                                    PRODUCTS

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Record Bank Deposits

Deposits  were at a record level at the end of 2000,  increasing  by 26% to $1.7
billion,  from $1.3 billion in 1999. We supported this growth with a very strong
promotional  campaign  designed  to  generate  core  deposits  and to expand our
Private  Banking  business,  the opening of new  branches,  the expansion of our
existing  locations  and the  conversion of some of our branches to Full Service
Financial   Centers.   New  deposits   with  our  Private   Banking  Group  rose
substantially,  and we  project  that  these  accounts  will lead to  additional
business  in 2001 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 in the  process  of  converting  our  Private  Banking  Group  into  R-G
Investments,  a  separate  investment  banking  company,  with  the  purpose  of
providing better and broader services to our clients.  Many of our branches will
be converted  to  Financial  Centers,  where  services  will include the sale of
investment and mortgage  products,  consumer and commercial loans and insurance.
We presently have two Financial Centers in operation and have more projected for
the near future.

The average per branch  deposit size increased 19% to $64.9 million in 2000 from
$54.7 million in 1999.  Our average per branch  deposit size exceeds the average
per branch  deposits in Puerto Rico.  Core  deposits,  primarily  consisting  of
saving


20

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        mortgage
          products

                              consumer
                                   products

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

and direct deposit accounts, represented 54.8% of our total deposits (also above
the average for the banking  industry in Puerto  Rico).  Brokered  deposits were
only 11% of our total deposits.  Our share of the total deposit market in Puerto
Rico, as well as our share of the primary markets we serve (northern Puerto Rico
from Fajardo to Arecibo,  including San Juan, plus Caguas, Ponce,  Aguadilla and
Mayaguez) increased again this year!

Money never  disappears.  It flows from  investments to deposits and back.  From
less borrowing to more borrowing.  From asset  accumulation to asset protection.
R-G has all the products and services available as customers make their choices.
Our goal is simple -- earn 100% of our creditworthy customers' financial service
business.

More Services and State of the Art Technology

To provide faster,  more  cost-effective  service to our customers,  practically
every  computer  system  within R-G is being  replaced.  In other words,  we are
building  bigger  and  better  computer  capacity  to store,  send and  retrieve
customer information. A new computer system was installed for community banking,
mortgage  servicing,  automated  clearinghouse  transactions  (direct  deposit),
commercial loans,  mortgage loan origination and treasury  management,  plus the
direct processing of our point-of-sale products and automatic teller machines.


                                                                              21

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    "We believe that 2001 will provide
                     exceptional opportunities for R-G Financial"
--------------------------------------------------------------------------------

During the year we expanded our telephone and our Telemarketing  Department with
a new Marketing  Center.  This was due  primarily to a  substantial  increase of
phone  calls from  customers.  We also  completed  the  installation  in all our
branches of fiber optic  cable,  allowing  faster  service to our  clients,  and
transmission of images  (including check and deposits)  between branches and our
Operations  Center.  This  now  allows  online  information  around  our  entire
operation,  and enhances communications via intranet between the central offices
in Hato Rey, our Operations Center in Bayamon and all our branches.

These are  significant  investments.  The  design  and  implementation  are very
challenging but we are doing it while  reporting  record  earnings.  The payoff:
better customer service and more earnings opportunities for the future.

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  while becoming another
channel of delivery to our customers in addition to our branching system. Please
be  sure  to  visit  us on the  web at  www.rgonline.com.  We are  offering  our
customers the full range 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 receive images of checks paid
against their funds 24 hours a day, 7 days a week,  through our  voice-activated



22
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[GRAPHIC - PHOTO]


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response system,  a 24-hour  toll-free  telephone  account  information  access,
through home banking, or through interactive Internet banking.

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 while we continue  expanding our operations in Puerto
Rico and the US. Our competitive  advantage is a talented,  motivated and highly
trained  staff  directed by an  excellent  management  team that is  compensated
through  carefully  designed  incentive  programs.   We  have  devised  monetary
incentives  based on new loans or deposits  for all the staff of our banking and
mortgage banking business. Our employees are committed to delivering exceptional
products  and  services  to our  customers.  R-G  Financial  has become a widely
recognized  financial  brand with a  significant  franchise  in the Puerto  Rico
market.

We are pleased with the  Company's  results for 2000.  Despite six  increases in
interest rates by the Federal Reserve Board that represented reductions in gross
interest  margins of more than $20 million,  we achieved record  results.  Total
assets grew to a record $3.5 billion and our servicing  portfolio increased to a
record $6.6 billion. As a result, total assets under  administration,  including
our servicing portfolio, increased to a record $10.2 billion during 2000, rising
12% from the prior year. We have devised future  expansion  plans for our Puerto
Rico operation and our mortgage banking business presence in the United States.


                                                                              23

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--------------------------------------------------------------------------------
We hope to double our size during the next five years,  something  we believe is
attainable.

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.  We have great  momentum for 2001.  Thanks to our
diverse  business and talented team members,  we are committed to achieve record
results during 2001.

All of us at R-G  Financial  look forward to adding value to our  investment  as
shareholders  today and  tomorrow.  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




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                                                                   People
                                                                     on the move
-------------------------------------------------------------------------------
Officers of R-G Financial Corporation

[PHOTO - Ramon Prats]



Management Team
     R-G Financial
--------------------------------------------------------------------------------
                                                  [PHOTO OF MANAGEMENT TEAM]

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

2. Ramon Prats, Vice Chairman of the Board and President

3. Jose Sandoval, Senior Vice President and Chief
   Financial Officer

4. Mario Ruiz, Executive Vice President -- R-G Premier

5. Steven Velez, Executive Vice President -- R-G Mortgage

6. Hector Secola, Vice President -- Human Resourses


                                                                              25

<PAGE>

               Management Team
                           R-G Mortgage
--------------------------------------------------------------------------------

[PHOTOS -  Management Team, R-G Mortgage]


1. Steven Velez, Executive Vice President

2. Ramon Perez, Senior Vice President -- Loan Servicing

3. Ana M. Armendariz, Senior Vice President --Finance

4. Victor Galan Jr., Vice President -- Loan Production Marketing and Business
   Development

5. Ismenia Isidor, Vice President -- Branch Administration and Loan Production

6. Rafael Delgado, Vice President -- Branch Administration and Loan Production

7. Ricardo Agudo, Vice President -- New Housing

8. Blanquita Rivera, Vice President Mortgage Store

9. William Martinez, Vice President -- Administration

10. Victor G. Feliciano, Vice President -- Secondary Market

11. Eileen Delgado, Vice President -- Operations

12. Renissa Gutierrez,  Manager--Marketing

26

<PAGE>


Management Team
      R-G Premier

[PHOTO - Management Team, R-G Premier]



1. Mario Ruiz, Executive Vice President

2. Victor M. Irizarry, Senior Vice President
   and Chief Lending Officer

3. Ivan Velez, Senior Vice President -- Operations

4. Dennis Tristani, Senior Vice President -- Credit Risk Management

5. Felipe Franco, Senior Vice President -- Consumer Lending

6. Jose Luis Ortiz, Vice President -- Finance (not pictured)

7. Jeannette Miro, Vice President -- Marketing

8. Edwin Reyes, Vice President -- Branch Administration

9. Sonia Vazquez, Vice President -- Internal Audit and Compliance

10. Luis Aldes, Second Vice President -- Treasurer

11. Juan Carrasquillo, Assistant Vice President -- Private Banking
    (not pictured)




Management Team
      Continental Capital

[PHOTO - Management Team,  Continental Capital]



1. Mike McHugh, President of Continental Capital

2. Mike Wallace, Jr., CEO Continental Capital

                                                                              27

<PAGE>



Consumer Lending
           Division
--------------------------------------------------------------------------------

[PHOTO - Consumer Lending Division]


1. Felipe Franco, Senior Vice President Consumer Lending

2. Marion Torres, Assistant Vice President, Loan Administration

3. Miriam George, Card Products

4. Michelle Perez, Marketing

5. Nancy Perez, Credit Approval



Commercial
     Lending Division
--------------------------------------------------------------------------------
[PHOTO - Commercial Lending Division]

1. Victor M. Irizarry, Senior Vice President and Chief Lending Officer

2. Dennis Tristani, Senior Vice President -- Credit Risk Management

3. Maria M. Rosales, Vice President --Real Estate and Construction Lending

4. Rene A Lopez, Vice President -- Corporate Banking

5. Lourdes Gonzalez, Vice President -- Retail Construction Lending

6. Wilbert Reyes, Vice President -- Commercial Lending


28

<PAGE>


                                    board of
                                         directors
--------------------------------------------------------------------------------

[PHOTO - BOARD OF DIRECTORS]



1.  Vctor J. Galn,
    Chairman of the Board and
    Chief Executive Officer

2.  Ramon Prats,
    Vice Chairman of the Board and
    President

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

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

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

6.  Eduardo McCormack, President EMP
    Omega Corporation, frutose importers
    and distributers in P.R. Former Vice
    President Bacardi Corporation

7.  Ileana Coln Carlo, Chief
    Administration and financial Officer of
    McConnell & Valdes, legal councils.
    Former Comptroller General of the
    Commonwealth of Puerto Rico.

8.  Benigno R. Fernndez, Senior
    Partner of Fernandez, Perez, Villariny
    & Co., CPA firm in Hato Rey, P.R.

9.  Victor L. Galan, Vice President
    Loan Production Marketing and Business
    Development RGM

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

11. Ana M. Armendriz, Treasurer of the
    Board and Senior Vice President of
    Finance RGM

12. Enrique Umpierre Surez,
    Secretary of the Board and
    Attorney in private practice


                                                                              29
<PAGE>


                    teamwork
                           within our community
--------------------------------------------------------------------------------

     One of our most important  commitments  with Puerto Rico is our involvement
with  non-profit  institutions  that contribute to a better quality of life, and
enhance our culture  and values in areas such as health,  community,  sports and
arts.

 ... over 10 years as part of the Muscular Dystrophy Association (MDA)

 ... with the Puerto Rico Community Foundation

 ... with the constant support of different artists who exhibit their work in our
Headquarters' Lobby in Hato Rey.

 ... sponsoring new institutions such as the Ivan Rodriquez Foundation to
promote sports in our community

 ... Supporting groups such as the Salvation Army.

[PHOTO -  GROUP OF 3 PHOTOS]





30
<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, 2000.
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 and recurring
adjustments, necessary for a fair presentation.

<TABLE>
<CAPTION>

                                           At or For the Year Ended December 31,   (Dollars in Thousands, except for per share data)
                                           -----------------------------------------------------------------------------------------
                                                             2000            1999           1998            1997            1996
------------------------------------------------------------------------------------------------------------------------------------
Selected Balance Sheet Data:

<S>                                                      <C>             <C>            <C>             <C>            <C>
o  Total assets(1)                                       $ 3,539,444     $ 2,911,993    $ 2,044,782     $ 1,510,746    $ 1,037,798
o  Loans receivable, net                                   1,631,276       1,563,007      1,073,668         765,059        603,751
o  Mortgage loans held for sale                               95,668          77,277        117,126          46,885         54,450
o  Mortgage-backed and investment securities
   held for trading                                           12,038          43,564        450,546         401,039        110,267
o  Mortgage-backed securities available for sale           1,150,100         712,705         95,040          46,004         50,841
o  Mortgage-backed securities held to maturity                19,818          23,249         28,255          33,326         37,900
o  Investment securities available for sale                  368,271         258,164         59,502          75,863         30,973
o  Investment securities held to maturity                      3,703           5,438          6,344          10,693          5,270
o  Servicing asset                                            95,079          84,253         58,221          21,213         12,595
o  Cash and cash equivalents(2)                               69,090          65,996        103,728          68,366         98,856
o  Deposits                                                1,676,062       1,330,506      1,007,297         722,418        615,567
o  Securities sold under agreements to repurchase            827,749         731,341        471,422         433,135         97,444
o  Notes payable                                             138,858         132,707        182,748         103,453        126,842
o  Other borrowings(3)                                       538,840         408,843        130,000          91,359         65,463
o  Stockholders' equity                                      308,836         269,535        221,162         138,054        115,633
                                                         -----------     -----------    -----------     -----------    -----------
o Common Stockholders' equity per share(4)               $      8.16     $      6.79    $      5.99     $      4.88    $      4.09
                                                         -----------     -----------    -----------     -----------    -----------
Selected Income Statement Data:

o Revenues:

Net interest income after provision for loan losses      $    59,236     $    52,053    $    37,373     $    30,160    $    24,665
Loan administration and servicing fees                        30,849          27,109         15,987          13,214         13,029
Net gain on sale of loans                                     41,230          37,098         34,955          23,286         12,351
Other(5)                                                       7,231           6,604          5,528           4,605          3,872
                                                         -----------     -----------    -----------     -----------    -----------
Total revenue                                                138,546         122,864         93,843          71,265         53,917
                                                         -----------     -----------    -----------     -----------    -----------
oExpenses:
Employee compensation and benefits                            27,031          24,433         17,095          13,653         10,794
Office occupancy and equipment                                13,436          11,289          8,987           7,131          5,531
SAIF special assessment                                           --              --             --              --          2,508
Other administrative and general                              40,325          33,568         22,687          18,252         15,424
                                                         -----------     -----------    -----------     -----------    -----------
Total expenses                                                80,792          69,290         48,769          39,036         34,257
                                                         -----------     -----------    -----------     -----------    -----------
o Income before minority interest in the Bank and
     income taxes                                             57,754          53,574         45,074          32,229         19,660
o Minority interest in the Bank's earnings                        --              --             --              --            538
o Income taxes                                                14,121          12,239         11,040           8,732          5,922
                                                         -----------     -----------    -----------     -----------    -----------
o Net income                                                  43,633          41,335         34,034          23,497         13,200
                                                         -----------     -----------    -----------     -----------    -----------
o Less: Dividends on preferred stock                          (5,638)         (3,754)        (1,234)             --             --
o Net income available to common stockholders            $    37,995     $    37,581    $    32,800     $    23,497    $    13,200
                                                         -----------     -----------    -----------     -----------    -----------
o Diluted earnings per share (4)                         $      1.30     $      1.28    $      1.12     $      0.81    $      0.59
                                                         -----------     -----------    -----------     -----------    -----------
</TABLE>
                                                                              31

<PAGE>

<TABLE>
<CAPTION>

                                       At or For the Year Ended December 31,      (Dollars in Thousands, except for per share data)
                                       ---------------------------------------------------------------------------------------------
                                                                2000              1999         1998          1997          1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>           <C>            <C>
Selected Operating Data(6):

Performance Ratios and Other Data:
  Loan production                                           $ 1,729,373    $ 1,977,322    $1,426,069    $   906,324    $  624,571
  Mortgage servicing portfolio                                6,634,059      6,177,511     4,827,798      3,000,888     2,550,169
  Return on average assets(6)                                      1.34%          1.72%         1.95%          1.85%         1.38%
  Return on average common equity(6)                              18.00          20.23         21.32          18.69         15.54
  Equity to assets at end of period                                8.73           9.26         10.82           9.13         11.14
  Interest rate spread(7)                                          1.96           2.40          2.43           2.88          3.00
  Net interest margin(7)                                           2.16           2.60          2.72           3.12          3.24
  Average interest-earning assets to average
   interest-bearing liabilities                                  103.54         104.21        105.93         104.61        104.60
  Total non-interest expenses to average total assets              2.49           2.88          2.80           3.08          3.59
  Full-service Bank offices                                          23             22            20             15            15
  Mortgage offices (8)                                               35             31            23             19            16
Cash dividends declared per common share(4)(9)                      .203          .149          .111           .065          .069


Asset Quality Ratios(10):
  Non-performing assets to total assets at end of period           2.96%          2.26%         2.41%          2.12%         1.90%
  Non-performing loans to total loans at end of period             5.38(11)       3.66          4.08           3.89          3.09
  Allowance for loan losses to total loans at end of period        0.66           0.55          0.74           0.87          0.55
  Allowance for loan losses to total non-performing
  loans at end of period                                          12.21          15.11         17.92          22.34         17.64
  Net charge-offs to average loans outstanding                     0.17           0.25          0.55           0.40          0.75


Bank Regulatory Capital Ratios(12):
  Tier 1 risk-based capital ratio                                 11.37%         12.36%        13.41%         13.10%        13.91%
  Total risk-based capital ratio                                  12.15          13.08         14.46          14.00         14.79
  Tier 1 leverage capital ratio                                    6.04           7.07          8.04           7.34          8.45

</TABLE>

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

(1) At  December  2000,  R&G  Mortgage  and the Bank had total  assets of $751.1
million and $2.9 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, 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.

(8) Includes 7 branches of Champion Mortgage Corporation,  R&G Mortgage's wholly
owned mortgage banking subsidiary,  and 4 branches of Continental Capital Corp.,
the Bank's wholly owned mortgage  banking  subsidiary in New York. Also includes
17 R&G Mortgage facilities which are located within the Bank's offices.

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

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

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

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


32

<PAGE>

General
R&G Financial  Corporation (the "Company") is a financial  holding company that,
through its wholly-owned  subsidiaries,  is engaged in mortgage banking, banking
and  insurance   activities.   Its  mortgage  banking   activities  include  the
origination,  purchase,  sale and servicing of mortgage  loans on single- family
residences,   the  issuance  and  sale  of  various  types  of   mortgage-backed
securities, the holding of mortgage loans,  mortgage-backed securities and other
investment securities for sale or investment, the purchase and sale of servicing
rights  associated  with  such  mortgage  loans  and,  to a lesser  extent,  the
origination of construction loans and mortgage loans secured by income producing
real estate and land (the "mortgage banking business")

The  Company is also  engaged  in  providing  a full range of banking  services,
including  commercial  banking  services,  corporate and  construction  lending,
consumer  lending  and credit  cards,  offering a  diversified  range of deposit
products and, to a lesser extent,  trust investment services through its private
banking department.

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 on February  1990 to 23 offices at December  31,  2000)  through  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 retail
products and services, including an increase in consumer loan originations (such
as credit cards); (vi) meeting the banking needs of its customers through, among
other  things,  the  offering  of  trust  and  investment  services;  and  (vii)
controlled  growth and the  pursuit of a variety of  acquisition  opportunities,
when appropriate.

The Company began insurance  operations in November 2000 with its acquisition of
Home and Property  Insurance Corp., an insurance agency organized under the laws
of the Commonwealth in Puerto Rico.

R&G Financial  just  completed its 28th year of  operations.  The Company is the
second  largest  mortgage  loans  originator  and servicer of mortgage  loans on
single family  residences in Puerto Rico.  R&G  Financial's  mortgage  servicing
portfolio  increased to approximately $6.6 billion as of December 31, 2000, from
$6.2  billion  as of  the  same  date a year  ago,  an  increase  of  7.4%.  R&G
Financial's strategy is to increase the size of its mortgage servicing portfolio
by relying principally on internal loan originations.

As part of its strategy to maximize net interest income, R&G Financial maintains
a  substancial  portfolio  of  mortgage-backed  and  investment  securities.  At
December 31, 2000,  the Company held  securities  available for sale with a fair
market  value  of $1.5  billion.  Of this  amount  $1.15  billion  consisted  of
mortgage-backed  securities,  of which  $587.3  million  consisted  primarily of
Puerto Rico GNMA securities, the interest on which is tax-exempt to the Company.
These  securities  are generally held by the Company for longer periods prior to
sale in order to maximize the tax-exempt interest received thereon.

A substancial  portion of R&G Financial's  total mortgage loan  originations has
consistently  been comprised of refinance loans. R&G Financial's  future results
could be adversely affected by a significant increase in mortgage interest rates
that  reduces  refinancing   activity.   However,   the  Company  believes  that
refinancing  activity is less  sensitive to interest rate changes in Puerto Rico
than in the mainland  United States  because a  significant  amount of refinance
loans are made for debt  consolidation  purposes.  R&G Financial  believes that,
with  the  decline  in  market  interest  rates  currently  being   experienced,
refinancing activity will increase.

R&G Financial  customarily sells or securitizes into mortgage-backed  securities
substancially  all the loans it  originates,  except for certain  non-conforming
conventional  mortgage  loans and  certain  consumer,  construction,  land,  and
commercial  loans  which  are  held  for  investment  and  classified  as  Loans
Receivable.


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.

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


                                                                              33
<PAGE>


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  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
resulting  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, 2000, 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 $477.8  million,  or
13.50% of total  assets.  R&G  Financial's  negative  gap within one year is due
primarily to its large fixed-rate  mortgage loans receivable  portfolio held for
investment  and a portion  of its  portfolio  of FHLB  notes and other US agency
securities  which have call  features but are not likely to be exercised by such
agencies due to the actual interest rate environment. While the Company measures
its gap by  presenting  its  loans  receivable  portfolio  held  for  investment
purposes  according  to its  maturity  date,  from time to time the  Company may
negotiate  special  transactions  with FHLMC  and/or  FNMA or other  third party
investors for the sale of such loans. There can be no assurance,  however,  that
the Company will be succesful in consummating any such transactions.

While a conventional gap measure may be useful,  it is limited in its ability to
predict trends in future  earnings.  It makes no  presumptions  about changes in
prepayment  tendencies,  deposit or loan maturity  preferences or repricing time
lags that may occur in response to a change in the  interest  rate  environment.
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 and as discussed below,  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
190 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, 2000, R&G Mortgage had $13.1 million of pre-existing commitments by
third-party  investors  to  purchase  mortgage  loans.  To the  extent  that R&G
Mortgage   originates  or  commits  to  originate  loans  without   pre-existing

34

<PAGE>

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,  2000,  R&G
Mortgage held $12.0 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.

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,  2000 R&G  Mortgage  was a party  to one  interest  rate  swap
agreement.  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  agreement  has a  notional  amount of  approximately  $70.0
million  and expires in  December  2009.  With  respect to such  agreement,  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  swap  amounted  to
approximately  $563,000,  $107,000 and $248,000  during the years ended December
31, 2000, 1999 and 1998,  respectively.  Such interest rate contract has 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, 2000, 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  (including
held to maturity and  available  for sale) of $1.0  billion.  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,  2000,  $996.4  million  or 97.7% 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

                                                                              35

<PAGE>

and  futures  to reduce  interest  rate risk on all  mortgage-backed  securities
(excluding   CMOs)  which  are   available  for  sale.  At  December  31,  2000,
mortgage-backed  securities  available  for  sale  had a fair  value  of  $628.1
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.  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,  2000,  the  Bank  was a party  to  four  interest  rate  swap
agreements.  The Bank's existing interest rate swap agreements have an aggregate
notional amount of  approximately  $60.0 million and expire between January 2001
and  December  2009.  With  respect to such  agreements,  the Bank  makes  fixed
interest  payments ranging from 5.59% to 6.83% and receives  payments based upon
the  three-month  Libor and Libid.  The net  interest  received  relating to the
Bank's fixed-pay  interest rate swaps amounted to approximately  $323,000 during
the year ended  December 31, 2000;  net interest paid amounted to  approximately
$422,000  and  $198,000  during  the  years  ended  December  31, 1999 and 1998,
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.

At  December  31,  2000  the Bank  was  also a party  to two  interest  rate cap
agreements  with an aggregate  notional  amount of $200.0  million,  expiring in
August 2002. With respect to such  agreements,  the Bank would receive  payments
based  upon the  three-month  Libor if such rate  goes  beyond  7.00%  (for $100
million)  and 7.25% (for $100  million).

36

<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, 2000,  based on the  information  and  assumptions set forth in the
notes below. For purposes of this presentation,  the interest earning components
of loans held for sale and  mortgage-backed  securities  held in connection with
the Company's  mortgage  banking business are assumed to mature within one year.
In  addition,  investments  held by the  Company  which have call  features  are
presented  according to their  expected  callable date or  contractual  maturity
date, as the case may be, based on the actual interest rate environment.



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

o Loans receivable:
Residential real estate loans                         $    35,258    $  99,231   $ 222,411     $ 172,241    $ 503,649   $ 1,032,790
Construction loans                                         47,749       11,518      14,262            --           --        73,529
Commercial real estate loans                              304,104           --          --            --           --       304,104
Consumer loans                                             39,966       37,015      54,411        26,371       15,083       172,846
Commercial business loans                                  37,777        9,079      10,279         1,927           58        59,120
o Mortgage loans held for sale                             36,138       59,530          --            --           --        95,668
o Mortgage-backed securities(2)(3)                         30,899      578,270     124,719       102,030      346,038     1,181,956
o Investment securities(3)                                112,569      130,752     114,598        10,929        3,127       371,975
o Other interest-earning assets(4)                         25,324          300          --            --           --        25,624

Total                                                 $   669,784    $ 925,695   $ 540,680     $ 313,498    $ 867,955   $ 3,317,612

Interest-bearing liabilities:

o Deposits:
NOW and Super NOW accounts(5)                         $     7,023    $  19,663   $  21,614     $  17,507    $  74,636   $   140,443
Passbook savings accounts(5)                                2,919        8,465      21,078        16,862       67,452       116,776
Regular and commercial checking(5)                          8,595       24,069      26,461        21,434       91,379       171,938
Certificates of deposit                                   503,340      489,380      89,512       147,888        8,182     1,238,302
oFHLB advances                                            294,375        5,000      78,125       127,500           --       505,000
o Securities sold under agreements to repurchase(6)       849,849        2,900          --            --           --       852,749
o Other borrowings(7)                                     112,197       35,500          --            --           --       147,697

Total                                                   1,778,298      584,977     236,790       331,191      241,649     3,172,906

o Effect of hedging instruments                          (315,000)      25,000     210,000            --       80,000            --
                                                      $ 1,463,298    $ 609,977   $ 446,790     $ 331,191    $ 321,649   $   144,706

o Excess (deficiency) of interest-earning
assets over interest-bearing liabilities              $  (793,514)   $ 315,718   $  93,890     $ (17,693)   $ 546,306
o Cumulative excess (deficiency) of
      interest-earning assets over
      interest-bearing liabilities                    $  (793,514)   $(477,796)  $(383,906)    $(401,599)   $ 144,705

o Cumulative excess (deficiency) of
      interest-earning assets over
      interest-bearing liabilities as a
      percent of total assets                            (22.42)%       (13.50)%    (10.85)%      (11.35)%      4.09%


</TABLE>

                         (Footnotes on following page)
                                                                              37
<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) Although the Bank's  negotiable  order of  withdrawal  ("NOW") and Super NOW
    accounts,  passbook  savings  accounts and checking  accounts are subject to
    immediate  withdrawal,  management  considers a  substantial  amount of such
    accounts  to  be  core  deposits  having   significantly   longer  effective
    maturities  based on the  Bank's  retention  of such  deposits  in  changing
    interest rate  environments.  The table assumes that funds will be withdrawn
    from  the  Bank at  annual  rates  for NOW  accounts  and  for  regular  and
    commercial checking accounts,  ranging from 10% for 0-12 months, 19% for 1-5
    years, 41% for 5-10 years, 65% for 10-20 years and 100% thereafter; and, for
    passbook  savings  accounts,  ranging from 5% for 0-12  months,  20% for 1-5
    years, 40% for 5-10 years, 65% for 10-20 years and 100% thereafter.

(6) Includes federal funds purchased.

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

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

The  following  table sets forth at December 31, 2000 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                    $ 52,106     $ 18,782         (26.50)%
    +100                      61,968       (8,920)        (12.59)
Base Scenario                 70,888           --             --
    -100                      78,334        7,446          10.51
    -200                      82,934       12,046          17.00
--------------------------------------------------------------------

(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.

38

<PAGE>


Changes in Financial Condition

general.  At December 31, 2000, R&G  Financial's  total assets  amounted to $3.5
billion, as compared to $2.9 billion at December 31, 1999. The $627.5 million or
21.5%  increase  in total  assets  during the year ended  December  31, 2000 was
primarily the result of a $68.3  million or 4.4%  increase in loans  receivable,
net, a $437.4 million or 61.4% increase in mortgage-backed  securities available
for sale,  and a $110.1  million  or 42.7%  increase  in  investment  securities
available for sale.


loans  receivable  and mortgage  loans held for sale.

At December 31, 2000, R&G  Financial's  loans  receivable,  net amounted to $1.6
billion or 46.1% of total  assets,  as compared  to $1.6  billion or 53.7% as of
December 31, 1999. During the third and fourth quarter of 2000, the Company made
significant loan securitizations (retained as mortgage-backed  securities) which
reduced the amount of loans held in portfolio at December 31, 2000. Without such
securitizations,  the loan  portfolio  at December 31, 2000 would have been $2.0
billion.  The growth in R&G  Financial's  loans  receivable,  net  reflects  R&G
Financial's strategy of increasing its loans held for investment,  concentrating
on residential  mortgage,  construction,  commercial  real estate and commercial
business loans.  During the years ended December 31, 2000, 1999 and 1998,  total
loans  originated  and  purchased  by the Bank  amounted to $1.2  billion,  $1.1
billion and $755.5 million, respectively.

At December 31, 2000, R&G Financial's allowance for loan losses (all of which is
maintained  in  the  Bank's  loan  portfolio)   totaled  $11.6  million,   which
represented  a $2.6  million  or 29.3%  increase  from the level  maintained  at
December 31, 1999. At December 31, 2000, R&G Financial's  allowance  represented
approximately   0.66%  of  the  total  loan   portfolio   and  12.21%  of  total
non-performing  loans,  as compared to 0.55% and 15.11% at  December  31,  1999.
During 2000, the Company made provisions for loan losses of $5.8 million,  which
exceeded net  charge-offs  of  approximately  $3.1 million.  The increase in the
allowance for loan losses  reflected the increase in R&G Financial's  commercial
real  estate and  construction  loan  portfolio  as well as the  increase in R&G
Financial's non-performing loans during the year.

While  non-performing  loans  amounted to $95.0 million at December 31, 2000, as
compared to $59.4  million at December 31, 1999,  $31.8 million or 89.3% of such
increase consisted of residential  mortgage loans.  Because of the nature of the
collateral,  R&G  Financial  has  historically  recognized  a low  level of loan
charge-offs.  R&G  Financial's  aggregate  charge-offs  amounted to 0.17% during
2000,  as  compared to 0.25%  during  1999.  Although  loan  delinquencies  have
historically  been  higher  in  Puerto  Rico  than in the  United  States,  loan
charge-offs have  historically  been lower than in the United States.  While the
ratio of non-performing  loans to total loans increased from 3.66% to 5.38% from
December 31, 1999 to December 31, 2000,  the increase in the ratio was partially
caused by significant loan securitizations during the last two quarters of 2000,
which  reduced  the  amount  of  loans  held  in  portfolio  considered  in  the
calculation of the ratio. Without giving effect to loan  securitizations,  as of
December  31, 2000 and 1999,  the ratio of  non-performing  loans to total loans
would have been 4.37% and 3.44%, respectively.

Management  of R&G  Financial  believes  that its  allowance  for loan losses at
December 31, 2000 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, 2000 and 1999,  mortgage  loans held for sale  amounted to $95.7
million and $77.3 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, 2000,  R&G  Financial's
aggregate  mortgage-backed  and  investment  securities  totaled $1.6 billion or
43.9% of total  assets,  as  compared to $1.0  billion or 35.8% at December  31,
1999, 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.  Securities  held for trading are reported at fair value
with unrealized gains and losses included in earnings.

Securities  available for sale consist of mortgage-backed and related securities
(tax  exempt  GNMA pools,  FNMA and FHLMC  certificates  as well as CMOs and CMO
residuals) and U.S. Government agency securities. At December 31, 2000 and 1999,
securities  available  for  sale  totaled  $1.5  billion  and  $970.9  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.  At December  31, 2000 and 1999,  securities  held to maturity
totaled  $23.5  million  and $28.6  million,  respectively.  Securities  held to
maturity are  accounted  for at amortized  cost.

                                                                              39
<PAGE>


At December 31, 2000 and 1999, securities held to maturity had a market value of
$23.4 million and $28.7 million, respectively.


mortgage  servicing  asset.  As of  December  31, 2000 and 1999,  R&G  Financial
reported servicing assets of $95.1 million and $84.3 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, 2000,  deposits totaled $1.7 billion,  as compared to
$1.3  billion at December  31,  1999.  The $345.6  million or 26.0%  increase in
deposits during the year ended December 31, 2000 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 $794.2 million or 59.7% of total deposits at December 31, 1999 to
$918.4 million or 54.8% of total deposits at December 31, 2000.


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, 2000 and 1999,
repurchase agreements totaled $827.7 million and $731.3 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, 2000, notes payable  amounted to $138.9 million,  as compared to
$132.7 million at December 31, 1999.

Advances from the FHLB of New York amounted to $505.0 million and $384.0 million
at December 31, 2000 and 1999, respectively. At December 31, 2000, FHLB advances
were  scheduled to mature at various  dates  commencing on January 2, 2001 until
October 20, 2005, with an average interest rate of 6.42%.


stockholders'  equity.  Stockholders'  equity  increased  from $269.5 million at
December 31, 1999 to $308.8  million at December 31, 2000.  The $39.3 million or
14.6%  increase in  stockholders'  equity  during 2000 was  primarily due to the
$43.6 million of net income for the year, together with a decrease in unrealized
losses on securities  available for sale, from $7.8 million at December 31, 1999
to $724,000 at December 31, 2000.  The  increases in  stockholders'  equity were
slightly offset by dividends paid during the year of $11.4 million on common and
preferred stock.


Results of Operations

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


40

<PAGE>




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

<TABLE>
<CAPTION>
                                                      Year Ended December 31,     (Dollars in Thousands)
                                             ----------------------------------------------------------------------
                                                   2000                    1999                 1998
                                                  Amount      Percent     Amount    Percent    Amount      Percent
-------------------------------------------------------------------------------------------------------------------
The Bank:
<S>                                              <C>           <C>      <C>          <C>      <C>            <C>
o Net interest income after
    provision for loan losses                    $ 55,967      40.40%   $ 45,344     36.91%   $ 31,193       33.24%
o Loan administration and servicing fees            1,979       1.43         476      0.39          --       --
o Net gain on sale of loans                        18,090      13.06       9,559      7.78      12,191       12.99
o Net gain on sale of investment securities            --      --             19      0.01         278        0.30
o Other income(1)                                   6,338       4.57       5,380      4.38       4,780        5.09
                                             ---------------------------------------------------------------------
                                                   82,374      59.46      60,778     49.47      48,442       51.62
                                             ---------------------------------------------------------------------
R&G Mortgage:

o Net interest income                               3,269       2.36       6,709      5.46       6,180        6.58
o Loan administration and servicing fees           28,870      20.84      26,633     21.68      15,987       17.04
o Net gain on origination and sale of loans        23,140      16.70      27,520     22.40      22,486       23.95
o Other income(1)                                     711       0.51       1,224      0.99         748        0.81
                                             ---------------------------------------------------------------------
                                                   55,990      40.41      62,086     50.53      45,401       48.38
                                             ---------------------------------------------------------------------
Home and Property - other income                      182       0.13          --        --          --          --

                                             ---------------------------------------------------------------------
                                                 $138,546     100.00%   $122,864    100.00%   $ 93,843      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;  for Home &
    Property,  consisted of insurance  commissions.


R&G  Financial  reported net income of $43.6  million,  $41.3  million and $34.0
million during the years ended December 31, 2000,  1999 and 1998,  respectively.
Net income  increased by $2.3 million or 5.6% during the year ended December 31,
2000, as compared to 1999, due to a $8.4 million increase in net interest income
and a $8.5 million  increase in total other income,  which were partially offset
by a $11.5 million increase in total operating expenses. 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  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  $65.0  million,  $56.6  million and $43.9 million
during the years ended  December  31,  2000,  1999 and 1998,  respectively.  Net
interest  income  increased  by $8.4  million  or 14.9%  during  the year  ended
December  31,  2000,  as  compared  to the year ended  December  31, 1999 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 104.21% for 1999 to 103.54% in 2000,
together with a decline in interest rate-spread from 2.40% for 1999 to 1.96% for
2000.  Net interest  income  increased by $12.6 million or 28.7% during the year
ended December 31, 1999, 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.

                                                                              41

<PAGE>


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

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,   (Dollars in Thousands)
                                                      ----------------------------------------------------------------------
                                                                       2000                              1999
                                                        Average                    Yield/     Average              Yield/
                                                        Balance      Interest      Rate (1)   Balance   Interest   Rate (1)
----------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>             <C>     <C>         <C>         <C>
Interest-Earning Assets:

o Cash and cash equivalents(2)                        $   14,708    $      969      6.59%   $   15,963  $    840    5.26%
o Investment securities held for trading                      --            --        --            --        --      --
o Investment securities available for sale               298,480        20,914      7.01       124,559     7,834    6.29
o Investment securities held to maturity                   5,330           307      5.76         6,271       330    5.26
o Mortgage-backed securities held for trading             18,801         1,370      7.29        33,245     1,871    5.63
o Mortgage-backed securities available for sale          761,166        47,986      6.30       502,176    31,989    6.37
o Mortgage-backed securities held to maturity             21,437         1,431      6.68        29,684     1,763    5.94
o Loans receivable, net(3)(4)                          1,853,559       160,093      8.64     1,446,575   117,304    8.11
o FHLB of New York stock                                  38,432         2,531      6.59        17,777     1,210    6.81
                                                      ----------------------------------------------------------------------
Total interest-earning assets                          3,011,913    $  235,601      7.82%    2,176,250  $163,141    7.50%
                                                      ----------------------------------------------------------------------
o Non-interest-earning assets                            238,722                               228,253
                                                      ----------------------------------------------------------------------
Total assets                                          $3,250,635                            $2,404,503
                                                      ----------------------------------------------------------------------
Interest-Bearing Liabilities:

o Deposits                                            $1,505,919    $   80,659      5.36%   $1,153,537  $ 53,643    4.65%
o Securities sold under agreements to repurchase(5)      768,582        50,542      6.58       491,230    27,474    5.59
o Notes payable                                          186,748        11,629      6.23       212,028    13,634    6.43
o Subordinated debt(6)                                        --            --        --            --        --      --
o Other borrowings(7)                                    447,666        27,784      6.21       231,616    11,812    5.10

Total interest-bearing liabilities                     2,908,915    $  170,614      5.86%    2,088,411  $106,563    5.10%
                                                      ----------------------------------------------------------------------
o Non-interest-bearing liabilities                        55,671                                75,291
                                                      ----------------------------------------------------------------------
Total liabilities                                      2,964,586                             2,163,702
o Stockholders' equity                                   286,049                               240,801
                                                      ----------------------------------------------------------------------
Total liabilities and stockholders' equity            $3,250,635                            $2,404,503
                                                      ----------------------------------------------------------------------
o Net interest income; interest rate spread(8)                      $   64,987      1.96%             $   56,578    2.40%
                                                      ----------------------------------------------------------------------
o Net interest margin(8)                                                            2.16%                           2.60%


o Average interest-earning assets to average
                                                      ----------------------------------------------------------------------
     interest-bearing liabilities                                                 103.54%                         104.21%
                                                      ----------------------------------------------------------------------
</TABLE>



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

o Cash and cash equivalents(2)                        $   25,731     $ 1,341       5.21%
o Investment securities held for trading                     344          19       5.52
o Investment securities available for sale                57,042       3,337       5.85
o Investment securities held to maturity                   9,485         544       5.74
o Mortgage-backed securities held for trading            406,123      24,876       6.13
o Mortgage-backed securities available for sale           38,608       2,645       6.85
o Mortgage-backed securities held to maturity             31,095       1,877       6.04
o Loans receivable, net(3)(4)                          1,037,829      89,044       8.58
o FHLB of New York stock                                   8,517         614       7.21
                                                     ------------------------------------
Total interest-earning assets                          1,614,774    $124,297       7.70%
                                                     ------------------------------------
o Non-interest-earning assets                            129,498
                                                     ------------------------------------
Total assets                                           1,744,272
                                                     ------------------------------------
Interest-Bearing Liabilities:

o Deposits                                            $  826,487    $ 38,439       4.65%
o Securities sold under agreements to repurchase (5)     416,249      23,876       5.74
o Notes payable                                          186,147      12,641       6.79
o Subordinated debt(6)                                     1,469         148      10.07
o Other borrowings(7)                                     94,025       5,220       5.55

Total interest-bearing liabilities                     1,524,377    $ 80,324       5.27%
                                                     ------------------------------------
o Non-interest-bearing liabilities                        46,025
                                                     ------------------------------------
Total liabilities                                      1,570,402
o Stockholders' equity                                   173,870
                                                     ------------------------------------
Total liabilities and stockholders' equity            $1,744,272
                                                     ------------------------------------
o Net interest income; interest rate spread(8)                      $ 43,973        2.43%
                                                     ------------------------------------
o Net interest margin(8)                                                           2.72%


o Average interest-earning assets to average
                                                     ------------------------------------
     interest-bearing liabilities                                                105.93%
                                                     ------------------------------------
</TABLE>


(1) At December 31, 2000, the yields earned and rates paid were as follows: cash
    and cash equivalents,  3.05%; investment securities held to maturity, 5.92%;
    investment securities available for sale, 6.93%;  mortgage-backed securities
    held for trading,  7.28%;  mortgage-backed  securities  available  for sale,
    6.87%;  mortgage loans held for sale, 8.45%;  loans receivable,  net, 8.65%;
    FHLB  of New  York  stock,  7.30%;  total  interest-earning  assets,  7.80%;
    deposits,  5.34%;  securities  sold under  agreements to repurchase,  6.75%;
    notes  payable,  7.55%;  other  borrowings,  6.45%;  total  interest-bearing
    liabilities, 6.00%; interest rate spread, 1.80%.

(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 $ 294,000,  $295,000
    and  $367,000  during the years  ended  December  31,  2000,  1999 and 1998,
    respectively  or .18%, .25% and .41% of interest income on loans during such
    respective periods.


42

<PAGE>


(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,   (Dollars in Thousands)
                                                     --------------------------------------------------------------------------

                                                        2000 vs. 1999                        1999 vs. 1998
                                                     Increase / Decrease       Total      Increase / Decrease          Total
                                                           Due to            Increase            Due to               Increase
                                                      Rate       Volume     (Decrease)     Rate          Volume      (Decrease)
-------------------------------------------------------------------------------------------------------------------------------
Interest-Earning Assets:

<S>                                                 <C>         <C>          <C>          <C>           <C>          <C>
o Cash and cash equivalents(1)                      $    195    $    (66)    $    129     $      8      $   (509)    $   (501)
o Investment securities held for trading                  --          --           --           --           (19)         (19)
o Investment securities available for sale             2,141      10,939       13,080          547         3,950        4,497
o Investment securities held to maturity                  27         (50)         (23)         (30)         (184)        (214)
o Mortgage-backed securities held for trading            312        (813)        (501)        (165)      (22,840)     (23,005)
o Mortgage-backed securities available for sale         (501)     16,498       15,997       (2,415)       31,759       29,344
o Mortgage-backed securities held to maturity            158        (490)        (332)         (29)          (85)        (114)
o Loans receivable, net(2)                             9,786      33,003       42,789       (6,810)       35,070       28,260
o FHLB of New York stock                                 (85)      1,406        1,321          (72)         668           596
                                                    ---------------------------------------------------------------------------
Total interest-earning assets                       $ 12,033    $ 60,427     $ 72,460     $ (8,966)     $ 47,810     $ 38,844
                                                    ---------------------------------------------------------------------------
Interest-Bearing Liabilities:

o Deposits                                          $ 10,629    $ 16,387     $ 27,016     $     (7)     $ 15,211     $ 15,204
o Securities sold under agreements to repurchase       7,556      15,512       23,068         (703)        4,301        3,598
o Notes payable                                         (379)     (1,626)      (2,005         (765)        1,758          993
o Subordinated debt(3)                                    --          --           --           --          (148)        (148)
o Other borrowings(4)                                  4,954      11,018       15,972       (1,047)        7,639        6,592
                                                    ---------------------------------------------------------------------------
Total interest-bearing liabilities                  $ 22,760    $ 41,291     $ 64,051     $ (2,522)     $ 28,761     $ 26,239
                                                    ---------------------------------------------------------------------------
o Increase in net interest income                                            $  8,409                                $ 12,605
                                                    ---------------------------------------------------------------------------
</TABLE>




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

(2) Includes mortgage loans held for sale.

(3) 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.

                                                                              43
<PAGE>

interest  income.  Total  interest  income  increased by $72.5  million or 44.4%
during the year ended  December 31, 2000 as compared to the year ended  December
31, 1999, and increased by $38.8 million or 31.3% during the year ended December
31, 1999 over the year ended December 31, 1998.  Interest  income on loans,  the
largest component of R&G Financial's interest-earning assets, increased by $42.8
million or 36.5% during the year ended December 31, 2000 as compared to the year
ended  December 31, 1999,  and  increased by $28.3  million or 31.7% during 1999
over the year ended December 31, 1998.  Such increases were primarily the result
of increases in the average  balance of loans  receivable of $ 407.0 million and
$408.7 million during the years ended December 31, 2000 and 1999,  respectively.
One of R&G  Financial's  strategies  in recent years has been to grow 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 $ 28.2 million or 64.5% during the year
ended  December 31, 2000 as compared to the year ended  December  31, 1999,  and
increased by $10.5 million or 31.5% during the year ended December 31, 1999 over
the year ended  December 31, 1998.  The increase  during the year ended December
31, 2000 was primarily due to a $ 236.3 million  increase in the average balance
of  mortgage-backed  securities,  together with a $173.0 million increase in the
average balance of investment  securities during the period. The increase during
1999 was due primarily to an increase in the average balance of  mortgage-backed
securities  of $89.3  million,  together  with a $64.0  million  increase in the
average balance of investment securities.  The increase in investment securities
during 2000 and 1999  reflects  purchases of  approximately  $122.0  million and
$208.3 million, respectively, during such periods, net of maturities and sales.

Interest  income on cash and cash  equivalents  increased  by  $129,000 or 15.4%
during the year ended  December 31, 2000 as compared to the year ended  December
31, 1999,  and decreased by $501,000 or 37.4% during the year ended December 31,
1999. The increase in interest  earned on money market  investments  during 2000
reflected  an  increase in the yield  earned  thereon  from 5.26% to 6.59%.  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 fluctuations in
yields earned on money market  investments  reflect the general  fluctuations in
short-term market rates of interest during the periods presented.


interest  expense.  Total interest  expense  increased by $64.1 million or 60.1%
during the year ended  December 31, 2000, as compared to the year ended December
31, 1999, and increased by $26.2 million or 32.7% during the year ended December
31, 1999. Interest expense on deposits, the largest component of R&G Financial's
interest-bearing  liabilities,  increased  by $27.0  million or 50.4% during the
year ended  December 31, 2000, as compared to the year ended  December 31, 1999,
and increased by $15.2 million or 39.6% during the year ended December 31, 1999.
The increase  during the year ended  December 31, 2000,  as compared to the year
ended December 31, 1999, was due primarily to an increase in the average balance
of deposits of $352.4  million,  together  with an increase in the average  rate
paid thereon of 71 basis points.  The increase  during 1999 was due primarily to
an  increase in the average  balance of deposits of $327.1  million  during such
period.

Interest  expense on repurchase  agreements  increased by $23.1 million or 84.0%
during the year ended  December 31, 2000, as compared to the year ended December
31, 1999,  and increased by $3.6 million or 15.1% during the year ended December
31,  1999.  The  increase  during 2000 was due  primarily  to an increase in the
average balance of repurchase agreements outstanding of $277.4 million, together
with an  increase  in the  average  rate paid  thereon of 99 basis  points.  The
increase  during 1999 was primarily due 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. 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 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) decreased by $2.0 million or 14.7% during the year
ended  December 31, 2000, as compared to the year ended  December 31, 1999,  and
increased  by $993,000  or 7.9% during the year ended  December  31,  1999.  The
decrease  during the year ended December 31, 2000, as compared to the year ended
December  31,  1999,  was due  primarily  to a decrease in the  average  balance
outstanding of $25.3 million,  caused principally by the maturity during 2000 of
promissory  notes  totalling  $25 million.  The  increase  during the year ended
December  31,  1999  was  primarily  due to  increases  in the  average  balance
outstanding  of $25.9  million,  as R&G Mortgage made  increased use of lines of
credit due to increased mortgage loan originations in such year.

Interest  expense on other borrowings  (consisting  principally of advances from
the FHLB of New York) increased by $16.0 million or 135.2% during the year ended
December  31,  2000,  as  compared  to the year ended  December  31,  1999,  and
increased by $6.6 million or 126.3% during the year ended December 31, 1999. The
increase  during 2000 and 1999 was due  primarily  to an increase in the average
balance of such borrowings due to an increased use of FHLB advances to fund loan
production in the Bank.

44

<PAGE>


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 $5.8 million,
$4.5 million and $6.6 million during the years ended December 31, 2000, 1999 and
1998, respectively.

The increase in the provision  for loan losses taken by the Company  during 2000
was based primarily on the increase in the Company's  commercial real estate and
construction  loan portfolios,  due to increased  emphasis in the origination of
such loans by the  Company,  as well as the  increase  in  non-performing  loans
during the year.

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 0.25% during 1999 compared
to 0.55% 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.

Management believes that its allowance for loan losses at December 31, 2000, was
adequate based upon, among other things,  the significant level of single-family
residential  loans within R&G  Financial's  portfolio  and the low level of loan
charge-offs  normally  experienced  by the  Company  with  respect  to its  loan
portfolio.  Nevertheless,  there can be no  assurances  that  additions  to such
allowance will not be necessary in future periods, particularly if the growth in
R&G Financial's real estate lending, including commercial lending, continues.

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

<TABLE>
<CAPTION>
                                                  Year Ended December 31,     (Dollars in Thousands)
                                               -----------------------------------------------------------
                                                            2000               1999                 1998
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>                 <C>
o Net gain on origination and sale of loans               $41,230             $37,098             $34,955
o Loan administration and servicing fees                   30,849              27,109              15,987
o Service charges, fees and other                           7,231               6,604               5,528

  Total other income                                      $79,310             $70,811             $56,470
----------------------------------------------------------------------------------------------------------
</TABLE>



Total  non-interest  income  increased  by $8.5 million or 12.0% during the year
ended  December 31, 2000,  as compared to the prior year and  increased by $14.3
million or 25.4% during the year ended  December  31, 1999.  Net gain on sale of
loans  amounted to $41.2  million,  $37.1 million and $35.0  million  during the
years ended December 31, 2000, 1999 and 1998, respectively.  Net gain on sale of
loans  reflects  the income  generated  from the  origination  and  purchase  of
single-family  residential  real estate loans and the subsequent  securitization
and sale of such loans. During the years ended December 31, 2000, 1999 and 1998,
R&G  Financial  originated  and purchased  $1.3  billion,  $1.6 billion and $1.3
billion,  respectively,  including  $274.0  million,  $583.6  million and $371.4
million,  respectively,  of loan  purchases,  and sold  $806.4  million,  $977.9
million  and  $775.0  million  (excluding  loans  securitized  and  retained  as
mortgage-backed  securities) of mortgage  loans,  respectively.  During the year
ended December 31, 2000 management opted to emphasize internal loan originations
and reduce its  dependence  on loan  purchases,  as a means of achieving  higher
volume of mortgage  loan  production  through its branch  network,  and increase
profitability accross its product lines. As a result of this change in strategy,
loan purchases  decreased from $583.6 million in 1999 to $274.0 million in 2000,
while its internal loan originations  amounted to $1.1 billion in 1999 and 2000.
R&G Financial's mortgage banking operations are highly dependent upon market and
economic conditions.

During  the  years  ended  December  31,  2000,  1999 and  1998,  R&G  Financial
recognized net profit (loss) on trading securities of ($147,000),  ($21,000) and
$6.0  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

                                                                              45

<PAGE>

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.

During  the  years  ended  December  31,  2000,  1999 and  1998,  R&G  Financial
recognized  loan  administration  and  servicing  fees of $30.8  million,  $27.1
million and $16.0 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 56,442 loans with an aggregate  principal  balance of
$3.0  billion at January 1, 1998 to 110,874  loans with an  aggregate  principal
balance of $6.6 billion at December 31, 2000.

Service charges,  fees and other amounted to $7.2 million, $6.6 million and $5.5
million during the years ended December 31, 2000,  1999 and 1998,  respectively.
The  $627,000 or 9.5% and the $1.1  million or 19.5%  increases  during 2000 and
1999,  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,
                                     --------------------------------------
                                        2000          1999           1998
---------------------------------------------------------------------------
                                                (In Thousands)

Employee compensation
and benefits                           $27,031      $24,433      $17,095

Office occupancy and
equipment                               13,436       11,289        8,987

Other administrative
and general                             40,325       33,568       22,687

    Total non-interest
                                     -----------------------------------
    expenses                           $80,792      $69,290      $48,769
------------------------------------------------------------------------

Total  non-interest  expense increased by $11.5 million or 16.6% during the year
ended  December 31, 2000, as compared to the year ended  December 31, 1999,  and
increased by $20.5 million or 42.1% during the year ended December 31, 1999 over
1998. The increase in total non-interest expense during the years ended December
31, 2000 and 1999 reflect general growth in the Company's operations, as well as
increased costs associated with the opening of new branch offices.

The operations of  Continental  Capital Corp.,  the Company's  mortgage  banking
subsidiary in Huntington Station,  New York, which was acquired in October 1999,
was a  significant  reason for the  increase in  expenses  during the year ended
December 31, 2000. Total operating expenses of Continental during 2000 were $8.3
million.  In addition,  the year ended December 31, 1999  represented  the first
full year of  operations of Fajardo  Federal  Savings  Bank,  F.S.B.,  which was
merged into the Bank upon acquisition in August 1998.

Employee  compensation  and benefits  expense  amounted to $27.0 million,  $24.4
million and $17.1  million  during the years ended  December 31, 2000,  1999 and
1998,  respectively.  The $2.6 million or 10.6% increase in such expenses during
the year ended  December 31, 2000 is  primarily  due to $4.1 million of employee
expenses related to the operations of Continental Capital,  which were offset by
decreases in  compensation  due to loan  originators  resulting  from  decreased
origination of residential real estate loans in Puerto Rico during the year. 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.

Office occupancy and equipment expense amounted to $13.4 million,  $11.3 million
and $9.0  million  during the years  ended  December  31,  2000,  1999 and 1998,
respectively.  The $2.1  million  or 19.0%  increase  in  office  occupancy  and
equipment  expenses during the year ended December 31, 2000 is primarily related
to the operation of three additional Bank branches  completed during fiscal 1999
and the opening of one additional Bank branch in early 2000. 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 Bank
branches  completed  during fiscal 1998 and the opening of three additional Bank
branches during the year.

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 $40.3  million,  $33.6  million and $22.7  million  during the years
ended December 31, 2000, 1999 and 1998, respectively.  The $6.8 million or 20.1%
and the $10.9 million or 48.0% increase in such expenses  during the years ended
December 31, 2000 and 1999,  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 $2.1 million and a $4.4 million increase in amortization  expenses during 2000
and 1999,  respectively,  of the Company's servicing asset, primarily associated
with increases in the Company's servicing portfolio.


income taxes.  R&G  Financial's  income tax provision  amounted to $14.1 million
during the year ended  December 31,  2000,  as compared to income tax expense of
$12.2  million and $11.0  million  during the years ended  December 31, 1999 and
1998, respectively.  R&G Financial's effective tax rate amounted to 24.5%, 22.8%
and 24.5% during the years ended December 31, 2000, 1999 and 1998, respectively.
The  decrease  in R&G  Financial's  effective  tax rate  during  the year  ended
December 31,  1999,  as compared to the year ended  December  31,  1998,  is due
primarily  to an  increase in the  Company's  exempt  interest

46

<PAGE>

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, 2000, R&G Financial had $198.7 million in borrowing  capacity under
unused warehouse and other lines of credit, $129.2 million in borrowing capacity
under unused lines of credit with the FHLB of New York and $15 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, 2000,  R&G  Financial  had  outstanding  commitments  (including
unused lines of credit) to originate  and/or purchase  mortgage and non-mortgage
loans of $163.4  million.  The Company also has  agreements  with  developers to
facilitate  the  mortgage  loans to  qualified  buyers of new  housing  units on
residential  projects  amounting  to $747.4  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  $967.6  million at December 31, 2000,  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,
2000,  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 6.04%,
11.37% and 12.15%, 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


                                                                              47

<PAGE>

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 accounting principles generally accepted in the United States of
America,  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.


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 September 2000, the Financial  Accounting Standards Board issued SFAS No.140,
"Accounting for Transfers and Servicing of Financial  Assets and Liabilities - A
Replacement  of SFAS 125." This  Statement  revises the standards for accounting
for  securitizations  and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of the provisions of SFAS
125 without  reconsideration.  This Statement provides consistent  standards for
distinguishing  transfers of financial assets that are sales from transfers that
are secured borrowings. It is effective for transfers and servicing of financial
assets  and  extinguishment  of  liabilities  occuring  after  March  31,  2001.
Management  believes  that the  adoption  of the new  standards  will not have a
significant effect on the financial statements of the Company.


48
<PAGE>


                       report of independent accountants
--------------------------------------------------------------------------------

                                                 [LOGO - PRICEWATERHOUSECOOPERS]





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, 2000 and 1999, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period  ended  December  31,2000,  in  comformity  with  accounting   principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.





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



February 23, 2001



Certified Public Accountants (of Puerto Rico)
License No. 216 Expires on December 1, 2001
Stamp 1685044 of the P.R. Society of Certified
Public Accountants has been affixed to the file
copy of this report







                                                                              49
<PAGE>

<PAGE>



                           R&G Financial Corporation
                 Consolidated Statements of Financial Condition
                           December 31, 2000 and 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                      -------------------------------------------
                                                                                   2000                 1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                   <C>
Assets

o Cash and due from banks                                                   $    43,466,268       $    42,251,508
o Money market investments:
  Time deposits with other banks                                                 25,623,696            23,744,037
o Mortgage loans held for sale, at lower of cost or market                       95,668,320            77,277,133
o Mortgage - backed securities held for trading, at fair value                           --            16,846,793
o Trading securities pledged on repurchase agreements,
  at fair value                                                                  12,038,040            26,717,024
o Mortgage - backed and investment securities available
  for sale, at fair value                                                     1,044,164,433           532,883,939
o Available for sale securities pledged on repurchase
  agreements, at fair value                                                     474,206,504           437,984,883
o Mortgage - backed and investment securities held to
  maturity, at amortized cost (estimated market value:
  2000 -$5,111,404; 1999 - $15,373,784)                                           5,121,108            15,429,991
o Held to maturity securities pledged on repurchase
  agreements, at amortized cost (estimated market value:
  2000 - $18,265,000; 1999 - $13,335,000)                                        18,400,485            13,256,886
o Loans receivable, net                                                       1,631,276,069         1,563,006,802
o Accounts receivable, including advances to investors, net                      16,107,136            16,230,457
o Accrued interest receivable                                                    28,919,237            22,386,746
o Servicing asset                                                                95,078,530            84,252,506
o Premises and equipment                                                         20,144,726            19,459,353
o Other assets                                                                   29,229,655            20,264,778
                                                                      -------------------------------------------
                                                                            $ 3,539,444,207       $ 2,911,992,836
                                                                      -------------------------------------------
Liabilities and Stockholders' Equity

o Liabilities:
  Deposits                                                                  $ 1,676,062,163       $ 1,330,506,368
  Federal funds purchased                                                        25,000,000            15,000,000
  Securities sold under agreements to repurchase                                827,749,494           731,341,340
  Notes payable                                                                 138,857,562           132,707,001
  Advances from FHLB                                                            505,000,000           384,000,000
  Other borrowings                                                                8,839,770             9,842,894
  Accounts payable and accrued liabilities                                       43,614,238            33,917,329
  Other liabilities                                                               5,485,330             5,142,627
                                                                      -------------------------------------------
                                                                              3,230,608,557         2,642,457,559
                                                                      -------------------------------------------
o Commitments and contingencies

o 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            25,000,000
 Common stock:
  Class A - $.01 par value, 40,000,000 shares authorized,
     18,440,556 issued and outstanding in 2000 and 1999                             184,406               184,406
  Class B - $.01 par value, 30,000,000 shares authorized,
     10,230,029 issued and outstanding in 2000
     (1999 - 10,217,731)                                                            102,300               102,177
  Additional paid-in capital                                                     40,800,652            40,753,856
  Retained earnings                                                             186,028,611           156,193,131
  Capital reserves of the Bank                                                    7,444,108             5,095,658
  Accumulated other comprehensive loss, net of tax                                 (724,427)           (7,793,951)
                                                                      -------------------------------------------
                                                                                 308,835,650          269,535,277
                                                                      -------------------------------------------
                                                                             $ 3,539,444,207     $  2,911,992,836
-----------------------------------------------------------------------------------------------------------------
</TABLE>
   The accompanying notes are an integral part of these financial statements.

50
<PAGE>

                           R&G Financial Corporation
                 Consolidated Statements of Financial Condition
                  Years ended December 31, 2000, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                           ------------------------------------------------------
                                                                2000                1999                1998
-----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>                 <C>
o Interest income:
  Loans                                                    $ 160,092,642       $ 117,304,300       $  89,043,798
  Money market and other
   investments                                                24,720,794          10,243,856           5,855,157
  Mortgage-backed securities
                                                              50,787,415          35,593,191          29,397,985

                                                         -------------------------------------------------------
  Total interest income                                      235,600,851         163,141,347         124,296,940
                                                         -------------------------------------------------------
o Less - interest expense:
  Deposits                                                    80,658,716          53,643,104          38,439,016
  Securities sold under agreements to repurchase              50,542,190          27,474,602          23,875,744
  Notes payable                                               11,628,438          13,633,767          12,641,438
  Other                                                       27,784,370          11,812,100           5,367,631
                                                         -------------------------------------------------------
                                                             170,613,714         106,563,573          80,323,829
                                                         -------------------------------------------------------
o Net interest income                                         64,987,137          56,577,774          43,973,111
o Provision for loan losses                                   (5,751,325)         (4,525,000)         (6,600,000)
                                                         -------------------------------------------------------
o Net interest income after provision for loan losses         59,235,812          52,052,774          37,373,111
                                                         -------------------------------------------------------
o Non-interest income:
  Net gain on origination and sale of loans                   41,230,234          37,098,218          34,955,583
  Loan administration and servicing fees                      30,848,557          27,109,051          15,986,831
   Service charges, fees and other                             7,231,178           6,603,998           5,527,860

                                                         -------------------------------------------------------
                                                              79,309,969          70,811,267          56,470,274
                                                         -------------------------------------------------------
Total revenues                                               138,545,781         122,864,041          93,843,385
                                                         -------------------------------------------------------
o Non-interest expenses:
  Employee compensation and benefits                          27,031,340          24,432,771          17,094,783
  Office occupancy and equipment                              13,435,644          11,289,365           8,986,953
  Other administrative and general                            40,324,994          33,567,706          22,687,336
                                                         -------------------------------------------------------
                                                              80,791,978          69,289,842          48,769,072
                                                         -------------------------------------------------------
o Income before income taxes                                  57,753,803          53,574,199          45,074,313
                                                         -------------------------------------------------------
o Income tax expense:
  Current                                                     12,276,425           8,905,520           6,814,496
  Deferred                                                     1,844,583           3,333,687           4,226,020

                                                         -------------------------------------------------------
                                                              14,121,008          12,239,207          11,040,516
                                                         -------------------------------------------------------
Net income                                                 $  43,632,795       $  41,334,992       $  34,033,797
                                                         -------------------------------------------------------
  Less: Preferred stock dividends                             (5,637,500)         (3,753,819)         (1,233,819)
                                                         -------------------------------------------------------
  Net income available to common stockholders              $  37,995,295       $  37,581,173       $  32,799,978
                                                         -------------------------------------------------------
o Earnings per common share:
                                                         -------------------------------------------------------
  Basic                                                    $        1.33       $        1.31       $        1.15
                                                         -------------------------------------------------------
  Diluted                                                  $        1.30       $        1.28       $        1.12
                                                         -------------------------------------------------------
</TABLE>



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

                                                                              51
<PAGE>



                           R&G Financial Corporation
                 Consolidated Statements of Comprehensive Income
                  Years ended December 31, 2000, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                    ----------------------------------------------------
                                                          2000              1999               1998
--------------------------------------------------------------------------------------------------------
<S>                                                  <C>                <C>                <C>
o Net income                                         $ 43,632,795       $ 41,334,992       $ 34,033,797
                                                    ----------------------------------------------------
o Other comprehensive income, before tax:
o Unrealized gains (losses) on securities:
  Arising during period                                11,012,938        (15,975,369)           516,061
  Less:  Reclassification adjustments for
  losses (gains) included in net income                   576,446            959,813           (278,028)
                                                    ----------------------------------------------------
                                                       11,589,384        (15,015,556)           238,033
                                                    ----------------------------------------------------
o Income tax (expense) benefit related to items
  of other comprehensive income                        (4,519,860)         5,856,067            (92,833)
                                                    ----------------------------------------------------
o Other comprehensive income (loss), net of tax         7,069,524         (9,159,489)           145,200
                                                    ----------------------------------------------------
o Comprehensive income, net of tax                   $ 50,702,319       $ 32,175,503       $ 34,178,997
--------------------------------------------------------------------------------------------------------
</TABLE>

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

52

<PAGE>


                            R&G Financial Corporation
           Consolidated Statements of Changes in Stockholders' Equity
              For the years ended December 31, 2000, 1999 and 1998
--------------------------------------------------------------------------------

<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>
o Balance at December 31, 1997                                               9,220,278    $   92,203      4,924,474    $   49,245
                                          ----------------------------------------------------------------------------------------
o Common stock split on June 25, 1998                                        9,220,278        92,203      4,924,474        49,245
o Issuance of common stock on
  July 31,1998 to acquire Fajardo Federal                                                                   297,143         2,971
o Issuance of Series A Preferred Stock           2,000,000   $50,000,000


o Cash dividends declared:
Common stock

Preferred stock

o Net income

o Transfer to capital reserves

o Other comprehensive income, net of tax

                                          ----------------------------------------------------------------------------------------
o Balance at December 31, 1998                   2,000,000    50,000,000    18,440,556       184,406     10,146,091       101,461
                                          ----------------------------------------------------------------------------------------

o Issuance of Series B Preferred Stock           1,000,000    25,000,000
o Issuance of Common Stock                                                                                   71,640           716
o Cash dividends declared:
Common stock
Preferred stock
o Net income
o Transfer to capital reserves
o Other comprehensive loss, net of tax
                                          ----------------------------------------------------------------------------------------
o Balance at December 31, 1999                   3,000,000    75,000,000     18,440,556      184,406     10,217,731       102,177
                                          ----------------------------------------------------------------------------------------
o Issuance of common stock                                                                                   12,298           123
o Cash dividends declared:
Common stock
Preferred stock
o Net income
o Transfer to capital reserves
o Other comprehensive income, net of tax
                                          ----------------------------------------------------------------------------------------
o Balance at December 31, 2000                   3,000,000   $75,000,000    18,440,556    $  184,406     10,230,029    $  102,300
                                          ----------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                                       Accumulated
                                            Additional      Capital  other comprehensive Retained
                                          Paid-in Capital   reserves    income (loss)    earnings      Total
                                         -----------------------------------------------------------------------
<S>                                        <C>           <C>            <C>           <C>           <C>
o Balance at December 31, 1997             $ 38,347,818   $ 2,215,172    $ 1,220,338  $ 96,129,140  $138,053,916
                                         -----------------------------------------------------------------------
o Common stock split on June 25, 1998          (141,448)
o Issuance of common stock on
  July 31,1998 to acquire Fajardo Federal     5,258,874                                                5,261,845
o Issuance of Series A Preferred Stock       (1,920,866)                                              48,079,134

o Cash dividends declared:
Common stock                                                                            (3,178,214)   (3,178,214)

Preferred stock                                                                         (1,233,819)   (1,233,819)

o Net income                                                                            34,033,797    34,033,797

o Transfer to capital reserves                              1,332,626                   (1,332,626)

o Other comprehensive income, net of tax                                     145,200                     145,200

o Balance at December 31, 1998               41,544,378     3,547,798      1,365,538   124,418,278   221,161,859

o Issuance of Series B Preferred Stock       (1,078,356)                                              23,921,644
o Issuance of Common Stock                      287,834                                                  288,550
o Cash dividends declared:
Common stock                                                                            (4,258,460)   (4,258,460)
Preferred stock                                                                         (3,753,819)   (3,753,819)
o Net income                                                                            41,334,992    41,334,992
o Transfer to capital reserves                              1,547,860                   (1,547,860)
o Other comprehensive loss, net of tax                                    (9,159,489)                 (9,159,489)
                                         -----------------------------------------------------------------------
o Balance at December 31, 1999               40,753,856     5,095,658     (7,793,951)  156,193,131   269,535,277
                                         -----------------------------------------------------------------------
o Issuance of common stock                       46,796                                                   46,919
o Cash dividends declared:
Common stock                                                                            (5,811,365)   (5,811,365)
Preferred stock                                                                         (5,637,500)   (5,637,500)
o Net income                                                                            43,632,795    43,632,795
o Transfer to capital reserves                              2,348,450                   (2,348,450)
o Other comprehensive income, net of tax                                   7,069,524                   7,069,524
                                         -----------------------------------------------------------------------
o Balance at December 31, 2000             $ 40,800,652  $  7,444,108   $   (724,427) $186,028,611  $308,835,650
                                         -----------------------------------------------------------------------
</TABLE>



                                                                             53
<PAGE>



                            R&G Financial Corporation
                        Consolidated Statements of Cash Flows
              For the years ended December 31, 2000, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                     --------------------------------------------------------
                                                             2000                 1999               1998
-------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>                 <C>
o Cash flows from operating activities:
   Net income                                          $  43,632,795       $  41,334,992       $  34,033,797
                                                     --------------------------------------------------------
   Adjustments to reconcile net income to net
     cash used in operating activities:
   Depreciation and amortization                           5,055,761           3,912,603           3,059,742
   Amortization of premium (accretion of
    discount) on investments and
    mortgage - backed securities, net                        293,962             236,184             (86,761)
   Amortization of servicing rights                        9,524,077           7,382,649           2,994,307
   Provision for loan losses                               5,751,325           4,525,000           6,600,000
   Provision for bad debts in accounts receivable            520,000             546,851             300,000
   Gain on sale of mortgage loans                         (1,909,670)         (4,935,775)         (7,785,630)
    Loss (gain) on sales of investment securities
    available for sale                                       576,446             959,813            (278,028)
   Increase in mortgage loans held for sale             (148,713,248)       (117,118,689)        (70,240,717)
   Net decrease (increase) in mortgage-backed
    securities held for trading                           31,525,777         (43,936,589)       (105,247,419)
   Net decrease in investment securities
    held for trading                                              --                  --             581,332
   Increase in interest and accounts receivable           (6,745,660)        (16,176,210)         (4,590,500)
  (Increase) decrease in other assets                     (9,870,776)         (4,570,159)          1,678,184
   Increase (decrease) in notes payable and
    other borrowings                                      30,147,437         (40,518,153)         83,295,337
   Increase in accounts payable
    and accrued liabilities                                3,929,319          10,832,064          11,113,881
   Increase in other liabilities                             342,703           1,010,024             702,593
                                                     --------------------------------------------------------
   Total adjustments                                     (79,572,547)       (197,850,387)        (77,903,679)
                                                     --------------------------------------------------------
   Net cash used in operating activities                 (35,939,752)       (156,515,395)        (43,869,882)
                                                     --------------------------------------------------------
o Cash flows from investing activities:
Purchases of investment securities available for
sale and held to maturity                               (121,965,820)       (230,790,182)        (72,532,667)
Proceeds from sales and redemptions of
investment securities available for sale                  98,847,835         108,459,617          92,867,182
Proceeds from maturities of investment
securities held to maturity                                1,727,000             409,000           4,715,420
Principal repayments on mortgage-backed
securities                                                43,696,049          40,875,059          13,955,086
Proceeds from sale of loans                              107,563,097         135,632,084         254,011,245
Net originations of loans                               (590,126,877)       (730,796,715)       (573,657,277)
Purchases of FHLB stock, net                             (13,148,000)        (21,420,300)         (6,211,400)
Net assets acquired, net of cash received                    958,428          (4,638,371)          4,287,492
Acquisition of premises and equipment                     (4,729,443)         (8,694,453)         (5,936,102)
Purchases of servicing rights                            (20,350,101)        (23,979,840)        (40,002,361)
-------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                   (497,527,832)       (734,944,101)       (328,503,382)
-------------------------------------------------------------------------------------------------------------
</TABLE>
                  (continued)

54

<PAGE>

                            R&G Financial Corporation
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2000, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                           -----------------------------------------------------
                                                                 2000              1999                1998
----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>                 <C>
o Cash flows from financing activities:
   Payments on term notes                                  $ (25,000,000)      $ (23,600,000)      $          --
   Increase in deposits, net                                 345,555,795         323,209,064         263,743,668
   Increase in securities sold under agreements
     to repurchase, net                                       96,408,154         259,919,614          38,287,220
   Increase (decrease) in federal funds purchased             10,000,000          15,000,000         (10,000,000)
   Advances from FHLB, net                                   121,000,000         263,000,000          75,300,000
   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                         46,919             288,550                  --
   Capital contribution to subsidiary                                 --                  --             (12,000)
   Cash dividends - common stock                              (5,811,365)         (4,258,460)         (3,178,214)
     preferred stock                                          (5,637,500)         (3,753,819)         (1,233,819)
                                                           -----------------------------------------------------
 Net cash provided by financing activities                   536,562,003         853,726,593         407,735,989
                                                           -----------------------------------------------------
 Net increase (decrease) in cash and cash equivalents          3,094,419         (37,732,903)         35,362,725

 Cash and cash equivalents at beginning of year               65,995,545         103,728,448          68,365,723
                                                           -----------------------------------------------------
 Cash and cash equivalents at end of year                  $  69,089,964       $  65,995,545       $ 103,728,448
                                                           -----------------------------------------------------
o Cash and cash equivalents include:
   Cash and due from banks                                  $ 43,466,268      $  42,251,508        $  51,804,750
   Securities purchased under agreements to resell                    --                  --          11,544,123
   Time deposits with other banks                             25,623,696          23,744,037          30,361,527
                                                           -----------------------------------------------------
   Federal funds sold                                                 --                  --          10,018,048
----------------------------------------------------------------------------------------------------------------
                                                           $ 69, 089,964       $  65,995,545        $103,728,448
                                                           -----------------------------------------------------
</TABLE>

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

                                                                              55

<PAGE>

                            R&G Financial Corporation
                   Notes to Consolidated Financial Statements
                  Years ended December 31, 2000, 1999 and 1998
--------------------------------------------------------------------------------


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,  R-G  Premier  Bank of Puerto  Rico (the  "Bank"),  a
commercial bank chartered under the laws of the  Commonwealth of Puerto Rico and
Home & Property Insurance Corp., a Puerto Rico corporation and insurance agency.
The Company operates as a financial holding Company,  pursuant to the provisions
of the  Gramm-Leach-Bliley  Act of 1999,  and is  primarily  engaged in mortgage
banking, banking and insurance through its subsidiaries.

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  FHA insured,  VA
guaranteed, and privately insured first and second mortgage loans on residential
real estate (1 to 4 families),  including B&C credit quality loans,  through its
wholly-owned  subsidiary  Mortgage Store of Puerto Rico, Inc. (formerly Champion
Mortgage Corporation).

The Bank provides a full range of banking services through twenty three 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  accounting
principles  generally accepted in the United States of America. The following is
a description of the significant accounting policies:


basis of consolidation

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


use of estimates in the preparation
of financial statements

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

securities purchased under
agreements to resell

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


investment securities

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

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

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

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

Premiums are  amortized  and discounts are accreted as an adjustment to interest
income over the life of the related  securities using a method that approximates
the interest method. Realized gains or losses on securities classified as either
available  for  sale or held to  maturity  are  reported  in  earnings.  Cost of
securities sold is determined on the specific identification method.

56

<PAGE>


loans and allowance for loan
losses

Loans are stated at their outstanding principal balance, less unearned interest,
deferred loan origination  fees and allowance for loan losses.  Loan origination
and  commitment  fees and costs  incurred  in the  origination  of new loans are
deferred and  amortized  over the term of the loans as an adjustment of interest
yield using the  interest  method.  Unearned  interest on  installment  loans is
recognized as income under a method which approximates the interest method.

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

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


interest income

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

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


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


loan servicing fees

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


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 asset

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

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

Servicing  rights are  periodically  evaluated for  impairment.  For purposes of
measuring  impairment,  mortgage  servicing rights are stratified by loan on the
basis of certain risk  characteristics,  including  loan type.  An impairment is
recognized  whenever the prepayment  pattern of the mortgage loan indicates that
the  fair  value of the  related  mortgage  servicing  rights  is less  than its
carrying amount.  An impairment is recognized by charging such excess to income.
The  Company  determined  that no reserve  for  impairment  was  required  as of
December 31, 2000 or 1999.  As of December 31, 2000 and 1999,  the fair value of

                                                                              57
<PAGE>

capitalized   mortgage  servicing  rights  was  approximately   $98,648,000  and
$90,553,000,  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.

Mortgage  loans held for sale  securitized  by the Company into mortgage  backed
securities are accounted for as sales,  with gains or losses recognized based on
readily available quoted market prices at the time of securitization.  Normally,
a portion of the loans are transferred with recourse and the Company retains the
right to service the loans. In certain financial asset transfers,  interest-only
strips are recognized  which can be  contractually  prepaid or settled in such a
way  that  the  Company  may  not  recover  substantially  all of  its  recorded
investment.

Interest-only  strips are initially,  and  subsequently  periodically,  measured
based on  different  valuation  techniques,  principally  the  present  value of
estimated  future  cash  flows.  Such  techniques   incorporate  reasonable  and
supportable  assumptions related to the financial assets transferred,  including
future revenues and expenses,  defaults,  prepayment  speeds and interest rates.
All available evidence is considered in developing  estimates of expected future
cash flows.

Gains  from  the  sale  of   financial   assets  in   securitizations   totalled
approximately  $6.1  million  during  the  year  ended  December  31,  2000;  no
interest-only strips were recognized.

In September 2000, the Financial  Accounting  Standards Board (FASB) issued SFAS
No.140,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets  and
Liabilities - A Replacement of SFAS 125." This  Statement  revises the standards
for accounting for  securitizations  and other transfers of financial assets and
collateral  and requires  certain  disclosures,  but it carries over most of the
provisions  of  SFAS  125  without  reconsideration.   This  Statement  provides
consistent  standards for distinguishing  transfers of financial assets that are
sales from transfers that are secured borrowings.  It is effective for transfers
and servicing of financial  assets and  extinguishment  of liabilities  occuring
after March 31, 2001. Management believes that the adoption of the new standards
will not have a significant  effect on the financial  statements of the Company.
The recognition and  reclassification of certain assets pledged as collateral on
borrowings  meeting certain specific criteria,  and the disclosures  relating to
securitization and certain collateral  transactions  required by SFAS No.140 for
fiscal  years  ending  after  December  15,  2000  have  been  reflected  in the
accompanying consolidated financial statements.

transfers of receivables with recourse

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

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


sale of servicing rights

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


foreclosed real estate held for sale

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

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


58

<PAGE>

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 30, 2000, the Company acquired Home & Property  Insurance Corp. (Home
& Property) at a cost of approximately  $345,000.  The acquisition was accounted
for under the purchase  method of  accounting  resulting in the  recognition  of
goodwill of  approximately  $335,000.  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 goodwill of  approximately  $2.9 million.  Total
assets of  Continental  Capital at the time of  acquisition  were  approximately
$21.2 million.

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

Goodwill is  amortized  over a fifteen  year  period.  Accumulated  amortization
amounted  to  $3,023,000  and  $2,271,000  as of  December  31,  2000 and  1999,
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 $807,000 and $642,000 at December 31, 2000 and 1999, respectively.


securities sold under agreements
to repurchase

The Company sells securities under agreements to repurchase the same securities.
The Company retains effective control over the securities  pledged as collateral
on these  agreements.  The securities  underlying such agreements were delivered
to, and are being  held by,  the  dealers  with whom the  securities  sold under
agreement to repurchase were transacted.  The dealers may have lent or otherwise
disposed  of such  securities  to other  parties in the  normal  course of their
operations,  but have agreed to resell the Company  the same  securities  at the
maturities  of  the  agreements.   Accordingly,  amounts  received  under  these
agreements  represent  short-term  borrowings and the securities  underlying the
agreements remain in the asset accounts as pledged assets.

interest rate risk management

The Company  enters into  interest  rate caps,  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.  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, 2000.


income taxes

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


capital reserve

The Banking Act of the Commonwealth of Puerto Rico, as amended,  requires that a
minimum of 10% of net income of the Bank


                                                                              59

<PAGE>

be  transferred  to capital  surplus  until such  surplus  equals the sum of the
Bank's paid-in common and preferred stock capital.


stock option plan

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


fair value of financial instruments

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


earnings per share

Basic earnings per common share are computed by dividing net income for the year
by the  weighted  average  number  of  shares  outstanding  during  the  period.
Outstanding  stock options  granted  under the  Company's  Stock Option Plan are
included in the  weighted  average  number of shares for purposes of the diluted
earnings per share computation. No other adjustments are made to the computation
of basic earnings per share to arrive to diluted earnings per share.


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  FASB  issued  SFAS  No.133  -  "Accounting  for  Derivative
Instruments and Hedging Activities."

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

Upon  adoption  of  this  Statement  effective  January  1,  2001,  the  Company
designated  certain  interest rate SWAP agreement with a notional  amount of $70
million which was tied against specifically  identified liabilities as cash flow
hedges in accordance with the provisions of SFAS No.133. All other interest rate
SWAP  agreements  held by the Company at such date,  with an aggregate  notional
amount of $60 million,  as well as certain  interest rate cap agreements with an
aggregate notional amount of $200 million,  did not qualify for hedge accounting
under  the  provisions  of SFAS  133.  Accordingly,  upon the  adoption  of this
Statement,  the Company recognized a gain of approximately $1.9 million as other
comprehensive income in stockholders'  equity related to derivative  instruments
that were designated as cash flow hedges,  and a loss of approximately  $527,000
in the income statement  related to derivative  instruments that did not qualify
for hedge accounting.

60
<PAGE>


2. mortgage loans held for sale

Mortgage loans held for sale consist of:


                                                December 31,
                               -----------------------------------------------
                                  2000                            1999
------------------------------------------------------------------------------
o Conventional loans          $49,866,567                      $54,853,175
o FHA/VA loans                 45,801,753                       22,423,958
                              ------------------------------------------------
                              $95,668,320                      $77,277,133
------------------------------------------------------------------------------

The aggregate amortized cost and approximate market value of loans held for sale
as of December 31, 2000 are as follows:


            --------------------------------------------------------------------
               Amortized   Gross unrealized  Gross unrealized       Approximate
                 cost           gains             losses            market value
--------------------------------------------------------------------------------
            $ 95,668,320    $ 2,615,572         $ (81,104)        $ 98,202,788
--------------------------------------------------------------------------------


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,
                                                           -------------------------------------------------------
                                                                2000                1999                1998
------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>                 <C>
o Proceeds from sales of mortgage loans
     and mortgage-backed securities                        $ 749,092,437       $ 855,471,398       $ 783,914,438

o Mortgage loans and mortgage-
     backed securities sold                                 (718,925,649)       (832,057,042)       (761,449,308)
                                                           ------------------------------------------------------
o Gain on sale, net                                           30,166,788          23,414,356          22,465,130
                                                           ------------------------------------------------------
o Deferred fees earned, net of loan origination costs
     and commitment fees paid                                 10,916,338          13,685,619           6,207,098
                                                           ------------------------------------------------------
                                                              41,083,126          37,099,975          28,672,228
                                                           ------------------------------------------------------
o Net unrealized profit (loss) on
     trading securities                                          147,108             (21,288)          6,005,327
                                                           ------------------------------------------------------
o Net gain on origination and sale of mortgage loans          41,230,234          37,078,687          34,677,555
                                                           ------------------------------------------------------
o Gains on sales of investment securities available
     for sale from non-mortgage banking activities                    --              19,531             278,028

                                                           $  41,230,234       $  37,098,218       $  34,955,583
------------------------------------------------------------------------------------------------------------------
</TABLE>


Total gross loan origination fees totaled approximately $25,779,000, $28,442,000
and  $20,270,000  during  the years  ended  December  31,  2000,  1999 and 1998,
respectively. Gross gains of $34,756,431, $32,261,508 and $25,445,179, and gross
losses of $4,589,643, $8,847,152 and $2,980,049 were realized on the above sales
during the years  ended  December  31,  2000,  1999 and 1998,  respectively.

 3. investment securities


                                                            December 31,
                                                 -------------------------------
                                                      2000               1999
--------------------------------------------------------------------------------
Mortgage-backed securities held for trading

o GNMA Certificates                              $ 12,038,040       $ 43,563,817
--------------------------------------------------------------------------------
                                                 $ 12,038,040       $ 43,563,817
--------------------------------------------------------------------------------

                                                                              61
<PAGE>


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


<TABLE>
<CAPTION>

                                                                                        December 31,
                                                           -----------------------------------------------------------------------
                                                                           2000                                 1999
                                                               Amortized           Fair             Amortized            Fair
                                                                 cost              value              cost               value
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                 <C>                 <C>               <C>
Mortgage-backed securities available for sale
                                                           -------------------------------------------------------------------------
o CMO residuals (interest only), interest only strips
  (IO's) and other mortgage-backed securities              $   21,398,077      $   23,227,026      $   20,709,050    $   22,772,039
                                                           -------------------------------------------------------------------------

o FNMA certificates:
   Due from five to ten years                                     633,552             633,552             740,977           718,979
   Due over ten years                                          98,779,069          99,968,168         110,854,889       109,705,450
                                                           -------------------------------------------------------------------------
                                                               99,412,621         100,601,720         111,595,866       110,424,429
                                                           -------------------------------------------------------------------------

o FHLMC  certificates:
   Due within one year                                             13,395              13,395                  --                --
   Due from one to five years                                     131,526             129,956              98,693            98,882
   Due from five to ten years                                   1,587,103           1,587,034           1,891,072         1,840,979
   Due over ten years                                         434,864,554         437,226,389          14,586,274        14,036,216
                                                           -------------------------------------------------------------------------
                                                              436,596,578         438,956,774          16,576,039        15,976,077
                                                           -------------------------------------------------------------------------

o GNMA certificates:
   Due from one to five years                                      25,582              25,502                  --                --
   Due from five to ten years                                  10,491,790          10,419,318                  --                --
   Due over ten years                                         584,419,215         576,869,337         570,748,830       563,532,620
                                                           -------------------------------------------------------------------------
                                                              594,936,587         587,314,157         570,748,830       563,532,620
                                                           -------------------------------------------------------------------------
                                                            1,152,343,863       1,150,099,677         719,629,785       712,705,165
                                                           -------------------------------------------------------------------------

Investment securities available for sale
                                                           -------------------------------------------------------------------------
o  U.S. Treasury securities -
   Due within one year                                                 --                  --           4,998,011         4,944,500
                                                           -------------------------------------------------------------------------

o  U.S. Government and Agencies securities:
   Due within one year                                          8,500,000           8,446,450                  --                --
   Due from one to five years                                 192,762,585         193,298,396         133,955,940       130,950,440
   Due from five to ten years                                 114,881,388         115,351,548          92,236,888        89,443,550
                                                           -------------------------------------------------------------------------
                                                              316,143,973         317,096,394         226,192,828       220,393,990
                                                           -------------------------------------------------------------------------
o  Corporate debt obligations -
   Due from one to five years                                   5,097,519           5,201,699                  --                --
                                                           -------------------------------------------------------------------------
o  FHLB stock                                                  45,973,167          45,973,167          32,825,167        32,825,167
                                                           -------------------------------------------------------------------------
                                                              367,214,659         368,271,260         264,016,006       258,163,657
                                                           -------------------------------------------------------------------------
                                                           $1,519,558,522      $1,518,370,937      $  983,645,791    $  970,868,822
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

62

<PAGE>


Mortgage - backed  securities  available  for sale  include  CMO  residuals  and
interest only strips (IO's)  resulting from financial  asset  transfers in prior
years accounted for as sales.  The key assumptions  used in determining the fair
values of such securities as of December 31, 2000 and the  sensitivity  analysis
on the fair value of such retained interests as of such date follows:


<TABLE>
<CAPTION>
                                                                       At December 31, 2000
                            -----------------------------------------------------------------------------------------------
                                                                           Effect on fair value
                                                                PSA increase                    Discount rate increase
                                                               (basis points)                       (basis points)
                            Assumptions     Fair value         50            100                100                200
---------------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>              <C>            <C>               <C>                 <C>
CMO Residuals

PSA                           100 - 350    $ 8,614,000      $ (390,000)    $ (761,000)       $ (294,000)         $(625,000)
Discount rate                   8 - 10%

IO's Strips

PSA                           200 - 400     10,190,000      (1,311,000)    (2,004,000)         (950,000)        (1,184,000)
Discount rate                    12%
                             ----------------------------------------------------------------------------------------------
                                          $ 18,804,000     $(1,701,000)   $(2,765,000)      $(1,244,000)      $ (1,809,000)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


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

The fair values presented above were estimated based on a computer model used to
structure mortgage backed  securities.  The computer model estimates the present
value of the projected  excess  servicing fees net of normal servicing fees, and
projects  scheduled  and  unscheduled  principal  payments,  mortgage  interest,
servicing  fees and excess  servicing  fees for each  mortgage loan on a monthly
basis.  Values for the excess  servicing cash flows are calculated under various
scenarios  based  on  different  prepayment  and  internal  rate  of the  return
assumptions,  depending  on the type of loan of the  underlying  mortgages,  the
coupon rate and seasoning  (loan age).  Prepayment  speeds  ("PSA") are based on
actual Public Securities Association Dealer Prepayment Estimates as published by
Bloomberg Financial News.


                                                                              63
<PAGE>


<TABLE>
<CAPTION>
                                                                               December 31,
                                                      -----------------------------------------------------------------
                                                                    2000                               1999
                                                       Amortized            Fair           Amortized          Fair
                                                          cost              value             cost            value
-----------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>              <C>              <C>
Mortgage-backed securities held to maturity

o GNMA certificates:
     Due within one year                                $     2,435      $     2,611      $        --      $        --
     Due from one to five years                                  --               --           15,478           16,601
     Due from five to ten years                           8,864,274        8,605,749       10,659,910       10,390,712
     Due over ten years                                   1,844,978        1,765,812        2,132,629        2,074,108
                                                      -----------------------------------------------------------------
                                                         10,711,687       10,374,172       12,808,017       12,481,421
                                                      -----------------------------------------------------------------
o FNMA certificates-
     Due over ten years                                   8,946,973        9,145,168       10,252,615       10,643,767
                                                      -----------------------------------------------------------------
o FHLMC certificates-
     Due over ten years                                     159,544          153,675          188,615          179,841
                                                      -----------------------------------------------------------------
                                                         19,818,204       19,673,015       23,249,247       23,305,029
                                                      -----------------------------------------------------------------
Investment securities held to maturity

o Puerto Rico Government and Agencies
  obligations:
     Due from one to five years                           1,948,000        1,948,000        1,280,000        1,272,000
     Due from five to ten years                           1,755,389        1,755,389        4,157,630        4,131,755
                                                      -----------------------------------------------------------------
                                                          3,703,389        3,703,389        5,437,630        5,403,755
                                                      -----------------------------------------------------------------
                                                        $23,521,593      $23,376,404      $28,686,877      $28,708,784
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

64

<PAGE>


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

<TABLE>
<CAPTION>
                                                                            December 31,
                                            -----------------------------------------------------------------------
                                                          2000                                  1999
                                                   Gross unrealized                      Gross unrealized
                                               Gains               Losses            Gains               Loses
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>                <C>                <C>
o Securities held to maturity:
     Puerto Rico Government obligations     $         --       $         --       $         --       $    (33,875)
     Mortgage-backed securities                  198,372           (343,561)           392,274           (336,492)
                                            -----------------------------------------------------------------------
                                            $    198,372       $   (343,561)      $    392,274       $   (370,367)
                                            -----------------------------------------------------------------------
o Securities available for sale:
     U.S. Government obligations            $  1,566,851       $   (614,430)      $      9,000       $ (5,861,349)
     Corporate debt obligations                  104,180                 --                 --                 --
     Mortgage-backed securities                6,613,572         (8,857,758)         2,570,658         (9,495,278)
                                            -----------------------------------------------------------------------
                                            $  8,284,603       $ (9,472,188)      $  2,579,658       $(15,356,627)
-------------------------------------------------------------------------------------------------------------------
</TABLE>


During the years ended December 31, 2000, 1999 and 1998,  proceeds from the sale
of securities available for sale totaled approximately $66,848,000,  $88,760,000
and  $45,917,000,  respectively;  gross  gains  realized  on such sales  totaled
approximately  $1,392,000  and $278,000  during 1999 and 1998  respectively;  no
gains  were  realized  in 2000;  gross  losses  realized  in 2000 and 1999  were
approximately $576,000 and $2,352,000  respectively;  no losses were realized in
1998.

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 and 10 to the consolidated  financial statements,  as
of December 31, 2000 the Company had investment and  mortgage-backed  securities
and mortgage loans  amounting to  approximately  $1.2 billion  pledged to secure
certain deposits,  securities sold under agreements to repurchase,  and advances
and irrevocable standby letters of credit issued by the FHLB.

In  addition  to  the  investment  and  mortgage-backed  securities  pledged  on
repurchase  agreements  and  reported  as  pledged  assets in the  statement  of
financial condition,  at December 31, 2000 the Company had investment securities
pledged as collateral on repurchase  agreements where the  counterparties do not
have the right to sell or repledge the assets as follows:


                                            ----------------------------------
                                                     Carrying Amount
------------------------------------------------------------------------------
o Mortgage-backed and investment
   securities available for sale                     $358,850,865

o Mortgage-backed securities held
   to maturity                                          1,253,038
                                                     ============
                                                     $360,103,903
------------------------------------------------------------------------------

                                                                              65
<PAGE>


4. loans and allowances for loan losses

Loans consist of the following:

<TABLE>
<CAPTION>
                                                          December 31,
                                            ---------------------------------------
                                                    2000                  1999
-----------------------------------------------------------------------------------
<S>                                          <C>                   <C>
o Real estate loans:
   Residential - first mortgage              $   999,321,698       $ 1,097,891,436
   Residential - second mortgage                  27,419,145            13,028,816
   Land                                            6,049,179             1,952,043
   Construction                                  198,958,342            95,201,185
   Commercial                                    304,104,485           226,036,358
                                            ----------------------------------------
                                               1,535,852,849         1,434,109,838
                                            ----------------------------------------
o Undisbursed portion of loans in process       (125,428,976)          (50,622,579)
o Net deferred loan fees                             908,553              (436,852)
                                            ----------------------------------------
                                               1,411,332,426         1,383,050,407
                                            ----------------------------------------
o Other loans:
   Commercial                                     59,120,394            54,230,506
   Consumer:
    Loans secured by deposits                     26,925,836            20,538,734
    Loans secured by real estate                 100,357,019            76,944,484
    Other                                         45,563,186            37,653,140
   Unamortized discount                             (338,103)             (356,142)
   Unearned interest                                 (85,055)              (83,722)
                                            ----------------------------------------
                                                 231,543,277           188,927,000
                                            ----------------------------------------
   Total loans                                 1,642,875,703         1,571,977,407
o Allowance for loan losses                      (11,599,634)           (8,970,605)
                                            ----------------------------------------
                                             $ 1,631,276,069       $ 1,563,006,802
------------------------------------------------------------------------------------
</TABLE>


The changes in the allowance for loan losses follow:

                                             Year Ended December 31,
                                -----------------------------------------------
                                     2000             1999              1998
 -------------------------------------------------------------------------------
o Balance, beginning of year    $  8,970,605     $  8,055,432     $  6,771,702
                                ------------------------------------------------
  Provision for loan losses        5,751,325        4,525,000        6,600,000
  Acquired reserves                       --               --          364,064
  Loans charged-off               (3,985,445)      (4,439,807)      (6,012,792)
  Recoveries                         863,149          829,980          332,458
                                ------------------------------------------------
o Balance, end of year          $ 11,599,634     $  8,970,605     $  8,055,432
-------------------------------------------------------------------------------

As of December 31, 2000 and 1999 the Company had commercial  loans classified as
impaired  totaling  $1,565,000  and  $928,000,  respectively.  No  reserves  for
impairment  were  necessary  as of  such  dates  since  the  fair  value  of the
collateral securing such loans exceeded their outstanding balances.

As of December 31, 2000,  1999 and 1998,  loans on which the accrual of interest
income had been discontinued amounted to approximately $94,982,000,  $59,014,000
and $44,526,000,  respectively.  The additional  interest income that would have
been  recognized  during  2000,  1999 and 1998 had  these  loans  been  accruing
interest  amounted  to  approximately  $2,664,000,  $1,637,000  and  $1,408,000,
respectively.  The Company has no material  commitments to lend additional funds
to borrowers whose loans were in non-accruing status at December 31, 2000.


66

<PAGE>

5. mortgage loan servicing

The Company's  fees for servicing  mortgage loans  generally  range from .25% to
 .50% on the  declining  outstanding  principal  balances of the  mortgage  loans
serviced.  Servicing  fees are collected on a monthly basis out of payments from
mortgagors.  The servicing  agreements are 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, 2000 and
1999,  the  mortgage  loans  servicing   portfolio   amounted  to  approximately
$6,634,059,000  and  $6,177,511,000,   respectively,   including   approximately
$1,060,886,000  and  $1,069,100,000,  respectively,  serviced for the Bank,  and
$462,975,000 and $486,109,000, respectively, under sub-servicing contracts.

The changes in the servicing asset of the Company follows:


<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                         ---------------------------------------------------
                                              2000               1999               1998
--------------------------------------------------------------------------------------------
<S>                                      <C>                <C>                <C>
o Balance at beginning of period         $ 84,252,506       $ 58,221,052       $ 21,212,998
                                         ---------------------------------------------------
   Rights originated                       15,039,273         14,072,094         11,845,775
   Rights purchased                         5,310,828         19,342,009         28,156,586
   Scheduled  amortization                 (9,524,077)        (7,382,649)        (2,994,307)
                                         ---------------------------------------------------
o Balance at end of period               $ 95,078,530       $ 84,252,506       $ 58,221,052
--------------------------------------------------------------------------------------------
</TABLE>

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, 2000, the
mortgage  loan  portfolio  serviced for GNMA,  FNMA and FHLMC and subject to the
timely payment commitment amounted to approximately $3,022,394,000, $526,049,000
and  $1,387,529,000,  respectively  (1999 -  $2,880,069,000,  $537,881,000,  and
$981,168,000).

Total funds  advanced as of  December  31, 2000 in relation to such  commitments
amount to $3,634,000,  $5,213,000 and $1,791,000 for escrow advances,  principal
and interest advances and foreclosure advances, respectively (1999 - $2,693,000,
$6,740,000 and $1,501,000).

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,  2000 and 1999,  the related  escrow  funds  include
approximately $91,826,000 and $92,361,000,  respectively, deposited in the Bank;
these funds are included in the  Company's  consolidated  financial  statements.
Escrow funds also include approximately  $12,622,000 and $16,826,000 at December
31, 2000 and 1999,  respectively,  deposited  with other banks and excluded from
the Company's assets and liabilities.


6. premises and equipment


Premises and equipment consist of:

<TABLE>
<CAPTION>
                                                            December 31,
                                  ------------------------------------------------------------
                                    Estimated useful life
                                           (years)                  2000              1999
----------------------------------------------------------------------------------------------
<S>                                          <C>               <C>                <C>
Buildings                                    20                $  1,901,439       $  1,895,066
Furniture and fixtures                        5                  24,655,614         22,398,620
Leasehold improvements                       10                  13,927,201         11,952,402
Autos                                         5                     607,853            544,355
                                  ------------------------------------------------------------
                                                                 41,092,107         36,790,443
                                  ------------------------------------------------------------
Less - Accumulated
depreciation and amortization                                   (20,947,381)       (17,331,090)
                                  ------------------------------------------------------------
                                                               $ 20,144,726       $ 19,459,353
----------------------------------------------------------------------------------------------
</TABLE>



                                                                              67
<PAGE>


7. deposits

Deposits are summarized as follows:

                                                 December 31,
                                    ------------------------------------
                                           2000               1999
------------------------------------------------------------------------
o  Passbook savings                  $  116,776,127      $  113,576,010
                                    ------------------------------------
o  NOW accounts                          43,270,559          38,764,771
o  Super NOW accounts                    97,172,275          93,912,535
o  Regular checking accounts
   (non-interest bearing)                70,760,209          54,020,104
o  Commercial checking accounts
   (non-interest bearing)               101,177,563         103,575,340
                                    ------------------------------------
                                        312,380,606         290,272,750
                                    ------------------------------------
o  Certificates of deposit:
   Under  $ 100,000                     489,220,809         390,314,490
   $100,000 and over                    749,081,246         531,714,386
                                    ------------------------------------
                                      1,238,302,055         922,028,876
                                    ------------------------------------
o  Accrued interest payable               8,603,375           4,628,732
                                    ------------------------------------
                                     $1,676,062,163      $1,330,506,368
------------------------------------------------------------------------

The weighted  average stated  interest rate on all deposits at December 31, 2000
and 1999 was 5.34% and 4.84%, respectively.

As of December 31, 2000, the Company had delivered investment securities held to
maturity with an amortized cost of approximately  $3.7 million as collateral for
public  funds'   deposits.


At December 31, 2000 scheduled maturities of certificates of deposit are as
follows:
------------------------------------------------------------------------
                    2001                            $967,557,909
                    2002                              59,262,895
                    2003                              46,898,635
                    2004                              32,553,099
                    2005                             122,442,094
                    Thereafter                         9,587,423
                                    ------------------------------------
                                                  $1,238,302,055
------------------------------------------------------------------------

68
<PAGE>


8. securities sold under agreements to repurchase

At December 31, 2000,  repurchase  agreements  mature within ninety days, except
for repurchase agreements totaling $70,000,000 maturing in December 2009.

Information on these agreements follows:


<TABLE>
<CAPTION>

                                                                              December 31,
                                              --------------------------------------------------------------------------
                                                         2000                                   1999

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

U.S. Government and Agencies securities
  available for sale                         $218,384,000      $221,079,000         $124,392,000        $123,548,392
GNMA:
  Held for trading                             11,601,830        12,038,040           25,915,513          26,717,024
  Available for sale                          540,028,922       571,276,450          538,031,843         556,172,901
  Held to maturity                              9,679,000        10,369,000            6,796,000           7,579,000
CMO Residuals available for sale                4,155,685         3,704,316            8,162,280           4,592,934
FHLMC available for sale                       30,088,057        30,744,603           15,763,948          16,053,021
FNMA:
  Available for sale                            5,470,000         6,253,000            6,065,756           6,498,487
  Held to maturity                              8,342,000         9,145,000            6,214,000           7,201,000
                                            ----------------------------------------------------------------------------
                                            $ 827,749,494     $ 864,509,409        $ 731,341,340       $ 748,362,759
------------------------------------------------------------------------------------------------------------------------
</TABLE>


Maximum amount of borrowings  outstanding at any month-end  during 2000 and 1999
under  the  agreements  to  repurchase  were   $838,202,000  and   $731,341,000,
respectively.  The approximate average aggregate  borrowings  outstanding during
the periods  were  $756,351,000  and  $482,335,000,  respectively.  The weighted
average  interest  rate of such  agreements  was 6.75% and 5.92% at December 31,
2000 and 1999, respectively;  the weighted average rate during 2000 and 1999 was
6.57% and 5.59%, respectively.

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.


                                                                              69
<PAGE>


9. notes payable

Notes payable consist of:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                ----------------------------------------------------
                                                                                       2000                     1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                    <C>
o Warehousing lines, bearing interest at floating rates
  ranging from 1.125% to 1.25% over the
  applicable Libor rate (7.85% in 2000 and
  6.78% in 1999)                                                                  $   64,357,562         $    48,507,001

o Lines of credit  with banks for an  aggregate  of $50  million
  bearing  interest at  floating  rates  ranging  from 1.375% to
  1.75%  over the  applicable  Libor  rate  (8.26%  at  December
  31,2000 and 7.25% at December  31,  1999),  collateralized  by
  mortgage servicing rights with a fair value of approximately
  $53.0 million                                                                       39,000,000              23,700,000

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

o 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)                                          --              10,000,000

o Promissory note maturing in 2001 paying quarterly  interest at
  a floating rate of 96% of the three month Libid rate (6.12% at
  December 31, 2000 and 5.81%
  at December 31, 1999)                                                               25,000,000              25,000,000

o Promissory note maturing in 2001 paying semiannual
  interest at a fixed annual rate of 6.52%                                            10,500,000              10,500,000
                                                                                ----------------------------------------------------
                                                                                    $138,857,562            $132,707,001
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


As of  December  31,  2000,  the Company  had  various  credit  line  agreements
permitting the Company to borrow up to $243.4 million in warehousing  lines with
banks;  the unused portion of  warehousing  lines totaled  approximately  $179.0
million.   Warehousing  lines  at  December  31,  2000  are   collateralized  by
approximately $63.6 million in mortgage loans,  mortgage servicing rights with a
fair  value  of $8  million,  and a  general  assignment  of  mortgage  payments
receivable.  These  borrowings  bear interest at rates related to the respective
counterparty's  cost of funds.  Several  credit line  agreements  impose certain
requirements on the Company of which the most important include  maintaining net
worth and debt  service  over  certain  defined  minimums,  and  limitations  on
indebtedness and declaration of dividends.  At December 31, 2000 the Company was
in compliance with the loan requirements.





70

<PAGE>

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



                                                       December 31,
                                               ------------------------------
                                                   2000            1999
                                               ------------------------------
                                                    (Dollars in thousands)
-----------------------------------------------------------------------------
o Maximum aggregate borrowings
  outstanding at any month-end                 $    157,414    $     233,100

o Approximate average aggregate borrowings
  outstanding during the year                  $    131,726    $     140,548

o Weighted average interest rate during
  the year computed on a monthly basis                6.37%             6.35%

o Weighted average interest rate
  at end of year                                      8.00%             6.87%
-----------------------------------------------------------------------------

At December 31, 2000 floating rate notes in the aggregate  amount of $25,000,000
and fixed rate notes of  $10,500,000  are guaranteed by letters of credit issued
by the FHLB -NY.


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

At December 31, 2000 advances  from FHLB mature at various  dates  commencing on
January 2, 2001 until  October 20,  2005,  and bear  interest  at various  rates
ranging  from 5.67% to 6.72%.  The  weighted  average  stated  interest  rate on
advances  from the FHLB was  6.42%  and  5.75% at  December  31,  2000 and 1999,
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 $634.2 million as of December 31, 2000. The unused portion under such line of
credit  was  approximately  $129.2  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
$36.8  million at December  31, 2000.  At December  31, 2000 the Bank  maintains
collateral  (principally  in the  form of first  mortgage  notes)  amounting  to
approximately  $732.8  million  with  the FHLB as part of the  Agreement  and to
secure standby letters of credit.  At December 31, 2000, the market value of the
collateral  indicated  above  was  sufficient  to  comply  with  the  collateral
requirements of the FHLB.


11. income taxes

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

The Company 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  Company's  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:


                                                                              71
<PAGE>

<TABLE>
<CAPTION>
                                                                        December 31,
                                                                   2000              1999
------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>
o Deferred tax liabilities:

    Unrealized gain on securities held for trading           $    159,154       $    101,782
    Deferred securitization fees                                  445,393                 --
    CMO residuals (IOs)                                         2,962,818          4,387,577
    Net deferred loan origination costs, net                      633,932            100,998
    Servicing asset                                            15,363,003         12,034,191
    Securitization gains on mortgage-backed securities          6,391,230          4,710,779
                                                             -----------------------------------
                                                               25,955,530         21,335,327
                                                             -----------------------------------
o Deferred tax assets:

    Net operating loss carry forward                              (82,184)                --
    Allowance for loan losses                                  (4,523,857)        (3,498,536)
    AMT credits                                                (2,819,702)        (1,191,200)
    Other foreclosed property reserve                            (155,620)           (38,571)
    Reserve for bad debts                                        (184,228)          (261,664)
    Unrealized losses on securities available for sale           (463,159)        (4,983,018)
    Deferred gains on sale of investment securities              (183,336)          (183,336)
                                                             -----------------------------------
                                                               (8,412,086)       (10,156,325)
                                                             -----------------------------------
    Net deferred tax liability                               $ 17,543,444       $ 11,179,002
------------------------------------------------------------------------------------------------
</TABLE>

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,
                                                        ---------------------------------------------------------------------------
                                                                2000                     1999                     1998
                                                        ---------------------------------------------------------------------------
                                                                   % of pretax               % of pretax               % of pretax
                                                          amount      income       amount       income       amount       income
                                                                                 (Dollars in thousands)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>       <C>             <C>       <C>             <C>
o Computed income tax at statutory rate                  $ 22,524       39%       $ 20,894        39%       $ 17,579        39%
                                                        ---------------------------------------------------------------------------
  Effect on provision of:
  Tax-exempt interest                                      (5,907)     (11)         (5,629)      (10)         (7,084)      (15)
  Adjustment for tax differences expected to reverse
    at tax rates lower than the statutory rate             (1,664)      (3)         (2,040)       (4)             --        --
  Discount on tax credits purchased                        (1,133)      (2)           (506)       (1)           (385)       (1)
  Other (non-taxable) / non-deductible items, net             301        1            (480)       (1)            931         2
                                                        ---------------------------------------------------------------------------
                                                         $ 14,121       24%       $ 12,239        23%       $ 11,041        25%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


The Puerto  Rico  Treasury  Department  is  presently  conducting  an income tax
examination  of R&G  Mortgage's  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.

72

<PAGE>

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 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 was transferred  from additional  paid-in-capital  to common stock. The
stock split did not dilute  shareholders'  voting rights or their  proportionate
interest in the Company.  All share and per share data included  herein has been
adjusted to reflect the stock split.

The  Company's  average  number  of  common  shares   outstanding  used  in  the
computation of basic earnings per common share was 28,662,305  (1999-28,632,768;
1998-28,413,314);  the weighted  average  number of shares  outstanding  for the
computation of diluted earnings per share was 29,314,712 (1999 -29,334,224; 1998
-29,169,314)  after giving effect to outstanding stock options granted under the
Company's  Stock Option  Plan.  During 2000,  cash  dividends of $0.20275  (1999
-$0.14875;  1998  -$0.111375)  per common share  amounting to  $5,811,365  (1999
-$4,258,460; 1998 -$3,178,214) were paid.

13. non-interest expenses

Non-interest expenses consist of the following:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                               -------------------------------------------------
                                                    2000              1999              1998
------------------------------------------------------------------------------------------------
<S>                                             <C>              <C>              <C>
o Stationary and supplies                       $ 1,861,689      $ 2,018,569      $ 1,548,459
o Advertising and promotion                       5,488,373        5,718,016        4,277,685
o Telephone                                       1,745,117        1,585,587        1,004,213
o License and other taxes                         3,597,296        2,693,461        2,074,144
o Deposit insurance                                 293,751          514,473          401,933
o Other insurance                                   865,039          801,334          661,951
o Legal and other professional services           2,213,678        2,254,510        2,169,209
o Amortization of mortgage servicing asset        9,524,077        7,382,649        2,994,307
o Goodwill amortization                             752,438          514,293          393,507
o Guaranty fees                                   2,536,248        2,060,884        1,366,296
o Other                                          11,447,288        8,023,930        5,795,632
                                               -------------------------------------------------
                                                $40,324,994      $33,567,706      $22,687,336
------------------------------------------------------------------------------------------------
</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 2000 were
approximately $2,179,000 (1999 - $ 1,736,000).

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,  2000 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  organized  under the Puerto Rico  Banking  Act, as amended,  and is
subject to extensive  regulation  and  examination  by the  Commissioner  of the
Office  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 Mortgage's affairs are also
subject to supervision and examination by FNMA, FHA, FHLMC,  GNMA, HUD and VA at
all times to assure  compliance  with the applicable  regulations,  policies and
procedures.  Mortgage  origination  activities are subject to, among others, the
Equal Credit Opportunity Act, Federal  Truth-in-Lending  Act and the Real Estate
Settlement  Procedures  Act  and the  regulations  promulgated  thereunder.  R&G
Mortgage is a U.S.  Department of Housing and

                                                                              73

<PAGE>

Urban  Development  (HUD) approved non-supervised mortgagee.

The Company is subject to various regulatory capital  requirements  administered
by the federal  banking  agencies.  Under capital  adequacy  guidelines  and the
regulatory  framework  for  prompt  corrective  action,  the  Company  must meet
specific capital guidelines that involve quantitative  measures of the Company's
assets,  liabilities  and certain  off-balance  sheet items as calculated  under
regulatory   accounting   practices.   The   Company's   capital   amounts   and
classifications  are also subject to  qualitative  judgments  by the  regulators
about  components,  risk weightings,  and other factors.  Quantitative  measures
established  by regulation to ensure capital  adequacy  requires the Company and
the Bank to maintain  minimum  amounts and ratios (set forth in the table below)
of total and Tier I capital (as  defined in the  regulations)  to  risk-weighted
assets  (as  defined),  and of Tier I capital to  average  assets (as  defined).
Failure to meet capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. As of December 31,
2000,  the  Company  meets  all  capital  adequacy  requirements  to which it is
subject.

As of December 31, 2000, 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 Bank's  category.


The following table reflects the Company's and the Bank's actual capital amounts
and ratios, and applicable  regulatory capital requirements at December 31, 2000
and 1999:

<TABLE>
<CAPTION>
                                                                       (dollars in thousands)
                                               ---------------------------------------------------------------------
                                                                                              to be well capitalized
                                                                            for capital      under prompt corrective
                                                       actual            adecuacy puposes       action provisions
                                                  amount     ratio       amount     ratio      amount        ratio
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>        <C>           <C>      <C>            <C>
As of December 31, 2000
o Total capital (to risk weighted assets):
  Consolidated                                   $303,217    16.65%     $145,699      8%            N/A       N/A
  R-G Premier Bank only                          $181,111    12.15%     $119,290      8%       $149,113        10%
o Tier I capital (to risk weighted assets):
  Consolidated                                   $291,617    16.01%     $ 72,849      4%            N/A       N/A
  R-G Premier Bank only                          $169,511    11.37%     $ 59,645      4%       $ 89,468         6%
o Tier I capital (to average assets):
  Consolidated                                   $291,617     8.44%     $138,257      4%            N/A       N/A
  R-G Premier Bank only                          $169,511     6.04%     $112,210      4%       $140,263         5%

  As of December 31, 1999
o 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%
o 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%
o 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%
--------------------------------------------------------------------------------------------------------------------
</TABLE>


16. stock option plan

The Company  has a Stock  Option  Plan,  which is designed to attract and retain
qualified personnel in key positions,  provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company,  and reward key employees for  outstanding  performance  and the
attainment of targeted  goals. An amount of Company common stock equal to 10% of
the  aggregate  number of Class B Shares sold in the  Company's  initial  public
offering  (241,500  shares,  equivalent to 869,400 shares after giving effect to
stock splits) were authorized  under the Stock Option Plan,  which may be filled
by authorized but unissued  shares,  treasury shares or shares  purchased by the
Company  on the open  market or from  private  sources.  The Stock  Option  Plan
provides for the grant of stock  options at an exercise  price equal to the fair
market value of the Class B shares at the date of the grant.  Stock  options are

74
<PAGE>

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
Company's  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 ($4.03 as adjusted for stock splits).  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  had been  exercised.

Stock options  granted,  cancelled  and  exercised  during 1999 and 2000 were as
follows:

                                               ---------------------------------
                                                                    weighted
                                                                  average price
--------------------------------------------------------------------------------
o Outstanding stock options, January 1, 1999         756,000       $    4.16
                                               ---------------------------------
   Granted                                            96,000       $   16.13

   Exercised                                         (71,640)      $    4.03

   Cancelled                                         (25,200)      $    4.03
                                               ---------------------------------
o Outstanding stock options, December 31, 1999       755,160       $    5.69
                                               ---------------------------------
   Exercised                                          (9,720)      $    4.03

   Cancelled                                          (8,640)      $    4.03
                                               ---------------------------------
o Outstanding stock options, December 31, 2000       736,800       $    5.75
--------------------------------------------------------------------------------

The  Company  adopted  in  1996  the  disclosure  provisions  of SFAS  No.  123-
"Accounting  for  Stock-Based   Compensation"   (SFAS  123).   Accordingly,   no
compensation  cost has been  recognized for the Company's Stock Option Plan. Had
compensation  cost for the Company's Stock Option Plan been determined  based on
the fair value of the options at the grant date  consistent  with the provisions
of SFAS 123,  the  Company's  net  earnings and earnings per share for the years
ended  December  31,  2000 and 1999  would  have been  reduced  to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                               ----------------------------------------------
                                                   2000             1999             1998
---------------------------------------------------------------------------------------------
<S>                                             <C>              <C>              <C>
o Net earnings - as reported                    $43,632,795      $41,334,992      $34,033,797
                                               ----------------------------------------------
o Net earnings - pro forma                      $43,478,281      $41,180,478      $33,879,283
                                               ----------------------------------------------
o Basic earnings per share - as reported        $      1.33      $     1.31       $      1.15
                                               ----------------------------------------------
o Basic earnings per share - pro forma          $      1.32      $     1.31       $      1.15
                                               ----------------------------------------------
o Diluted earnings per share - as reported      $      1.30      $     1.28       $      1.12
                                               ----------------------------------------------
o Diluted earnings per share - pro forma        $      1.29      $     1.28       $      1.12
---------------------------------------------------------------------------------------------
</TABLE>


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 Company's 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.


                                                                              75
<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  employee's  years of
service and on operational  income, as defined by the Plan, and are deposited in
a trust.  Contributions  to the Plan during the years ended  December  31, 2000,
1999 and 1998  amounted  to  approximately  $232,000,  $169,000,  and  $103,000,
respectively.

18. commitments and contingencies

Commitments to buy and sell GNMA
certificates
As of  December  31,  2000,  the  Company  had open  commitments  to issue  GNMA
certificates in the amount of $45.0 million.

Commitments to sell mortgage loans
As of December 31, 2000,  the Company had  commitments to sell mortgage loans to
third party investors amounting to $25.6 million. Lease commitments
The Company is obligated  under several  noncancellable  leases for office space
and equipment  rentals,  all of which are accounted for as operating leases. The
leases expire at various dates with options for renewals.

As of December 31, 2000, minimum annual rental commitments under  noncancellable
operating  leases for certain office space and equipment,  including leases with
an affiliate, were as follows:
                       ---------------------------------------------------------
                        Year                         Amount
--------------------------------------------------------------------------------
                        2001                      $ 3,765,232
                        2002                        3,651,284
                        2003                        3,258,147
                        2004                        2,882,014
                        2005                        2,278,280
                        Later years                12,683,746
--------------------------------------------------------------------------------
                                                  $28,518,703
--------------------------------------------------------------------------------

Rent expense  amounted to approximately  $5,091,000 in 2000,  $4,081,000 in 1999
and $3,097,000 in 1998.

Litigation

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

Others

At December 31, 2000,  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 $680.5 million at December 31, 2000. Liability,  if any, under the
recourse  provisions  at December  31, 2000 is  estimated  by  management  to be
insignificant.

19. supplemental disclosure on the
statements of cash flows

During 2000, 1999 and 1998, the Company paid interest amounting to approximately
$168,870,000,  $99,587,000 and  $79,576,000,  respectively,  and income taxes of
approximately $18,142,000, $8,241,000 and $4,306,000, respectively.

During 2000 and 1999 the Company retained as investment securities approximately
$410,453,000,  and  $106,237,000,  respectively,  of loans  securitized from its
mortgage loan portfolio.


20. financial instruments with off-balance
sheet risk and concentrations
of credit risk

In the normal  course of business,  the Company uses various  off-balance  sheet
financial  instruments  to satisfy the  financing  needs of its customers 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
Company's activities in particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the financial  instruments  for  commitments  to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit  policies in making  commitments  as it does for on-balance
sheet instruments.  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


76

<PAGE>

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

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, 2000 follows:


o 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                                        $37,986,257
--------------------------------------------------------------------------------

o Financial instruments whose notional or contractual amounts exceed the amount
  of potential credit risk:

--------------------------------------------------------------------------------
 Interest rate swap contracts                                    $130,000,000
                                  ----------------------------------------------
 Interest rate cap agreements                                    $200,000,000
--------------------------------------------------------------------------------


A detail of interest  rate swaps by  contractual  maturity at December  31, 2000
follows:

       -------------------------------------------------------------------------
         notional                               pay fixed        receive
          amount                maturity           rate       rate floating
--------------------------------------------------------------------------------
      $ 25,000,000         September 10, 2001     6.09%   96% of 3 month Libid
        15,000,000         January 26, 2001       5.59%      3 month Libor
        10,000,000         June 6, 2003           6.83%      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
--------------------------------------------------------------------------------



The  following  table  summarizes  the  changes  in  notional  amounts  of swaps
outstanding during 2000:
--------------------------------------------------------------------------------
o  Beginning balance                             $ 155,000,000
o  New Swaps                                        10,000,000
o  Maturities                                      (35,000,000)
                                                 -------------------------------
o  Ending balance                                $ 130,000,000
--------------------------------------------------------------------------------

                                                                              77
<PAGE>

As of December 31, 2000, interest rate swap maturities are as follows:

--------------------------------------------------------------------------------
                                   2001                        $ 40,000,000
                                   2003                          10,000,000
                                   2009                          80,000,000
                                  ----------------------------------------------
                                                               $130,000,000
--------------------------------------------------------------------------------

Expected   maturities   will  differ   from   contractual   maturities   because
counterparties  to the  agreements  may have the right to call the swaps.  As of
December  31,2000 swap agreements with a notional amount of $90,000,000 had call
options at various dates commencing on January 2001 through June 2001.

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 amounted to approximately  $315,000;  net interest received amounted
to approximately $886,000 and $50,000 during 2000 and 1998.


A detail of interest rate cap agreements at December 31, 2000 follows:
               -----------------------------------------------------------------
                 notional                          interest          receive
                  amount            maturity       rate cap       rate floating
--------------------------------------------------------------------------------
               $100,000,000     August 22, 2002      7.00%        3 month Libor
                100,000,000     August 21, 2002      7.25%        3 month Libor
--------------------------------------------------------------------------------



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,
                                               --------------------------------------------------
                                                     2000              1999             1998
-------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>                <C>
o Employee costs                                $  43,372,567     $  39,738,671      $ 30,013,967
                                               --------------------------------------------------
o Other administrative and general expenses     $  44,155,321     $  37,366,087      $ 25,906,635
-------------------------------------------------------------------------------------------------
</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,
                                                      ---------------------------------------------
                                                          2000             1999            1998
---------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>
o Offset against mortgage loan sales and fees         $ 3,665,396      $ 7,069,831      $ 2,623,316
---------------------------------------------------------------------------------------------------
o Offset against interest  income on loans            $ 3,128,092      $ 3,210,847      $ 3,113,946
---------------------------------------------------------------------------------------------------
o Capitalized as part of loans held for sale and
  loans held for investment                           $13,378,066      $ 8,823,603      $10,401,221
---------------------------------------------------------------------------------------------------
</TABLE>

78
<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>
                                                                         (Dollars in thousands)
                                                      --------------------------------------------------------------
                                                                 2000                           1999
                                                      --------------------------------------------------------------
                                                                       estimated                        estimated
                                                       carrying           fair         carrying            fair
                                                         value           value          value             value
--------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>             <C>
Financial Assets

o Cash and due from banks                             $   43,466      $   43,466      $   42,252      $   42,252
o Money market investments                                25,624          25,624          23,744          23,744
o Mortgage loans held for sale                            95,668          98,203          77,277          78,716
o Mortgage-backed securities held for trading             12,038          12,038          43,564          43,564
o Investment and mortgage-backed securities
available for sale                                     1,472,398       1,472,398         938,044         938,044
o Investment in Federal Home Loan Bank stock              45,973          45,973          32,825          32,825
o Investment and mortgage-backed securities
held to maturity                                          23,522          23,376          28,687          28,709
o Loans, net                                           1,631,276       1,695,231       1,563,007       1,548,143
o Accounts receivable                                     45,026          45,026          38,617          38,617

Financial Liabilities

o Deposits:
Non-interest bearing demand                           $  171,938      $  171,938      $  157,595      $  157,595
Savings and NOW accounts                                 257,219         252,368         246,253         232,283
Certificates of deposit                                1,238,302       1,251,435         922,029         920,829
o Securities sold under agreements to repurchase         827,749         827,749         731,341         731,341
o Notes payable                                          138,858         138,924         132,707         132,278
o Advances from FHLB                                     505,000         507,282         384,000         383,850
o Other borrowings                                         8,840           8,840           9,843           9,843
o Accounts payable and accrued liabilities                43,614          43,614          33,917          33,917
o Unrecognized financial instruments -
  Interest rate swap agreements in a net
  receivable (payable) position*                      $       89      $    1,969      $       65      $    5,616

  Interest rate cap agreements                        $      623      $       76      $       --      $       --
--------------------------------------------------------------------------------------------------------------------
</TABLE>



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


                                                                              79

<PAGE>


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


Short-term financial instruments

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


Investment securities

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


Loans

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

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

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


Deposits

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

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


Borrowings

The fair value of promissory  notes  included in notes payable and advances from
FHLB, 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, 2000. 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.


80

<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, 2000
and 1999 and the  results of its  operations  and its cash flows for each of the
three years ended on December 31,2000:


<TABLE>
<CAPTION>

Statements of Financial Condition                                December 31,
                                                      ---------------------------------
                                                            2000               1999
---------------------------------------------------------------------------------------
<S>                                                     <C>               <C>
Assets

o Cash                                                  $    227,702      $    119,380
o Investment in R-G Premier Bank, at equity              181,865,856       157,038,667
o Investment in R&G Mortgage, at equity                  141,283,756       127,314,792
o Investment in Home and Property Insurance Corp.,
  at equity                                                  405,697                --
o Accounts receivable - subsidiaries                          17,864           139,156
o Other assets                                               165,787           116,442
                                                      ---------------------------------
  Total assets                                          $323,966,662      $284,728,437
                                                      ---------------------------------
  Liabilities and Stockholders' Equity

o Advances from subsidiaries                            $ 15,000,000      $ 15,000,000
o Other liabilities and accrued expenses                     131,012           193,160
o Stockholders' equity                                   308,835,650       269,535,277
                                                      ---------------------------------
  Total liabilities and stockholders' equity            $323,966,662      $284,728,437
---------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>

     Statements of Income                                                 Year Ended December 31,
                                                            -------------------------------------------------
                                                                   2000             1999              1998
-------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>              <C>
o Income:
Dividends from subsidaries                                     $        --      $        --      $ 2,404,787
Other                                                              448,267          555,371          384,638
                                                            -------------------------------------------------
                                                                   448,267          555,371        2,789,425
                                                            -------------------------------------------------
o Operating expenses                                               383,539          505,183          349,669
                                                            -------------------------------------------------
o Income before income taxes and equity
   in undistributed earnings of subsidiaries                        64,728           50,188        2,439,756
                                                            -------------------------------------------------
o Income taxes                                                      18,124           14,053            9,477
                                                            -------------------------------------------------
o Income before equity in undistributed earnings
of subsidiaries                                                     46,604           36,135        2,430,279
                                                            -------------------------------------------------
o Equity in undistributed earnings of subsidiaries              43,586,191       41,298,857       31,603,518
                                                            -------------------------------------------------
o Net income                                                   $43,632,795      $41,334,992      $34,033,797
-------------------------------------------------------------------------------------------------------------
</TABLE>


The Holding Company had no operations  during the years ended December 31, 2000,
1999 and 1998.

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.


                                                                              81
<PAGE>

<TABLE>
<CAPTION>

Statements of Cash Flows                                               Year Ended December 31,
                                                       -------------------------------------------------------
                                                               2000              1999               1998
--------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>                <C>
o Cash flows from operating activities:
                                                       -------------------------------------------------------
  Net income                                               $ 43,632,795       $ 41,334,992       $ 34,033,797
                                                       -------------------------------------------------------
  Adjustments to reconcile net income to cash
   provided by (used in) operating activities:
  Equity in undistributed earnings of subsidiaries          (43,586,191)       (41,298,857)       (31,603,518)
  Decrease (increase) in accounts
   receivable - subsidiaries                                    121,292            (69,328)           353,350
  Increase in other assets                                      (49,345)           (84,208)           (32,234)
  (Decrease) increase in other liabilities and
   accrued expenses                                             (62,148)            93,773             58,013
                                                       -------------------------------------------------------
  Total adjustments                                         (43,576,392)       (41,358,620)       (31,224,389)
                                                       -------------------------------------------------------
  Net cash provided by (used in) operating activities            56,403            (23,628)         2,809,408
                                                       -------------------------------------------------------
o Cash flows from investing activities:
  Acquisition of Home and Property                             (345,000)                --                 --
  Cash investment in Bank
   pursuant to acquisition of Fajardo Federal                        --                 --           (639,322)
  Investment in Bank common stock                                    --        (39,212,500)       (19,382,000)
  Investment in R&G Mortgage common stock                            --                 --       (29,055, 000)
  Dividends on common stock from subsidiaries                11,798,865          8,012,279          2,122,649
                                                       -------------------------------------------------------
  Cash provided by (used in) investing activities            11,453,865        (31,200,221)       (46,953,673)
                                                       -------------------------------------------------------
o Cash flows from financing activities:
  Issuance of common stock                                       46,919            288,550                 --
  Net proceeds from issuance of preferred stock                      --         23,921,644         48,079,134
  Cash dividends                                            (11,448,865)        (8,012,279)        (4,412,033)
  Net advances from subsidiaries                                     --         15,000,000                 --
                                                       -------------------------------------------------------
  Net cash (used in) provided by financing
   activities                                               (11,401,946)        31,197,915         43,667,101
                                                       -------------------------------------------------------
  Net increase (decrease) in cash                               108,322            (25,934)          (477,164)
  Cash at beginning of year                                     119,380            145,314            622,478
                                                       -------------------------------------------------------
  Cash at end of year                                      $    227,702       $    119,380       $    145,314
---------------------------------------------------------------------------------------------------------------
</TABLE>



82

<PAGE>


24. industry segments

The  following  summarized  financial  information  presents  the results of the
Company's operations for each of the three years ended December 31, 2000 for its
traditional banking and mortgage banking activities:



<TABLE>
<CAPTION>

                                                                           2000
                                                 ---------------------------------------------------------------------------------
                                                                                  Mortgage           Segment
                                                  Insurance        Banking        Banking            Totals          Banking
----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>              <C>              <C>              <C>
Revenues:
o Net interest income after provision for
  loan losses                                    $      --     $ 55,935,128     $  3,300,684     $ 59,235,812     $ 45,326,068
o Non-interest income:
  Net gain on origination and sale of loans             --       15,170,465       26,059,769       41,230,234        7,922,662
  Net gain on sales of investment securities
   available for sale                                   --               --               --               --           19,531
  Loan administration and servicing fees                --               --       33,324,040       33,324,040               --
  Service charges, fees and other                  182,058        7,044,593        1,813,356        9,040,007        6,135,232
                                                 ---------------------------------------------------------------------------------
                                                   182,058       78,150,186       64,497,849      142,830,093       59,403,493
                                                 ---------------------------------------------------------------------------------
  Non-interest expenses:

o Employee compensation and benefits                47,902       13,426,617       13,556,821       27,031,340       12,733,017
o Office occupancy and equipment                    11,563        8,464,625        4,959,456       13,435,644        7,538,952
o Other                                             43,139       15,019,159       28,395,036       43,457,334       14,433,103
                                                 ---------------------------------------------------------------------------------
                                                   102,604       36,910,401       46,911,313       83,924,318       34,705,072
                                                 ---------------------------------------------------------------------------------
o Income before income taxes                     $  79,454     $ 41,239,785     $ 17,586,536     $ 58,905,775     $ 24,698,421
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                     1999                                              1998
                                                ---------------------------------------------------------------------------------
                                                    Mortgage         Segment                          Mortgage        Segment
                                                    Banking          Totals          Banking          Banking          Totals
---------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>              <C>              <C>              <C>              <C>
Revenues:
o Net interest income after provision for
  loan losses                                   $  6,726,706     $ 52,052,774     $ 31,279,733     $  6,093,378     $ 37,373,111
o Non-interest income:
  Net gain on origination and sale of loans       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          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                  1,892,304        8,027,536        5,433,556        1,383,042        6,816,598
                                                 ---------------------------------------------------------------------------------
                                                  66,812,918      126,216,411       49,534,277       46,936,850       96,471,127
                                                 ---------------------------------------------------------------------------------
  Non-interest expenses:

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

                                                                              83


<PAGE>


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


<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                                 --------------------------------------------------------------
                                                        2000                  1999                    1998
---------------------------------------------------------------------------------------------------------------
<S>                                                <C>                   <C>                   <C>
Revenues:
o Total revenues for reportable segments           $ 142,830,093         $ 126,216,411         $  96,471,127
o Elimination of intersegment revenues                (4,284,312)           (3,352,370)           (2,627,742)
                                                 --------------------------------------------------------------
o Total consolidated revenues                      $ 138,545,781         $ 122,864,041         $  93,843,385
 --------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                 --------------------------------------------------------------
                                                         2000                  1999                  1998
---------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                   <C>                   <C>
Income before income taxes:
o Total income before income taxes for
   reportable segments                              $ 58,905,775          $ 54,295,708          $ 45,735,944
o Elimination of intersegment profits                   (768,433)             (216,326)             (311,962)
o Unallocated corporate expenses                        (383,539)             (505,183)             (349,669)
                                                 --------------------------------------------------------------
o Income before income taxes, consolidated           $ 57,753,803          $ 53,574,199          $ 45,074,313
---------------------------------------------------------------------------------------------------------------
</TABLE>



Total assets of the Company among its industry  segments and a reconciliation of
reportable  segment  assets to the  Company's  consolidated  total  assets as of
December 31, 2000 and 1999 follows:

                                                        December 31,
                                          --------------------------------------
                                                2000                  1999
--------------------------------------------------------------------------------
Assets:
o Banking                                  $ 2,873,431,480      $ 2,285,371,757
o Mortgage Banking                             788,886,024          741,260,519
o Insurance                                        634,063                   --

o Total assets for reportable segments       3,662,951,567        3,026,632,276
o Parent company assets                            183,651              116,442
o Elimination of intersegment balances        (123,691,011)        (114,755,882)
                                          --------------------------------------
o Consolidated total assets                $ 3,539,444,207      $ 2,911,992,836
--------------------------------------------------------------------------------



84

<PAGE>


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.



<TABLE>
<CAPTION>
                                            (dollars in thousands, except for per share data)
                                          -----------------------------------------------------
                                                                    2000
                                              March 31      June 30       Sept. 30      Dec. 31
------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>
o  Interest income                           $ 53,283      $ 57,711      $ 60,901      $ 64,195
o  Interest expense                           (36,523)      (40,978)      (45,023)      (48,579)
o  Net interest income                         16,760        16,733        15,878        15,616
o  Provision for loan losses                   (1,350)       (1,500)       (1,500)       (1,401)
o  Income before income taxes                  11,761        14,207        14,917        16,869
o  Income tax expense                          (2,274)       (3,499)       (3,555)       (4,793)
o  Net income                                   9,487        10,708        11,362        12,076
o  Net income per common share - Basic       $    .28      $    .33      $    .35      $    .37
o  Net income per common share - Diluted     $    .28      $    .32      $    .34      $    .36
------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>

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


                                                                              85


<PAGE>




86
<PAGE>


                                                              stockholder
                                                                     information
--------------------------------------------------------------------------------



Corporate Office                        Transfer Agent and Registrar
R-G Plaza                               American Stock Transfer & Trust Co.
280 JT Pinero Ave.                      40 Wall Street-46th floor
San Juan,  P.R. 00918                   New York, N.Y. 10005
(787) 758-2424
                                        Independent Public Accountants
                                        PricewaterhouseCoopers, LLP
US Operations                           BBV Tower-9th Floor
                                        San Juan, P.R. 00918
1841 New York Avenue
Huntington Station,                     Market Makers
New York 11746                          Friedman Billings Ramsey & Co.
(631) 549-8188                          1001 19th Street
                                        North Arlington, VA 22209

Annual Meeting                          PaineWebber  Incorporated of PR
                                        American International Plaza
April 25, 2001                          Penthouse Floor 250
10:00 a.m. Atlantic time                Munoz Rivera Ave.
Bankers Club                            San Juan, P.R. 00918
Hato Rey, Puerto Rico
                                        Sandler O'Neill & Partners
                                        Two World Trade Center
                                        104th Floor
Special Counsel                         New York, N.Y. 10048

Kelley, Drye Warren, LLP                Keefe, Bruyette & Woods Inc.
1200 19th St., N.W. Suite 500           Two World Trade Center
Washington, DC 20036                    89th Floor
                                        New York, N.Y. 10048

McConnell & Valdes
270 Munoz Rivera Ave.
San Juan, P.R. 00918


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<PAGE>


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

General Inquiries & Reports

R-G  Financial  is required to file an annual  report on Form 10K for its fiscal
year ended December 31, 2000 with the Securities and Exchange Commission. Copies
of its Annual Report and  quarterly  reports may be obtained  without  charge by
contacting:  Inves tor  Relations  Department,  Attention Ms. Sophie Perez Tel.:
(787) 756-2801


<TABLE>
<CAPTION>

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


              At December 31, 2000, the Company had 221 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 for the
              Company's  stock durin g each  quarter  during the last two fiscal years were as
              follows.

                Mar 31     Jun 30    Sep 30    Dec 31    Mar 31    Jun 30     Sep 30    Dec 31
                 2000       2000      2000      2000      1999      1999       1999      1999
<S>              <C>        <C>      <C>        <C>       <C>      <C>        <C>          <C>
High             12.00      9.50     11.00      14.50     21.50    19.375     18.1875      16
----------------------------------------------------------------------------------------------
Low.             7.688      6.50     7.875      8.625     17.75    14.25      12.1875    9.875
----------------------------------------------------------------------------------------------
Dividends Paid   0.045   0.04875     0.0525    0.0565     0.033     0.03575    0.0385   0.0415
----------------------------------------------------------------------------------------------
</TABLE>



The 2000 Annual Report from R-G Financial  Corporation was designed and produced
by Adworks, San Juan, Puerto Rico.




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