W HOLDING CO INC, S-4, 1999-04-23

W HOLDING CO INC
S-4, 1999-04-23

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

W HOLDING COMPANY, INC.
(IN ORGANIZATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
COMMONWEALTH OF PUERTO RICO 6712 NOT YET APPLIED FOR
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

------------------------
19 WEST MCKINLEY STREET, MAYAGUEZ, PUERTO RICO 00680
(787) 834-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

FREDDY MALDONADO
CHIEF FINANCIAL OFFICER
W HOLDING COMPANY, INC.
19 WEST MCKINLEY STREET
MAYAGUEZ, PUERTO RICO 00680
(787) 834-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:

STUART G. STEIN, ESQ.
HOGAN & HARTSON L.L.P.
555 13TH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-8575

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

CALCULATION OF REGISTRATION FEE

<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED UNIT PRICE REGISTRATION FEE
Common Stock, par value
$1.00 per share.......... 42,000,000 $15.313* $643,146,000* $178,794.59*
Preferred Stock, par value
$1.00 per share.......... 1,219,000 $25.00 * $ 30,475,000* $ 8,472.05*
</TABLE>

* Estimated pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act
of 1933, as amended, based upon the average of the high and low prices for
shares of common stock of Westernbank Puerto Rico as reported on the Nasdaq
Stock Market's National Market Tier and calculated as of April 22, 1999.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2

<TABLE>
<S> <C>
WESTERNBANK PUERTO RICO W HOLDING COMPANY, INC.
19 WEST MCKINLEY STREET 19 WEST MCKINLEY STREET
MAYAGUEZ, PUERTO RICO MAYAGUEZ, PUERTO RICO
00680 00680
(Proxy Statement) (Prospectus)
</TABLE>

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

42,000,000 SHARES OF COMMON STOCK; AND 1,219,000 SHARES OF 7.125%
NON-CUMULATIVE, CONVERTIBLE PREFERRED STOCK, SERIES A
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
------------------------

DEAR WESTERNBANK STOCK HOLDER:

You are cordially invited to attend the annual meeting of stockholders of
Westernbank Puerto Rico to be held at 1:30 p.m. on May 27, 1999 at Best Western
Mayaguez Resort & Casino, located at Road 104, Km. 0.3, Mayaguez, Puerto Rico.

At the annual meeting, you will be asked to vote on:

- a bank holding company formation for Westernbank

If you are a common stockholder, you also will be asked to vote on:

- the election of three directors for three-year terms

- approval of the Westernbank 1999 Stock Option Plans

- an increase in Westernbank's authorized capital

- ratification of Deloitte & Touche LLP as independent auditors for
1999.

Westernbank's common stock currently is traded on the Nasdaq Stock Market's
National Market Tier under the symbol WBPR. The holding company has applied to
change the listing of Westernbank's common stock to the holding company's common
stock and to list the holding company's series A preferred stock under the
symbols and , respectively.

PLEASE READ THE RISK FACTORS ON PAGE BEFORE COMPLETING YOUR PROXY CARD.

W HOLDING COMPANY'S STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, OR THE OFFICE OF THE COMMISSIONER OF FINANCIAL
INSTITUTIONS OF PUERTO RICO, NOR HAS ANY OF THESE INSTITUTIONS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

The separate votes of at least three-fourths of Westernbank's outstanding
common stock and three-fourths of the aggregate liquidation preference
associated with Westernbank's series A preferred stock are required to approve
the plan of merger and reorganization. CONSEQUENTLY, NOT RETURNING A PROXY CARD,
NOT VOTING IN PERSON AT THE ANNUAL MEETING OR ABSTAINING FROM VOTING WILL HAVE
THE SAME EFFECT AS VOTING AGAINST THE PLAN OF MERGER AND REORGANIZATION.

Very truly yours,

Frank C. Stipes
Chairman of the Board,
Chief Executive Officer and
President

This proxy statement/prospectus is being mailed to shareholders on or about
, 1999. The date of this proxy statement/prospectus is
, 1999.
<PAGE> 3

WESTERNBANK PUERTO RICO
19 WEST MCKINLEY STREET
MAYAGUEZ, PUERTO RICO 00680
(787) 834-8000

NOTICE OF ANNUAL MEETING

TO BE HELD ON MAY 27, 1999

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Westernbank Puerto Rico will be held at Best Western Mayaguez Resort & Casino,
located at Road 104, Km. 0.3, Mayaguez, Puerto Rico, on May 27, 1999 at 1:30
p.m., for the following purposes:

(1) To consider a proposal to approve the reorganization of Westernbank
into a bank holding company form of ownership by approving a plan of
merger and reorganization through which (i) Westernbank will become a
subsidiary of a newly formed bank holding company called W Holding
Company, Inc. and (ii) each outstanding share of Westernbank common
stock will be converted into one share of common stock of the holding
company and each outstanding share of Westernbank series A preferred
stock will be converted into one share of series A preferred stock of
the holding company (Proposal 1);

(2) To elect three directors for a term of three years or until their
successors have been elected and qualified (Proposal 2);

(3) To approve Westernbank's 1999 Stock Option Plans (Proposal 3);

(4) To consider the proposed increase in the number of shares of common
stock that Westernbank is authorized to issue from 75,000,000 to
300,000,000 and the proposed increase in the number of shares of
preferred stock that Westernbank is authorized to issue from 5,000,000
to 20,000,000 (Proposal 4).

(5) To ratify the appointment of Deloitte & Touche LLP as Westernbank's
independent auditors for 1999 (Proposal 5); and

(6) To transact any other business that properly comes before the annual
meeting or any adjournment of the meeting.

If you held shares of Westernbank's common stock at the close of business
on [April 15], 1999, you are entitled to notice of the annual meeting and to
vote on all matters that properly come before the meeting, including the holding
company reorganization. If you held shares of Westernbank's series A preferred
stock at the close of business on that day, you are entitled to notice of the
annual meeting and to vote on the reorganization.

Under the Puerto Rico Banking Law, any stockholder of a bank involved in a
transaction like the holding company reorganization may object to the
consideration offered to the stockholder in exchange for the stockholder's
shares. If you object and attempt to seek other consideration for your shares,
you must strictly follow the procedures outlined in section 15(i) of the Puerto
Rico Banking Law. A copy of that section is attached as Appendix C to the proxy
statement/prospectus. If you wish to object and do not follow the requirements
of that section carefully, your right to seek other consideration may be
invalidated.

The separate votes of at least three-fourths of Westernbank's issued and
outstanding common stock and three-fourths of the aggregate liquidation
preference associated with Westernbank's series A preferred stock are required
to approve the plan of merger and reorganization. Consequently, the required
vote of Westernbank's common stockholders and series A preferred stockholders is
based on the total number of shares of Westernbank's common stock and series A
preferred stock issued and not on the number of shares which are actually voted.
NOT RETURNING A PROXY CARD, NOT VOTING IN PERSON AT THE ANNUAL MEETING OR
ABSTAINING FROM VOTING WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE PLAN OF
MERGER AND REORGANIZATION.
<PAGE> 4

THEREFORE, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL
MEETING REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT AT THE
ANNUAL MEETING, WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING YOU MAY VOTE IN
PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN
PERSON AT ANY TIME PRIOR TO THE TIME IT IS EXERCISED AS DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.

By Order of the Board of Directors

Angel Luis Rosas
Secretary

Mayaguez, Puerto Rico
April , 1999

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QUESTIONS AND ANSWERS ABOUT THE HOLDING COMPANY REORGANIZATION

Q: WHY IS WESTERNBANK PROPOSING TO REORGANIZE INTO A HOLDING COMPANY STRUCTURE?

A: The board of directors believes that the reorganization will give Westernbank
greater flexibility in continuing those services it presently provides to its
customers and in responding in the future to changing market conditions and
the changing needs of the community.

Q: WHAT DO I NEED TO DO NOW?

A: Just indicate on your proxy card how you want to vote, and sign, date and
return it as soon as possible. If you sign and send in your proxy and do not
indicate how you want to vote, your proxy will be voted in favor of the
reorganization. Not returning your proxy, not voting at the annual meeting or
abstaining from voting has the effect of voting against the reorganization.

If you hold Westernbank common stock you can choose to attend the annual
meeting and vote your shares in person instead of returning your completed
proxy card. If you do return a proxy card, you may change your vote at any
time up to the time of the vote by following the directions on page .

Q: IF MY SHARES ARE HELD IN STREET NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?

A: Your broker will vote your shares only if you provide instructions to your
broker on how you want your shares voted.

Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: No. After the reorganization takes place, you will receive instructions on
how to exchange your Westernbank certificates for holding company
certificates.

Q: WHAT WILL WESTERNBANK'S STOCKHOLDERS RECEIVE IN THE REORGANIZATION?

A: In the reorganization, each outstanding share of Westernbank common stock
will be converted into one share of common stock of the holding company and
each outstanding share of Westernbank series A preferred stock will be
converted into one share of series A preferred stock of the holding company.

Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?

A: Before the reorganization takes place, Westernbank expects to continue to pay
regular semi-annual cash dividends on its common stock (currently $.08).
After the reorganization, any dividends will be based on what the holding
company pays. Dividends on the holding company's series A preferred stock
will continue to be paid on the same terms as dividends on Westernbank's
series A preferred stock.

Q: WHEN DO YOU EXPECT THE REORGANIZATION TO TAKE PLACE?

A: We are working toward completing the reorganization as quickly as possible.
In addition to the approval of Westernbank's stockholders, we must obtain a
number of regulatory approvals. We expect the reorganization to take place as
soon as practicable after the annual meeting and the receipt of all
regulatory approvals.

Q: WHAT ARE THE INCOME TAX CONSEQUENCES OF THE REORGANIZATION TO ME?

A: To review the tax consequences to Westernbank's stockholders in connection
with the reorganization, see pages to .

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SUMMARY

The following is a brief summary of information located elsewhere in this
proxy statement/prospectus. BEFORE YOU VOTE, YOU SHOULD GIVE CAREFUL
CONSIDERATION TO ALL OF THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS DOCUMENT.

THE ANNUAL MEETING

TIME AND LOCATION OF THE ANNUAL MEETING

The annual meeting of stockholders of Westernbank will be held at Best Western
Mayaguez Resort & Casino, located at Road 104, Km. 0.3, Mayaguez, Puerto Rico on
May 27, 1999, at 1:30 p.m.

MATTERS TO BE VOTED ON AT THE ANNUAL MEETING

You will be asked to vote on a plan of merger and reorganization pursuant to
which W Holding Company, Inc. will become the holding company for Westernbank.
Through the merger of Westernbank and an interim bank, each outstanding share of
common stock of Westernbank will be converted into one share of common stock of
the holding company and each outstanding share of series A preferred stock of
Westernbank will be converted into one share of series A preferred stock of the
holding company.

You also will be asked to vote on the election of three directors for three-year
terms, to approve Westernbank's 1999 Qualified Stock Option Plan and its 1999
Nonqualified Stock Option Plan, to approve an increase in Westernbank's
authorized capital stock, to ratify the appointment of Deloitte & Touche LLP as
Westernbank's independent auditors for 1999 and to consider such other business
as may properly come before the annual meeting or any adjournment of the annual
meeting.

WHO IS ELIGIBLE TO VOTE

If you held Westernbank common stock or Westernbank series A preferred stock at
the close of business on [April 15], 1999 you are entitled to vote at the annual
meeting. Each share of common stock is entitled to one vote on each matter
properly presented at the annual meeting. Each share of series A preferred stock
is entitled to one vote on the proposed holding company reorganization.

REQUIRED VOTE

As to the election of directors, the proxy card being provided by the board of
directors enables a common stockholder to vote for the election of the nominees
proposed by the board, or to withhold authority to vote for one or more of the
nominees being proposed. Under the laws of the Commonwealth of Puerto Rico and
Westernbank's restated certificate of incorporation and by-laws, directors are
elected by a majority of votes cast by the common stockholders.

Under our restated certificate of incorporation and by-laws, the holding company
reorganization must be approved by at least three-fourths of our outstanding
common stock and three-fourths of the total liquidation preference associated
with our series A preferred stock. The approval of a majority of the outstanding
common stock is required to approve the increase in authorized capital stock and
the 1999 Stock Option Plans. The ratification of our independent auditors is
determined by a majority of the votes cast by the common stockholders.

THE REORGANIZATION

PARTIES TO THE REORGANIZATION

Westernbank Puerto Rico

Westernbank Puerto Rico is a publicly owned full service commercial bank
chartered under the laws of the Commonwealth of Puerto Rico that provides a wide
range of financial services for retail and institutional clients. Its principal
executive offices are located at 19 West McKinley Street, Mayaguez, Puerto Rico
00680 and its telephone number is (787) 834-8000. Westernbank operates under the
regulations of the Federal Deposit Insurance Corporation and the Office of the
Commissioner of Financial Institutions of Puerto Rico. The deposits of
Westernbank are insured by the Federal Deposit Insurance Corporation to the full
extent provided by law.

W Holding Company, Inc.

W Holding Company, Inc. is a corporation formed under the laws of the
Commonwealth of Puerto

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Rico in February 1999 as a wholly owned subsidiary of Westernbank to serve as a
bank holding company after the reorganization. Its principal executive offices
are located at 19 West McKinley Street, Mayaguez, Puerto Rico 00680 and its
telephone number is (787) 834-8000.

Western Interim Bank

Western Interim Bank will be established as a commercial bank chartered under
the laws of the Commonwealth of Puerto Rico and a wholly owned subsidiary of the
holding company. Its principal executive offices will be located at 19 West
McKinley Street, Mayaguez, Puerto Rico 00680 and its telephone number will be
(787) 834-8000.

STRUCTURE OF THE REORGANIZATION

In the reorganization, the interim bank will be merged into Westernbank, which
will thereafter continue the business of Westernbank as a wholly owned
subsidiary of the holding company. Each share of Westernbank's common stock that
is outstanding at the time of the reorganization will be converted into one
share of common stock of the holding company and each share of Westernbank's
series A preferred stock that is outstanding at the time of the reorganization
will be converted into one share of series A preferred stock of the holding
company. For more information, please see the section of this proxy
statement/prospectus captioned "Proposed Reorganization into a Bank Holding
Company -- Description of the Proposed Reorganization."

CONDITIONS THAT MUST BE SATISFIED BEFORE THE REORGANIZATION CAN OCCUR

Completion of the reorganization is conditioned upon the satisfaction of a
number of conditions, including the receipt of stockholder approval, various
regulatory approvals, which have been applied for, and rulings or opinions
concerning the tax consequences of the reorganization. For more information,
please see the section of this proxy statement/prospectus captioned "Proposed
Reorganization into a Bank Holding Company -- Conditions That Must be Satisfied
Before the Reorganization Can Occur."

REASONS FOR THE REORGANIZATION

The reorganization will give Westernbank greater flexibility in continuing those
services it presently provides to its customers and in responding in the future
to changing market conditions and the changing needs of the community. For more
information, please see the section of this proxy statement/prospectus captioned
"Proposed Reorganization into a Bank Holding Company -- Reasons for the
Reorganization."

RECOMMENDATION OF WESTERNBANK'S BOARD OF DIRECTORS

After careful consideration, the Westernbank board of directors has determined
that the reorganization is advisable and in the best interests of Westernbank
and its stockholders and has approved the plan of merger and reorganization and
the transactions contemplated by the plan of merger and reorganization. The
Westernbank board of directors recommends that you vote FOR approval of the plan
of merger and reorganization.

RISK FACTORS

Before completing your proxy card, you should read this entire proxy
statement/prospectus, including the Risk Factors on pages through
.

DIFFERENCES IN STOCKHOLDER RIGHTS

The rights of Westernbank's stockholders are governed by the banking and general
corporation laws of Puerto Rico. The rights of the holding company's
stockholders will be governed by the General Corporations Law of Puerto Rico.
This change in applicable law will cause some changes in stockholder rights. For
more information, please see the section of this proxy statement/prospectus
captioned "Proposed Reorganization into a Bank Holding Company -- Differences in
Stockholder Rights."

GOVERNMENT REGULATION AND SUPERVISION

After the reorganization, (1) the holding company will be subject to the Federal
Bank Holding Company Act of 1956 and will be subject to regulation by the Board
of Governors of the Federal Reserve System with respect to its operations as a
bank holding company, (2) Westernbank will continue to be subject to regulation

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by the Federal Deposit Insurance Corporation and the Office of the Commissioner
of Financial Institutions of Puerto Rico and (3) the deposits of Westernbank
will continue to be insured by the Federal Deposit Insurance Corporation to the
full extent provided by law. For more information, please see the section of
this proxy statement/prospectus captioned "Supervision and Regulation."

RIGHTS OF DISSENTING STOCKHOLDERS

The rights of dissenting stockholders are governed by the Banking Law of Puerto
Rico. If the reorganization takes place, any Westernbank stockholder will be
entitled to receive payment of the value of his or her shares from Westernbank
if the stockholder (1) does not vote in favor of the reorganization, (2) records
with Westernbank at the time of the annual meeting, or within twenty days after
the meeting, the stockholder's opposition to the reorganization and (3) demands
payment for the shares. Once the reorganization takes place, a dissenting
stockholder may petition the Court of First Instance, Superior Section of San
Juan of the Commonwealth of Puerto Rico to have the value of the stockholder's
shares appraised. For more information, please see the section of this proxy
statement/prospectus captioned "Proposed Reorganization into a Bank Holding
Company -- Rights of Dissenting Stockholders."

BOARD OF DIRECTORS

The holding company's board of directors is comprised of the same persons who
are presently the directors of Westernbank. Approval of the reorganization by
the holders of Westernbank's common stock and series A preferred stock will be
deemed to be a confirmation by the holding company's stockholders of those
persons as the directors of the holding company without further action and
without changes in classes or terms.

CAPITALIZATION STRUCTURE AFTER THE REORGANIZATION

Immediately after the reorganization takes place (and assuming there are no
dissenters), (1) the holding company will have outstanding the same number of
shares of common stock and series A preferred stock that Westernbank had issued
and outstanding immediately prior to the reorganization, (2) the holding
company's common stock and series A preferred stock will be held by the persons
who held the Westernbank common stock and series A preferred stock immediately
prior to the reorganization, and (3) the interim bank will have merged into
Westernbank, and all of the then outstanding shares of Westernbank will be owned
by the holding company.

STOCK LISTING

Westernbank's common stock currently is traded on the Nasdaq Stock Market's
National Market Tier under the symbol WBPR. For the reorganization to take
place, the holding company's common stock and series A preferred stock must be
listed for trading on the Nasdaq Stock Market's National Market Tier. The
holding company has applied to change the listing of Westernbank's common stock
on the Nasdaq Stock Market's National Market Tier to the holding company's
common stock and to list the holding company's series A preferred stock on the
Nasdaq Stock Market's National Market Tier under the symbols and
, respectively. For more information, please see the section of this
proxy statement/prospectus captioned "Proposed Reorganization into a Bank
Holding Company -- Market Price of Westernbank's Capital Stock and Dividends."

TAX CONSEQUENCES OF THE REORGANIZATION

For information about the tax consequences of the reorganization, please see the
section of this proxy statement/prospectus captioned "Proposed Reorganization
into a Bank Holding Company -- Tax Consequences of the Reorganization."

FORWARD LOOKING STATEMENTS

No person is authorized to give any information or to make any representation
not contained in this proxy statement/prospectus, or incorporated by reference
herein, in connection with the solicitation of proxies by Westernbank or the
offering of W Holding Company, Inc. common stock or series A preferred stock
made hereby, and, if given or made, that information or representation should
not be relied upon as having been authorized by Westernbank or W Holding
Company, Inc. This proxy statement/prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, any of W Holding Company,
Inc.'s common stock or series A preferred stock offered

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<PAGE> 9

by this proxy statement/prospectus, or the solicitation of a proxy, in any
jurisdiction in which it is unlawful to make that kind of an offer or
solicitation. Neither the delivery of this proxy statement/prospectus nor any
distribution of W Holding Company Inc.'s common stock or series A preferred
stock offered pursuant to this proxy statement/prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of Westernbank or W Holding Company, Inc. or the information in this
document or the documents or reports incorporated by reference into this
document since the date of this proxy statement/prospectus.

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RISK FACTORS

Westernbank stockholders should consider, among other matters, the
following factors in voting for the plan of merger and reorganization and the
transactions contemplated by the plan of merger and reorganization, the
completion of which will result in holders of Westernbank common stock and
series A preferred stock receiving shares of the holding company's common stock
and series A preferred stock.

THE ABILITY OF WESTERNBANK TO PAY DIVIDENDS TO THE HOLDING COMPANY, AND THE
ABILITY OF THE HOLDING COMPANY TO PAY DIVIDENDS TO YOU IS RESTRICTED.

Westernbank's ability to pay dividends on its capital stock is restricted
by United States federal and Puerto Rico banking law. Westernbank may not pay
dividends if upon payment it would become undercapitalized under the laws and
regulations enforced by the FDIC. Westernbank also could be subject to these
dividend restrictions if the FDIC determines that Westernbank is in an unsafe or
unsound condition or engaging in an unsafe or unsound practice.

Even if stockholders approve Westernbank's proposed reorganization into a
bank holding company structure, the existing restrictions on Westernbank's
ability to pay dividends will continue in effect. Consequently, since the
holding company's principal source of income will consist initially of
dividends, if any, from Westernbank, the restrictions on Westernbank's ability
to pay dividends could adversely affect you after the reorganization. Moreover,
the holding company will be subject to restrictions generally imposed on Puerto
Rico corporations and may be restricted in its ability to pay dividends by
minimum capital requirements imposed by the Board of governors of the Federal
Reserve System. See "Regulatory Matters -- Holding Company Regulation." The
Federal Reserve Board issued a policy statement that provides that insured banks
and bank holding companies should generally pay dividends only out of current
operating earnings.

CHANGES IN INTEREST RATES MAY REDUCE WESTERNBANK'S PROFITABILITY.

Westernbank's results of operations depend to a large extent on the level
of net interest income, which is the difference between income from
interest-earning assets, such as loans and investment securities, and interest
expense on interest-bearing liabilities, such as deposits and borrowings. If
interest-rate fluctuations cause Westernbank's cost of funds to increase faster
than the yield of its interest-earning assets, then its net interest income will
be reduced. Westernbank is unable to predict future fluctuations in interest
rates. In addition, Westernbank is unable to predict future actions of the
Puerto Rico Financial Board, which regulates the rates and fees charged on
specified loans to individuals.

COMMERCIAL, LAND ACQUISITION AND CONSTRUCTION AND CONSUMER LENDING ACTIVITIES
INVOLVE GREATER CREDIT RISK THAN RESIDENTIAL REAL ESTATE LENDING.

In addition to residential real estate loans, Westernbank originates loans
for commercial real estate, commercial business, land acquisition and
construction and consumers. Commercial business loans may involve greater risks
than other types of lending because they are often made based on varying forms
of collateral and repayment of such loans often depends on the success of the
commercial venture. Commercial real estate loans may also involve greater risk
because repayment depends, in large part, on sufficient income from the
properties securing the loans to cover operating expenses and debt service. Land
acquisition and construction loans may involve greater risks because the
borrower may not be able to carry the costs of undeveloped land. Evaluating and
monitoring these types of loans is more difficult then with residential real
estate loans, which also increases risk. the disbursement of principal based on
progress, even though the ultimate completion market value may not be attainable
during the construction process, also may increase risks from these loans.
Consumer loans may involve greater risk because adverse changes in borrowers'
incomes and employment after funding of the loans may impact their abilities to
repay the loans.

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WESTERNBANK MUST CONTINUE TO MANAGE ITS RAPID ASSET GROWTH SUCCESSFULLY.

Westernbank has grown significantly in recent years, and intends to
continue to expand operations and asset size. Westernbank's total assets,
consisting primarily of loans and investments and mortgage-related securities,
have increased 188.1% since December 31, 1994 to $2.5 billion at December 31,
1998. As a growing company, Westernbank needs to continue to attract and retain
additional qualified personnel; otherwise it may have difficulty expanding or
otherwise managing its growth. In addition, Westernbank must continue to have
adequate systems, procedures or controls to support and manage rapid growth.
Westernbank's failure to manage growth effectively could have a material adverse
effect on its ability to pay dividends on the Series B Preferred Stock.

WESTERNBANK'S SUCCESS DEPENDS IN LARGE PART ON THE PUERTO RICO ECONOMY.

Substantially all of the properties and other collateral securing
Westernbank's real estate, commercial and consumer loans are located in Puerto
Rico. These loans may be subject to a greater risk of default than other
comparable loans if the Puerto Rico economy suffers adverse economic, political
or business developments, or if natural disasters affect Puerto Rico. In any
similar scenario, or if Puerto Rico's real estate market experiences an overall
decline in property values, the ability of property owners in Puerto Rico to
make payments of principal and interest on the underlying mortgages could
decrease, likely causing rates of delinquency, foreclosure, bankruptcy and loss
on mortgage loans to increase. Any of these effects could impair Westernbank's
ability to pay dividends on the Series B Preferred Stock.

WESTERNBANK'S BUSINESS WOULD BE DISRUPTED IF ITS COMPUTER SYSTEMS CANNOT WORK
PROPERLY WITH YEAR 2000 DATA.

Westernbank could experience a significant disruption to its business
operations that could have an adverse effect on its profitability if its
computer systems and the computer systems provided by third-party vendors are
not year 2000 compliant. Year 2000 problems suffered by providers of basic
services, such as telephone, water, sewer and electricity, could also have an
adverse impact on Westernbank's daily operations. Westernbank is in the process
of revising its existing business interruption contingency plans to address any
disruptions of these basic services.

OUR EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT AND
AFFAIRS, WHICH THEY COULD EXERCISE AGAINST YOUR BEST INTERESTS.

As of the April 15, 1999 record date, the directors and executive officers
of Westernbank beneficially own a significant percentage of our outstanding
common stock. As a result of this percentage ownership, our directors and
executive officers as a group can exercise significant control over our
management and affairs, including the election of directors and the
determination of all other matters requiring stockholder approval. Acting as a
group, they will retain the power to block certain business combinations in
accordance with the charter documents of both Westernbank and the holding
company. Accordingly, this concentration of ownership may have the effect of
delaying or preventing a change of control of our company that may be in your
best interests.

In addition, provisions of the charter documents of Westernbank and the
holding company, as well as United States federal banking law, could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to stockholders. These provisions include:

- a staggered board of directors;

- advance notice procedures for nomination of directors and for stockholder
proposals; and

- super-majority board or shareholder approval for change of control.

9
<PAGE> 12

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION

The following table sets forth selected financial data for each of the
years in the five-year period ended December 31, 1998. This financial data is
derived from, should be read in conjunction with, and is qualified by reference
to, the more detailed information contained in Westernbank's Annual Reports on
Form 10-K for each of the five years ended December 31, 1998, and Notes thereto,
incorporated by reference herein.

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets.................................... $2,481,176 $1,555,799 $1,284,697 $1,039,449 $861,292
Loans, net and mortgage loans held for sale..... 1,361,297 784,795 623,621 501,201 444,826
Deposits........................................ 1,690,529 1,043,405 908,536 735,628 675,057
Borrowings...................................... 621,325 393,750 282,192 226,325 122,498
Stockholders' equity............................ 154,282 102,235 83,136 67,658 56,490
</TABLE>

<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
EARNINGS
Total interest income................................ $157,446 $113,528 $ 93,416 $ 74,243 $ 55,591
Total interest expense............................... (84,308) (57,198) (45,805) (35,528) (24,296)
-------- -------- -------- -------- --------
Net interest income.................................. 73,138 56,330 47,611 38,715 31,295
Provision for loan losses............................ (6,000) (2,700) -- (3,000) (1,210)
Other income......................................... 10,154 9,979 6,747 5,277 2,907
Operating expenses................................... (41,705) (35,012) (32,460)(a) (25,744) (19,812)
Income taxes......................................... (6,892) (5,693) (4,850) (3,219) (2,549)
-------- -------- -------- -------- --------
Net income........................................... $ 28,695 $ 22,904 $ 17,048 $ 12,029 $ 10,631
======== ======== ======== ======== ========
Net income attributable to common stockholders....... $ 27,604 $ 22,904 $ 17,048 $ 12,029 $ 10,631
======== ======== ======== ======== ========
Earnings per common share (b):
Basic.............................................. $ 0.66 $ 0.54 $ 0.42 $ 0.29 $ 0.25
Diluted............................................ $ 0.66 $ 0.54 $ 0.41 $ 0.28 $ 0.24
======== ======== ======== ======== ========
RATIOS AND PER SHARE AMOUNTS
Return on average assets (c)......................... 1.42% 1.61% 1.47% 1.27% 1.36%
Return on average common stockholders' equity (c).... 24.42% 24.71% 22.61% 19.38% 19.94%
Average equity to average assets(c).................. 6.35% 6.53% 6.49% 6.53% 6.84%
Operating expenses to total assets................... 1.68% 2.25% 2.53% 2.48% 2.30%
Cash dividends declared per common share............. $ 0.12 $ 0.09 $ 0.08 $ 0.03 $ 0.03
Book value per common share (b)...................... $ 2.94 $ 2.42 $ 1.97 $ 1.71 $ 1.46
Total capital to risk-weighted assets................ 11.74% 12.80% 12.20% 12.14% 11.96%
Tier I capital to risk-weighted assets............... 10.61% 11.69% 11.08% 11.02% 10.83%
Tier I capital to total average assets............... 6.37% 6.56% 6.24% 6.39% 6.02%
Average interest rate spread......................... 3.74% 4.09% 4.01% 4.18% 4.28%
</TABLE>

- ---------------
(a) Includes a $3.3 million special assessment paid to the FDIC for deposit
insurance in 1996.

(b) After effect of stock splits and stock dividend.

10
<PAGE> 13

THE ANNUAL MEETING

MATTERS TO BE VOTED ON AT THE ANNUAL MEETING

At the annual meeting, you will be asked to vote on a plan of merger and
reorganization, dated as of February 3, 1999, as amended, among Westernbank, W
Holding Company, Inc. and Western Interim Bank. W Holding Company is the new
Puerto Rico corporation we organized to become the holding company for
Westernbank, and Western Interim Bank is a new bank we are organizing as part of
the holding company reorganization process. Through the merger of Westernbank
and the interim bank, each outstanding share of common stock of Westernbank will
be converted into one share of common stock of the holding company and each
outstanding share of series A preferred stock of Westernbank will be converted
into one share of series A preferred stock of the holding company.

At the annual meeting, holders of Westernbank common stock also will be
asked to vote on

- the election of three directors for three-year terms

- approval of Westernbank's 1999 Stock Option Plans

- an increase in the number of authorized shares of Westernbank common
stock, par value $1.00 per share, from 75,000,000 to 300,000,000 shares
and an increase in the number of shares of authorized shares of
Westernbank preferred stock, par value $1.00 per share, from 5,000,000 to
20,000,000 shares

- ratification of the appointment of Deloitte & Touche LLP as Westernbank's
independent auditors for 1999

- such other business as may properly come before the annual meeting or any
adjournment of the annual meeting. Except for procedural matters related
to the conduct of the annual meeting, Westernbank management is not aware
of any other matters which could come before the annual meeting.

WHO IS ELIGIBLE TO VOTE

If you held Westernbank common stock or Westernbank series A preferred
stock at the close of business on [April 15], 1999 you are entitled to vote at
the annual meeting. On [April 15], 1999, there were 42,000,000 shares of
Westernbank common stock and 1,219,000 shares of Westernbank series A preferred
stock outstanding, held by and stockholders of record,
respectively. Each share of common stock is entitled to one vote on each matter
properly presented at the annual meeting. Each share of series A preferred stock
is entitled to one vote on the proposed reorganization.

QUORUM; REQUIRED VOTE

The presence, in person or by proxy, of at least a majority of the total
number of shares of common stock entitled to vote is necessary to constitute a
quorum at the annual meeting for matters to be voted upon by the common
stockholders other than with respect to the reorganization, which requires the
presence, in person or by proxy, of at least three-fourths of the total number
of shares of outstanding common stock entitled to vote. The presence, in person
or by proxy, of at least a three-fourths of the total liquidation preference
associated with our series A preferred stock entitled to vote is necessary to
constitute a quorum at the annual meeting for voting on the reorganization by
the series A preferred stockholders. Shares that are subject to abstentions and
broker non-votes are counted as present for purposes of determining the presence
of a quorum. Neither abstentions nor broker non-votes are included in
tabulations for voting for directors. Abstentions will be included in
tabulations of the votes cast for purposes of determining whether a proposal
other than election of directors has been approved. Broker non-votes will not be
counted for purposes of determining the number of votes cast for a proposal
other than election of directors. In the event there are not sufficient votes
for a quorum, the annual meeting may be adjourned or postponed in order to
permit the further solicitation of proxies.

11
<PAGE> 14

As to the election of directors, the proxy card being provided by the board
of directors enables a common stockholder to vote for the election of the
nominees proposed by the board, or to withhold authority to vote for one or more
of the nominees being proposed. Under the laws of the Commonwealth of Puerto
Rico and Westernbank's restated certificate of incorporation and by-laws,
directors are elected by a majority of shares of common stock voted.

In connection with the reorganization, the approval of the 1999 Stock
Option Plans and the ratification of our independent auditors, a stockholder may
vote FOR, AGAINST or ABSTAIN by checking the appropriate box. The ratification
of our independent auditors is determined by a majority of the votes cast. The
affirmative vote of a majority of the holders of the outstanding shares of
Westernbank common stock is required to approve the increase in authorized
capital stock and the 1999 Stock Option Plans. The separate votes of at least
three-fourths of Westernbank's outstanding common stock and three-fourths of the
aggregate liquidation preference associated with Westernbank's series A
preferred stock are required to approve the plan of merger and reorganization.
Consequently, the required vote of Westernbank's common stockholders and series
A preferred stockholders is based on the total number of shares of Westernbank's
common stock and series A preferred stock issued and not on the number of shares
which are actually voted. NOT RETURNING A PROXY CARD, NOT VOTING IN PERSON AT
THE ANNUAL MEETING OR ABSTAINING FROM VOTING WILL HAVE THE SAME EFFECT AS VOTING
AGAINST THE PLAN OF MERGER AND REORGANIZATION.

REVOCABILITY OF PROXIES

The proxies solicited pursuant to this proxy statement/prospectus, if
properly signed and returned to Westernbank and not revoked prior to their use,
will be voted in accordance with the instructions contained in the proxies.
EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED ON THE PROXY CARD WILL BE VOTED
FOR THE REORGANIZATION, FOR THE THREE DIRECTOR NOMINEES, FOR APPROVAL OF THE
1999 STOCK OPTION PLANS, FOR THE INCREASE IN AUTHORIZED CAPITAL STOCK, AND FOR
THE RATIFICATION OF OUR AUDITORS. Any stockholder who submits a proxy card has
the power to revoke it at any time before it is exercised by (i) filing with Mr.
Angel Luis Rosas, Secretary, Westernbank, Box 1180, Mayaguez, Puerto Rico 00681,
a written notice of revocation, (ii) submitting a duly executed proxy card
bearing a later date or (iii) appearing at the annual meeting and giving the
Secretary notice of his or her intention to vote in person.

Proxies solicited pursuant to this proxy statement will be returned to the
proxy solicitors or Westernbank's transfer agent, and will be tabulated by
inspectors of election designated by the board of directors of Westernbank who
will not be employed by, or be directors of, Westernbank. After the final
adjournment of the annual meeting, the proxies will be returned to the board of
directors of Westernbank for safekeeping. Proxies solicited pursuant to this
proxy statement may be used only at the annual meeting and any adjournment of
the meeting and will not be used for any other meetings.

SOLICITATION OF PROXIES

In addition to solicitation by mail, directors, officers and employees of
Westernbank may solicit proxies for the annual meeting from stockholders
personally or by telephone or telegram without receiving additional compensation
for these activities. The cost of soliciting proxies will be borne by
Westernbank. In addition, Westernbank has retained Morrow & Co., Inc., a proxy
solicitation firm, to assist in proxy solicitation for the annual meeting. The
fee to be paid to that firm, $6,000 plus reasonable out-of-pocket expenses, will
be paid by Westernbank. Westernbank will also make arrangements with brokerage
firms and other custodians, nominees and fiduciaries to send proxy materials to
their principals and will reimburse those parties for their expenses in doing
so.

12
<PAGE> 15

PROPOSED REORGANIZATION
INTO A BANK HOLDING COMPANY

(PROPOSAL 1)

The reorganization will be accomplished pursuant to a plan of merger and
reorganization dated as of February 3, 1999. A copy of the plan of merger and
reorganization is attached to this proxy statement/prospectus as Appendix A and
is incorporated by reference into this proxy statement/prospectus. We urge you
to read the entire plan of merger and reorganization.

PARTIES TO THE REORGANIZATION

Westernbank Puerto Rico --Westernbank Puerto Rico is a publicly owned full
service commercial bank chartered under the laws of the Commonwealth of Puerto
Rico that provides a wide range of financial services for retail and
institutional clients. Its principal executive offices are located at 19 West
McKinley Street, Mayaguez, Puerto Rico 00680 and its telephone number is (787)
834-8000. Westernbank operates under the regulations of the Federal Deposit
Insurance Corporation and the Office of the Commissioner of Financial
Institutions of Puerto Rico. The deposits of Westernbank are insured by the
Federal Deposit Insurance Corporation to the full extent provided by law.

W Holding Company, Inc. --W Holding Company, Inc. is a corporation formed
under the laws of the Commonwealth of Puerto Rico in February 1999 as a wholly
owned subsidiary of Westernbank to serve as a bank holding company after the
reorganization and, therefore, the holding company has no prior operating
history. Its principal executive offices are located at 19 West McKinley Street,
Mayaguez, Puerto Rico 00680 and its telephone number is (787) 834-8000.

Western Interim Bank --Western Interim Bank will be established as a
commercial bank chartered under the laws of the Commonwealth of Puerto Rico and
a wholly owned subsidiary of the holding company. Its principal executive
offices will be located at 19 West McKinley Street, Mayaguez, Puerto Rico 00680
and its telephone number will be (787) 834-8000.

DESCRIPTION OF PROPOSED REORGANIZATION

If the reorganization is approved by Westernbank's stockholders and all of
the other conditions set forth in the plan of merger and reorganization are
satisfied, in the reorganization, interim bank will be merged into Westernbank,
with Westernbank as the surviving entity. On the effective date of the
reorganization, each share of Westernbank's common stock that is outstanding
immediately prior to the reorganization (other than dissenting shares) will
automatically by operation of law be exchanged for one share of the holding
company's common stock and each share of Westernbank's series A preferred stock
that is outstanding immediately prior to the reorganization (other than
dissenting shares) will automatically by operation of law be exchanged for one
share of the holding company's series A preferred stock.

After the reorganization, the former holders of Westernbank's outstanding
common stock and series A preferred stock who do not exercise dissenters' rights
will be the holders of all of the outstanding shares of the holding company's
common stock and series A preferred stock and the holding company will own all
of Westernbank's outstanding capital stock. Because the holding company will
hold all of the issued and outstanding capital stock of Westernbank after the
reorganization takes place, Westernbank is described as a "wholly owned"
subsidiary of the holding company following the reorganization.

After the reorganization, Westernbank will continue its existing business
and operations as a wholly owned subsidiary of the holding company and the
consolidated capitalization, assets, liabilities, income and financial
statements of the holding company immediately following the reorganization will
be substantially the same as those of Westernbank immediately prior to when the
reorganization takes place. The restated certificate of incorporation and the
by-laws of Westernbank will continue in effect, and will not be affected in any
[material] manner by the reorganization. Westernbank will continue to use the
name "Westernbank Puerto Rico" and Westernbank's corporate existence will
continue unimpaired by the reorganization.
13
<PAGE> 16

The board of directors of Westernbank and the holding company believe that
the reorganization is in the best interests of Westernbank's stockholders for
the reasons described below in the subsection of this Section captioned "Reasons
for the Reorganization." The plan of merger and reorganization has been approved
by the boards of directors of Westernbank and the holding company and will be
approved by the board of directors of the interim bank upon its formation. If
Westernbank's stockholders approve the plan of merger and reorganization and the
other conditions described below under "Conditions That Must Occur Before the
Reorganization Can Occur" are satisfied, the reorganization will become
effective upon the filing of the plan of merger and reorganization with the
Secretary of State of the Commonwealth of Puerto Rico.

REASONS FOR THE REORGANIZATION

The reasons for the reorganization are to permit greater flexibility to
Westernbank in meeting the financial needs of its customers and to provide a
vehicle for growth and potential geographic diversification. Generally, Puerto
Rico banks are not permitted to own or operate other banks or to engage in any
business other than banking, whereas bank holding companies are permitted to
acquire and operate more than one bank and to engage in activities closely
related to banking. Bank holding companies may also establish or acquire
companies engaged in activities closely related to banking with operations and
offices located in Puerto Rico and outside the island as well. For examples of
the types of activities closely related to banking in which bank holding
companies are permitted to engage, please see the section of this proxy
statement/prospectus captioned "Supervision and Regulation" below. While the
holding company is not presently engaged in negotiations and there are no
current arrangements or agreements for the acquisition of other banks or
companies engaged in activities closely related to banking, and while no
assurance can be given that any such acquisitions will be made, Westernbank's
board of directors believes that the possibility of making acquisitions which
would be permissible if the reorganization takes place represents a potentially
attractive growth possibility. Westernbank's board of directors also believes
that the holding company may provide additional funding sources for Westernbank,
as well as better access to diverse money and capital markets. Additionally, a
bank holding company, in the opinion of Westernbank's board of directors, will
be in a better position to respond to the competitive environment in which it is
operating, characterized in larger part by the activities of bank holding
companies in Puerto Rico as well as nationally. In general, the board of
directors of Westernbank believes that operating as a bank holding company will
serve the interests of the banking public and the stockholders of Westernbank by
improving the capability for service in a highly competitive environment.

RECOMMENDATION OF WESTERNBANK'S BOARD OF DIRECTORS

After careful consideration, the Westernbank board of directors has
determined that the reorganization is advisable and in the best interests of
Westernbank and its stockholders and has approved the plan of merger and
reorganization and the transactions contemplated by the plan of merger and
reorganization. THE WESTERNBANK BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE PLAN OF MERGER AND REORGANIZATION.

TREATMENT OF STOCK CERTIFICATES

After the reorganization, the former holders of Westernbank's common stock
and series A preferred stock who do not exercise dissenters' rights will be
entitled to exchange their Westernbank stock certificates for new certificates
evidencing the same number of shares of holding company common stock or series A
preferred stock. Until so exchanged, Westernbank stock certificates will, for
all purposes, represent the same number of holding company shares as the number
of Westernbank shares previously represented, and the holders of Westernbank
certificates who do not exercise dissenters' rights will have all of the rights
of holders of the holding company's shares.

As soon as practicable after the reorganization takes place, instructions
concerning the exchange of stock certificates will be sent to all holders of
record as of the effective date of the reorganization. The

14
<PAGE> 17

Bank of New York, the transfer agent for Westernbank's common stock and series A
preferred stock, will act in the same capacity for the holding company's common
stock and series A preferred stock.

CONDITIONS THAT MUST BE SATISFIED BEFORE THE REORGANIZATION CAN OCCUR

The following conditions must be satisfied before the reorganization can
take place:

- three-fourths of the issued and outstanding shares of Westernbank common
stock and three-fourths of the aggregate liquidation preference
associated with the issued and outstanding shares of Westernbank series A
preferred stock, voting as separate classes, must approve the plan of
merger and reorganization;

- the holding company, as the holder of all of the outstanding stock of the
interim bank, must approve the plan of merger and reorganization;

- Westernbank, as the holder of all of the outstanding stock of the holding
company, must approve the plan of merger and reorganization;

- All regulatory approvals (or waiver or exemption from any required
regulatory approval) and satisfaction of all other requirements required
by law which are necessary to complete the reorganization must be
obtained, and all statutory waiting periods must expire, without the
imposition of any condition or requirements that would materially and
adversely affect the operations or business prospects of the holding
company or Westernbank following the effective date so as to render
inadvisable the completion of the reorganization;

- Westernbank must receive a ruling from the Secretary of the Treasury of
Puerto Rico or an opinion letter from , counsel to Westernbank,
regarding the Puerto Rico income tax consequences of the reorganization;

- Westernbank must receive an opinion letter from Hogan & Hartson, L.L.P.,
counsel to Westernbank, regarding the United States income tax
consequences of the reorganization; and

- the holding company's common stock and series A preferred stock must be
approved for quotation on the Nasdaq Stock Market's National Market Tier.

DIFFERENCES IN STOCKHOLDER RIGHTS

The rights of the holders of Westernbank's common stock and series A
preferred stock are presently governed by the banking and general corporation
laws of Puerto Rico and the restated certificate of incorporation and by-laws of
Westernbank. If the reorganization takes place, Westernbank's stockholders will
become stockholders of the holding company, a Puerto Rico corporation.
Accordingly, their rights will be governed by the General Corporations Law of
the Commonwealth of Puerto Rico and the certificate of incorporation and by-laws
of the holding company. Certain differences arise from this change of governing
law, as well as from distinctions between Westernbank's restated certificate of
incorporation and by-laws and the holding company's certificate of incorporation
and by-laws. The following discussion is not intended to be a complete statement
of the differences affecting the rights of stockholders, but summarizes the
material differences in stockholder rights. The certificate of incorporation and
by-laws of the holding company and the restated certificate of incorporation and
by-laws of Westernbank are attached to this proxy statement/prospectus at
Appendix B. We urge all stockholders to read these documents.

Issuance of Capital Stock. Under Westernbank's restated certificate of
incorporation, Westernbank's authorized capital stock is 75,000,000 shares of
common stock, par value $1.00 per share, and 5,000,000 shares of preferred
stock, par value $1.00 per share. Of Westernbank's authorized preferred stock,
1,219,000 shares have been designated 7.125% Non-Cumulative, Convertible
Preferred Stock, 1998 Series A, liquidation preference $25 per share. Under the
holding company's certificate of incorporation, the authorized capital stock of
the holding company is 300,000,000 shares of common stock, par value $1.00 per
share and 20,000,000 shares of preferred stock, par value $1.00 per share. Of
the holding company's authorized preferred stock, 1,219,000 shares have been
designated 7.125% Non-Cumulative,
15
<PAGE> 18

Convertible Preferred Stock, Series A, liquidation preference $25 per share. If
the proposal to increase Westernbank's authorized capital stock is not approved,
the authorized capital stock of the holding company will be amended, prior to
the reorganization, to have authorized 75,000,000 shares of common stock, par
value $1.00 per share, and 5,000,000 shares of preferred stock, par value $1.00
per share.

Payment of Dividends. Westernbank's ability to pay dividends on its common
stock is restricted by the Banking Law of Puerto Rico, by the Federal Deposit
Insurance Act and by the regulations of the Federal Deposit Insurance
Corporation. In general terms, the Banking Law provides that when the
expenditures of a bank are greater than receipts, the excess of expenditures
over receipts shall be charged against the undistributed profits of the bank and
the balance, if any, shall be charged against the required reserve fund of the
bank. If there is no sufficient reserve fund to cover such balance in whole or
in part, the outstanding amount shall be charged against the bank's capital
account. The Banking Law provides that until the capital has been restored to
its original amount, and the reserve fund is restored to 20% of the original
capital, the bank may not declare any dividends. In general terms, the Federal
Deposit Insurance Act and the regulations of the Federal Deposit Insurance
Corporation restrict the payment of dividends when a bank is undercapitalized or
when there are safety and soundness concerns regarding a bank.

The holding company will not be subject to these restrictions on its
ability to pay dividends, and will be subject only to certain restrictions
generally imposed on Puerto Rico corporations (i.e., that dividends may be paid
out only from the corporation's net assets in excess of capital or in the
absence of such excess, from the corporation's net earnings for such fiscal year
and/or the preceding fiscal year). The holding company's ability to pay
dividends also may be restricted by minimum capital requirements imposed by the
Board of Governors of the Federal Reserve System. Furthermore, the Board of
Governors of the Federal Reserve System also has issued a policy statement that
provides that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings. It is important to point out
that after the reorganization, the holding company's principal source of income
initially will consist of dividends, if any, from Westernbank, and the existing
restrictions on Westernbank's ability to pay dividends will continue in effect.

Indemnification. Westernbank's restated certificate of incorporation and
by-laws do not currently authorize the indemnification of directors and
officers. The Banking Law of Puerto Rico exempts directors of a bank from
personal liability for their acts as directors of a bank, provided the directors
comply with applicable laws, the bank's governing corporate documents, and any
stockholder resolutions. The Banking Law permits the bank to indemnify any
director, official, employee or agent of the bank unless that person is being
fined for violating a provision of the Banking Law. Under the Puerto Rico
General Corporations Law, the holding company's directors and officers are
liable if they knowingly cause to be published or give out any false written
statement or report with respect to any important matter regarding the business
or condition of the company. The holding company's certificate of incorporation
requires the holding company to indemnify any director, officer, employee or
agent of the holding company for liability and for the expenses incurred in
defending against such liability arising from actions taken in respect of his or
her position if such actions were taken in good faith and in a manner that he or
she reasonably believed to be in or not opposed to the best interests of the
holding company, or with respect to a criminal proceeding, if he or she had no
reasonable cause to believe that his or her action was unlawful. Under certain
circumstances, the holding company may also advance amounts to cover the
expenses or litigation. The holding company's certificate of incorporation also
contains provisions eliminating the personal liability of directors of the
holding company for monetary damages to the fullest extent permitted by the
Puerto Rico General Corporations Law.

Special Meetings of the Stockholders. Under Westernbank's restated
certificate of incorporation and by-laws, a special meeting of stockholders may
be called by the President or the Board of Directors if either is of the opinion
that such a meeting is necessary or by the request of stockholders representing
20% of the paid-in capital entitled to vote at the meeting. The holding
company's certificate of incorporation and by-laws provide that a special
meeting of stockholders may be called only by the President and the board of
directors of the holding company.
16
<PAGE> 19

Stockholder Action Without a Meeting. The Puerto Rico General Corporations
Law permits stockholders to take action in lieu of a meeting if the required
amount of stockholders necessary to approve such action consent to such action
in writing and such consent is filed in the designated office of the
corporation.

Stockholder Approval of Mergers and Appraisal Rights. Under Westernbank's
restated certificate of incorporation, the approval required for a merger or
consolidation is three-fourths of the outstanding voting capital stock. Under
the Puerto Rico General Corporations Law, the holding company can accomplish a
merger or consolidation or a transfer of all its assets with approval of the
holders of a majority of the issued and outstanding voting stock, and neither
the holding company's certificate of incorporation or by-laws provide for a
higher voting requirement. Under the Banking Law, holders of Westernbank's
outstanding capital stock who do not approve a merger or consolidation are
entitled to dissenters rights of appraisal. Under the Puerto Rico General
Corporations Law, holding company stockholders who do not approve a merger or
consolidation may also be entitled to appraisal rights.

Amendment of Restated Certificate of Incorporation and Bylaws. Under the
Banking Law, Westernbank may amend its restated certificate of incorporation if
such amendment is approved by the vote of the majority of its entire capital
stock and if such amendment is approved by the Office of the Commissioner of
Financial Institutions of Puerto Rico and is filed with the Department of State
of the Commonwealth of Puerto Rico. The restated certificate of incorporation of
Westernbank provides that in cases of amendments to Westernbank's restated
certificate of incorporation, of the increase or reduction of the paid in or
authorized capital, of changes in the par value or number of shares of capital
stock, of a change in the location of the principal office, of a change in or
extension of the term of existence of Westernbank as an artificial person, or
the dissolution of Westernbank, must be approved by two-thirds of the
outstanding voting capital stock of Westernbank. Westernbank's restated
certificate of incorporation also requires the affirmative vote of the holders
of at least two-thirds (or such higher amount as required by law) of the
aggregate liquidation preference associated with Westernbank's series A
preferred stock in connection with certain amendments affecting the powers,
preferences, rights, privileges, qualifications, limitations and restrictions of
the series A preferred stock or any parity stock. The by-laws of Westernbank may
be amended under the Banking Law by a majority vote of the capital stock of
Westernbank present at a general meeting of the stockholders of Westernbank if
more than one-half of the capital stock is present at such meeting. The holding
company's certificate of incorporation provides that the certificate of
incorporation may be amended in the manner provided in the certificate of
incorporation and the Puerto Rico General Corporations Law. The certificate of
incorporation of the holding company also requires the affirmative vote of the
holders of at least two-thirds (or such higher amount as required by law) of the
aggregate liquidation preference associated with the holding company's series A
preferred stock in connection with certain amendments affecting the powers,
preferences, rights, privileges, qualifications, limitations and restrictions of
the series A preferred stock or any parity stock. The Puerto Rico General
Corporations Law provides that a corporation may amend its certificate of
incorporation if the amendment is approved by the vote of the majority of its
entire capital stock entitled to vote and is filed with the Department of State
of the Commonwealth of Puerto Rico. The holding company's certificate of
incorporation and by-laws provide that the holding company's by-laws may be
amended by the board of directors or at any annual or special meeting of
stockholders in the manner provided in the Puerto Rico General Corporations Law.
Under the Puerto Rico General Corporations Law and the holding company's
certificate of incorporation and by-laws, this would require a majority of the
directors present at which a quorum is present or a majority of the outstanding
shares of voting capital stock present by person or proxy if a quorum is
present.

Notice of Stockholders Meeting. The Banking Law requires that notice of
the annual meeting be provided to stockholders of Westernbank at least thirty
days before the annual meeting, setting forth the hour, date and place of the
meeting, and that such notice be published twice a week for two consecutive
weeks immediately preceding the date of the meeting in two newspapers of general
circulation in Puerto Rico. Westernbank's by-laws provide that such notice be
published for four consecutive weeks. Westernbank's restated certificate of
incorporation requires that notices of special meetings of stockholders

17
<PAGE> 20

contain the same information as notices of regular annual meetings of
stockholders, but they shall also contain information in connection with the
reasons for the call to the meeting and in connection with the different matters
to be considered and voted upon at the meeting. The Puerto Rico General
Corporations Law and the holding company's certificate of incorporation require
that notice be sent to stockholders at least 10 days, but not more than 60 days,
prior to the date for a stockholder meeting. The Puerto Rico General
Corporations Law does not require that notices for a stockholders' meeting be
published in newspapers.

Board Committees. Westernbank's by-laws provide that Westernbank's board
of directors may, by resolution adopted by a majority of the full board, from
time to time appoint any number of committees composed of not less than three
directors. The Banking Law provides that the bank's board of directors may, by
resolution approved by the board, appoint one or more committees, each of which
shall be composed of at least one bank director. The Puerto Rico General
Corporations Law and the holding company's by-laws provide that the holding
company's board of directors may, by resolution adopted by a majority of the
board of directors, designate one or more committees, each one of which shall be
composed of one or more directors.

New Business at Annual Meetings. Westernbank's by-laws provide that any
new business to be taken up by a stockholder at an annual meeting shall be
stated in writing and filed with the Secretary of Westernbank at least 150 days
prior to the annual meeting. The holding company's by-laws also require that a
stockholder give notice at least 150 days prior to the annual meeting, and
further require that the stockholder include (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the holding company's books, of the stockholder proposing such
business, (c) the class and number of shares of holding company which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.

TAX CONSEQUENCES OF THE REORGANIZATION

[TO BE REVIEWED BY TAX COUNSEL.]

Puerto Rico Tax Consequences of the Reorganization

Westernbank filed a ruling request with the Secretary of Treasury of Puerto
Rico on , 1999 requesting the following rulings, among others,
in connection with the reorganization:

(1) that the reorganization, including the creation of the interim bank
and the merger of the interim bank into Westernbank, will be treated
as a tax-free reorganization under sections 1112(b)(3) and
1112(g)(1)(B)of the Puerto Rico Internal Revenue Code. The
reorganization will be considered as one in which the holding company
transfers shares of its voting stock to the holders of shares of
Westernbank's stock (other than dissenters) in exchange for the
shares of Westernbank's stock held by such holders on a one to one
basis;

(2) each of Westernbank, the interim bank and the holding company shall
constitute a "party to a reorganization" for purposes of section
1112(g)(3);

(3) that pursuant to sections 1112(b)(3), 1112(b)(4) and 1112(o) no gain
or loss will be recognized by Westernbank, the interim bank, the
holding company, or by Westernbank's stockholders upon the exchange
of shares of Westernbank's common stock and series A preferred stock
for the holding company's common stock and series A preferred stock;

(4) that pursuant to section 1114(a)(7), the basis of the holding company
common stock and/or series A preferred stock received by each
stockholder of Westernbank will be the same as the basis of the
shares of Westernbank's common stock and/or series A preferred stock
held by such stockholder immediately prior to the reorganization;

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<PAGE> 21

[(5) that the basis of Westernbank's common stock and series A preferred
stock owned by the holding company immediately after the
reorganization will be the same as the basis of those shares in the
hands of Westernbank's stockholders;]

(6) that pursuant to section 1112(b)(2) the holding period of the holding
company common stock and/or series A preferred stock received by each
stockholder of Westernbank will include the holding period of the
shares of Westernbank's common stock and/or series A preferred stock
held by such stockholder immediately prior to the reorganization;

[(7) that the holding period of the holding company in the shares of
Westernbank's common stock and series A preferred stock shall include
the period for which the previous owner of such shares held the
same;]

(8) that pursuant to section 1112(a), Westernbank stockholders who
exercise their rights as dissenters will have to recognize gain or
loss on the exchange of shares of stock for cash equal to the
difference between the amount of cash received and the adjusted basis
of their Westernbank stock surrendered in the exchange;

[(9) any income realized on the reorganization by "non-resident
shareholders" that exercise the "offshore option" shall constitute
income from sources without Puerto Rico under section 1123(e) and
pursuant to sections 1147 and 1150, no income tax withholding at the
source shall be required on any part of any payments or other
transfers made to, or in respect of, such stockholders;]

[(10) any income realized on the reorganization by any "non-resident
shareholders" that exercise the "offshore option" shall not be
subject to income tax if such stockholders are alien individuals and
such income is effectively connected with a trade or business in
Puerto Rico of such stockholders;] and

(11) before and after the reorganization, Westernbank will constitute one
and the same taxpayer with the same tax attributes.

There can be no assurance that the Secretary of the Treasury of Puerto Rico
will issue the rulings as requested by Westernbank. The reorganization cannot
take place unless Westernbank receives a ruling from the Secretary of the
Treasury of Puerto Rico or an opinion letter from , counsel to
Westernbank, regarding the Puerto Rico income tax consequences of the
reorganization.

United States Tax Consequences of the Reorganization

Consummation of the reorganization is expressly conditioned upon the
receipt by the Bank of either a favorable ruling from the United States Internal
Revenue Service or an opinion of counsel with respect to United States federal
income taxation to the effect that:

(1) the exchange by Westernbank's stockholders (other than United States
stockholders who own 5% or more of both the total voting power and the
total value of Westernbank's common stock) of Westernbank's common
stock and preferred stock, respectively, for the holding company's
common stock and preferred stock will not be a taxable transaction for
purposes of the United States Internal Revenue Code; and

(2) United States stockholders who own 5% or more of both the total voting
power and the total value of Westernbank's common stock and who are
Puerto Rico resident individuals for the entire taxable year in which
the reorganization occurs will be able to exclude from gross income for
federal income tax purposes any gain from the exchange of Westernbank's
common stock for the holding company common stock.

No private ruling has been requested from the United States Internal
Revenue Service with respect to the proposed reorganization. Instead, the Bank
will receive an opinion of its counsel, Hogan & Hartson L.L.P., a form of which
has been filed with the SEC as an exhibit to the Company's Registration

19
<PAGE> 22

Statement. The opinion of Hogan & Hartson L.L.P. will be based on the United
States Internal Revenue Code, the U.S. Treasury regulations promulgated under
the United States Internal Revenue Code and related administrative
interpretations and judicial decisions, all as in effect as of the effective
time of the reorganization, on the assumption that the reorganization takes
place as described in the plan of reorganization, and on representations to be
provided to Hogan & Hartson L.L.P. by the Bank that relate to the satisfaction
of specific requirements to a reorganization within the meaning of Section
368(a) of the United States Internal Revenue Code. Unlike private rulings, an
opinion of counsel is not binding on the United States Internal Revenue Service
and the United States Internal Revenue Service could disagree with conclusions
reached therein. In the event of such disagreement, there can be no assurance
that the United States Internal Revenue Service would not prevail in a judicial
or administrative proceeding.

United States stockholders who are not Puerto Rico resident individuals and
who own 5% or more of both the total voting power and the total value of
Westernbank's shares before the reorganization may not be subject to
current taxation under United States income tax laws if they comply with the
reporting requirement in section 6038B of the United States Internal Revenue
Code and enter into a gain recognition agreement with the Internal Revenue
Service. Pursuant to such gain recognition agreement, the 5% or more stockholder
would have to file an amended income tax return to recognize gain if the holding
company were to dispose of Westernbank within a certain period of time. The term
of the gain recognition agreement would be five years (if United States
stockholders own less than 50% of the total voting power and the total value of
the stock) or ten years (if United States stockholders own more than 50% of the
total voting power and the total value of the stock). If a stockholder does not
comply with these requirements, the stockholder will recognize gain on the
reorganization and incur a penalty of 25% of the gain recognized.

EACH WESTERNBANK STOCKHOLDER SHOULD CONSULT ITS TAX COUNSEL AS TO THE
SPECIFIC FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION, IF ANY, TO
THAT STOCKHOLDER. GAIN OR LOSS FOR UNITED STATES INCOME TAX PURPOSES MAY BE
RECOGNIZED IN THE CASE OF ANY WESTERNBANK STOCKHOLDER WHO RECEIVES PAYMENT IN
CASH FOR THE VALUE OF SHARES AS A RESULT OF THE EXERCISE OF RIGHTS AS A
DISSENTING STOCKHOLDER.

ACCOUNTING TREATMENT OF THE REORGANIZATION

[TO BE PROVIDED.]

REGULATORY APPROVALS

For the reorganization to occur, the holding company and Westernbank must
receive approvals from the Office of the Commissioner of Financial Institutions
of Puerto Rico and the Federal Deposit Insurance Corporation. In this section,
we refer to these approvals as the required regulatory approvals. In addition,
the holding company must file a notice with the Board of Governors of the
Federal Reserve System.

An application will be submitted to the Office of the Commissioner for
approval to establish the interim bank and to merge the interim bank into
Westernbank, and the holding company will apply to the Office of the
Commissioner to acquire the shares of Westernbank in the reorganization. In
reviewing these applications, the Office of the Commissioner will consider,
among other things, the financial and managerial resources of Westernbank, the
effect of the reorganization on depositors, creditors and stockholders of
Westernbank, and the public interest.

Westernbank also will file with the Federal Deposit Insurance Corporation
an application for approval of the merger of Westernbank and the interim bank.
We refer to that merger in this section as the bank merger. The bank merger is
subject to the approval of the Federal Deposit Insurance Corporation under the
federal Bank Merger Act and related Federal Deposit Insurance Corporation
regulations. The Federal Deposit Insurance Corporation will consider several
factors when reviewing the bank merger, including the competitive effects of the
transaction, the managerial and financial resources and future prospects of the
existing and resulting institutions, and the effect of the transaction on the
convenience and needs of the communities to be served. The Community
Reinvestment Act of 1977 also requires that the Federal Deposit Insurance
Corporation, in deciding whether to approve the bank merger, assess the records
of

20
<PAGE> 23

performance of Westernbank in meeting the credit needs of the communities it
serves, including low and moderate income neighborhoods.

Westernbank currently has a satisfactory Community Reinvestment Act rating
from the Federal Deposit Insurance Corporation. The Federal Deposit Insurance
Corporation regulations provide for publication of notice and an opportunity for
public comment on the bank merger application, and authorize the Federal Deposit
Insurance Corporation to hold an informal meeting or grant a request for a
hearing on an application if the Federal Deposit Insurance Corporation
determines that such a meeting or hearing is warranted. The regulations provide
that the Federal Deposit Insurance Corporation generally will grant a hearing
request only if it determines that written submissions would be insufficient or
that a hearing otherwise would be in the public interest. As part of the review
process, it is not unusual for the Federal Deposit Insurance Corporation to
receive protests and adverse comments from community groups and others. The
receipt by the Federal Deposit Insurance Corporation of comments on the
application, or a decision to hold a meeting or hearing, could prolong the
period during which the bank merger is subject to review by the Federal Deposit
Insurance Corporation. As of the date of this proxy statement/ prospectus,
Westernbank is not aware of any protests, adverse comments or requests for a
meeting or hearing filed with the Federal Deposit Insurance Corporation
concerning the bank merger. The bank merger may not take place for a period of
15 to 30 days following Federal Deposit Insurance Corporation approval, during
which time the United States Department of Justice has authority to challenge
the bank merger on antitrust grounds. The precise length of the period will be
determined by the Federal Deposit Insurance Corporation in consultation with the
United States Department of Justice.

The holding company also will file a notice with the Board of Governors of
the Federal Reserve System to become a bank holding company under the Bank
Holding Company Act of 1956. The notice will be filed under expedited procedures
that are available in the case of corporate reorganizations and that permit
consummation of the reorganization 30 days after the Board of Governors of the
Federal Reserve System receives the notice. The Board of Governors of the
Federal Reserve System retains the authority, however, to object to the notice
or to require the holding company to file an application for approval to become
a bank holding company.

Neither the holding company nor Westernbank is aware of any other
governmental approvals or actions that are required for the reorganization to
take place that are not described above. If any other approval or action is
required, Westernbank and the holding company presently contemplate that they
would seek such approval or action.

The reorganization cannot take place without the required regulatory
approvals, which we have not received yet. There is no assurance that we will
receive these approvals, and if we do, when we will receive them, or that the
Board of Governors of the Federal Reserve System will not object to the
establishment of the holding company as a bank holding company.

RIGHTS OF DISSENTING STOCKHOLDERS

Pursuant to the Banking Law of Puerto Rico, Westernbank's stockholders may
demand payment of the value of their shares of Westernbank's capital stock
instead of receiving holding company stock. A description of the dissenter's
rights of appraisal that are available to Westernbank's stockholders is
contained in Section 15(i) of the Banking Law, which is attached to this proxy
statement/prospectus as Appendix C.

A stockholder electing to make such a demand: must not vote in favor of the
plan of merger and reorganization; must record his or her opposition to the
reorganization at the time of the annual meeting or within 20 days after the
date of the annual meeting; and must demand payment for his or her shares. In
order to record opposition to the reorganization, a stockholder must provide
written notice to Westernbank, 19 West McKinley Street, Mayaguez, Puerto Rico
00680; Attn: Freddy Maldonado. Failure to vote against the plan of merger and
reorganization will not constitute a waiver of a stockholder's dissenter's
rights. If the reorganization takes place, the stockholder may, within 60 days
after the effective date of the reorganization and upon 10 days written notice
to Westernbank, petition the Court of First Instance,
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<PAGE> 24

Superior Section of San Juan of the Commonwealth of Puerto Rico for the
appointment of an appraiser who will estimate and determine the value of the
stockholder's shares. Stockholders who timely record their opposition to the
reorganization will not be notified of the effective date of the reorganization.
Upon due appointment and the completion of the valuation, the appraiser will
deliver to Westernbank, and to the stockholder upon demand, a copy of the
appraiser's report. All expenses incurred in determining the value of the shares
will be payable by Westernbank. Westernbank will pay the determined value set
forth in the report and the stockholder will cease to be a stockholder of
Westernbank or to have any interest in Westernbank.

1999 QUALIFIED STOCK OPTION PLAN AND 1999 NONQUALIFIED STOCK OPTION PLAN

At the annual meeting, the common stockholders of Westernbank will be asked
to approve Westernbank's 1999 Qualified Stock Option Plan and 1999 Nonqualified
Stock Option Plan. We refer to these two plans as the "1999 Stock Option Plans."
For more information about the 1999 Stock Option Plans, please see the section
of this proxy statement/prospectus captioned "Approval of the 1999 Stock Option
Plans." If the 1999 Stock Option Plans are approved at the Annual Meeting, then
once the holding company reorganization is complete, holding company common
stock will be issued instead of Westernbank common stock pursuant to the 1999
Stock Option Plans. Amendments to the 1999 Stock Option Plans to provide for the
foregoing will take effect as of the effective date of the reorganization. The
approval of the plan of merger and reorganization also will constitute
stockholder approval of amendments to the 1999 Stock Option Plans providing for
the future use of holding company common stock instead of Westernbank common
stock under that plan.

AMENDMENT OR TERMINATION OF THE PLAN OF MERGER AND REORGANIZATION

Termination. Each of the boards of directors of Westernbank, the holding
company or the interim bank may terminate the plan of merger and reorganization
at any time by written notice if it believes that:

- the number of shares of Westernbank common stock and/or Westernbank
series A preferred stock that voted against approval of the plan of
merger and reorganization or that have sought dissenter's rights is such
that the consummation of the merger is inadvisable, in the sole opinion
of the board of directors;

- any action, suit, proceeding, or claim is commenced or threatened or any
claim is made that could make completion of the merger, in the sole
opinion of the board of directors, inadvisable;

- it is likely that a regulatory approval, in the sole opinion of the board
of directors, will not be obtained, or if obtained, has or will contain
or impose a condition or requirement that would materially and adversely
affect the operations or business prospects of the holding company or
Westernbank following the effective date so as to render inadvisable the
completion of the merger; or

- any other reason exists that makes completion of the merger in the sole
opinion of the board of directors, inadvisable.

If the board of directors of Westernbank, the holding company or the interim
bank make such a determination, the plan of merger and reorganization provides
that it will be deemed void, and there will be no liability under or on account
of the termination on the part of Westernbank, the interim bank, the holding
company, or the directors, officers, employees, agents or stockholders or any of
them, except that Westernbank will pay the fees and expenses incurred by itself,
the interim bank and the holding company in connection with the transactions
contemplated in the plan of merger and reorganization. Completion of the merger
of the interim bank into Westernbank may be deferred by the board of directors
of Westernbank for a reasonable period of time if Westernbank's board of
directors determines, in its sole discretion, that the deferral would be in the
best interest of Westernbank and the stockholders of Westernbank.

Amendment. The plan of merger and reorganization may be amended by
Westernbank, the interim bank and the holding company, by action taken by or on
behalf of their respective boards of directors at
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<PAGE> 25

any time before or after approval of the plan of merger and reorganization by
their respective stockholders. However, after the stockholders of Westernbank,
the interim bank or the holding company have approved the plan of merger and
reorganization, no amendment, modification or waiver can affect the
consideration to be received by any party or their respective stockholders.

MARKET PRICE OF WESTERNBANK'S CAPITAL STOCK AND DIVIDENDS

Westernbank's common stock is traded on the Nasdaq Stock Market's National
Market Tier under the trading symbol WBPR. The table below sets forth the range
of high and low sales prices of Westernbank's common stock on the Nasdaq Stock
Market's National Market Tier as reported by Nasdaq for the dates specified and
the dividends per share paid for the periods indicated.

<TABLE>
<CAPTION>
HIGH AND LOW
SALES PRICES CASH
WESTERNBANK DIVIDENDS
COMMON STOCK PAID
--------------- ---------
HIGH LOW
------ ------
<S> <C> <C> <C>
Quarter Ended:
March 31, 1997......................................... $ 9.38 $ 7.07 --
June 30, 1997.......................................... 9.44 7.63 $0.045
September 30, 1997..................................... 9.25 7.63 --
December 31, 1997...................................... 12.38 9.13 0.045

March 31, 1998......................................... 15.38 15.00 --
June 30, 1998.......................................... 17.00 16.53 --
September 30, 1998..................................... 14.88 14.25 0.060
December 31, 1998...................................... 16.13 15.50 0.060
</TABLE>

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

On , 1999 (the most recent practicable date prior to the
printing of this proxy statement/prospectus), there were holders of
record of Westernbank's common stock, the high and low sales prices per share of
Westernbank's common stock on the Nasdaq Stock Market's National Market Tier
were $ and $ , respectively. On , 1999 (the date
prior to the announcement of the proposed reorganization), the high and low
sales prices per share of Westernbank's common stock on the Nasdaq Stock
Market's National Market Tier were $ and $ , respectively.

The holding company has applied to change the listing of Westernbank's
common stock on the Nasdaq Stock Market's National Market Tier to the holding
company's common stock and to list the holding company's series A preferred
stock on the Nasdaq Stock Market's National Market Tier under the symbols
and , respectively. At the present time, Westernbank owns
all of the holding company's capital stock, and there is no market for the
holding company's capital stock.

The holding company intends to follow Westernbank's policy of declaring and
paying a cash dividend semi-annually. The declaration and payment of future
dividends by the holding company on its common stock will depend upon its
earnings and financial condition and upon other factors that are not presently
determinable. After the reorganization takes place, it is anticipated that the
holding company will obtain the funds needed for payment of its dividends and
expenses from Westernbank, chiefly in the form of dividends. For more
information, please see the section of this proxy statement/prospectus captioned
"Proposed Reorganization into a Bank Holding Company -- Differences in
Stockholder Rights -- Payment of Dividends."

MANAGEMENT

After the reorganization takes place, the initial directors of the holding
company will be the current directors of Westernbank. Approval of the
reorganization by the holders of Westernbank's common stock and series A
preferred stock will be deemed to be a confirmation by the holding company's
stockholders of

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<PAGE> 26

those persons as the directors of the holding company without further action and
without changes in classes or terms.

Certain officers of Westernbank will hold similar positions with the
holding company. The names of these officers and their titles are set forth
below. After the reorganization takes place, these officers will continue to be
officers of the holding company.

<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Chairman of the Board, Chief Executive
Frank C. Stipes......................... Officer and President
Chief Financial Officer and Vice
Freddy Maldonado........................ President of Finance and Investment
Pedro R. Dominguez...................... First Vice President
Angel Luis Rosas........................ Secretary of the Board
</TABLE>

ADDITIONAL INFORMATION ABOUT WESTERNBANK

Westernbank is a Puerto Rico-chartered commercial bank, headquartered in
Mayaguez, Puerto Rico. Its deposits are insured by the Federal Deposit Insurance
Corporation. Originally founded as a mutual savings and loan association in
1958, Westernbank has operated as a full service commercial bank since 1994,
offering a broad range of banking products throughout Puerto Rico. As of the
date of this proxy statement/prospectus, Westernbank operates 36 branches,
including 26 in western Puerto Rico, 4 in northeastern Puerto Rico, 3 in
southern Puerto Rico, and 3 in the San Juan metropolitan area.

Historically, Westernbank's banking operations have focused on southwestern
Puerto Rico, with its operations primarily in the western region. Westernbank
has experienced substantial growth, with total assets increasing from $698.7
million at December 31, 1993 to $2.5 billion at December 31, 1998, and total
deposits increasing from $455.9 million at December 31, 1993 to $1.7 billion at
December 31, 1998. Westernbank's earnings during that period increased from $8.0
million for the year ended December 31, 1993 to $28.7 million for the year ended
December 31, 1998. Westernbank had net income of $28.7 million for the year
ended December 31, 1998. Since the beginning of 1993 through the date of this
proxy statement/prospectus, Westernbank has declared $17.2 million of dividends
to stockholders, and total stockholders' equity has increased from $50.2 million
at December 31, 1993 to $154.3 million at December 31, 1998.

Westernbank's current strategy is to open new branches in the more
developed metropolitan area of Puerto Rico including San Juan, Bayamon,
Carolina, Guaynabo and Caguas. Westernbank believes that the potential for
continued growth in these new market areas is significant. For example,
Westernbank opened two branches at year-end 1997 -- one in San Juan and one in
Caguas, and in mid 1998 one in Bayamon. In the year ended December 31, 1998,
Westernbank originated $258.0 million of loans through customer relationships at
these three new branches. In addition, these three new branches had $127.0
million of customer deposits at December 31, 1998.

Westernbank's interest earning assets are comprised primarily of loans and
investment and mortgage-related securities. At December 31, 1998, loans, net,
were $1.4 billion and investment securities held to maturity were $871.8
million. This compares to $779.8 million and $625.8 million, respectively, at
December 31, 1997. Westernbank's loan portfolio is comprised primarily of real
estate loans, including, at December 31, 1998, gross single family (one- to
four-family) residential loans of $398.2 million, commercial real estate loans
of $518.9 million and construction and land acquisition loans of $78.7 million.
This compares to gross single family residential loans of $223.8 million,
commercial real estate loans of $234.1 million and construction and land
acquisition loans of $29.8 million at December 31, 1997. Other loans of
Westernbank, which totaled $381.7 million and $309.3 million at December 31,
1998 and 1997, respectively, are comprised of commercial loans, deposit loans
and installment loans (including second mortgage, auto, credit card and other
consumer loans). At December 31, 1998, non-accrual loans totaled

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<PAGE> 27

$7.8 million, and Westernbank's total allowance for loan losses was $15.8
million, or 1.15% of gross loans and 203.03% of non-accrual assets at that date.

Westernbank's investment and mortgage related securities portfolio held to
maturity, which totaled $871.8 million and $625.8 million at December 31, 1998
and 1997, respectively, is comprised primarily of U.S. and Puerto Rico
government or agency securities, as well as mortgage-backed securities,
consisting mostly of Fannie Mae, Federal Home Loan Mortgage Corporation and
Government National Mortgage Corporation certificates.

Deposits in Westernbank are insured to the maximum extent provided by law
by the Federal Deposit Insurance Corporation. It also is a member of the Federal
Home Loan Bank System. Westernbank is subject to examination and comprehensive
regulation by the Federal Deposit Insurance Corporation and the Office of the
Commissioner of Financial Institutions of Puerto Rico, and is subject to the
regulations of the Puerto Rico Financial Board with respect to the use of rates
and fees charged on certain loans to individuals, and to the regulations of the
Puerto Rico Treasury Department.

Westernbank's executive offices are located at 19 West McKinley Street,
Mayaguez, Puerto Rico; its telephone number is (787) 834-8000; its Internet
e-mail address is [email protected]; and its home page on the Internet World
Wide Web is at: http//www.wbpr.com.

MARKET AREA AND COMPETITION

Puerto Rico is the main service area of Westernbank, accounting for all of
Westernbank's earnings. The Puerto Rico banking market is highly competitive. In
addition, Westernbank competes with brokerage firms with retail operations,
credit unions, cooperatives, small loan companies, mortgage banks and savings
institutions in Puerto Rico.

Westernbank encounters intense competition in attracting and retaining
deposits and in its consumer and commercial lending. Westernbank competes for
loans with other financial institutions, some of which are larger and have
available resources greater than those of Westernbank. There can be no assurance
that in the future Westernbank will be able to continue to increase its deposit
base or originate loans in the manner or on the terms on which it has done so in
the past.

Management believes that Westernbank has been able to compete effectively
for deposits and loans by offering a variety of transaction account products and
loans with competitive features, by pricing its products at competitive interest
rates and by offering convenient branch locations and emphasizing the quality of
its service. Westernbank's ability to originate loans depends primarily on the
rates and fees charged and the service it provides to its borrowers in making
prompt determinations as to whether it will fund particular loan requests.

BRANCHES AND OFFICES

As of December 31, 1998, Westernbank owned one main office premises and 19
other premises for branches and other operations. In addition, as of December
31, 1998, Westernbank leased in Puerto Rico 34 premises for branches and other
operations. All these premises are located in Puerto Rico. Management believes
that Westernbank's properties are well maintained and are suitable for
Westernbank's business as presently conducted. For a list of the properties
owned and leased by Westernbank, see Appendix D to this proxy
statement/prospectus.

PRINCIPAL SHAREHOLDERS OF WESTERNBANK

For information in connection with the beneficial ownership of the capital
stock of Westernbank please refer to the "Beneficial Ownership of Securities"
section of this proxy statement/prospectus.

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<PAGE> 28

ADDITIONAL INFORMATION ABOUT THE HOLDING COMPANY

The holding company was incorporated on February 17, 1999 under the General
Corporations Law of Puerto Rico as a wholly owned subsidiary of Westernbank to
serve as a bank holding company in the reorganization and, therefore, the
holding company has no prior operating history. Its principal office is located
at 19 West McKinley Street, Mayaguez, Puerto Rico; its telephone number is (787)
834-8000.

The holding company is authorized to issue 300,000,000 shares of common
stock, par value $1.00 per share, and 20,000,000 shares of preferred stock, par
value $1.00 per share. Westernbank currently owns shares of the
holding company's common stock, which will constitute all of the issued and
outstanding capital stock of the holding company immediately prior to the
reorganization. On the effective date of the reorganization, all of the stock
held by Westernbank will be canceled.

Immediately before the reorganization takes place, the holding company will
own the original issue of 1,000 shares of the interim bank's common stock. On
the effective date of the reorganization, each of those shares held by the
holding company will be converted into 1,000 shares of Westernbank's common
stock and the holding company will own all of the outstanding capital stock of
Westernbank.

DESCRIPTION OF THE HOLDING COMPANY'S CAPITAL STOCK

The following summary of the terms of the capital stock of the holding
company does not purport to be complete and is subject in all respects to the
applicable provisions of the laws of Puerto Rico and the certificate of
incorporation and by-laws of the holding company which are attached to this
proxy statement/prospectus at Appendix B.

Holding Company Common Stock. The holders of the holding company's common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. Each share of holding company common stock
has the same relative rights as, and is identical in all respects to, each other
share of holding company common stock. The holding company's board of directors
can issue preferred stock with voting and conversion rights which could
adversely affect the voting power of the common stockholders without stockholder
approval. See "Holding Company Preferred Stock" below.

Subject to the rights of holders of any outstanding shares of preferred
stock, in the event of the liquidation, dissolution or distribution of assets of
the holding company, the holders of holding company common stock are entitled to
share ratably in the assets of the holding company legally available for
distribution to stockholders. The holding company common stock has no
redemption, conversion or sinking fund privileges, or preemptive rights to
subscribe for other shares issued by the holding company.

Subject to any dividend preferences which may be established for preferred
stock, the holders of holding company common stock are entitled to receive, pro
rata, dividends when, as and if declared by the board of directors out of funds
legally available therefor. The shares of holding company common stock and
series A preferred stock to be issued as part of the reorganization when issued
will be duly authorized, validly issued, fully paid and nonassessable.
Westernbank's transfer agent, The Bank of New York, will act as transfer agent,
conversion agent, registrar and dividend disbursement agent for the holding
company's common stock.

Holding Company Preferred Stock. The holding company's certificate of
incorporation authorizes its board of directors to provide, when it deems
necessary, for the issuance of shares of preferred stock in one or more series,
with such voting powers, full or limited, but not to exceed ten votes per share,
or without voting powers; and with such designations, powers, preferences,
rights, qualifications, limitations or restrictions thereof, as expressed in the
resolution or resolutions of the board of directors of Westernbank, authorizing
the issuance of such preferred stock, including the following: (1) the
designation of such series; (2) the dividend rate of such series, the conditions
and dates upon which the dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any other class or
classes of capital stock of the holding company, and whether such dividends
shall be cumulative or non-cumulative; (3) whether the shares of such series
shall be subject to redemption by the holding company, and if made subject to
such redemption, the terms and conditions of such redemption; (4) the
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<PAGE> 29

terms and amount of any sinking fund provided for the purchase or redemption of
the shares of such series; (5) whether the shares of such series shall be
convertible and if provision be made for conversion, the terms of such
conversion; (6) the extent, if any, to which the holders of such shares shall be
entitled to vote; provided, however, that in no event, shall any holder of any
series of preferred stock be entitled to more than ten votes for each such
share; (7) the restrictions and conditions, if any, upon the issue or re-issue
of any additional preferred stock ranking on a parity with or prior to such
shares as to dividends or upon dissolution; and (8) the rights of the holders of
such shares upon dissolution of, or upon distribution of assets of, the holding
company, which rights may be different in the case of a voluntary dissolution.

The holders of holding company common stock may be adversely affected since
preferred stock issued in the future may be designated with special rights or
preference by the board of directors over holders of holding company common
stock as to dividends, liquidation rights and voting rights (for example, a
separate class right to approve a merger or sale of substantially all the assets
of the holding company and other matters). The issuance of preferred stock under
certain circumstances may also have the effect of delaying or preventing a
change in control of the holding company.

Holding Company Series A Preferred Stock.

General. In June 1998, Westernbank issued 1,219,000 shares of 7.125%
Non-Cumulative, Convertible Preferred Stock, 1998 Series A, liquidation
preference $25 per share. The holding company is authorized to issue 1,219,000
shares of the holding company's 7.125% Non-Cumulative, Convertible Preferred
Stock, Series A, liquidation preference $25 per share, which stock has identical
rights and preferences to Westernbank's series A preferred stock.

When issued, the series A preferred stock will be validly issued, fully
paid and non-assessable. The holders of the series A preferred stock will have
no preemptive rights with respect to any shares of the capital stock of the
holding company or any other securities of the holding company convertible into
or carrying rights or options to purchase any such shares. The series A
preferred stock will not be subject to any sinking fund or other obligation of
the holding company for their repurchase or retirement.

Westernbank's transfer agent, The Bank of New York, will act as transfer
agent, conversion agent, registrar and dividend disbursement agent for the
holding company's series A preferred stock.

Dividends. Holders of series A preferred stock shall be entitled to
receive when, as and if declared by the board of directors of the holding
company out of assets of the holding company legally available therefor,
non-cumulative cash dividends accruing from the original date of issuance at the
annual rate per share of 7.125% of the $25 liquidation preference (equivalent to
$1.78125 per share per annum). If declared, such dividends shall be payable
monthly in arrears on the 15th day of each month of each year at such annual
rate. Dividends in each dividend period will accrue from the first day of such
period, whether or not declared or paid for the prior dividend period (except
that the first monthly dividends payable after the original date of issuance
shall accrue from the original date of issuance). Each declared monthly dividend
shall be payable to holders of record as they appear at the close of business on
the stock register of the holding company on such record dates, not exceeding 45
days preceding the payment dates thereof, as shall be fixed by the board of
directors of the holding company. The amount of monthly dividends paid for any
monthly dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. The amount of monthly dividends payable for
any period shorter than a full monthly dividend period will be computed on the
basis of the actual number of days elapsed in such period.

The right of holders of series A preferred stock to receive monthly
dividends is non-cumulative. Accordingly, if the board of directors of the
holding company fails to declare a monthly dividend for a dividend period, then
holders of the series A preferred stock will have no right to receive a monthly
dividend for that period, and the holding company will have no obligation to pay
a monthly dividend for that period, or to pay any interest thereon, whether or
not dividends are declared and paid for any future period with respect to either
the series A preferred stock or the holding company's common stock.

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<PAGE> 30

If all monthly dividends due and payable for each of the 12 previous
monthly dividend periods (or such fewer dividend periods as there actually are)
shall not have been declared and paid, or declared and a sum sufficient for the
payment thereof shall not have been set apart for such payments, or the holding
company has defaulted on the payment of the redemption price of any series A
preferred stock called for redemption, no dividends shall be declared or paid or
set aside for payment and no other distribution shall be declared or made or set
aside for payment upon the holding company's common stock or any other capital
stock of the holding company ranking junior to the series A preferred stock as
to dividends or amounts upon liquidation, nor shall any holding company common
stock or any other capital stock of the holding company ranking junior to the
series A preferred stock as to dividends or amounts upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any monies
to be paid to or made available for a sinking fund for the redemption of any
such stock) by the holding company (except by conversion into or exchange for
other capital stock of the holding company ranking junior to the series A
preferred stock as to dividends and amounts upon liquidation).

When monthly dividends and dividends upon any one or more series of the
holding company's preferred stock ranking on a parity with the series A
preferred stock as to dividends or the distribution of assets upon liquidation
are not paid in full (or a sum sufficient for such full payment is not set
apart), all dividends declared upon the series A preferred stock and any parity
stock shall be declared pro rata so that the amount of monthly dividends and
dividends upon such other series of capital stock shall in all cases bear to
each other the same ratio that such full monthly dividends, for the then-current
dividend period (which shall not include any accumulation in respect of unpaid
monthly dividends for prior dividend periods) and full dividends, including
required or permitted accumulations, if any, on such other series of capital
stock, bear to each other.

Subject to any applicable laws and regulations, each monthly dividend
payment will be made by U.S. Dollar check drawn on a bank in New York, New York
or San Juan, Puerto Rico and mailed to the record holder thereof at such
holder's address as it appears on the register for the series A preferred stock.

For a discussion of the tax treatment of distributions to stockholders,
please see the sections of this proxy statement/prospectus captioned "Taxation,"
"Puerto Rico Taxation," and "United States Taxation," and for a discussion of
certain potential regulatory limitations on the holding company's ability to pay
dividends, please see the section of this proxy statement/prospectus captioned
"Risk Factors -- Dividend and Other Regulatory Restrictions on Operations of the
Holding Company and Westernbank" and "Supervision and Regulation."

Conversion. At any time on or after 90 days after the original date of
issuance, unless previously redeemed, any holder of record of the series A
preferred stock may convert, at its option, any outstanding share of the series
A preferred stock owned by such holder into .995 shares (subject to adjustment
upon certain events) of fully paid and non-assessable holding company common
stock (calculated as to each conversion to the nearest 1/100th of a share) for
each share of series A preferred stock. The per share conversion ratio equates
to a price of $25.126 per share of holding company common stock. The right to
convert a share of the series A preferred stock called for redemption will
terminate at the close of business on the fifth business day immediately prior
to the date fixed for redemption for such share, unless the holding company
fails to pay the applicable redemption price. The conversion ratio per share of
series A preferred stock is subject to adjustment upon certain events, including
(a) the issuance of holding company common stock as a dividend or distribution
with respect to the outstanding holding company common stock, (b) subdivisions
of the holding company common stock, (c) the issuance to holders of holding
company common stock of rights or warrants to subscribe for holding company
common stock at less than the then-current market price, (d) the distribution to
holders of holding company common stock of any shares of capital stock of the
holding company (other than holding company common stock) or evidences of
indebtedness or assets (excluding cash dividends or distributions paid from
retained earnings), or rights or warrants to subscribe for securities of the
holding company other than those described above, (e) any distribution
consisting exclusively of cash (excluding any cash portion of distributions
referred to in (d) above, or cash distributed upon a merger or consolidation
that results in a reclassification, change, conversion, exchange or cancellation
of outstanding shares of holding company common stock) to all or
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substantially all holders of holding company common stock in an aggregate amount
that, combined together with (i) all other such all-cash distributions made
within the then preceding 12 months in respect of which no adjustment has been
made and (ii) any cash and the fair market value of other consideration paid or
payable in respect of any tender or exchange offer by the holding company or any
of its subsidiaries for holding company common stock concluded within the
preceding 12 months in respect of which no adjustment has been made, exceeds 15%
of the holding company's market capitalization (defined as being the product of
the then current market price of the holding company common stock times the
number of shares of holding company common stock then outstanding) on the record
date of such distribution, and (f) the completion of a tender or exchange offer
made by the holding company or any of its subsidiaries for holding company
common stock that involves an aggregate consideration that, together with (i)
any cash and other consideration payable in a tender or exchange offer by the
holding company or any of its subsidiaries for holding company common stock
expiring within the 12 months preceding the expiration of such tender or
exchange offer in respect of which no adjustment has been made and (ii) the
aggregate amount of any such all-cash distributions referred to in (e) above to
all holders of holding company common stock within the 12 months preceding the
expiration of such tender or exchange offer in respect of which no adjustments
have been made, exceeds 15% of the holding company's market capitalization on
the expiration of such tender offer. No adjustments in the conversion ratio will
be required, however, unless the adjustment would require a change of at least
one percent in the conversion ratio. Each adjustment of less than one percent in
the conversion ratio will be carried forward and taken into account in any
subsequent adjustment. The adjustment will be made not later than such time as
may be required in order to preserve the tax-free nature of a distribution to
the holders of shares of holding company common stock. The holding company will
be entitled to make such reductions in the conversion ratio, in addition to
those required by the provisions described above, as it in its discretion may
determine to be advisable in order that certain stock related distributions
which may be made by the holding company to its stockholders will not be
taxable.

No fractional shares of holding company common stock will be issued upon
conversion of series A preferred stock. Any fractional interest in a share of
holding company common stock resulting from a conversion of a share of series A
preferred stock will be paid in cash based on the closing price of holding
company common stock on the trading day immediately preceding the day of
conversion.

Conversion of series A preferred stock will be effected by surrendering
certificates evidencing such shares, together with a proper assignment of the
certificates to the holding company or in blank, to the office or agency to be
maintained by the holding company for that purpose. In case fewer than all the
shares represented by any such certificate are converted, a new certificate
shall be issued representing the unconverted shares without cost to the holder
thereof.

In case of any reclassification or change of outstanding shares of holding
company common stock (other than a change in par value, or as a result of a
subdivision or combination), or in case of any consolidation of the holding
company with, or merger of the holding company with or into, any other entity
that results in a reclassification, change, conversion, exchange or cancellation
of outstanding shares of holding company common stock or any sale or transfer of
all or substantially all of the assets of the holding company, each holder of
series A preferred stock then outstanding will have the right thereafter to
convert its series A preferred stock into the kind and amount of securities,
cash and other property that the holder would have been entitled to receive if
the holder had held the holding company common stock issuable upon the
conversion of the series A preferred stock immediately prior to such
reclassification, change, consolidation, merger, sale or transfer.

In the event that the holding company consummates any consolidation or
merger or similar business combination, pursuant to which the outstanding shares
of holding company common stock are by operation of law exchanged solely for or
changed, reclassified or converted into stock, securities or cash or any other
property, or any combination thereof, the series A preferred stock will, in
connection with such consolidation, merger or similar business combination, be
assumed by and become preferred stock of such successor or resulting
corporation, having in respect of such corporation, insofar as possible, the
same powers, preferences and relative rights, and the qualifications,
limitations or restrictions thereon, that the
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series A preferred stock had immediately prior to such transaction, except that
after such transaction each share of series A preferred stock will be
convertible on the terms and conditions described above, into the nature and
kind of consideration so receivable by a holder of the number of shares of
holding company common stock into which such series A preferred stock could have
been converted immediately prior to such transaction. If by virtue of the
structure of such transaction, however, a holder of holding company common stock
is required to make an election with respect to the nature and kind of
consideration to be received in such transaction, which election cannot
practicably be made by the holder of the series A preferred stock, then the
series A preferred stock, by virtue of such transaction and on the same terms as
apply to the holders of holding company common stock, will be converted into or
exchanged for the aggregate amount of stock, securities, cash or other property
(payable in kind) receivable by a holder of the number of shares of holding
company common stock into which such series A preferred stock could have been
converted immediately prior to such transaction if the holder of holding company
common stock failed to exercise any rights of election. The rights of the series
A preferred stock as preferred stock of the successor or resulting corporation
will successively be subject to adjustment after any such transaction as nearly
equivalent as practicable to the adjustments in existence prior to such
transaction. The holding company will not consummate any such merger,
consolidation or similar transaction unless all then outstanding series A
preferred stock will be assumed and authorized by the successor or resulting
corporation as provided above.

Upon conversion of series A preferred stock, no monthly dividends will be
due or payable for any period unless previously declared, but not yet paid.

Voting Rights. Except as expressly required by applicable law, or except
as indicated below, the holders of the series A preferred stock will not be
entitled to receive notice of, or attend or vote at, any meeting of the
stockholders of the holding company.

If at the time of any annual meeting of the holding company's stockholders
for the election of directors, the holding company has failed to pay or declare
and set aside for payment a monthly dividend on the series A preferred stock for
each of the 18 preceding monthly dividend periods, the number of directors then
constituting the board of directors of the holding company shall be increased by
one (if not already increased by one due to a default in preference dividends),
and at such annual meeting the holders of the series A preferred stock, along
with the holders of any other series of holding company preferred stock which
may have voting rights due to the holding company's failure to pay dividends,
will be entitled to elect such additional director to serve on the holding
company's board of directors. Such director elected by the holders of the series
A preferred stock and any other holding company preferred stock shall continue
to serve as director until the earlier of (i) the full term for which he or she
shall have been elected, or (ii) the payment of 12 monthly dividends on the
series A preferred stock.

Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the affirmative vote or consent of the holders of
at least two-thirds of the aggregate liquidation preference of the series A
preferred stock and of the shares of any parity stock at the time outstanding,
given in person or by proxy, either in writing or by a vote at a meeting called
for the purpose at which the holders of series A preferred stock and any such
other series of parity stock shall vote together as a single class without
regard to series, shall be necessary for authorizing, effecting or validating
any variation or abrogation of the powers, preferences, rights, privileges,
qualifications, limitations and restrictions of the series A preferred stock or
any such other series of parity stock by way of amendment, alteration or repeal
of any of the provisions of the certificate of incorporation of the holding
company, or of any amendment or supplement thereto, or otherwise (including any
certificate of amendment or any similar document relating to any series of
holding company preferred stock). Notwithstanding the foregoing, the holding
company may, without the consent or sanction of the holders of series A
preferred stock, authorize or issue shares of the holding company ranking, as to
dividend rights and rights on liquidation, winding up and dissolution, on a
parity with or junior to the series A preferred stock.

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of the series A preferred stock and any other series of parity stock at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of series A preferred stock
and any such other series of parity stock shall vote together as a single class
without regard to series, shall be necessary to create, authorize or issue, or
reclassify any authorized stock of the holding company into, or create,
authorize or issue any obligation or security convertible into or evidencing a
right to purchase, any shares of any class of stock of the holding company
ranking prior to both the series A preferred stock and any other series of
parity stock. Subject to the foregoing, the holding company's certificate of
incorporation may be amended to increase the number of authorized shares of
holding company preferred stock without the vote of the holders of holding
company preferred stock, including the series A preferred stock.

No vote of the holders of the series A preferred stock and any other series
of parity stock will be required for the holding company to redeem or purchase
and cancel the series A preferred stock in accordance with the certificate of
incorporation of the holding company.

Redemption. The series A preferred stock will not be redeemable prior to
July 1, 2002. On or after such date, the series A preferred stock will be
redeemable at the option of the holding company, in whole or in part, at any
time or from time to time on not less than 30 nor more than 60 days' notice by
mail, at the following redemption prices, if redeemed during the 12-month period
beginning July 1 of the years indicated below, plus the accrued and unpaid
dividends, if any, for the then-current dividend period to the date of
redemption:

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002........................................................ $26.00
2003........................................................ $25.75
2004........................................................ $25.50
2005........................................................ $25.25
2006 and thereafter......................................... $25.00
</TABLE>

In the event that less than all of the outstanding shares of the series A
preferred stock are to be redeemed at the option of the holding company, the
total number of shares to be redeemed in such redemption shall be determined by
the board of directors of the holding company and the shares to be redeemed
shall be allocated pro rata or by lot as may be determined by the board of
directors of the holding company or by such other method as the board of
directors of the holding company may approve and deem fair and appropriate,
including any method to conform to any rule or regulation of any national or
regional stock exchange or automated quotation system upon which the shares of
the series A preferred stock may at the time be listed or eligible for
quotation; provided that, the shares of a holder must be redeemable in full
unless the holding company obtains a ruling from the Puerto Rico Treasury
Department or an opinion from reputable counsel knowledgeable in Puerto Rico
income tax matters to the effect that the redemption in part of the holder's
shares is not equivalent to a dividend under Puerto Rico law.

Notice of any redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed
for redemption to each holder of record of the series A preferred stock to be
redeemed, at the respective addresses appearing on the stock books of the
holding company. Notice so mailed shall be conclusively presumed to have been
duly given whether or not actually received, and failure to duly give such
notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of series A preferred stock. Such notice
shall state: (i) the date fixed for redemption; (ii) the redemption price; (iii)
the number of shares of series A preferred stock to be redeemed and, if less
than all the shares held by such holder are to be redeemed, the number of such
shares to be so redeemed from such holder; (iv) the place where certificates for
such shares are to be surrendered for payment of the redemption price; and (v)
that after such date fixed for redemption the shares to be redeemed shall not
accrue dividends. If such notice is mailed as aforesaid, and if on or before the
date fixed for redemption funds sufficient to redeem the shares called for
redemption are set aside by the holding company in trust

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for the account of the holders of the shares to be redeemed, notwithstanding the
fact that any certificate for shares called for redemption shall not have been
surrendered for cancellation, on and after the date fixed for redemption the
shares represented thereby so called for redemption shall be deemed to be no
longer outstanding, dividends thereon shall cease to accrue, and all rights of
the holders of such shares as stockholders of the holding company shall cease,
except the right to receive the redemption price, without interest, upon
surrender of the certificate representing such shares. Upon surrender in
accordance with the aforesaid notice of the certificate for any shares so
redeemed (duly endorsed or accompanied by appropriate instruments of transfer,
if so required by the holding company in such notice), the holders of record of
such shares shall be entitled to receive the redemption price, without interest.
In case fewer than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.

At its option, the holding company may, on or prior to the date fixed for
redemption, irrevocably deposit the aggregate amount payable upon redemption of
the shares of the series A preferred stock to be redeemed with a bank or trust
company designated by the holding company having its principal office in New
York, New York; San Juan, Puerto Rico, or any other city in which the holding
company shall at that time maintain a transfer agent with respect to its capital
stock, and having a combined capital surplus (as shown by its latest published
statement) of at least $50,000,000, to be held in trust by such depository for
payment to the holders of the series A preferred stock to be redeemed. If such
deposit is made and the funds so deposited are made immediately available to the
holders of the series A preferred stock to be redeemed, the holding company
shall thereupon be released and discharged (subject to the provisions described
in the next paragraph) from any obligation to make payment of the amount payable
upon redemption of the series A preferred stock to be redeemed, and the holders
of such shares shall look only to the depository for such payment.

Any funds remaining unclaimed at the end of two years from and after the
date fixed for redemption in respect of which such funds were deposited shall be
returned to the holding company forthwith and thereafter the holders of the
series A preferred stock called for redemption with respect to which such funds
were deposited shall look only to the holding company for the payment of the
redemption price thereof. Any interest accrued on any funds deposited with the
depository shall belong to the holding company and shall be paid to it from time
to time on demand.

Any of the series A preferred stock which shall at any time have been
redeemed shall, after such redemption, have the status of authorized but
unissued preferred shares, without designation as to series, until such shares
are once more designated as part of a particular series by the board of
directors of the holding company.

The redemption of the series A preferred stock will be subject to the prior
approval of the Board of Governors of the Federal Reserve System.

Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation of the holding company, the holders of the series A preferred stock
at the time outstanding will be entitled to receive out of assets of the holding
company available for distribution to stockholders, before any distribution of
assets is made to holders of holding company common stock or any other class of
stock ranking junior to the series A preferred stock upon liquidation,
liquidating distributions in the amount of $25 per share of series A preferred
stock, plus the accrued and unpaid dividends, if any, for the then-current
dividend period to the date of payment.

After payment of the full amount of the liquidating distributions to which
they are entitled, the holders of series A preferred stock will have no right or
claim to any of the remaining assets of the holding company. In the event that,
upon any such voluntary or involuntary liquidation, the available assets of the
holding company are insufficient to pay the amount of the liquidation
distributions on all outstanding series A preferred stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
holding company ranking on a parity with the series A preferred stock in the
distribution of assets upon liquidation, then the holders of the series A
preferred stock and such other classes or series of

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capital stock shall share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be entitled.

For these purposes, the consolidation or merger of the holding company with
or into any other entity, or the sale, lease or conveyance of all or
substantially all of the property or business of the holding company, shall not
be deemed to constitute a liquidation of the holding company.

Rank. The series A preferred stock will, with respect to dividend rights
and rights on liquidation, rank (i) senior to all classes of holding company
common stock and to all other equity securities issued by the holding company,
the terms of which specifically provide that such equity securities will rank
junior to the series A preferred stock (or to all series of holding company
preferred stock in general); (ii) on a parity with all parity stock; and (iii)
junior to all equity securities issued by the holding company, the terms of
which specifically provide that such equity securities will rank senior to the
series A preferred stock (or to all series of holding company preferred stock in
general). For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.

The holding company may not issue shares of the holding company ranking, as
to dividend rights or rights on liquidation, senior to the series A preferred
stock except with the consent of the holders of at least two-thirds of the
aggregate liquidation preference of the series A preferred stock and any series
of parity stock at the time outstanding. See "Voting Rights" above.

RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY

Certain provisions of the holding company's certificate of incorporation
and by-laws may have the effect of discouraging unilateral tender offers or
other attempts to take over and acquire the business of the holding company. The
following discussion is a general summary of those provisions of the holding
company's certificate of incorporation and by-laws which might be deemed to have
a potential "anti-takeover" effect. Reference should be made in each case to the
holding company's certificate of incorporation and by-laws which are attached to
this proxy statement/prospectus at Appendix B.

Classified Board of Directors. The holding company's certificate of
incorporation provides that the holding company's board of directors shall be
divided into three classes of approximately equal numbers of directors, with the
term of office of one class expiring each year. This provision will provide a
greater likelihood of continuity, knowledge and experience on the holding
company's board of directors because at anyone time, one third of the board of
directors would be in its second year of service and one third of the board of
directors would be in its third year of service. In addition, this provision
would cause any person who may attempt to take over the holding company to have
to deal with the current board of directors because even if that person owns a
majority of the outstanding voting shares of the holding company, that person
would be unable to change the majority of the board of directors at any one
annual meeting.

Vacancies on the Board of Directors. The holding company's certificate of
incorporation and by-laws provide that any vacancy occurring in the board of
directors (including an increase in the number of authorized directors) may be
filled by the affirmative vote of a majority of the directors then in office,
though less than a quorum of the board of directors. A director elected to fill
a vacancy shall serve for the remainder of the term to which the director has
been elected and until such director's successor shall have been elected and
qualified.

Amendment of Certificate of Incorporation and Bylaws. The holding
company's certificate of incorporation provides that the certificate of
incorporation may be amended in the manner provided in the certificate of
incorporation and the Puerto Rico General Corporations Law. The certificate of
incorporation of the holding company also requires the affirmative vote of the
holders of at least two-thirds (or such higher amount as required by law) of the
aggregate liquidation preference associated with the holding company's series A
preferred stock in connection with certain amendments affecting the powers,
preferences, rights, privileges, qualifications, limitations and restrictions of
the series A preferred stock or any parity stock. The Puerto Rico General
Corporations Law provides that a corporation may amend its certificate of
incorporation if the amendment is approved by the vote of the majority of its
entire capital

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stock entitled to vote and is filed with the Department of State of the
Commonwealth of Puerto Rico. The holding company's certificate of incorporation
and by-laws provide that the holding company's by-laws may be amended by the
board of directors or at any annual or special meeting of stockholders in the
manner provided in the Puerto Rico General Corporations Law. Under the Puerto
Rico General Corporations Law and the holding company's certificate of
incorporation and by-laws, this would require a majority of the directors
present at which a quorum is present or a majority of the outstanding shares of
voting capital stock present by person or proxy if a quorum is present.

For restrictions on acquisitions of the holding company imposed by law or
regulation, please see the section of this proxy statement/prospectus captioned
"Supervision and Regulation -- Acquisition of the Holding Company," below.

TAXATION OF HOLDING COMPANY STOCK

[TO BE REVIEWED BY TAX COUNSEL.]

THIS SECTION IS NOT TO BE CONSTRUED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING. HOLDERS OF SERIES A PREFERRED STOCK ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING THE
APPLICATION AND EFFECT OF OTHER TAX LAWS AND ANY POSSIBLE CHANGES IN THE TAX
LAWS AFTER THE DATE OF THIS PROXY STATEMENT/ PROSPECTUS.

The following discussion is a summary of the material Puerto Rico and U.S.
federal tax considerations that may be relevant to stockholders of the holding
company. The discussion in connection with the Puerto Rico tax considerations is
based on the current provisions of the Puerto Rico Internal Revenue Code of
1994, as amended, which is referred to in this section and the following
sections as the "Puerto Rico Code", and the related regulations, which are
referred to in this section and the following sections as the "Puerto Rico Code
Regulations", the Puerto Rico Municipal Property Tax Act of 1991, as amended,
which is referred to in this section and the following sections as the "MPTA",
and the related regulations, and the Municipal License Tax Act, as amended,
which is referred to in this section and the following sections as the "MLTA"),
and the related regulations. The U.S. federal tax discussion is based on the
current provisions of the United States Internal Revenue Code of 1986, as
amended, which is referred to in this section and the following sections as the
"U.S. Code" and the related regulations, which are referred to in this section
and the following sections as the "U.S. Code Regulations".

This discussion assumes that stockholders will be individuals who are bona
fide residents of Puerto Rico during the entire taxable year for purposes of
Section 933 of the Code, who will be referred to in this section and the
following sections as "Puerto Rico Individuals", or corporations and
partnerships organized under the laws of the Commonwealth of Puerto Rico or a
jurisdiction other than the U.S., a State of the U.S. or the District of
Columbia, excluding corporations and partnerships having in effect an election
and qualifying as corporations of individuals or special partnerships under the
Puerto Rico Code or subject to any other special tax regime under the Puerto
Rico Code or the U.S. Code, who will be referred to in this section as the
"Puerto Rico Persons," and jointly with the Puerto Rico Individuals, the "Puerto
Rico Investors." This discussion also assumes that the Puerto Rico Persons will
not be subject at any time to the provisions of the U.S. Code with respect to
controlled foreign corporations, passive foreign investment companies or foreign
personal holding companies. Accordingly, this discussion does not purport to
deal with all aspects of Puerto Rico and U.S. federal taxation that may be
relevant to other types of investors, particular investors in light of their
investment circumstances or certain types of investors subject to special
treatment under the Puerto Rico Code or the U.S. Code (i.e., banks, insurance
companies or tax-exempt organizations). Unless otherwise noted, the references
in this discussion to Puerto Rico regular income tax refer to the graduated tax
rates up to a maximum of 33% or 39% generally imposed by the Puerto Rico Code
upon individuals or corporations and partnerships, respectively, and exclude the
alternative minimum tax imposed by the Puerto Rico Code.

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The statements that follow are based on the existing provisions of such
statutes and regulations, judicial decisions and administrative pronouncements,
all of which are subject to change (even with retroactive effect). [The
statements herein have been opined on by , counsel to Westernbank.]
Stockholders should be aware that an opinion of counsel represents only such
counsel's best legal judgment and that it is not binding on the Treasury
Department of Puerto Rico, the Municipal Revenue Collection Center, any other
agency or municipality of the Commonwealth of Puerto Rico, the United States
Internal Revenue Service or the courts. Accordingly, there can be no assurance
that the opinions set forth herein, if challenged, would be sustained.

PUERTO RICO TAXATION

Income Taxes.

Distributions on Common and Preferred Stock. Distributions by the holding
company with respect to its stock will be treated as dividends for Puerto Rico
income tax purposes and will be taxable in the manner described below to the
extent the holding company has either current or accumulated earnings and
profits for purposes of the Puerto Rico Code at the end of the taxable year of
the holding company during which the distributions are made. To the extent that
the amount of the distributions made on the holding company stock exceeds the
holder's allocable share of such current and accumulated earnings and profits,
such distributions will be treated as a non-taxable return of capital (rather
than as a dividend) and will be applied against and reduce the adjusted basis of
the holding company stock in the hands of the holder. The amount of any such
distribution that exceeds the adjusted basis of the holding company stock in the
hands of the holder will be treated as a gain from the sale or exchange of such
stock, taxable in the manner described below.

Puerto Rico Individuals. Dividend distributions made by the holding
company on its stock to Puerto Rico Individuals will be subject to a 10% Puerto
Rico withholding tax (the "10% Puerto Rico Withholding Tax"). The 10% Puerto
Rico Withholding Tax must be withheld by the holding company and paid to the
Treasury Department. The Puerto Rico Individuals may elect not to be subject to
the 10% Puerto Rico Withholding Tax (the "No Withholding Election"). However, if
the No Withholding Election is made, the dividend distributions to such
individuals will be subject to the regular income tax imposed by the Puerto Rico
Code on such individuals.

For the No Withholding Election of a Puerto Rico Individual to be effective
during a taxable year, the holding company must be notified in writing prior to
the first distribution made by the holding company to such Puerto Rico
Individual during such taxable year. The No Withholding Election can be made on
a yearly basis, and it must include (i) the name and address of the electing
Puerto Rico Individual, (ii) his or her taxpayer identification number, (iii) a
statement authorizing the holding company to abstain from withholding the 10%
Puerto Rico Withholding Tax, (iv) the date of the distribution(s) with respect
to which the election is made, (vi) the date on which the election is made, and
(vii) the signature of the Puerto Rico Individual. Once a No Withholding
Election is made, such election is final with respect to all distributions
during such taxable year to the electing stockholder.

Absent a No Withholding Election, the holding company will withhold the 10%
Puerto Rico Withholding Tax on dividend distributions on holding company stock
made to Puerto Rico Individuals. Upon filing his or her Puerto Rico income tax
return, a Puerto Rico Individual who did not make a No Withholding Election will
have the option to include the dividends as ordinary income subject to the
regular income tax imposed by the Puerto Rico Code on such individual. If such
option to include the dividends as ordinary income is made, the 10% Puerto Rico
Withholding Tax will be allowed as a credit against the Puerto Rico Individual
income tax liability for the particular taxable year.

Puerto Rico Persons. Puerto Rico Persons receiving dividend distributions
from the holding company on the series A preferred stock may deduct 85% of such
dividends received during the taxable year (the "Dividend Received Deduction").
The Dividend Received Deduction may not exceed 85% of a Puerto Rico Person's net
taxable income for such taxable year. The remaining 15% of such dividends will
be subject to the regular income tax applicable to Puerto Rico Persons under the
Puerto Rico Code.

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Additionally, the dividend distributions made by the holding company on the
shares of the series A preferred stock to Puerto Rico Persons may be subject to
the alternative minimum tax imposed by the Puerto Rico Code to such investors,
to the extent such tax is applicable to such investors.

Gain from the Sale, Exchange or Other Disposition of Stock. Gains from the
sale, exchange or other disposition of shares of the series A preferred stock
which have been held by Puerto Rico Individuals or Puerto Rico Persons for more
than 6 months and which constitute capital assets in the hands of such investors
are subject to a maximum 20% Puerto Rico capital gains tax or 25% Puerto Rico
alternative capital gains tax, respectively. Losses from the sale, exchange or
other disposition of shares of holding company stock which constitute capital
assets in the hands of investors are deductible only to the extent of gains from
the sale, exchange or other disposition of capital assets, except that Puerto
Rico Individuals may deduct up to $1,000 of such losses from ordinary income.

Redemption of Stock. Under the provisions of the Puerto Rico Code, the
partial or total redemption of shares of holding company stock which is
essentially equivalent to a dividend will be treated as a distribution taxable
as a dividend to the extent of the holding company's current and accumulated
earnings and profits at the end of the taxable year during which the redemption
is effected. The Puerto Rico Code Regulations provide that a complete redemption
of shares of the series A preferred stock held by a Puerto Rico Investor is not
essentially equivalent to a dividend, so long as the Puerto Rico Investor ceases
to have an interest in the affairs of the holding company. Neither the Puerto
Rico Code nor the Puerto Rico Code Regulations set forth guidelines to determine
which other redemptions are not essentially equivalent to a dividend. In the
absence of Puerto Rico guidelines, the Treasury Department may follow the
principles established under the U.S. Code, the U.S. Code Regulations, and the
rulings and other administrative pronouncements of the United States Internal
Revenue Service. In such circumstances, the Treasury Department has generally
followed such U.S. federal income tax principles for Puerto Rico income tax
purposes. However, Puerto Rico Investors should be aware that the Treasury
Department is not bound to adopt such principles and is free to adopt any other
rule it deems appropriate.

In the event the U.S. federal income tax principles are followed by the
Treasury Department, "substantially disproportionate" redemptions, partial
redemptions to Puerto Rico Investors which exercise no control over the affairs
of the holding company, and redemptions that result in a "meaningful reduction"
of the Puerto Rico Investors' interest in the holding company, will not be
essentially equivalent to a dividend. See the section of this proxy
statement/prospectus captioned "United States Taxation -- Income Taxes --
Redemption of the Stock," below. Thus, gain or loss will result from the
difference between the cash received in exchange for the shares of the series A
preferred stock and the Puerto Rico Investors' basis on such shares. In
contrast, if the U.S. federal income tax principles are not followed by the
Treasury Department, such redemptions (to the extent the holding company has
current and accumulated earnings and profits) may be treated as essentially
equivalent to a dividend. Consequently, all of the cash received in exchange for
shares of holding company stock may be subject to the Puerto Rico income tax
applicable to dividend distributions by the holding company, and the recovery of
the Puerto Rico Investors' basis on the shares of such stock at that time would
not be allowed. To avert such situation, the holding company is precluded from
redeeming only a portion of the shares of its preferred stock held by a Puerto
Rico Investor, unless the holding company obtains a ruling from the Treasury
Department or an opinion from reputable counsel knowledgeable in Puerto Rico
income tax matters categorically stating that such redemption will not be
essentially equivalent to a dividend.

Conversion of the Series A Preferred Stock into Common Stock. Under the
provisions of the Puerto Rico Code and the Puerto Rico Code Regulations, no gain
or loss will be recognized to the Puerto Rico Investors upon the conversion of
shares of the series A preferred stock into holding company common stock if the
transaction is treated as part of a "recapitalization" qualifying as a tax free
corporate reorganization pursuant to section 1112(g)(1)(E) of the Puerto Rico
Code (the "Type E Reorganization"). Neither the Puerto Rico Code nor the Puerto
Rico Code Regulations set forth specific guidelines to determine whether a
stockholder's exercise of a conversion option for shares of common stock that is
an isolated decision of such stockholder will be treated as a part of a
"recapitalization" qualifying as a Type E Reorganization. The Puerto Rico Code
Regulations provide that a "recapitalization," and therefore a
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reorganization, takes place if, for example an exchange is made of a
corporation's outstanding preferred stock, having certain priorities with
reference to the amount and time of payment of dividends and the distribution of
the corporate assets upon liquidation, for a new issue of such corporation's
common stock having no such rights.

As previously discussed, in the absence of Puerto Rico guidelines the
Treasury Department may follow the principles established under the U.S. Code,
the U.S. Code Regulations, and the rulings and other administrative
pronouncements of the United States Internal Revenue Service. The United states
Internal Revenue Service has generally held that no gain or loss results from a
shareholder's exercise of a conversion option to convert preferred stock into
common stock. Please see the section of this proxy statement/prospectus
captioned "United States Taxation -- Income Taxes -- Conversion of the Series A
Preferred Stock into Common Stock," below. Accordingly, no gain or loss should
be recognized by the Puerto Rico Investors upon the election to convert any of
their shares of the series A preferred stock into holding company common stock.
However, if the Treasury Department takes a contrary position, gain or loss may
result from the conversion of the shares of the series A preferred stock into
holding company common stock.

Municipal License Taxes. Distributions by the holding company to Puerto
Rico Persons will be subject to a municipal license tax of up to 1.5% in the
case of investors engaged in a financial business, and of up to 0.5% in the case
of investors engaged in a non-financial business. Puerto Rico Individuals will
not be subject to municipal license tax on distributions by the holding company.

Property Taxes. Under the provisions of the MPTA, shares of the series A
preferred stock are exempt from Puerto Rico personal property taxes in the hands
of the Puerto Rico Investors.

Estate and Gift Taxes. Since the holding company is a corporation
organized under the laws of the Commonwealth of Puerto Rico, the shares of the
series A preferred stock constitute property located within Puerto Rico for
Puerto Rico estate and gift tax purposes. Accordingly, shares of the series A
preferred stock will not be subject to Puerto Rico estate and gift taxes if held
by a Puerto Rico Individual who is a citizen of the United States who acquired
his or her citizenship solely because of birth or residence in Puerto Rico and
was a resident of Puerto Rico, in the case of estate taxes, at the time of
death, and in the case of gift taxes, at the time the gift was made.

UNITED STATES TAXATION

Income Taxes.

Source of Dividend Distributions. The following discussion regarding the
U.S. federal income taxation of dividend distributions made by the holding
company on its stock assumes that such dividends constitute Puerto Rico source
income for purposes of the U.S. Code. Generally, dividend distributions made by
a corporation organized under the laws of the Commonwealth of Puerto Rico, such
as the holding company, are considered to be entirely from Puerto Rico sources
for purposes of the U.S. Code, unless 25% or more of the Puerto Rico
corporation's gross income for the three taxable years preceding the taxable
year of declaration of the dividends (the "3-Year Statutory Period") is
effectively connected (or, subject to certain exceptions, treated as effectively
connected) with the conduct of a trade or business within the U.S. ("ECI-US").
If 25% or more of the Puerto Rico corporation's gross income for the 3-Year
Statutory Period is ECI-US, then the dividend distributions will constitute U.S.
source income in the same ratio as the Puerto Rico corporation's ECI-US for the
3-Year Statutory Period bears to its total gross income for such period. During
the three taxable years immediately preceding this proxy statement/prospectus,
the holding company was not engaged in the conduct of a trade or business within
the U.S. Accordingly, dividend distributions made by the holding company on
stock during 1999 will constitute Puerto Rico source income. Dividend
distributions in future years will be from Puerto Rico sources, provided that no
more than 25% of its gross income for the applicable 3-Year Statutory Period is
ECI-US.

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Puerto Rico Individuals. Pursuant to section 933 of the U.S. Code, the
Puerto Rico Individuals are not subject to U.S. federal income tax on income
from sources within Puerto Rico. So long as the dividend distributions made by
the holding company on the shares of holding company stock constitute Puerto
Rico source income under the provisions of the U.S. Code discussed above, Puerto
Rico Individuals will not be subject to U.S. federal income tax on such
dividends. Generally, such individuals will not be allowed a U.S. tax deduction
from gross income for any amount allocable to dividends received from the
holding company.

Puerto Rico Persons. Under the U.S. Code, foreign corporations not engaged
in a U.S. trade or business are not subject to U.S. federal income tax on
amounts received from sources outside the U.S. Puerto Rico Persons that are
corporations or business entities treated as corporations under the U.S. Code,
including those that have elected to be so treated (the "Foreign Corporate
Investors"), will be treated as foreign corporations under the U.S. Code. So
long as dividend distributions made by the holding company on the series A
preferred stock have a Puerto Rico source rather than a U.S. source under the
rules discussed above, Foreign Corporate Investors not engaged in a U.S. trade
or business will not be subject to U.S. federal income tax on such dividends
received from the holding company. However, such dividend distributions made to
a Foreign Corporate Investor engaged in a U.S. trade or business will be subject
to U.S. federal income tax if such dividends are effectively connected with its
U.S. trade or business.

Under the U.S. Code, partnerships are pass-through entities not subject to
U.S. federal income tax, and their income is allocated to their partners.
Accordingly, for U.S. federal income tax purposes, dividend distributions made
by the holding company on its stock to Puerto Rico Persons which are, or have
elected to be, treated as partnerships under the U.S. Code (the "Partnership
Investors"), will be allocated to the partners of such Partnership Investors. In
the event that any of the partners of the Partnership Investors are Puerto Rico
Individuals, the Puerto Rico source dividend distributions made by the holding
company on the series A preferred stock that are allocated to such Puerto Rico
Individuals will generally be subject to the U.S. federal income tax treatment
applicable to such individuals that was previously discussed. Additionally, if
any of such partners are Foreign Corporate Investors, such dividend
distributions made by the holding company that are allocated to such investors
will generally be subject to the U.S. federal income tax treatment applicable to
them, discussed above. However, pursuant to the provisions of the U.S. Code,
partners in a partnership that is engaged in a U.S. trade or business will also
be deemed to be engaged in a U.S. trade or business; thus, the U.S. federal
income tax treatment of Puerto Rico Investors that are partners in a Partnership
Investor or other partnership that is engaged in a U.S. trade or business may
differ from the treatment stated above. Accordingly, such prospective investors
should consult their own tax advisers concerning the potential U.S. tax
consequences of holding company stock.

Gain from the Sale, Exchange or Other Disposition of Stock. Gain, if any,
from the sale, exchange or other disposition of shares of holding company stock
by a Puerto Rico Individual is generally treated as Puerto Rico source income
not subject to U.S. federal income tax, if the Puerto Rico Individual pays
Puerto Rico income tax at an effective rate of at least 10% on such gain (the
"10% Tax"). Because such gain is generally subject to tax by Puerto Rico at a
20% capital gains rate applicable to Puerto Rico Individuals under the Puerto
Rico Code, it will ordinarily be treated as Puerto Rico source income not
subject to U.S. federal income tax to such investors. Moreover, a Puerto Rico
Individual who is not subject to the 10% Tax on any such gain may nevertheless
treat the gain as Puerto Rico source income not subject to U.S. federal income
tax if the requirements of Notice 89-40 are met. Notice 89-40 was issued by the
United States Internal Revenue Service pursuant to a provision of the U.S. Code
that authorizes the Secretary of the Treasury to issue regulations making the
10% Tax requirement inapplicable to bona fide residents of Puerto Rico. In
Notice 89-40, the United States Internal Revenue Service announced that
regulations would be issued that would provide that gain from the sale of stock
by individuals who had been bona fide residents of Puerto Rico for the entire
taxable year of the sale would be Puerto Rico source income, and therefore,
excluded from U.S. taxation, whether or not the individual paid the 10% Tax on
the gain to Puerto Rico. Therefore, unless contrary authority is issued, Puerto
Rico Individuals may treat the gain from the sale, exchange or other disposition
of shares of the series A preferred stock as Puerto Rico source income,
regardless of whether the 10% Tax is paid on such gain.

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Foreign Corporate Investors will be subject to U.S. federal income tax on
any gain from the sale, exchange or other disposition of shares of the series A
preferred stock only if the gain is effectively connected to a U.S. trade or
business carried on by such Foreign Corporate Investors.

Partners of a Partnership Investor generally will be subject to the same
U.S. federal income tax upon gain, if any, from the sale, exchange or other
disposition of shares of the series A preferred stock as would apply if they
held such shares directly. Thus, Puerto Rico Individuals who are partners in a
Partnership Investor should not be subject to U.S. federal income tax upon such
gain, and partners who are Foreign Corporate Investors will not be subject to
U.S. federal income tax upon such gain so long as the gain is not effectively
connected to a U.S. trade or business conducted by such Foreign Corporate
Investors.

Redemption of Stock. A redemption of shares of holding company stock for
cash will be treated as a distribution that is taxable as a dividend to the
extent of the holding company's current or accumulated earnings and profits for
purposes of the U.S. Code as of the end of its taxable year during which the
redemption is effected, unless the redemption (i) is "not essentially equivalent
to a dividend," (ii) is "substantially disproportionate" with respect to the
stockholder, (iii) results in a "complete termination" of the stockholder's
stock interest in the holding company, or (iv) is to a noncorporate stockholder
in "partial liquidation" of the holding company. In determining whether the
redemption constitutes a dividend for U.S. federal income tax purposes, the
shares of holding company stock constructively owned by the stockholder by
reason of certain constructive ownership rules set forth in the U.S. Code, as
well as the shares actually owned by the stockholder, must be taken into
account. Generally, a redemption will not be essentially equivalent to a
dividend if it results in a "meaningful reduction" in the stockholder's
percentage interest in the holding company. The United States Internal Revenue
Service's published rulings and the U.S. Code Regulations support the position
that a redemption of preferred stock from a stockholder who does not actually or
constructively own voting stock in the holding company will be treated as being
"not essentially equivalent to a dividend."

In the event a redemption of shares of holding company stock is not taxable
as a dividend for U.S. federal income tax purposes, gain or loss will result
from the difference between the cash received in exchange for the shares of the
stock and the Puerto Rico Investors' basis in such shares. The gain, if any,
from such redemption will be subject to the U.S. federal income tax treatment
previously discussed with respect to gain from the sale, exchange or other
disposition of shares of the stock.

Conversion of the Series A Preferred Stock into Common Stock. Based on the
rulings and other administrative pronouncements issued by the United States
Internal Revenue Service, no gain or loss should be recognized on the conversion
of the series A preferred stock into holding company common stock for U.S.
federal income tax purposes.

Controlled Foreign Corporation Status. The U.S. Code provides special
rules regarding foreign corporations treated as a "controlled foreign
corporation" ("CFC"). Generally, a Puerto Rico Individual who is a stockholder
in a CFC is required to include in his or her gross income, for U.S. federal
income tax purposes, his or her pro rata share of certain undistributed income
of the CFC. Pursuant to section 957(a) of the U.S. Code, a foreign corporation
is a CFC if more than 50% of the total combined voting power of all classes of
stock of such corporation entitled to vote, or the total value of the stock of
such corporation, is directly or indirectly owned by United States stockholders
as defined in section 951(b) of the U.S. Code. Pursuant to sections 951(b) and
957(c) of the U.S. Code, for purposes of the CFC provisions the term United
States stockholder means a United States person as defined in section 7701 (a)
(30) of the U.S. Code (including a Puerto Rico Individual), who owns or is
considered as owning 10% or more of the total combined voting power of all
classes of stock entitled to vote of a foreign corporation, except that with
respect to a corporation organized under the laws of the Commonwealth of Puerto
Rico, the term United States person does not include an individual who is a bona
fide resident of Puerto Rico, if a dividend received by such individual during
the taxable year from such corporation would be treated as income derived from
sources within Puerto Rico under the rules discussed above. Please see the
section of this proxy statement/prospectus captioned "United States
Taxation -- Income Taxes -- Source of Dividend Distributions," above.

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The holding company has determined that it was not a CFC for the taxable
year ended December 31, 1998, and it does not expect that it would meet the
criteria to be considered a CFC in the foreseeable future. Furthermore, even if
the holding company becomes a CFC in the future, a Puerto Rico Individual would
not be subject to U.S. federal income tax as a result of the holding company's
CFC status so long as dividend distributions made by the holding company are
treated as derived from sources within Puerto Rico under the rules discussed
above.

Passive Foreign Investment Company Status. The U.S. Code provides special
rules regarding certain distributions received by United States persons as
defined in section 7701 (a) (30) of the U.S. Code (including Puerto Rico
Individuals), with respect to, and sales and other dispositions (including
pledges) of, stock of a "passive foreign investment company" ("PFIC"). A foreign
corporation for U.S. federal income tax purposes will be treated as a PFIC if
75% or more of its gross income is "passive income" or if the average percentage
of its assets (by value) that produce, or are held for the production of,
"passive income" is at least 50%. Pursuant to section 1297(b)(2) of the U.S.
Code and the administrative pronouncements issued by the United States Internal
Revenue Service, "passive income" generally does not include income derived in
the active conduct of a banking business by a foreign bank. Furthermore, the
United States Internal Revenue Service has issued proposed regulations under the
PFIC provisions of the U.S. Code pursuant to which individuals who have been
full-year bona fide residents of Puerto Rico for all taxable years during which
they have held stock of a PFIC would not be subject to U.S. federal income tax
on any portion of the amount of Puerto Rico source income that they would have
otherwise been required to include in gross income under the PFIC rules.

The holding company has determined that it was not a PFIC for the taxable
year ended December 31, 1998, and it does not expect that it would meet the
criteria to be considered a PFIC in the foreseeable future. Furthermore, even if
the holding company is deemed to be a PFIC in the future, Puerto Rico
Individuals who meet the requirement mentioned above will not be subject to U.S.
federal income tax as a result of the holding company's PFIC status.

Foreign Personal Holding Company Status. Puerto Rico Individuals who are
shareholders of a "foreign personal holding company" ("FPHC") may be subject to
U.S. federal income tax on their shares of certain undistributed income, thereby
preventing deferral of U.S. taxes on certain foreign sourced income. Pursuant to
section 552(a) of the U.S. Code, a FPHC generally includes a foreign corporation
if such corporation meets certain income tests and more than 50% of its stock is
owned directly or indirectly by five or fewer individuals who are U.S. citizens
or residents. The holding company has determined that it was not a FPHC for the
taxable year ended December 31, 1998, and it does not expect that it would meet
the criteria to be considered a FPHC in the foreseeable future. Furthermore,
Puerto Rico Individuals would not be subject to U.S. federal income tax on the
undistributed income of the holding company if the holding company is treated as
a FPHC so long as such income will constitute Puerto Rico source income that
would be excluded from the gross income of such individuals for U.S. federal
income tax purposes pursuant to section 933 of the U.S. Code.

Estate and Gift Taxes. Under the provisions of the U.S. Code, the shares
of series A preferred stock will not be subject to U.S. estate and gift taxes if
held by a Puerto Rico Individual who is a citizen of the United States who
acquired his or her citizenship solely because of birth or residence in Puerto
Rico and was a resident of Puerto Rico, in the case of estate taxes, at the time
of death, and in the case of gift taxes, at the time the gift was made.

ADDITIONAL INFORMATION ABOUT INTERIM BANK

The interim bank will be organized as a Puerto Rico banking corporation
solely to facilitate the reorganization. The interim bank will be a
non-operating bank and will be merged with and into Westernbank as a result of
the reorganization. Its principal office will be the principal office of
Westernbank, located at 19 West McKinley Street, Mayaguez, Puerto Rico 00680,
and its phone number will be (787) 834-8000.

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The interim bank will be authorized to issue 5,000 shares of common stock,
par value $5,000 per share. Immediately before the reorganization takes place,
the holding company will own all outstanding shares of the interim bank's common
stock. On the effective date of the reorganization, each of those shares held by
the holding company will be converted into shares of Westernbank's common stock
and the holding company will own all of the outstanding capital stock of
Westernbank.

SUPERVISION AND REGULATION

GENERAL

Westernbank is a Puerto Rico-chartered commercial bank, and its deposit
accounts are insured up to applicable limits by the FDIC. Westernbank is subject
to extensive regulation by the Office of the Commissioner of Financial
Institutions of Puerto Rico, as its chartering agency, and the Federal Deposit
Insurance Corporation. After the reorganization, Westernbank will continue to be
a Puerto Rico-chartered commercial bank with deposits insured by the FDIC, and
will continue to be subject to extensive regulation by the Office of the
Commissioner of Financial Institutions of Puerto Rico and the Federal Deposit
Insurance Corporation. The discussion that follows of the regulations that
currently apply to Westernbank will apply to the same extent to Westernbank
after the reorganization.

Westernbank must file reports with the Office of the Commissioner of
Financial Institutions of Puerto Rico and the Federal Deposit Insurance
Corporation concerning its activities and financial condition, and it must
obtain regulatory approval prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions and opening or
acquiring branch offices. The Office of the Commissioner of Financial
Institutions of Puerto Rico and the Federal Deposit Insurance Corporation
conduct periodic examinations to assess Westernbank's compliance with various
regulatory requirements. This regulation and supervision is intended primarily
for the protection of the deposit insurance funds and depositors. The regulatory
authorities have extensive discretion in connection with the exercise of their
supervisory and enforcement activities, including the setting of policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. The holding company, as a bank holding
company, will also be required to file certain reports with, and otherwise
comply with, the rules and regulations of the Federal Reserve and the Office of
the Commissioner of Financial Institutions of Puerto Rico and with the rules and
regulations of the Securities and Exchange Commission under the federal
securities laws. Any change in the regulations governing Westernbank or the
holding company, whether by a bank regulatory agency or through legislation,
could have a material adverse impact on Westernbank and the holding company and
their operations and stockholders.

The following is a summary of the laws and regulations that are applicable
to Westernbank and the holding company. This summary does not purport to be a
complete description of such laws and regulations or of all such laws and
regulations. The operations of Westernbank and the holding company may be
affected by legislative and regulatory changes as well as by changes in the
policies of various regulatory authorities.

THE HOLDING COMPANY

Federal Regulation. Following the completion of the reorganization, the
holding company will be subject to examination, regulation and periodic
reporting under the Bank Holding Company Act of 1956, as amended, as
administered by the Board of Governors of the Federal Reserve System.

The Board of Governors of the Federal Reserve System has adopted capital
adequacy guidelines for bank holding companies on a consolidated basis
substantially similar to those of the Federal Deposit Insurance Corporation for
Westernbank. See the section of this proxy statement/prospectus captioned
"Federal Regulation of Westernbank -- Capital Requirements," below. On a pro
forma basis after the reorganization, the holding company's risk-based and
leverage ratios will exceed these minimum capital requirements. A bank holding
company's ability to pay dividends to its stockholders and expand its line of
business through the acquisition of new banking subsidiaries can be restricted
if its capital falls below
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<PAGE> 44

levels established by the Federal Reserve guidelines. In addition, any bank
holding company whose capital falls below levels specified in the guidelines can
be required to implement a plan to increase capital.

Prior approval of the Board of Governors of the Federal Reserve System will
be required for the holding company to acquire direct or indirect ownership or
control of any voting securities of any bank or bank holding company if, after
giving effect to such acquisition, it would, directly or indirectly, own or
control more than 5% of any class of voting shares of such bank or bank holding
company. The holding company also will be required to obtain the prior approval
of the Board of Governors of the Federal Reserve System to acquire all, or
substantially all, of the assets of any bank or bank holding company.

In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in,
non-banking activities unless such activities have been found by the Board of
Governors of the Federal Reserve System to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
principal activities that the Board of Governors of the Federal Reserve System
has determined by regulation to be so closely related to banking as to be a
proper incident thereto are:

- making or servicing loans;

- performing certain data processing services;

- providing discount and full service brokerage services;

- acting as fiduciary, investment or financial advisor;

- leasing personal or real property;

- making investments in corporations or projects designed primarily to
promote community welfare; and

- acquiring a savings and loan association.

The holding company will be required to give the Board of Governors of the
Federal Reserve System prior written notice of any purchase or redemption of its
outstanding equity securities if the gross consideration for the purchase or
redemption, when combined with the net consideration paid for all such purchases
or redemptions during the preceding 12 months, will be equal to 10% or more of
the holding company's consolidated net worth. The Board of Governors of the
Federal Reserve System may disapprove such a purchase or redemption if it
determines that the proposal would constitute an unsafe and unsound practice, or
would violate any law, regulation, order or directive of the Board of Governors
of the Federal Reserve System, or any condition imposed by, or written agreement
with, the Board of Governors of the Federal Reserve System. Such notice and
approval is not required for a bank holding company that would be treated as
"well capitalized" under applicable regulations of the Board of Governors of the
Federal Reserve system, that has received a composite "1" or "2" rating at its
most recent bank holding company inspection by the Board of Governors of the
Federal Reserve System, and that is not the subject of any unresolved
supervisory issues.

The Board of Governors of the Federal Reserve System is empowered to
initiate cease and desist proceedings and other supervisory actions for
violations of the Bank Holding Company Act, or the regulations of the Board of
Governors of the Federal Reserve System, orders or notices issued thereunder.

The status of the holding company as a registered bank holding company
under the Bank Holding Company Act does not exempt it from certain federal and
state laws and regulations applicable to corporations generally, including,
without limitation, certain provisions of the federal securities laws.

WESTERNBANK

Puerto Rico Banking Law. As a commercial bank organized under the laws of
the Commonwealth, Westernbank is subject to supervision, examination and
regulation by the Office of the Commissioner pursuant to the Puerto Rico Banking
Act of 1933, as amended. Such law governs the incorporation and

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<PAGE> 45

organization, and contains provisions on the rights and responsibilities of
directors, officers and stockholders, and the corporate powers, savings,
lending, capital and investment requirements and other activities of
Westernbank. The Office of the Commissioner has extensive rulemaking power and
administrative discretion under the Banking Law. The Office of the
Commissioner's office normally examines Westernbank once every year.

Section 27 of the Banking Law requires that at least 10% of the yearly net
income of Westernbank be credited annually to a reserve fund. This apportionment
must be done every year until the reserve fund is equal to the total paid-in
capital for common stock and preferred stock. At the end of its most recent
fiscal year, Westernbank had an adequate reserve fund established.

Section 27 of the Banking Law also provides that when the expenditures of a
bank are greater than the receipts, the excess of the former over the latter is
charged against the undistributed profits of the bank, and the balance, if any,
is charged against the reserve fund, as a reduction thereof. If there is no
reserve fund sufficient to cover such balance in whole or in part, the
outstanding amount is charged against the capital account and no dividend can be
declared until the capital has been restored to its original amount and the
reserve fund to 20% of the original capital.

Section 16 of the Banking Law requires every bank to maintain a legal
reserve in an amount established by the Office of the Commissioner through
regulation, but in no case may the required reserve exceed 30% of demand
liabilities, except deposits of the U.S. Government, the Commonwealth of Puerto
Rico and its municipalities secured by actual collateral. A regulation of the
Office of the Commissioner establishes that the legal reserve shall not be less
than 20% of the bank's demand liabilities, except deposits of the U.S.
Government, the Commonwealth of Puerto Rico and its municipalities. However, if
a bank becomes a member of the Federal Reserve System, the foregoing legal
reserve requirements shall not be effective and the reserve requirements
demanded by the Federal Reserve Board shall be applicable. At December 31, 1998,
Westernbank had a legal reserve of 96.65%.

Section 17 of the Banking Law provides that Westernbank may not make loans
to, nor accept the guarantee of, any one person, firm, partnership or
corporation, in an aggregate amount in excess of 15% of the paid-in capital in
common stock and preferred stock, the reserve fund of Westernbank and all other
components so determined by the Office of the Commissioner. As of December 31,
1998, the legal lending limit for Westernbank under this provision was
approximately $19.6 million. If such loans are secured by collateral worth at
least 25% or more than the amount of the loan, the aggregate maximum amount may
reach one third of the paid-in capital of Westernbank plus its reserve fund.
There are no restrictions under Section 17 on the amount of loans which are
wholly secured by bonds, securities and other evidences of indebtedness of the
Government of the United States or the Commonwealth of Puerto Rico, or by
current debt bonds, not in default, of municipalities or instrumentalities of
the Commonwealth of Puerto Rico. The Office of the Commissioner has, through
regulation, interpreted the lending limits provision of the Banking Law to
permit commercial banks to additionally take into consideration up to 50% of the
bank's retained earnings in the calculation of the bank's lending limit if the
bank is well capitalized.

Section 30 of the Banking Law provides that the Office of the Commissioner
can place a Puerto Rico bank into receivership, and liquidate the bank, if
deemed necessary, if the Office of the Commissioner, as a result of an
examination made or a report rendered by an examiner, finds that the bank is not
in sound financial condition to continue doing business, or that its affairs are
conducted in such a manner that the public or the persons and entities having
funds or securities under its custody are in danger of being defrauded.
Furthermore, section 31 of the Banking Law provides that the Office of the
Commissioner may appoint a receiver and dissolve and liquidate a Puerto Rico
bank if the bank refuses to submit its books, documents and affairs for the
inspection of an examiner, or if it appears that the bank's certificate of
incorporation or any law relative thereto has been violated. Section 37 of the
Banking Law provides that a Puerto Rico bank must be dissolved if it loses 100%
of its capital.

The Financial Board, which is a part of the Office of the Commissioner, but
also includes as its members the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the Chairman of the Planning Board,
and the President of the Government Development Bank for Puerto
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<PAGE> 46

Rico, has the authority to regulate the maximum interest rates and finance
charges that may be charged on loans to individuals and unincorporated
businesses in the Commonwealth of Puerto Rico. In February 1992 and again in
November 1997, the Financial Board approved regulations which provide that the
applicable interest rate on loans to individuals and unincorporated businesses
(including real estate development loans but excluding certain other personal
and commercial loans secured by mortgages on real estate properties) is to be
determined by free competition.

The Financial Board also has authority to regulate the maximum finance
charges on retail installment sales contracts (including credit card purchases),
which are currently set at 21%. There is no maximum rate set for installment
sales contracts involving motor vehicles, commercial, agricultural and
industrial equipment, commercial electric appliances, and insurance premiums.

Section 12 of the Banking Law requires the prior approval of the Office of
the Commissioner to obtain control of any bank organized under the Banking Law.
The Banking Law requires that in any transfer of voting and outstanding capital
stock of any bank organized under the laws of Puerto Rico to any person or
entity that, upon consummation of the transfer, will become the owner, directly
or indirectly, of more than 5% of the voting and outstanding capital stock of
said bank, the parties to the transfer shall inform the Office of the
Commissioner of the proposed transfer at least 60 days prior to the date such
transfer is to be effected. The transfer requires the approval of the Office of
the Commissioner if it results in a change of control of the bank. For the
purposes of section 12 of the Banking Law, the term "control" means the power
to, directly or indirectly, direct or influence decisively the administration or
the operations of the bank.

Federal Regulation of Westernbank.

Capital Requirements. The Federal Deposit Insurance Corporation has
adopted risk-based minimum capital regulations for insured state nonmember
banks, such as Westernbank. The regulations establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among insured depository institutions. Risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet commitments to four risk-weighted categories ranging from 0% to 100%, with
higher levels of capital required for the categories perceived as representing
greater risk. State nonmember banks must maintain a minimum ratio of qualifying
total capital to risk-weighted assets of 8.0%, and a minimum ratio of Tier 1
capital to risk-weighted assets of 4.0%. Tier 1 capital includes common equity,
certain noncumulative perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card
relationships, subject to certain limitations). Total capital consists of Tier 1
capital plus supplementary (Tier 2) capital which includes, among other items,
cumulative perpetual and long-term, limited-life, preferred stock, mandatory
convertible securities, certain hybrid capital instruments, term-subordinated
debt and the allowance for loan and lease losses, subject to certain
limitations, less required deductions. In addition, insured state nonmember
banks must maintain a ratio of Tier 1 capital to average total assets (leverage
ratio) of at least 3% to 5%, depending on the bank's supervisory rating.

Capital requirements higher than these minimum requirements may be
established for a particular bank if the Federal Deposit Insurance Corporation
determines that a bank's capital is, or may become, inadequate in view of its
particular circumstances. Individual minimum capital requirements may be
appropriate if a bank is receiving special supervisory attention, has a high
degree of exposure to interest rate risk or poses other safety and soundness
concerns. Westernbank currently is not subject to any individually imposed
minimum capital requirements.

Failure to meet capital guidelines could subject Westernbank to a variety
of enforcement actions, including issuance of a capital directive, the
termination of deposit insurance, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon banks that fail to meet
applicable capital requirements under the Federal Deposit Insurance
Corporation's prompt corrective action regulations.

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<PAGE> 47

The Federal Deposit Insurance Corporation assesses Westernbank's exposure
to declines in the economic value of the bank's capital due to changes in
interest rates when assessing the bank's capital adequacy. Under such a risk
assessment, examiners will evaluate Westernbank's capital for interest rate risk
on a case-by-case basis, with consideration of both quantitative and qualitative
factors. Applicable considerations include the quality of the bank's interest
rate risk management process, the overall financial condition of the bank and
the level of other risks at the bank for which capital is needed. Institutions
with significant interest rate risk may be required to hold additional capital.

The following table shows information regarding Westernbank's capital
ratios at December 31, 1998.

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------
ACTUAL MINIMUM
---------------- ---------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ --------- ------ --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets)............... 167,588 11.74% $114,331 8% $142,914 10%
Tier I Capital
(to Risk Weighted Assets)............... 149,921 10.61% $ 56,533 4% $ 84,800 6%
Tier I Capital
(to Average Assets)..................... 149,921 6.37% $ 70,643 3% $117,739 5%
</TABLE>

As the preceding table shows, Westernbank exceeded the minimum capital
adequacy requirements at the date indicated.

Activity Restrictions on State-Chartered Banks. Section 24 of the Federal
Deposit Insurance Act generally limits the activities and investments of
state-chartered insured banks and their subsidiaries to those permissible for
federally chartered national banks and their subsidiaries, unless such
activities and investments are specifically exempted by law or the Federal
Deposit Insurance Corporation determines that such activity or investment would
pose no significant risk to the Bank Insurance Fund. Any bank that held, at the
time of passage of section 24, an impermissible investment or engaged in an
impermissible activity and that did not receive Federal Deposit Insurance
Corporation approval to retain such investment or to continue such activity was
required to submit to the Federal Deposit Insurance Corporation a plan for
divesting of such investment or activity as quickly and prudently as possible.

Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under section 24 or the
Federal Deposit Insurance Corporation regulations thereunder, an insured bank
must file a notice or application with the Federal Deposit Insurance Corporation
to make such investment or engage in such activity. The Federal Deposit
Insurance Corporation will not approve the activity unless such bank meets its
minimum capital requirements and the Federal Deposit Insurance Corporation
determines that the activity does not present a significant risk to the Federal
Deposit Insurance Corporation insurance funds. The Federal Deposit Insurance
Corporation has by regulation determined that certain real estate investment and
securities underwriting activities do not present a significant risk to the
Federal Deposit Insurance Corporation insurance fund provided they are conducted
in accordance with the regulations. The Federal Deposit Insurance Corporation
recently adopted a streamlined notice process for use by well run, well
capitalized institutions seeking permission to engage in such activities, and
simplified existing limitations applicable to the activities.

Enforcement. The Federal Deposit Insurance Corporation has extensive
enforcement authority over Westernbank. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue cease
and desist orders and to remove directors and officers. In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and to unsafe or unsound practices.

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<PAGE> 48

The Federal Deposit Insurance Corporation is required, with certain
exceptions, to appoint a receiver or conservator for an insured state bank if
that bank is "critically undercapitalized." For this purpose, "critically
undercapitalized" means having a ratio of tangible equity to total assets that
is equal to or less than 2%. See "Prompt Corrective Action" below. The Federal
Deposit Insurance Corporation may also appoint a conservator or receiver for a
state bank on the basis of the institution's financial condition or upon the
occurrence of certain events, including:

- insolvency;

- substantial dissipation of assets or earnings through violations of law
or unsafe or unsound practices;

- existence of an unsafe or unsound condition to transact business;

- likelihood that a bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business;
and

- insufficient capital.

In the event of any such appointment, it is likely that the stockholders of the
institution would not receive anything for their interests in the institution
and such interest ultimately would be extinguished.

Deposit Insurance. Westernbank is subject to quarterly payments on
semiannual insurance premium assessments for its Federal Deposit Insurance
Corporation deposit insurance. The Federal Deposit Insurance Corporation
implements a risk-based deposit insurance assessment system. Deposit insurance
assessment rates currently are within a range of $0.00 to $0.27 per $100 of
insured deposits, depending on the assessment risk classification assigned to
each institution. Under current Federal Deposit Insurance Corporation assessment
guidelines, Westernbank expects that it will not incur any Federal Deposit
Insurance Corporation deposit insurance assessments for the first half of 1999.
However, the deposit insurance assessments imposed by the Federal Deposit
Insurance Corporation are subject to change.

Westernbank is subject to assessments for the payment on the bonds issued
in the late 1980's by the Financing Corporation to recapitalize the former
Federal Savings and Loan Insurance Corporation. The annual rate of assessments
for the payments on the bonds for the quarter beginning on January 1, 1999 was
1.22 basis points for Bank Insurance Fund-assessable deposits and 6.1 basis
points for Savings Association Insurance Fund's-assessable deposits.

Federal Deposit Insurance Corporation insurance on deposits may be
terminated by the Federal Deposit Insurance Corporation, after notice and
hearing, upon a finding by the Federal Deposit Insurance Corporation that the
insured bank has engaged or is engaging in unsafe or unsound practices, or is in
an unsafe or unsound condition to continue operations as an insured bank, or has
violated any applicable law, regulation, rule or order of, or condition imposed
by or written agreement entered into with the Federal Deposit Insurance
Corporation.

Transactions with Affiliates of the Bank. Transactions between Westernbank
and any of its affiliates, including the holding company, are governed by
sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any
company or entity that controls, is controlled by or is under common control
with the bank. Generally, sections 23A and 23B (i) limit the extent to which a
bank or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and limit such transactions with all affiliates to an amount equal to
20% of such capital stock and surplus, and (ii) require that all such
transactions be on terms that are consistent with safe and sound banking
practices. The term "covered transaction" includes the making of loans, purchase
of or investment in securities issued by the affiliate, purchase of assets,
issuance of guarantees and other similar types of transactions. Most loans by a
bank to any of its affiliates must be secured by collateral in amounts ranging
from 100 to 130 percent of the loan amount, depending on the nature of the
collateral. In addition, any covered transaction by a bank with an affiliate and
any sale of assets or provision of services to an affiliate must be on terms
that are substantially the same, or at least as favorable, to the bank as those
prevailing at the time for comparable transactions with nonaffiliated companies.

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<PAGE> 49

Loans to Insiders. A bank's loans to its executive officers, directors,
any owner of 10% or more of its stock (each, an "insider") and to certain
entities affiliated with any such person (an "insider's related interests") are
subject to the conditions and limitations imposed by sections 22(g) and 22(h) of
the Federal Reserve Act and the Federal Reserve's Regulation O promulgated
thereunder. Under these restrictions, the aggregate amount of the loans to any
insider and the insider's related interests may not exceed the
loans-to-one-borrower limit applicable to national banks. All loans by a bank to
all insiders and insider's related interests in the aggregate may not exceed a
bank's unimpaired capital and unimpaired surplus. Regulation O also requires
that any proposed loan to an insider or an insider's related interest be
approved in advance by a majority of the board of directors of a bank, with any
interested director not participating in the voting, if such loan, when
aggregated with any existing loans to that insider and the insider's related
interests, would exceed either (a) $500,000 or (b) the greater of $25,000 or 5%
of a bank's unimpaired capital and surplus. Such loans must be made on
substantially the same terms as, and follow credit underwriting procedures that
are not less stringent than, those that are prevailing at the time for
comparable transactions with other persons, except to the extent that the
extension of credit is made pursuant to a benefit or compensation program that
is widely available to employees of the bank and does not give preference to
insiders. In addition, loans to an executive officer, other than loans for the
education of the officer's children, certain loans secured by the officer's
residence, and other loans secured by certain types of collateral, may not
exceed the lesser of (a) $100,000 or (b) the greater of $25,000 or 2.5% of a
bank's unimpaired capital and surplus.

Community Reinvestment Act. Under the Community Reinvestment Act of 1997,
as implemented by Federal Deposit Insurance Corporation regulations, a bank has
a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including
low-and moderate-income neighborhoods. The Community Reinvestment Act requires
the FDIC, in connection with its examination of a bank, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by the
institution.

The FDIC rates an institution based on its actual performance in meeting
community needs. The evaluation system focuses on a lending test, an investment
test, and a service test. In its most recent examination for Community
Reinvestment Act performance, Westernbank received a satisfactory rating from
the Federal Deposit Insurance Corporation.

Safety and Soundness Standards. Westernbank is subject to certain FDIC
standards designed to maintain the safety and soundness of individual banks and
the banking system. The FDIC has prescribed safety and soundness guidelines
relating to:

- internal controls, information systems and internal audit systems;

- loan documentation;

- credit underwriting;

- interest rate exposure;

- asset growth and quality;

- earnings; and

- compensation and benefit standards for officers, directors, employees and
principal stockholders.

The guidelines are intended to set out standards that the FDIC will use to
identify and address problems at institutions before capital becomes impaired.
Institutions are required to, among other things, establish and maintain a
system to identify problem assets and prevent deterioration of those assets in a
manner commensurate with their size and the nature and scope of their
operations. Furthermore, institutions must establish and maintain a system to
evaluate and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves in a manner commensurate with their size
and the nature and scope of their operation.

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<PAGE> 50

A bank not meeting one or more of the safety and soundness guidelines may
be required to file a compliance plan with the FDIC. In the event that an
institution were to fail to submit an acceptable compliance plan or fail in any
material respect to implement an accepted compliance plan within the time
allowed by the FDIC, the institution would be required to correct the deficiency
and the FDIC would also be authorized to:

- restrict asset growth;

- require the institution to increase its ratio of tangible equity to
assets;

- restrict the rates of interest that the institution may pay; or

- take any other action that would better carry out the purpose of the
corrective action.

Westernbank believes it was in compliance with all such safety and soundness
guidelines as of the date of this proxy statement/prospectus.

The FDIC periodically conducts examinations of insured institutions and,
based upon evaluations, may require a revaluation of assets of an insured
institution and may require the establishment of specific reserves in amounts
equal to the difference between such revaluation and the book value of the
assets.

Prompt Corrective Action. Under the FDIC's prompt corrective action
regulations, insured institutions will be considered

- "well capitalized" if the institution has a total risk-based capital
ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater (provided that the
institution is not subject to an order, written agreement, capital
directive or prompt corrective action directive to meet and maintain a
specified capital level for any capital measure);

- "adequately capitalized" if the institution has a total risk-based
capital ratio of 8% or greater, a Tier 1 risk based capital ratio of 4%
or greater and a leverage ratio of 4% or greater (3% or greater if the
institution has the highest supervisory rating in its most recent report
of examination and is not experiencing or anticipating significant
growth);

- "undercapitalized" if the institution has a total risk-based capital
ratio that is less than 8%, or a Tier 1 risk-based ratio of less than 4%
and a leverage ratio that is less than 4% (3% if the institution has the
highest supervisory rating in its most recent report of examination and
is not experiencing or anticipating significant growth);

- "significantly undercapitalized" if the institution has a total
risk-based capital ratio that is less than 6%, Tier 1 risk-based capital
ratio of less than 3% or a leverage ratio that is less than 3%; and

- "critically undercapitalized" if the institution has a ratio of tangible
equity to total assets that is equal to or less than 2%.

Under certain circumstances, the Federal Deposit Insurance Corporation can
reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution or an undercapitalized institution
to comply with supervisory actions as if it were in the next lower category
(except that the Federal Deposit Insurance Corporation may not reclassify a
significantly undercapitalized institution as critically undercapitalized). At
March 31, 1999, Westernbank was classified as a "well capitalized" institution.

An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to the Federal Deposit Insurance
Corporation. An undercapitalized institution also is generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the Federal Deposit
Insurance Corporation. In addition, the Federal Deposit Insurance Corporation
may take any other action that it determines will better carry out the purpose
of prompt corrective action initiatives.

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<PAGE> 51

Dividend Restrictions. Westernbank is not permitted to pay dividends if,
as the result of the payment, it would become undercapitalized, as defined in
the prompt corrective action regulations of the Federal Deposit Insurance
Corporation. In addition, if Westernbank becomes "undercapitalized" under
"prompt corrective action" initiatives, payment of dividends would be prohibited
without the prior approval of the Federal Deposit Insurance Corporation.
Westernbank also could be subject to these dividend restrictions if the Federal
Deposit Insurance Corporation determines that Westernbank is in an unsafe or
unsound condition or engaging in an unsafe or unsound practice.

ACQUISITION OF THE HOLDING COMPANY

Puerto Rico Change in Bank Control Restrictions. No person or company may
acquire direct or indirect control of the holding company without first
obtaining the prior approval of the Office of the Commissioner. Control is
defined to mean the power to, directly or indirectly, direct or decisively
influence the management or the operations of the holding company, and control
is presumed to exist if a person or entity, or group acting in concert, would
become the owner, directly or indirectly, of more than 5% of the voting stock of
the holding company as a result of the transfer of voting stock, and such
person, entity or group did not own more than 5% of the voting stock prior to
the transfer. In reviewing an application for a change in control, the Office of
the Commissioner will consider, among other things, the experience, integrity
and financial resources of the party seeking control, the effect of the transfer
of control on depositors, creditors and stockholders of the holding company, and
the public interest.

Federal Restrictions. Under the federal Change in Bank Control Act, a
notice must be submitted to the Board of Governors of the Federal Reserve System
if any person (including a company), or group acting in concert, seeks to
acquire 10% or more of the holding company's shares of common stock. Under the
Change in Bank Control Act, the Board of Governors of the Federal Reserve System
takes into consideration certain factors, including the financial and managerial
resources of the acquirer, the convenience and needs of the communities served
by the holding company and Westernbank, and the competitive effects of the
acquisition.

Under the Bank Holding Company Act, any company would be required to obtain
prior approval from the Board of Governors of the Federal Reserve System before
it could acquire "control" of the holding company within the meaning of the Bank
Holding Company Act. Control generally is defined for these purposes to mean the
ownership, control or power to vote 25% or more of any class of voting
securities of the holding company, the ability to control in any manner the
election of a majority of the holding company's directors, or to otherwise have
the power to exercise a controlling influence over the management or policies of
the holding company.

FEDERAL HOME LOAN BANK SYSTEM

Westernbank is a member of the Federal Home Loan Bank System. The Federal
Home Loan Bank provides a central credit facility primarily for member
institutions. Westernbank, as a member of the Federal Home Loan Bank of New
York, is required to acquire and hold shares of capital stock in that Federal
Home Loan Bank in an amount equal to the greater of 1.0% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, 5% of its
Federal Home Loan Bank advances outstanding, or one per cent of thirty per cent
of total assets. At March 31, 1999, Westernbank owned $9.4 million of Federal
Home Loan Bank common stock.

Advances from and securities sold under agreements to repurchase (advances)
with the Federal Home Loan Bank of New York are secured by a member's shares of
stock in the Federal Home Loan Bank of New York, certain types of mortgages and
other assets. Interest rates charged for advances vary depending upon maturity
and cost of funds to the Federal Home Loan Bank of New York. As of March 31,
1999, Westernbank had $116.0 million of outstanding advances from the Federal
Home Loan Bank of New York.

49
<PAGE> 52

BENEFICIAL OWNERSHIP OF SECURITIES

The following table sets forth information known to Westernbank as to any
persons or entities which as of March 1, 1999, by themselves or as a group, as
the term is defined by section 13(d)(3) of the Securities Exchange Act of 1934,
are the beneficial owners of 5% or more of the issued and outstanding common
stock of Westernbank.

<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED AS OF MARCH 1, 1999
---------------------------
NAME ADDRESS AMOUNT(1) PERCENTAGE
---- ------- ---------- ----------
<S> <C> <C> <C>
Frank C. Stipes, Esq Westernbank 2,292,686(2) 5.44%
Chairman of the Board, 19 West McKinley Street
Chief Executive Officer and Mayaguez, Puerto Rico 00680
President
Ileana G. Carr, Honorary Westernbank 5,696,180 13.56%
Directress 19 West McKinley Street
Mayaguez, Puerto Rico 00680
Fredeswinda G. Frontera Westernbank 4,885,836 11.61%
Directress 19 West McKinley Street
Mayaguez, Puerto Rico 00680
Directors and executive officers Westernbank 15,222,896 36.08%
19 West McKinley Street
Mayaguez, Puerto Rico 00680
</TABLE>

Notes:

(1) Based upon information provided by the respective beneficial owners and
filings with the Federal Deposit Insurance Corporation made pursuant to the
Securities Exchange Act of 1934, as amended. Beneficial ownership is direct
except as otherwise indicated by footnote. In accordance with Rule 13d-3 of
the Securities Exchange Act of 1934, as amended, a person is deemed to be
the beneficial owner of a security if he or she has or shares voting power
or investment power with respect to such security or has the right to
acquire such ownership within 60 days. Unless otherwise indicated, all
persons have sole voting and investment powers as to all shares reported.

(2) Includes 119,400 shares of common stock receivable upon conversion of
120,000 shares of Westernbank's series A preferred stock owned by Mr.
Stipes. Also includes 3,100 shares of common stock owned by Mr. Stipes'
daughter.

(3) Includes 83,200 shares owned by Mrs. Carr's husband.

(4) Includes 156,952 shares owned by Mrs. Frontera's spouse and children and
55,720 shares receivable upon conversion of 56,000 shares of series A
preferred stock owned by Mrs. Frontera.

50
<PAGE> 53

INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTORS AND
DIRECTORS WHOSE TERMS CONTINUE

ELECTION OF DIRECTORS

Westernbank's by-laws presently provide for seven directors, with the board
of directors divided into three classes as nearly equal in number as possible.
The members of each class are to be elected for a term of three years and until
their successors are elected and qualified. One class is elected each year on a
rotating basis.

THE NOMINEES

UNLESS OTHERWISE DIRECTED, EACH PROXY EXECUTED AND RETURNED BY A
STOCKHOLDER WILL BE VOTED FOR THE ELECTION OF ALL OF THE NOMINEES LISTED BELOW.
If any nominee is unable or unwilling to stand for election at the time of the
annual meeting, the proxies will nominate and vote for the replacement nominee
or nominees recommended by the board of directors. At this time, the board of
directors knows of no reason why any of the persons listed below may not be able
to serve as a director if elected.

NOMINEES FOR TERMS EXPIRING IN 2002

(PROPOSAL 2)

<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
PRINCIPAL OWNED AS OF
OCCUPATION MARCH 1, 1999(1)
DURING THE DIRECTOR -----------------------
NAME AGE PAST FIVE YEARS SINCE AMOUNT PERCENTAGE
---- --- --------------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cesar A. Ruiz 64 Retired Banker 1972 17,300 *
Fredeswinda G. Frontera 66 Retired Psychologist 1981 4,885,836(2) 11.61%
Cornelius Tamboer 55 Industrial Contractor/Prota 1989 1,626,030(3) 3.87%
Construction, S.E.
</TABLE>

- ---------------
* Represents less than 1% of the outstanding common stock.
Notes:
(1) The number of shares beneficially owned by each director and nominee is
based upon information provided by such persons. All directors and nominees
have sole voting and investment powers as to shares reported, unless
otherwise indicated.

(2) Includes 156,952 shares owned by Mrs. Frontera's spouse and children and
55,720 shares receivable upon conversion of 56,000 shares of series A
preferred stock owned by Mrs. Frontera.

(3) This amount includes 707,480 shares of common stock of Westernbank owned by
Prota Construction, S. E., of which Mr. Tamboer is the holder of 100%
interest and has full voting power, and 10,000 shares of common stock of
Westernbank owned by Tamrio, Inc., of which Mr. Tamboer is the holder of 50%
interest and has shared voting power.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
ABOVE NOMINEES AS DIRECTORS.

51
<PAGE> 54

MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE IN 2001

<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
PRINCIPAL OWNED AS OF
OCCUPATION MARCH 1, 1999(1)
DURING THE DIRECTOR ---------------------
NAME AGE PAST FIVE YEARS SINCE AMOUNT PERCENTAGE
---- --- ---------------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Pedro R. Dominguez 54 First Vice President-- 1992 125,000 *
Southern Region
of Westernbank
Fidel Pino Cros 66 Civil Engineer and 1984 28,012 *
Developer
</TABLE>

- ---------------
* Represents less than 1% of the outstanding common stock.

Notes:
(1) The number of shares beneficially owned by each director and nominee is
based upon information provided by such persons. All directors and nominees
have sole voting and investment powers as to shares reported, unless
otherwise indicated.

MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE IN 2000

<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
PRINCIPAL OWNED AS OF
OCCUPATION MARCH 1, 1999(1)
DURING THE DIRECTOR -----------------------
NAME AGE PAST FIVE YEARS SINCE AMOUNT PERCENTAGE
---- --- ------------------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Frank C. Stipes, Esq 43 Chairman of the Board, 1990 2,292,686(2) 5.17%
Chief Executive Officer
and President of
Westernbank
Angel Luis Rosas, CPA 64 Certified Public 1990 36,580(3) *
Accountant, Private
Investor, Former
President of Puerto Rico
Housing Bank and
Finance Authority,
Developer, Former
Commissioner of
Financial Institutions;
Professor and Former
Dean of Business
Administration at the
University of Puerto
Rico
</TABLE>

- ---------------
* Represents less than 1% of the outstanding common stock.

52
<PAGE> 55

(3) Includes 3,980 shares receivable upon conversion of 4,000 shares of series A
preferred stock owned by Mr. Rosas.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Westernbank's executive compensation program is administered by the board
of directors composed of the non-employee directors, along with Mr. Frank C.
Stipes, Chairman of the Board, Chief Executive Officer and President, who
recused himself from participating in the decision process relative to his own
compensation. None of these non-employee directors nor Mr. Stipes have any
interlocking or other relationship that would call into question their
independence. The executive compensation is aligned and administered to support
the Westernbank's position in the community.

REPORT ON EXECUTIVE COMPENSATION

Under rules established by the Federal Deposit Insurance Corporation, banks
are required to provide certain data and information in regard to the
compensation and benefits provided to the bank's Chairman and Chief Executive
Officer and the four other most highly compensated executive officers
(compensation of $100,000 and over). The disclosure requirements for these five
individuals include the use of tables and a report explaining the rationale and
considerations that led to fundamental executive compensation decisions
affecting those individuals.

At present, Westernbank's executive compensation program is comprised of
salary, one month of salary as Christmas bonus and other employee benefits
typically offered to executives. Westernbank also grants a special performance
bonus to certain executive officers, including Mr. Frank C. Stipes, Chairman of
the Board, Chief Executive Officer and President. This bonus is granted after an
assessment of Westernbank's performance is made for the year, both individually
and compared to its peer group, which includes among other factors, return on
average assets, return on average equity, stock price behavior and Westernbank's
regulatory classification. With regard to compensation affecting Mr. Stipes the
non-employee members of the board of directors act as the approving body, with
Mr. Stipes not participating in the decision process. Mr. Stipes's salary is
revisable periodically based on market average for such responsibilities and
Westernbank's net income, delinquency ratio, stability and soundness of
operations. For this purpose the Westernbank board reviews applicable
information for comparable positions in financial institutions of similar size
and operating conditions in Puerto Rico. Presently, salary revisions for all
executive officers and employees, including Mr. Stipes, are made every eighteen
months.

<TABLE>
<S> <C> <C>
FRANK C. STIPES, ESQ. FREDESWINDA G. FRONTERA CESAR A. RUIZ
Chairman of the Board, Chief Directress Director
Executive Officer and President

FIDEL PINO CROS CORNELIUS TAMBOER ANGEL LUIS ROSAS
Director Director Director
</TABLE>

SUMMARY COMPENSATION TABLE

53
<PAGE> 56

<TABLE>
<CAPTION>
NAME AND OTHER
PRINCIPAL ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS(2) COMPENSATION COMPENSATION(5)
--------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Freddy Maldonado,.................. 1998 $135,000(1) $252,500 $ -- $22,107
Chief Financial Officer, 1997 135,000(1) 212,500 -- 8,498
Vice President of Finance 1996 122,939(1) 162,500 -- 10,820
and Investment
Pedro R. Dominguez,................ 1998 89,000(1) 220,417 42,494(3) 18,381
First Vice President -- 1997 89,000(1) 185,417 42,494(3) 5,760
Southern Region 1996 87,234(1) 135,417 36,142(3) 9,628
Alfredo Padilla,................... 1998 114,000(1) 29,500 23,752(4)
Vice President of 1997 114,000(1) 24,500 23,693(4) 18,401
Administration 1996 92,077 15,000 18,209(4) 1,110
Miguel E. Romeu,................... 1998 116,769 31,000 --
Vice President
Chief Retail Banking
Officer
</TABLE>

Notes:
(1) Includes amounts deferred by the individual pursuant to Westernbank's
1165(e) plan, described below.

(2) Includes a special performance bonus granted at year end and the Christmas
Bonus that is granted under Puerto Rico legislation. Westernbank has
normally granted one month of salary as Christmas Bonus.

(3) Includes $12,000, $12,000 and $9,692 allowance attributable to business
relationships and representation expenses, and $24,000, $24,000 and $19,000
living allowance in 1998, 1997 and 1996, respectively.

(4) Includes $18,000, $18,000 and $13,500 allowance attributable to business
relationships and representation expenses in 1998, 1997 and 1996,
respectively. Also includes for 1996 $4,709 attributable to use of
automobile owned by Westernbank.

(5) Represents employer contribution corresponding to the named person for
Westernbank's profit sharing/1165(e) plan. The referred plan covers
substantially all employees and provides for retirement and disability
benefits.

WESTERNBANK STOCK OPTION GRANTS

Westernbank had no outstanding stock options as of December 31, 1998. No
stock options were granted during 1998. All of Westernbank's previously
outstanding stock option grants were exercised during the year ended December
31, 1996 or before.

At the annual meeting, the common stockholders of Westernbank will be asked
to approve Westernbank's 1999 Stock Option Plans. For more information about the
1999 Stock Option Plans, please see the section of this proxy
statement/prospectus captioned "Approval of the 1999 Stock Option Plans" below.

54
<PAGE> 57

WESTERNBANK BOARD MEETINGS, COMMITTEES AND COMPENSATION

The board of directors of Westernbank meets once each month. In addition,
the board has several committees, including those described below. No director
of Westernbank attended less than 75% of the aggregate of the total number of
board meetings held during calendar year 1998 and the total number of meetings
held by committees on which he or she served during this year. The board of
directors fees, except for directors who are also officers of Westernbank or who
are receiving benefits from any retirement plan, amounted to $15,000.00 per year
payable in monthly installments of $1,250.00.

Mr. Cesar Ruiz, a director of Westernbank, only receives a $350.00 fee per
board of directors meeting attended. During 1998 he received board of directors
fees amounting to $4,200.00, corresponding to 12 board of directors meetings
attended.

Mr. Angel Luis Rosas, a director of Westernbank, in addition to the
director fee, receives $1,000 per month as consultant and advisor and $500 per
month for car allowance. During 1998 Mr. Rosas received $18,000.00 corresponding
to those services.

In addition to fees for attendance at board and committee meetings,
directors who are not employees of Westernbank are eligible for health and
insurance benefits.

The board of directors of Westernbank has no formal nominating or
compensating committees. The full board of directors performs the functions
normally corresponding to those committees.

Westernbank's executive committee is authorized to exercise all the
authority of the board of directors in the management of Westernbank between
board meetings. The members of the executive committee are Messrs. Frank C.
Stipes, Cesar A. Ruiz, Cornelius Tamboer and Angel Luis Rosas. The executive
committee holds periodical meetings as required.

Westernbank's audit committee consist solely of outside directors. The
audit committee reviews independent auditors reports, regulatory examination
reports and internal audit reports. The members of the audit committee are Mrs.
Fredeswinda G. Frontera, Messrs. Angel Luis Rosas, Cornelius Tamboer and Fidel
Pino Cros. The audit committee meets once each month.

The mortgage credit committee approves all residential and commercial
mortgage loans originated by Westernbank up to $1,000,000. All of such loans in
excess of $1,000,000 are reviewed by the full board of directors. The members of
the mortgage credit committee are Mrs. Mayra Neris Vega and Messrs. Frank C.
Stipes and Fidel Pino Cros. The committee holds weekly meetings or as frequent
as necessary.

Westernbank's investment committee is responsible for Westernbank's
asset/liability oversight. Through policies designed to manage the flow of funds
and the use and pricing of such funds, the investment committee supervises the
Department's responsibility of maintaining an acceptable interest rate spread,
while assuring that Westernbank complies with all applicable investment and
liquidity requirements. The investment committee is composed of the entire board
of directors and the Chief Financial Officer, Mr. Freddy Maldonado. The
investment committee meets once each month.

Westernbank's commercial credit committee is responsible for Westernbank's
commercial lending policies and procedures. It also approves loans from $250,000
to $1,000,000. Loans in excess of $1,000,000 are reviewed by the full board of
directors. The members of the commercial credit committee are Messrs. Frank C.
Stipes, Fidel Pino Cros, Angel Luis Rosas, Cornelius Tamboer, Pedro R.
Dominguez, Miguel Aran, Jose E. Rivera, Alfredo Pagan, Christian Jetter and
Ricardo Cortina. The commercial credit committee meets every week or as frequent
as necessary.

The community reinvestment act committee oversees the planning of products
and services offered to the community, specially those aimed to serve low and
moderate income families. The community reinvestment act committee members are
Messrs. Frank C. Stipes, Fidel Pino Cros, Angel Luis Rosas, Edwin Torres, Jose
E. Rivera, Roberto Caro and Mrs. Mayra Neris Vega.

55
<PAGE> 58

WESTERNBANK SEVERANCE PAYMENT AGREEMENTS

On June 28, 1996, Westernbank entered into two-year severance payment
agreements with Messrs. Alfredo Padilla, Alfredo Pagan, Freddy Maldonado and
Pedro R. Dominguez. On each anniversary of the date of commencement of the
agreements, the term of employment is automatically extended for an additional
one-year period unless written notice from Westernbank is received not less than
60 days prior to an anniversary date advising the other party that the agreement
shall not be further extended.

The severance payment agreements provide for severance payments in
connection with an involuntary termination after a change in control or a
voluntary termination of employment where for good reason, subsequent to a
change in control of Westernbank, any of the recipients is assigned duties
inconsistent with his position, duties, responsibilities and status.

For purposes of the severance payment agreements, "good reason" includes a
material reduction in the position, status, authority, duties, responsibilities,
compensation, perquisites, conditions of employment, or location of employment
of the employee from those that existed before the change in control. Unless
Westernbank within ten working days of the date of such notice of resignation,
rejects the employee statement that the "good reason" exists, the employee is
conclusively deemed to have voluntarily resigned with "good reason". If
Westernbank rejects the employee's statement that "good reason" exists, the
dispute is required to be resolved by arbitration under the Commercial
Arbitration Rules of the American Arbitration Association, and Westernbank will
have the burden of proving that the rejection of the employee's statement was
proper.

For the purposes of the severance payment agreements, a change in control
is deemed to occur if:

- 33% or more of ownership control, power to vote or beneficial ownership
of any class of voting securities of Westernbank is acquired by any
person, either directly or indirectly or acting through one or more other
persons;

- any person (other than any person named as a proxy in connection with any
solicitation on behalf of the board of directors of Westernbank) holds
revocable or irrevocable proxies as to election or removal to three or
more directors of Westernbank, for 33% or more of the total voting shares
of Westernbank;

- any person has received all applicable regulatory approvals to acquire
control of Westernbank;

- any person has commenced a cash tender or exchange offer, or entered into
an agreement or received an option, to acquire beneficial ownership of
33% or more of the total number of voting shares of Westernbank, whether
or not any requisite regulatory for such acquisition has been received,
provided that a change in control will not be deemed to have occurred
under this clause unless the board of directors of Westernbank has made a
determination that such action constitutes or will constitute a change in
control; or

- as a result of or in connection with, any cash tender or exchange offer,
merger or any other business combination, sale of assets or contested
election or any combination of the foregoing transactions, (a) the
persons who were directors of Westernbank before such transaction shall
cease to constitute at least a majority of the board of its successor or
(b) the persons who were stockholders of Westernbank immediately before
such transaction do not own more than 50% of the outstanding voting stock
of Westernbank or its successor immediately after such transaction.

If employment were terminated under such circumstances following a change
in control, or for "good reason" (as defined above), the following amounts would
be payable to Messrs. Maldonado, Padilla, Dominguez and Pagan, respectively:
$448,500, $394,680; $373,750; and $225,924. The special compensation to be
received for termination of employment in connection with a change in control
pursuant to these severance payment agreements may not exceed in any event
$500,000 for each recipient.

56
<PAGE> 59

WESTERNBANK HEALTH AND INSURANCE BENEFITS

Westernbank's full-time officers and employees are provided
hospitalization, major medical, and long-term disability insurance.
Westernbank's directors are provided hospitalization and major medical coverage.
Westernbank pays a substantial part of the premiums for these coverages. Because
of the increased costs of health insurance, plan participants are required to
make a contribution to share the insurance premium cost. All insurance coverage
under these plans is provided under group plans on generally the same basis to
all full-time employees. In addition, Westernbank maintains term life insurance,
which provides benefits to all employees who have completed three or more months
full-time employment with Westernbank. The terms of Westernbank's policy provide
benefits for Westernbank's president and vice presidents equal to four times the
employee's annual base earnings (exclusive of overtime pay or bonuses). The
benefit for other exempt employees is 3.5 times the employee's annual base
earnings and three times employees' annual base earnings for all other
employees. Westernbank also maintains a policy of hazard travel insurance for
each employee who is vice president or higher.

PENSION AND RETIREMENT PLAN FOR EMPLOYEES OF WESTERNBANK

Westernbank maintained a qualified, non-contributory, defined benefit
retirement plan until June 30, 1993, which covered substantially all employees,
including officers. The pension plan was self-administered with the retention of
professional services. The trustees of the pension plan were Messrs. Frank C.
Stipes, Chairman of the Board, Chief Executive Officer and President, and Freddy
Maldonado, Chief Financial Officer and Vice President of Finance and Investment.

Effective June 30, 1993, the accrual of benefits for participants of the
pension plan was frozen. The June 30, 1993 accrued benefit will be guaranteed
and payable with at least 120 monthly payments guaranteed, as of the normal
retirement date of each participant as a minimum pension. At the time the
pension plan was frozen, Messrs. Frank C. Stipes and Pedro R. Dominguez had 4
years 9 months and 3 years 9 months of service, respectively.

Westernbank terminated the pension plan during 1998, following the standard
form of termination. Annuities were purchased for retired employees that were
receiving their monthly pension benefit and for those active and inactive
employees that selected this option. Remaining assets were distributed in lump
sum payments, rollovers to Individual Retirement Accounts and transfers to
Westernbank's 1165(e) Plan, described below.

AMENDED RETIREMENT PLAN FOR DIRECTORS OF WESTERNBANK

In January 1988, Westernbank established a retirement plan for directors of
Westernbank who were not executive officers of Westernbank. This plan was
substantially amended in February 24, 1989, to limit the pension benefits to
directors who were founders of Westernbank who at that time had attained the age
of 50 years and had served for twenty five consecutive years on the board of
directors. As of the date of the amendment only the following three founder
directors (since 1958) qualified for retirement benefits under the amended
retirement plan: Mr. Luis A. Rechani Agrait, 86, Mr. Juan E. Vilella, 88, and
Mr. Jesus M. Guzman, 71. By approving the amendment the other directors that
were not executive officers waived and renounced their pension benefits under
the retirement plan.

Pursuant to the amended retirement plan, 30 days after his or her
resignation or termination as a director, a participating director was entitled
to a monthly pension benefit for the remainder of his or her life, and if he or
she shall die prior to the end of his or her tenth year of retirement, his or
her heirs shall continue to receive fifty percent of the pension benefit which
otherwise would have been payable until the end of the tenth year following the
director's retirement. In July 1989, Messrs. Jesus Guzman and Luis A. Rechani
Agrait retired from the Westernbank board of directors and commenced receiving
retirement benefits under the retirement plan. In June 1992, Mr. Juan E. Vilella
retired from the board of directors and commenced receiving retirement benefits
under the retirement plan. Messrs. Luis A. Rechani Agrait and Juan E. Vilella
died during 1994. Their heirs continue to receive fifty percent of their pension
benefit

57
<PAGE> 60

until the end of the tenth year following the director's retirement. The
retirement plan was unfunded as of December 31, 1998.

PROFIT SHARING/1165(e) PLAN FOR EMPLOYEES OF WESTERNBANK

Westernbank maintains a non-contributory profit sharing plan which covers
substantially all employees and which provides for retirement and disability
benefits. The profit sharing plan is self-administered with the retention of
professional administrative services. All the contributions to the profit
sharing plan, which are held in trust, are commingled and invested on a pooled
basis. The trustees of the profit sharing plan are Messrs. Frank C. Stipes,
Chairman of the Board, Chief Executive Officer and President, Freddy Maldonado,
Chief Financial Officer and Vice President of Finance and Investment and Pedro
R. Dominguez, First Vice President -- Southern Region. The shares of common of
Westernbank held by Mr. Frank C. Stipes are set forth above under the caption
"Members of the Board of Directors Continuing in Office Whose Terms Expire in
2000." Mr. Freddy Maldonado owns 470,672 shares of Westernbank common stock in
his personal capacity and Mr. Pedro R. Dominguez owns 125,000 shares of
Westernbank common stock in his personal capacity.

Participants in the profit sharing plan will be vested upon completing five
years of service with Westernbank, with no vesting prior to such time. The
profit sharing plan complies with amendments to the Age Discrimination in
Employment Act of 1987 that mandate the elimination of provisions that require
the retirement of employees at any age. Provisions in the profit sharing plan
allow withdrawals after five years, provided certain substantial conditions or
restrictions are met.

Westernbank contributes each fiscal year to the profit sharing plan out of
its current or accumulated after-tax net profit such amount as determined by the
board of directors of Westernbank. Notwithstanding the foregoing, however,
Westernbank's contribution for any fiscal year may not exceed the maximum amount
allowable as a deduction to Westernbank under the provisions of section 23(p)-2
of the Puerto Rico Income Tax Act of 1954, as amended, or as replaced from time
to time. All contributions by Westernbank are required to be made in cash or in
such property as is acceptable to the trustees.

As of each anniversary date, the profit sharing contribution and any
previously unallocated forfeitures of employer profit sharing contributions is
allocated to the account of each participant who is eligible to share in the
same ratio that such participant's credited points for the calendar year bear to
the total credited points of all such participants for such year. On each
anniversary date, the credited points for each participant is determined on the
basis of the following schedule:

<TABLE>
<CAPTION>
FOR EACH FULL AND
FRACTIONAL $100 OF TOTAL
FOR EACH COMPLETE YEAR OF COMPENSATION PAID TO THE
YEARS OF SERVICE SERVICE PARTICIPANT IN THE CALENDAR YEAR
- ---------------- ------------------------- --------------------------------
<S> <C> <C>
0-5 2 1
6 or more 3 1
</TABLE>

For purposes of eligibility, a year of service means a 12-month period,
beginning on the date of hire, during which employees are paid, or entitled to
payment, for 1,000 or more hours of employment. If they do not meet the 1,000
hours requirement in the first 12 months after their date of hire, they will be
credited with a year of service for any plan year which begins after their date
of hire during which they are credited with 1,000 or more hours.

A year of service, for purposes of vesting, means a plan year during which
employees were credited for 1,000 or more hours.

A total of $608,485 was distributed to certain participants in the profit
sharing plan in 1998. Westernbank contributed $570,004 to the profit sharing
plan in 1998.

Effective January 1, 1995, Westernbank added to its profit sharing plan a
defined contribution plan under Section 1165(e) of the Puerto Rico Treasury
Department Internal Revenue Code, covering all full-

58
<PAGE> 61

time employees of Westernbank who have one year of service and are twenty-one or
older. Westernbank is required to give each prospective eligible employee
written notice of his or her eligibility to participate in the defined
contribution plan in sufficient time to enable the prospective eligible employee
to submit an application for participation in the defined contribution plan
prior to the quarter in which he or she first become an eligible employee. Under
the provisions of the defined contribution plan, participants may contribute
each year from 2% to 10% of their compensation after deducting social security,
up to a specific maximum established by law. Westernbank contributes 50 percent
of the first 6 percent of base compensation that a participant contributes to
the defined contribution plan. Participants are immediately vested in their
contributions plus actual earnings thereon. Westernbank's contributions plus
actual earnings thereon are 100 percent vested after five years of credited
service. In case of death and disability, a participant will be 100 percent
vested regardless of the number of years of credited service. Westernbank's
contribution for the year ended December 31, 1998 was $133,147.

INDEBTEDNESS OF MANAGEMENT OF WESTERNBANK

The Federal Deposit Insurance Corporation requires that any credit extended
by Westernbank to its executive officers, directors and to the extent otherwise
permitted, principal stockholders, or any related interest of the foregoing,
must be (i) on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions by
Westernbank with non-affiliated parties and (ii) not involve more than the
normal risk of repayment or present other unfavorable features.

Westernbank's conflict of interest policy is consistent with this
legislation, and states that only a first mortgage is permitted to be executed
by Westernbank members over their primary residence. Home equity second
mortgages will not be permitted. No officer, director or employee may have with
Westernbank any other type of loan or indebtedness, except for a credit card,
unless these are fully cash collateralized.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires that
Westernbank's directors and executive officers, and persons who own more than
ten-percent of a registered class of Westernbank's equity securities, file with
the Federal Deposit Insurance Corporation, initial reports of ownership and
reports of changes in ownership of Westernbank common stock and other equity
securities of Westernbank. Officers, directors and greater than ten-percent
stockholders are required by the Federal Deposit Insurance Corporation
regulation to furnish Westernbank with copies of all Section 16(a) forms they
file.

The table below shows the officers and directors of Westernbank who during
1998 inadvertently filed the following number of overdue Section 16(a) reports
covering the following number of transactions in Westernbank securities:

<TABLE>
<CAPTION>
NAME LATE REPORTS TRANSACTIONS
---- ------------ ------------
<S> <C> <C>
Angel Luis Rosas 1 1
Cornelius Tamboer 1 2
Cesar A. Ruiz 1 1
</TABLE>

59
<PAGE> 62

PERFORMANCE OF WESTERNBANK COMMON STOCK

The following graph compares the total cumulative returns (including
reinvestment of dividends) of $100 invested on December 31, 1993 in (a)
Westernbank common stock (b) the Nasdaq Stock Market (US Companies) and (c)
Nasdaq Bank Stocks.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR WESTERNBANK PUERTO RICO
[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
NASDAQ STOCK
WESTERNBANK MARKET (US NASDAQ BANK
PUERTO RICO COMPANIES) STOCKS
<S> <C> <C> <C>
12/31/93 100.0 100.0 100.0
12/30/94 138.5 97.8 99.6
12/29/95 278.8 138.3 148.4
12/31/96 613.4 170.0 195.9
12/31/97 1,344.7 208.6 328.0
12/31/98 1,804.5 293.2 324.9
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDED
---------------------------------------------------------------
INDEX 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Westernbank Puerto Rico................ 100.0 138.5 278.8 613.4 1,344.7 1,804.5
Nasdaq Stock Market (US Companies)..... 100.0 97.8 138.3 170.0 208.6 293.2
Nasdaq Bank Stocks..................... 100.0 99.6 148.4 195.9 328.0 324.9
SIC 6020-6029, 6710-6719 US &
Foreign..............................
</TABLE>

Notes:

(a) The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
(b) The indexes are reweighted daily, using the market capitalization on the
previous trading day.
(c) If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
(d) The index level for all series was set to $100.00 on 12/31/93.

60
<PAGE> 63

APPROVAL OF WESTERNBANK 1999 STOCK OPTION PLANS

(PROPOSAL THREE)

In 1999, the Westernbank board of directors adopted 1999
Qualified Stock Option Plan (the "1999 Qualified Option Plan") and the 1999
Nonqualified Stock Option Plan (the "1999 Nonqualified Plan") (collectively, the
"1999 Plans") for the benefit of employees of Westernbank and its subsidiaries.
The 1999 Plans are subject to shareholder approval at the Annual Meeting.

The board of directors of Westernbank believes that stock options and other
forms of equity-based incentive compensation are important to attract and to
encourage the continued service of key officers by facilitating their
acquisition of a stock interest in Westernbank.

The 1999 Plans are subject to approval by the holders of at least a
majority of the voting shares. By submitting the 1999 Qualified Option Plan for
shareholder approval at the Annual Meeting, Westernbank intends to comply with
the plan requirements pertaining to options meeting the standards as "qualifying
stock options" for Puerto Rico income tax purposes. See "Puerto Rico Income Tax
Consequences" below.

Presently, the board intends to grant options only to key officers of
Westernbank.

PURPOSES OF THE 1999 PLANS

The board of directors endorses the position that stock ownership by
management and stock-based plans are beneficial in aligning management's and
shareholders' interests in the enhancement of shareholder value. The purposes of
the 1999 Plans are to enhance performance and to encourage the ownership of
Westernbank's common stock.

DESCRIPTION OF THE 1999 PLANS

The 1999 Qualified Option Plan provides for the grant of qualifying options
(as defined below) to employees of Westernbank and its subsidiaries. The 1999
Nonqualified Plan provides for the grant of non-qualified options (as defined
below) to such individuals. In other respects, the 1999 Plans are substantially
identical, except as discussed below.

The 1999 Plans can be administered by the board, or a committee appointed
by the board (the "Plan Administrators"), who are given absolute discretion to
select the persons to whom rights will be granted and determine the number of
rights to be granted to each.

Under the 1999 Qualified Option Plan, options for up to shares of
common stock can be granted. Options for up to shares of common stock
can be granted under the 1999 Nonqualified Plan. Westernbank will adjust the
number and kinds of shares subject to the 1999 Plans, and the number, kinds, and
per share exercise price of shares subject to the unexercised portion of options
granted before any increase, decrease or other change in the outstanding shares
of common stock, by reason of any of the following:

- merger

- consolidation

- reorganization

- recapitalization

- reclassification

- stock split-up

- combination of shares

- exchange of shares

- stock dividend
61
<PAGE> 64

- other distribution payable in capital stock

- other increase or decrease in such shares without receipt of
consideration by Westernbank

Any such adjustment in an outstanding option, however, will be made without
a change in the total price applicable to the unexercised portion of the option
but with a corresponding adjustment in the per share option price.

The 1999 Plans will remain in effect for a term of 10 years from
1999, unless sooner terminated in accordance with their terms. The
Board may amend or terminate the 1999 Plans except that without approval of
shareholders no amendment may change the maximum number of shares that may be
issued under the 1999 Plans or change the class of eligible employees.

The 1999 Plans must be approved by shareholders within one year of the date
of adoption. No grants will be made pursuant to the 1999 Plans unless and until
such approval is obtained.

OPTIONS UNDER THE 1999 PLANS

One or more options may be granted under the 1999 Plans to any eligible
person, provided that under the 1999 Qualifying Plan, in any calendar year, the
aggregate fair market value (determined at the time the options are granted) of
the stock for which qualifying options first become exercisable in a year by
each eligible individual may not exceed $100,000. As described below, the tax
treatment differs substantially with respect to qualified and non-qualified
options.

A qualifying option is defined as an option granted to an employee in
connection with his or her employment to purchase stock that satisfies certain
conditions. A qualifying option must be granted pursuant to a plan specifying
the aggregate number of shares to be issued and the employees or class of
employees eligible to receive such options. A non-qualifying option is an option
that does not meet the conditions specified in the Puerto Rico tax code for
qualified options.

The exercise price of options granted under the 1999 Plans may not be less
than the greater of the book value or the fair market value of the stock at the
date of the grant and no option may be granted more than 10 years from the date
of adoption of the 1999 Plans. No option may be exercised after 10 years from
the date it is granted (10 years and one day, in the case of a non-qualifying
option). Qualifying options are not transferable, except at death by will or by
the laws of [descent and distribution]. An optionee can transfer non-qualifying
options at death by will or the laws of [descent and distribution] or during his
or her lifetime by gift to certain family members.

Options are exercisable during the period specified in each option
agreement, although no expiration date will be later than the tenth anniversary
of the date on which the option was granted (one day after such tenth
anniversary in the case of a non-qualifying option). Except as otherwise
provided in an option agreement, if an optionee's employment or service
terminates because the optionee is disabled (as defined) or if he or she dies
while employed by or in the service of Westernbank or a subsidiary, all options
previously granted would become vested and immediately exercisable. In the case
of death, the person or persons to whom the optionee's rights under the option
pass by will or by the laws of descent and distribution will have one year to
exercise the options, unless otherwise specified in the specific option
agreement. If the employment or service of an optionee terminates for any other
reason, his or her options will be exercisable for three months following
termination of employment to the extent exercisable on the date of termination,
unless otherwise provided in the option agreement. In no event, however, will
the exercise period extend beyond the original expiration date of the option.

Payment for shares purchased under the 1999 Plans may be made either in
cash or by exchanging shares of common stock of Westernbank with a fair market
value of up to not less than the total option price plus cash for any
difference. The 1999 Plans also permit "cashless" exercises of options through a
broker reasonably acceptable to Westernbank.

Upon any dissolution or liquidation of Westernbank, or upon a
reorganization, merger or consolidation in which Westernbank is not the
surviving bank, or upon the sale of all or substantially all of the property
62
<PAGE> 65

of Westernbank to another bank, or upon any transaction (including, without
limitation, a merger or reorganization in which Westernbank is the surviving
bank) approved by the Board that results in any person or entity owning 50
percent or more of the total combined voting power of all classes of stock of
Westernbank, the 1999 Plans and the options issued thereunder will terminate,
unless provision is made in connection with such transaction for the
continuation of the plans, the assumption of the options or both, or for the
substitution for such options of new options covering the stock of a successor
employer or a parent or subsidiary thereof, with appropriate adjustments as to
the number and kinds of shares and the per share exercise price. In the event of
such termination, all outstanding options shall be exercisable in full during
such period immediately before the occurrence of such termination as the board
of directors in its discretion shall determine.

The granting of an option does not confer upon the optionee any right to
remain in the employ or service of Westernbank. The optionee will have no
dividend or voting rights to the shares until the exercise price has been paid
in full upon exercise.

PUERTO RICO INCOME TAX CONSEQUENCES

The income tax treatment of qualifying options and non-qualifying options
is substantially different. As regards qualifying options, an optionee will not
recognize income at the time the option is granted or at the time the option is
exercised. When an optionee sells or otherwise disposes, in a taxable
transaction, of shares of stock received pursuant to the exercise of a
qualifying option, he or she will recognize capital gain or loss, measured by
the difference between the exercise price and the amount realized.

In order for an optionee to receive this favorable tax treatment, he or she
must, with the exceptions noted below with respect to death or disability, be an
employee of the entity granting the option (or of a parent or subsidiary of such
entity) at all times within the period beginning on the date of the grant and
ending on a date within three months before the date of exercise. In the case of
an optionee who is disabled, as defined by the Puerto Rico Internal Revenue Code
of 1994, as amended (referred to in this Section as the "Puerto Rico Code"), the
three-month period for exercise following termination of employment is extended
to one year. If the estate of a deceased optionee exercises a qualifying option,
the three-month period is waived altogether.

If the optionee qualifies for the favorable tax treatment described above,
Westernbank will not be entitled to any deduction with respect to the option for
Puerto Rico income tax purposes.

With respect to non-qualifying options, so long as the option is
nontransferable and does not have an ascertainable fair market value, the
optionee will not realize taxable income when the option is granted. Upon
exercise, the difference between the fair market value on the date of exercise
(or, if the optionee is subject to certain restrictions at the time of exercise,
when such restrictions expire, unless the optionee makes a special tax election
within 30 days following exercise) and the option exercise price will be treated
as compensation income. If Westernbank satisfies applicable information
reporting requirements, it will be entitled to a deduction for Puerto Rico
income tax purposes in the same amount. On a subsequent sale or exchange of the
shares acquired pursuant to the exercise of the non-qualifying option, the
optionee may have taxable gain or loss, measured by the difference between the
amount realized on the disposition and the tax basis of such shares. Tax basis
will, in general, be the amount paid for the shares plus the amount treated as
compensation income at the time the optionee acquires the shares (or when
applicable restrictions have lapsed).

Generally, if an optionee tenders to Westernbank shares of stock in payment
of the exercise price of an option, the transaction will be viewed as a tax-free
exchange of such shares and the rules summarized above generally will apply with
respect to the tax treatment of the exercise transaction (except that the basis
of a number of shares equal to the number of shares exchanged will be determined
by reference to the basis of such exchanged shares).

63
<PAGE> 66

The foregoing is a brief summary of the principal Puerto Rico income tax
consequences of awards under the 1999 Plans. Recipients of options should
consult with their own personal tax advisors with respect to such grants and
transactions in stock acquired under the 1999 Plans.

REQUIRED VOTE

The affirmative vote of the holders of at least a majority of the
outstanding voting shares at the Annual Meeting is required for approval of this
proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE 1999 QUALIFIED
STOCK OPTION PLAN AND THE 1999 NONQUALIFIED STOCK OPTION PLAN

PROPOSED INCREASE IN AUTHORIZED CAPITAL STOCK OF WESTERNBANK
(PROPOSAL 4)

Under Westernbank's restated certificate of incorporation, Westernbank is
authorized to issue 75,000,000 shares of common stock and 5,000,000 shares of
preferred stock. This proposal would increase the number of shares of common
stock that Westernbank is authorized to issue from 75,000,000 to 300,000,000
shares and increase the number of shares of preferred stock that Westernbank is
authorized to issue from 5,000,000 to 20,000,000 shares. The board of directors
has determined that this proposal is advisable and in the best interests of
Westernbank and its shareholders and recommends that the holders of Westernbank
common stock vote to approve this proposal. If this proposal is approved, the
holding company also will have authorized 300,000,000 shares of common stock and
20,000,000 shares of preferred stock. If this proposal is not approved, the
holding company will amend its capitalization prior to becoming a holding
company of Westernbank to provide for the authority to issue 75,000,000 shares
of common stock and 5,000,000 shares of preferred stock.

On the April 15, 1999 record date, there were 42,000,000 shares of
Westernbank common stock and 1,219,000 shares of Westernbank preferred stock
outstanding. In addition, if the 1999 Plan is approved, an additional 4,200,000
shares of Westernbank common stock will be reserved for issuance upon the
exercise of stock options.

Approval of this proposal would result in Westernbank (and, if the holding
company reorganization is completed, the holding company) having
authorized but not outstanding shares of common stock and
authorized but not outstanding shares of preferred stock available for issuance
based on the number of shares of Westernbank common stock and preferred stock
outstanding on April 15, 1999. Although Westernbank has no specific plans to
issue shares of common stock or preferred stock except as otherwise disclosed
herein, the board of directors believes that the increase in the authorized
number of shares of capital stock is necessary to provide a sufficient number of
shares available in the future for use in connection with raising additional
capital through public offerings or private placements, possible future mergers
or acquisitions, possible stock dividends or splits and employee option or stock
ownership plans.

The unissued and unreserved shares of common stock and preferred stock will
be available for any proper corporate purpose, as authorized by the board of
directors, without further approval by the shareholders, except as otherwise
required by law or the rules of The Nasdaq Stock Market, Inc. Shareholders do
not have any preemptive or other rights to purchase additional shares of capital
stock. Further issuances of additional shares of common stock or securities
convertible into common stock, therefore, may have a dilutive effect on holders
of common stock.

Westernbank's certificate of incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by its board of directors. Accordingly, the
board of directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
common stock. The issuance of preferred stock could discourage, delay or prevent
a change in control and also may have the effect of discouraging a third party

64
<PAGE> 67

from making a tender offer or otherwise attempting to obtain control even though
such a transaction might be economically beneficial to the shareholders. The
board of directors has concluded, however, that the potential benefits of this
provision outweigh the possible disadvantages.

THE BOARD OF DIRECTORS OF WESTERNBANK RECOMMENDS A VOTE "FOR"
APPROVAL OF THE INCREASE IN THE AUTHORIZED CAPITAL STOCK OF THE HOLDING COMPANY.

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 5)

The board of directors has appointed Deloitte & Touche LLP as independent
auditors of Westernbank for the year ending December 31, 1999, subject to
stockholder approval of the appointment at the annual meeting. Deloitte & Touche
LLP has served as Westernbank's independent auditors for each of the fiscal
years ended 1985 through 1998. Westernbank has been advised by Deloitte & Touche
LLP that neither Deloitte & Touche LLP nor any of its associates has any
relationship with Westernbank other than the usual relationship that exists
between independent certified public accountants and clients. Deloitte & Touche
LLP will have representatives at the annual meeting who will have an opportunity
to make a statement, if they so desire, and who will be available to respond to
appropriate questions. Assuming the presence of a quorum at the annual meeting,
the affirmative vote of a majority of the total votes eligible to be cast by the
holders of common stock at the annual meeting is required to approve the
ratification of the appointment of Deloitte & Touche LLP. Unless otherwise
indicated, properly executed proxies will be voted FOR the proposed
ratification. No determination has been made as to what action the board of
directors would take if the stockholders do not ratify the appointment of
Deloitte & Touche LLP.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR 1999.

WHERE YOU CAN FIND MORE INFORMATION

Westernbank is subject to the information reporting requirements of the
Securities Exchange Act of 1934 and, in accordance with that law, files reports,
proxy statements and other information with the Federal Deposit Insurance
Corporation. Reports, proxy statements and other information filed by
Westernbank can be inspected and copied at the public reference facilities
maintained by the Federal Deposit Insurance Corporation at 550 17th Street N.
W., Washington, D.C. 20429. Also, copies of these documents may be obtained by
writing to the Registration, Disclosure and Securities Operations Unit of the
Federal Deposit Insurance Corporation at 550 17th Street, Rm. F-6043,
Washington, D.C. 20429, by calling (202) 898-8913 or by fax at (202) 898-3909.
Westernbank's common stock is listed on the Nasdaq Stock Market's National
Market Tier under the trading symbol WBPR.

The holding company will not be subject to the information requirements of
the Securities Exchange Act of 1934 until after the reorganization takes place.
After the reorganization takes place, the holding company's common stock and
series A preferred stock will be listed for trading on the Nasdaq Stock Market's
National Market Tier, the holding company will be subject to the information
requirements of the Securities Exchange Act of 1934 and the holding company will
file reports, proxy statements and other information with the Securities and
Exchange Commission. At the time of such listing, the common stock and series A
preferred stock of Westernbank will be withdrawn from listing and registration
under the Securities Exchange Act of 1934.

65
<PAGE> 68

INFORMATION INCORPORATED BY REFERENCE

Any statement contained in a document incorporated by reference into this
proxy statement/prospectus shall be deemed to be modified or superseded for all
purposes to the extent that a statement contained in this proxy
statement/prospectus or in any other subsequently filed document which is also
incorporated by reference modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this proxy statement/prospectus.

If you call or write to us, we will send to you without charge a copy of
any or all of the documents described above, other than exhibits to those
documents that are not incorporated by reference into such documents. To request
documents, call or write to Mr. Angel Luis Rosas, Secretary, W Holding Company,
Inc., 19 West McKinley Street, Mayaguez, Puerto Rico 00680, telephone (787)
834-8000.

FINANCIAL STATEMENTS

A copy of Westernbank's Annual Report to Stockholders containing financial
statements for the fiscal year ended [December 31, 1998] prepared in accordance
with generally accepted accounting principles accompanies this proxy
statement/prospectus.

ANNUAL REPORT

A copy of Westernbank's Annual Report to Stockholders for the year ended
December 31, 1998 accompanies this proxy statement/prospectus. The Annual Report
is not part of the proxy solicitation materials.

IF WE RECEIVE A WRITTEN REQUEST, WE WILL FURNISH TO ANY STOCKHOLDER,
WITHOUT CHARGE, A COPY OF WESTERNBANK'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998, AND THE LIST OF EXHIBITS TO THAT REPORT THAT ARE
REQUIRED TO BE FILED WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION UNDER THE
SECURITIES EXCHANGE ACT OF 1934. A written request should be sent to Mr. Angel
Luis Rosas, Secretary, Westernbank, Box 1180, Mayaguez, Puerto Rico 00681. The
Form 10-K is not part of the proxy solicitation materials.

Our Annual Report on Form 10-K also constitutes the Annual Disclosure
Statement required by Part 350.4 of the Federal Deposit Insurance Corporation
rules.

ADJOURNMENT OF STOCKHOLDER MEETING

The holders of Westernbank's common stock and series A preferred stock will
be asked to approve, if necessary, the adjournment of the annual meeting to
solicit further votes in favor of the reorganization and the other matters to be
voted upon at the annual meeting. If you vote against the reorganization or the
other matters to be voted upon at the annual meeting, your proxy may not be used
by management to vote in favor of an adjournment pursuant to its discretionary
authority.

STOCKHOLDER PROPOSALS

If the reorganization is not completed, any proposal that a stockholder
wishes to have presented at the next annual meeting of Westernbank, to be held
on May 25, 2000, must be received at our main office, Box 1180, Mayaguez, Puerto
Rico 00681, not later than [January 25, 2000], for proposals that a stockholder
wishes to have included in next years proxy statement and set forth in the form
of proxy, and not later than [December 20, 1999] for proposals that a
stockholder wishes to have considered but that do not meet the requirements for
inclusion in the proxy statement or form of proxy. If a proposal that a
stockholder wishes to have included in next year's proxy statement and set forth
in the form of proxy is received by [January 25, 2000] and is in compliance with
all of the requirements of Section 335.211 of the Federal Deposit Insurance
Corporation regulations, it will be included in the proxy statement and set

66
<PAGE> 69

forth in the form of proxy issued for the next annual meeting of stockholders.
We urge you to send all proposals of this kind by certified mail, return receipt
requested.

If the reorganization is completed, you will no longer be a stockholder of
Westernbank but you will be a stockholder of the holding company. If the
reorganization is completed, Westernbank will request to be de-registered with
the Federal Deposit Insurance Corporation as a reporting company under the
Securities Exchange Act of 1934 and therefore will not be subject to Federal
Deposit Insurance Corporation Regulation 335. However, the new holding company
will become registered with the Securities and Exchange Commission as a
reporting company under the Securities Exchange Act of 1934. Therefore, any
proposal that a stockholder of the holding company wishes to have presented at
the first annual meeting of the holding company, which will be held on May 25,
2000, must be received at the main office of the holding company not later than
[January 25, 2000], for proposals that a stockholder wishes to have included in
next years proxy statement and set forth in the form of proxy for the holding
company, and not later than [December 20, 1999] for proposals that a stockholder
wishes to have considered but that do not meet the requirements for inclusion in
the proxy statement or form of proxy. If a proposal that a stockholder wishes to
have included in next year's proxy statement and set forth in the form of proxy
is received by [January 25, 2000] and is in compliance with all the requirements
of Rule 14-a8 of the Securities and Exchange Commission it will be included in
the proxy statement and set forth in the form of proxy issued for the first
annual meeting of stockholders of the holding company. We urge you to send all
proposals of this kind by certified mail, return receipt requested, to the
attention of the Secretary, W Holding Company, Inc., Box 1180, Mayaguez, Puerto
Rico 00681. For more information about the information that must be included in
your proposal, please refer to the by-laws of the holding company which are
attached to this proxy statement/prospectus at Appendix B.

OTHER MATTERS

As of the date of this proxy statement/prospectus, management is not aware
of any business to come before the annual meeting other than the matters that
are described in this proxy statement/prospectus. However, if any other matters
properly come before the annual meeting, we intend that the proxies solicited by
this proxy statement/prospectus will be voted on those other matters in
accordance with the judgment of the persons voting the proxies.

The annual meeting will be presided over by Mr. Frank C. Stipes, the
Chairman of the Board, Chief Executive Officer and President of Westernbank. He
will conduct the proceedings in accordance with Robert's Rules of Order as
required by Westernbank's by-laws.

LEGAL MATTERS

The validity of the holding company stock to be issued in the
reorganization will be passed upon by Hogan & Hartson L.L.P., Washington, D.C.
Certain federal and Puerto Rico tax matters will be passed upon by ,
.

67
<PAGE> 70

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Reference is made to the provisions of the Fifth and Eleventh Articles of W
Holdings' Certificate of Incorporation.

W Holding is a Puerto Rico corporation subject to the applicable
indemnification provisions of the General Corporation Law of Puerto Rico.

The foregoing indemnity and insurance provisions have the effect of
reducing directors' and officers' exposure to personal liability for actions
taken in connection with their respective positions.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of W
Holding pursuant to the foregoing provisions, or otherwise, W Holding has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by W Holding of
expenses incurred or paid by a director, officer or controlling person of W
Holding in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, W Holding will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<S> <C>
2.1 Plan of Merger, dated as of February 3, 1999, by and among
Westernbank Puerto Rico, Western Interim Bank and W Holding
Company.
3.1 Certificate of Incorporation.
3.2 Bylaws.
5 Opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder, including the consent of
that firm.*
8.1 Form of opinion of Hogan & Hartson L.L.P. as to certain
United States tax matters, including consent of that firm.*
8.2 Form of opinion of Jose Villa as to certain Puerto Rico tax
matters.*
10.1 Form of 1999 Qualified Stock Option Plan.
10.2 Form of 1999 Nonqualified Stock Option Plan.
23.1 Consent of Hogan & Hartson L.L.P. (included as part of
Exhibit 5 and Exhibit 8).*
23.2 Consent of Jose Villa.*
24 Power of attorney (incorporated by reference from signature
page).
99.1 Form of proxy card.*
99.2 Representation Letter of officers of Westernbank Puerto Rico
and W Holding Company, Inc. in connection with financial
statement requirements in filings involving the formation of
a one-bank holding company.
</TABLE>

- ---------------
* To be filed by amendment.

II-1
<PAGE> 71

(b) Not required.

ITEM 22. UNDERTAKINGS.

(a) W Holding hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) (sec. 230.424(b) of this chapter) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of the Registration Fee" table in the
effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) W Holding hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of W Holding's
annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(c) W Holding hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), W Holding undertakes that such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other
Items of the applicable form.

(d) W Holding undertakes that every prospectus (i) that is filed pursuant
to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule
415 (sec. 230.415 of this chapter), will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of
II-2
<PAGE> 72

determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(e) The undertaking concerning indemnification is included as part of the
response to Item 20.

(f) W Holding hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.

(g) W Holding hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.

II-3
<PAGE> 73

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mayaguez, Puerto Rico, on
April 23, 1999.

W Holding Company, Inc.

By: /s/ FRANK C. STIPES
------------------------------------
Frank C. Stipes, Chairman of the
Board, Chief Executive Officer and
President

Each director whose signature appears below appoints Frank C. Stipes and
Freddy Maldonado, jointly and severally, each in his own capacity, as true and
lawful attorneys-in-fact, with full power of substitution in such director's
name, place and stead, in any and all capacities to sign the Registration
Statement on Form S-4 and any amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on April 23, 1999.

<TABLE>
<CAPTION>
NAME: TITLE:
----- ------
<S> <C>
/s/ FRANK C. STIPES Chairman of the Board, Chief Executive Officer and
- ----------------------------------------------------- President
Frank C. Stipes

/s/ ANGEL L. ROSAS Director
- -----------------------------------------------------
Angel L. Rosas

/s/ CESAR A. RUIZ Director
- -----------------------------------------------------
Cesar A. Ruiz

/s/ PEDRO R. DOMINGUEZ Director
- -----------------------------------------------------
Pedro R. Dominguez

/s/ FIDEL PINO CROS Director
- -----------------------------------------------------
Fidel Pino Cros

/s/ CORNELIUS TAMBOER Director
- -----------------------------------------------------
Cornelius Tamboer

/s/ FREDESWINDA G. FRONTERA Directress
- -----------------------------------------------------
Fredeswinda G. Frontera
</TABLE>

II-4
<PAGE> 74

EXHIBIT INDEX

- ---------------
* To be filed by amendment.

<PAGE> 1
EXHIBIT 2.1

PLAN OF MERGER AND REORGANIZATION

BY AND AMONG

WESTERNBANK PUERTO RICO,

WESTERN INTERIM BANK,

AND

W HOLDING COMPANY, INC.

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.01. Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.02. Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2.03. Certificates After the Effective Date . . . . . . . . . . . . . . . . . . 4

Section 2.04. Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Section 2.05. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE III UNDERTAKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 3.01. Bank Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 3.02. Holding Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . 7

Section 3.03. Interim Bank Stockholder Approval . . . . . . . . . . . . . . . . . . . . 7

Section 3.04. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 3.05. Securities Law Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 3.06. Other Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE IV CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Section 4.01. Conditions Precedent to the Merger . . . . . . . . . . . . . . . . . . . . 9

Section 4.02. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE V TERMINATION AND DEFERRAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 5.01. Termination of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 10

Section 5.02. Deferral of Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE VI APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

<PAGE> 3
<TABLE>
<S> <C>
Section 6.01. Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 7.01. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 7.02. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

- ii -

<PAGE> 4

PLAN OF MERGER AND REORGANIZATION

This PLAN OF MERGER AND REORGANIZATION (this "Plan"), dated as of
February 3, 1999, is entered into by and among WESTERNBANK PUERTO RICO, a
commercial bank organized under the laws of the Commonwealth of Puerto Rico
(the "Bank"), and, upon organization, WESTERN INTERIM BANK, an interim
commercial bank organized under the laws of the Commonwealth of Puerto Rico for
the sole purpose of consummating the transactions provided for herein (the
"Interim Bank"), and, upon organization, W HOLDING COMPANY, INC., a corporation
organized under the laws of the Commonwealth of Puerto Rico ("Holding").

WHEREAS, the Bank is a commercial bank duly organized and validly
existing under the Banking Law of the Commonwealth, 7 L.P.R.A.Section 1-204a,
(the "Banking Law"), with its principal office and place of business at 19 West
McKinley Street, Mayaguez, Puerto Rico, with an authorized capital stock
consisting of (i) 75,000,000 shares of common stock, par value $1.00 per share,
of which 42,080,309 shares were issued and outstanding as of January 29, 1999
and (ii) 5,000,000 shares of preferred stock, par value $1.00 per share, of
which 1,219,000 shares have been designated Bank Series A Preferred Shares, all
of which were issued and outstanding as of January 29, 1999;

WHEREAS, the Interim Bank will be chartered as a commercial bank duly
organized and validly existing under the Banking Law, with its principal office
at the same address as that of Bank, with an authorized capital stock
consisting of 5,000 shares of common stock, par value $5,000.00 per share, up
to 1,000 shares of which will be issued prior to the consummation of the
transactions described herein to be held by Holding (except for any shares that
may be required to be held by the directors of the Interim Bank as directors'
qualifying shares); and

WHEREAS, Holding is a general business corporation organized under the
laws of the Commonwealth, with its principal office at the same address as that
of Bank, and having an authorized capital stock consisting of 300,000,000
shares of common stock, par value $1.00 per share and 20,000,000 shares of
preferred stock, par value $1.00 per share, of which 1,219,000 shares will be
designated as Holding Series A Preferred Shares; and

WHEREAS, the Bank, the Interim Bank and Holding desire to establish a
bank holding company structure and in order to implement that desire, the
Boards of Directors of the Bank, the Interim Bank and Holding have each
respectively agreed to a merger of the Interim Bank with and into the Bank (the
"Merger") and the issuance of Holding Common Shares and Holding Series A
Preferred Shares, as hereinafter defined, as consideration for value received
by Holding in the Merger in the form of capital stock of the Continuing Bank,
as hereafter defined;

<PAGE> 5
NOW, THEREFORE, in consideration of the mutual agreements herein and
other valuable consideration, the Bank, the Interim Bank and Holding hereby
make this Plan and prescribe the terms and conditions of the Merger and the
mode of carrying it into effect, including the rights and obligations of the
parties in connection therewith, as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions. The following terms, as used herein, have
the following respective meanings:

"Bank" means Westernbank Puerto Rico prior to the Effective Date and
the Continuing Bank on and after the Effective Date.

"Bank Common Shares" means the shares of common stock of the Bank, par
value $1.00 per share.

"Bank Series A Preferred Shares" means the shares of 7.125% Non-
Cumulative, Convertible Preferred Stock, 1998 Series A, liquidation preference
$25.00 per share, par value $1.00 per share.

"Commissioner" means the Commissioner of Financial Institutions of the
Commonwealth.

"Commonwealth" means the Commonwealth of Puerto Rico.

"Continuing Bank" means Westernbank Puerto Rico, the surviving bank in
the Merger, on and after the Effective Date.

"Dissenting Shares" shall have the meaning set forth in Section 6.01.

"Effective Date" shall have the meaning set forth in Section 4.02.

"FDIC" means the Federal Deposit Insurance Corporation.

"Holding" means W Holding Company, Inc., a general business
corporation organized under the laws of the Commonwealth.

"Holding Common Shares" means the shares of common stock of Holding,
par value $1.00 per share.

- 2 -

<PAGE> 6
"Holding Series A Preferred Shares" means the shares of the 7.125%
Non- Cumulative, Convertible Preferred Stock, Series A, liquidation preference
$25.00 per share, par value $1.00 per share, of Holding.

"Interim Bank" means Western Interim Bank, a commercial bank to be
organized under the laws of the Commonwealth for the sole purpose of
consummating the transactions provided for herein.

"Merger" shall have the meaning set forth in the Recitals hereto.

"Prospectus" shall have the meaning set forth in Section 3.04(b).

"Proxy Statement" shall have the meaning set forth in Section 3.04(a).

ARTICLE II

THE MERGER

Section 2.01. Merger. On the Effective Date, the Interim Bank shall
be merged with and into the Bank, and the Bank shall be the surviving entity
and receive into itself the Interim Bank pursuant to the provisions of, and
with the effects provided in, Section 15 of the Banking Law.

Section 2.02. Conversion. Upon the Effective Date:

(a) Each Bank Common Share issued and outstanding
immediately prior to the Effective Date shall, without any further
action on the part of the Bank, Holding, or any other person,
constitute and be converted into and there shall be allocated to the
record holder thereof a Holding Common Share, and each Bank Series A
Preferred Share issued and outstanding immediately prior to the
Effective Date shall, without any further action on the part of the
Bank, Holding, or any other person, constitute and be converted into
and there shall be allocated to the record holder thereof a Holding
Series A Preferred Share.

(i) Such conversion and allocation shall not
in any way preclude or prevent any holder of Bank Common
Shares and/or Bank Series A Preferred Shares from exercising
his or her statutory right to dissent from the Merger and to
receive from the Continuing Bank payment of the value of his
or her Bank Common Shares and/or Bank Series A Preferred
Shares and such other rights and benefits as are provided by
law.

- 3 -

<PAGE> 7
(ii) On the Effective Date, each outstanding
certificate, which theretofore had represented Bank Common
Shares, shall henceforward be deemed for all corporate
purposes as evidence of the ownership of an equal number of
Holding Common Shares into which the Bank Common Shares have
been so converted, and each outstanding certificate, which
theretofore had represented Bank Series A Preferred Shares,
shall henceforward be deemed for all corporate purposes as
evidence of the ownership of an equal number of Holding Series
A Preferred Shares into which the Bank Series A Preferred
Shares have been so converted

(b) Each share of common stock of the Interim Bank
issued and outstanding on the Effective Date shall without any further
action on the part of the Bank, the Interim Bank, Holding, or any
other person constitute and be converted into and there shall be
allocated to Holding the same number of shares of common stock of the
Continuing Bank.

Section 2.03. Certificates After the Effective Date. At any time
after the Effective Date, any holder of one or more of the certificates that
prior to the Effective Date had represented Bank Common Shares or Bank Series A
Preferred Shares may surrender such certificate or certificates in proper form
to Holding or to its transfer agent and receive in exchange therefor a
certificate bearing the name and representing an identical number of Holding
Common Shares or Holding Series A Preferred Shares, as the case may be.

Section 2.04. Stock Options. On the Effective Date, each outstanding
option to purchase Bank Common Shares under the Bank's stock option plans will
be assumed by Holding. Each such option will be exercisable in accordance with
its existing terms for the same number of Holding Common Shares as the number
of Bank Common Shares subject to such option. Holding and the Bank shall make
appropriate amendments to the existing stock option plans to reflect the
adoption of those plans as the stock option plans of Holding without adverse
effect upon the options outstanding under the existing stock option plans.

Section 2.05. Effects of the Merger. Upon the Effective Date:

(a) The name of the Continuing Bank shall be
"Westernbank Puerto Rico."

(b) The restated charter of the Bank immediately
prior to the Effective Date shall be the restated charter of the
Continuing Bank, except that Article Sixth of the Certificate of
Incorporation of the Interim Bank shall replace Article Sixth of the
Bank's restated charter and the certificate of corporate resolution
that sets forth the designation of the Bank's Series A

- 4 -

<PAGE> 8
Preferred Shares shall be deleted. The by-laws of the Continuing Bank
shall be the by-laws of the Bank immediately prior to the Effective
Date.

(c) The authorized capital stock of the Continuing
Bank initially shall be 5,000 shares of common stock, $5,000.00 par
value per share, up to 1,000 shares of which shall be outstanding upon
the Effective Date.

(d) The main office, principal place of business,
officers and other personnel of the Continuing Bank shall be the same
as the main office, principal place of business, officers and other
personnel of the Bank immediately prior to the Effective Date.

(e) The Continuing Bank shall thenceforth enjoy all
the rights, privileges and franchises and shall be subject to all the
restrictions, obligations and duties of the Bank and the Interim Bank,
except for the alterations provided herein.

(f) Each and all of the property, shares, rights,
franchises, powers and privileges of the Bank and the Interim Bank
shall become the property of the Continuing Bank, and the Continuing
Bank shall have, as regards such property, shares, rights, franchises,
powers and privileges, the same rights as the Interim Bank and the
Bank each possessed.

(g) The Continuing Bank shall assume each and every
obligation of the Bank and the Interim Bank and shall have all the
obligations and shall be liable for all debts and the fulfillment of
all contracts and obligations of the Bank and the Interim Bank, just
as they were prior to the Effective Date. Any reference to the Bank
or the Interim Bank in any contract, will or document, whether
executed or taking effect before or after the Merger, shall be
considered a reference to the Continuing Bank if not inconsistent with
the other provision of the contract, will or document. The
stockholders of the Bank and the Interim Bank shall continue to be
subject to the same obligations, claims and demands as existed against
them, if any, on or before the Effective Date.

(h) All suits, actions or other proceedings pending
in any court on the Effective Date shall continue to their termination
just as if the Merger had not taken place.

(i) The initial directors of the Continuing Bank
shall consist of the directors of the Bank immediately prior to the
Effective Date (the names and addresses of the seven current directors
of the Bank as of the date hereof are listed in Appendix I attached
hereto), which directors shall hold office in the Continuing Bank,
unless sooner removed or disqualified, until the end of their terms to
which they have been elected at the Bank, as set forth in

- 5 -

<PAGE> 9
Appendix I and until their successors are elected or are appointed in
accordance with the by-laws of the Continuing Bank and have qualified.

(j) All deposit accounts of the Bank immediately
prior to the Effective Date shall be and will remain deposits in the
Continuing Bank without change in their respective terms, interest
rates, maturities, minimum required balances or withdrawal rates. At
the Effective Date, the Continuing Bank will continue to issue deposit
accounts on the same basis as the Bank immediately prior to the
Effective Date.

ARTICLE III

UNDERTAKINGS

Section 3.01. Bank Stockholder Approval. The Bank undertakes to
submit the Plan for consideration to its stockholders at a meeting called for
this purpose pursuant to Section 15(c) of the Banking Law, or in any other
manner permitted by law. Without limiting the preceding sentence, the Bank
agrees (unless such action is not required by law):

(a) To send to the post-office address of each of
the holders of issued and outstanding Bank Common Shares and Bank
Series A Preferred Shares a written notice of such meeting not less
than thirty days prior to the date fixed for the meeting. The notice
shall specify the hour, date, place and purpose of the meeting at
which this Plan will be considered.

(b) To hold a vote of the stockholders at said
meeting, in which each Bank Common Share shall entitle each holder
thereof to one vote to be cast by the stockholder in person or by
proxy and in which each Bank Series A Preferred Share shall entitle
each holder thereof to vote in person or by proxy proportionately
based upon the liquidation preference associated with such Bank Series
A Preferred Share.

(c) To cause its secretary to certify under the seal
of the Bank that (i) the Plan has been approved by the vote of the
directors of the Bank, and (ii) the Plan has been approved by the
votes of at least three-fourths (3/4) of the Bank Common Shares and at
least three-fourths (3/4) of the aggregate liquidation preference
associated with the Bank Series A Preferred Shares, voting as separate
classes, if the Plan has been so approved.

(d) To submit the Plan as certified pursuant to
subsection (c) of this Section 3.01, with a certification under seal
by the Secretary of Interim Bank as to the approval of the Plan by
Holding as sole stockholder of Interim Bank, to the Commissioner for
his approval or disapproval.

- 6 -

<PAGE> 10
Section 3.02. Holding Stockholder Approval. The Bank will vote all
of its shares of common stock of Holding in favor of approval of the Plan
acting by written consent.

Section 3.03. Interim Bank Stockholder Approval. Holding will vote
all of its shares of common stock of the Interim Bank in favor of the approval
of the Plan acting by written consent.

Section 3.04. Regulatory Approvals. Each of the Bank, the Interim
Bank and Holding shall (i) proceed expeditiously and cooperate fully in
determining which filings are required to be made prior to the Effective Date
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Effective Date from, governmental or regulatory
authorities of the Commonwealth and the United States (collectively, the
"Regulatory Approvals") in connection with the execution and delivery of the
Plan and the consummation of the transactions contemplated hereby; and (ii)
timely make all such filings and timely seek all Regulatory Approvals; and
(iii) take all other action and do all things necessary or appropriate to
consummate and make effective all transactions contemplated by this Plan as
soon as possible.

Section 3.05. Securities Law Matters.

(a) The Bank undertakes to prepare and file promptly
a proxy statement (the "Proxy Statement") which complies with the
requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder by the FDIC and which
complies with all applicable federal, state and Puerto Rico law
requirements for the purpose of submitting the Plan to its
stockholders for approval.

(b) Holding and the Bank undertake to prepare a
Prospectus (the "Prospectus") related to the Holding Common Shares and
Holding Series A Preferred Shares which complies with the requirements
of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder by the Securities and Exchange
Commission, which shall be distributed to the stockholders of the
Bank.

(c) Holding and the Bank shall each provide promptly
to the other such information concerning its business and financial
condition, and affairs and prospects as may be required or appropriate
for inclusion in the Prospectus or the Proxy Statement and shall cause
their counsel and auditors to cooperate in the preparation of the
Prospectus and the Proxy Statement.

- 7 -

<PAGE> 11
(d) The Bank undertakes to distribute the Proxy
Statement and the Prospectus to its stockholders in accordance with
applicable federal and state law requirements.

Section 3.06. Other Undertakings.

(a) If the requisite approval of this Plan is
obtained at the meeting of the Bank's stockholders referred to in
Section 3.01, thereafter and until the Effective Date, the Bank shall
issue certificates for Bank Common Stock and Bank Series A Preferred
Stock, whether upon transfer or otherwise, only if such certificates
bear a legend, the form of which shall be approved by the board of
directors of the Bank, indicating that this Plan has been approved and
that shares of stock evidenced by such certificates are subject to
consummation of this Plan.

(b) If at any time (whether before or after the
Effective Date), the Bank or the Continuing Bank considers that any
further assignment, conveyance or assurance in law is necessary or
desirable to vest, perfect or confirm of record in the Continuing Bank
the title to any property or rights of the Bank or the Interim Bank,
or otherwise to carry out the provisions hereof, the Bank and the
Interim Bank hereby undertake through their proper officers and
directors to execute and deliver immediately any and all proper deed,
assignment and assurance, and to do all things necessary or proper to
vest, perfect or confirm title to such property or right in the
Continuing Bank and otherwise to carry out the provisions hereof.

ARTICLE IV

CONDITIONS PRECEDENT

Section 4.01. Conditions Precedent to the Merger. The consummation
of the Merger is subject to the satisfaction of the following conditions:

(a) The votes of at least three-fourths (3/4) of the
issued and outstanding Bank Common Shares and three-fourths (3/4) of
the aggregate liquidation preference associated with the issued and
outstanding Bank Series A Preferred Shares, voting as separate
classes, shall have been cast, in person or by proxy, in favor of this
Plan at a meeting of the Bank's stockholders called pursuant to
Section 3.01.

(b) All Regulatory Approvals (or waiver or exemption
therefrom) and satisfaction of all other requirements prescribed by
law which are necessary to the consummation of the transactions
contemplated by the Plan shall have been obtained, and all statutory
waiting periods shall have

- 8 -

<PAGE> 12
expired, without the imposition of any condition or requirements that
would materially and adversely affect the operations or business
prospects of Holding or the Continuing Bank following the Effective
Date so as to render inadvisable the consummation of such transaction,
as provided by Section 5.01(c) hereof.

(c) The Bank shall have received a ruling or rulings
from the appropriate tax authorities and/or an opinion letter from tax
counsel to the Bank, satisfactory to the Bank in form and substance,
with respect to the Puerto Rico and United States income tax
consequences of the Merger.

(d) The Holding Common Shares and the Holding Series
A Preferred Shares shall have been approved for quotation on the
Nasdaq Stock Market's National Market Tier.

Section 4.02. Effective Date. The Bank, the Interim Bank and Holding
shall use their best efforts to cause the Merger to become effective on a date
as soon as practicable after each condition precedent listed in Section 4.01
shall have been satisfied. The Merger shall become effective at the time this
Plan is properly approved and filed in accordance with the Banking Law (the
"Effective Date").

ARTICLE V

TERMINATION AND DEFERRAL

Section 5.01. Termination of the Merger. Prior to the Effective
Date, the Plan may be terminated at any time by written notice by either the
Bank or the Interim Bank or Holding to the other parties hereto that its board
of directors is of the opinion that:

(a) The number of Bank Common Shares and/or Bank
Series A Preferred Shares that voted against approval of the Plan or
the number with respect to which demand for payment of shares has been
made is such that the consummation of the Merger is inadvisable, in
the sole opinion of such board of directors.

(b) Any action, suit, proceeding, or claim is
commenced or threatened or any claim is made that could make
consummation of the Merger, in the sole opinion of such board of
directors, inadvisable;

(c) It is likely that a Regulatory Approval, in the
sole opinion of such board of directors, will not be obtained, or if
obtained, has or will contain or impose a condition or requirement
that would materially and adversely affect the operations or business
prospects of Holding or the

- 9 -

<PAGE> 13
Continuing Bank following the Effective Date so as to render
inadvisable the consummation of the Merger.

(d) Any other reason exists that makes consummation
of the Merger in the sole opinion of such board of directors,
inadvisable.

Upon such determination, the Plan shall be deemed void, and there
shall be no liability hereunder or on account of such termination on the part
of the Bank, the Interim Bank, Holding, or the directors, officers, employees,
agents or stockholders or any of them, except that in such event the Bank will
pay the fees and expenses incurred by itself, the Interim Bank and Holding in
connection with the transactions contemplated herein.

Section 5.02. Deferral of Effective Date. Consummation of the Merger
herein provided may be deferred by the board of directors of the Bank for a
reasonable period of time if the Bank's board of directors determines, in its
sole discretion, that such deferral would be in the best interest of the Bank
and the stockholders of the Bank.

ARTICLE VI

APPRAISAL RIGHTS

Section 6.01. Dissenters' Rights. Any stockholder of the Bank who
complies with all applicable provisions of law, including without limitation
Section 15(i) of the Banking Law, shall be entitled to receive the value of the
Bank Common Shares and/or Bank Series A Preferred Shares held by such
stockholder as provided by Section 15(i) of the Banking Law, provided that:

(a) Any Bank Common Shares and/or Bank Series A
Preferred Shares held by a holder who has demanded appraisal of such
holder's shares and, as of the Effective Date, has neither effectively
withdrawn nor lost such holder's right to such appraisal (the
"Dissenting Shares") shall not be converted in the manner set forth in
Section 2.02, but the holder thereof shall only be entitled to such
rights as are granted by the Banking Law.

(b) Notwithstanding the provisions of subparagraph
(a) of this Section 6.01, if any holder of Dissenting Shares shall
effectively withdraw or lose (through failure to perfect or otherwise)
such holder's right to appraisal, then, as of the Effective Date or
the occurrence of such event, whichever later occurs, such Dissenting
Shares shall automatically be converted as provided in Section 2.02.

- 10 -

<PAGE> 14

ARTICLE VII

MISCELLANEOUS

Section 7.01. Governing Law. The Plan shall be governed by and
construed in accordance with the laws of the Commonwealth.

Section 7.02. Amendment. The Plan and the Appendix hereto may be
amended by the parties hereto, by action taken by or on behalf of their
respective Board of Directors at any time before or after approval by the
stockholders of the parties; provided, however that after such approval, no
amendment, modification or waiver shall affect the consideration to be received
by any party or their respective stockholders. Any such amendment,
modification or waiver must be by an instrument in writing and signed on behalf
of each of the parties.

- 11 -

<PAGE> 15
IN WITNESS WHEREOF, the Bank, the Interim Bank and Holding have caused
this Plan to be executed in multiple copies, by their duly authorized officers,
and have caused their corporate seals to be hereto affixed, as of the date
first above written.

WESTERNBANK PUERTO RICO

By: /s/ Frank C. Stipes
------------------------
Name: Frank C. Stipes
Title: President

[SEAL]

- 12 -

<PAGE> 16
WESTERN INTERIM BANK

By: /s/ Frank C. Stipes
------------------------
Name: Frank C. Stipes
----------------------
Title: President
Executed as of February 3, 1999

[SEAL]

- 13 -

<PAGE> 17
W HOLDING COMPANY, INC.

By: /s/ Frank C. Stipes
------------------------
Name: Frank C. Stipes
------------------------
Title: President
Executed as of ___________________, 1999

[SEAL]

- 14 -

<PAGE> 18

APPENDIX I

DIRECTORS OF THE BANK

<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF DIRECTORS TERMS ENDING
-------------------------------- ------------

<S> <C>
Fidel Pino Cros 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Pedro R. Dominguez 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Fredeswinda G. Frontera 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Angel Luis Rosas 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Cesar A. Ruiz 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Frank C. Stipes 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Cornelius Tamboer 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
</TABLE>

<PAGE> 1
EXHIBIT 3.1

CERTIFICATE OF INCORPORATION
OF
W HOLDING COMPANY, INC.

FIRST

The name of this corporation is "W Holding Company, Inc."
(hereinafter "Holding").

SECOND

The principal office of Holding, which is also its postal and
physical address, shall be located at 19 W. McKinley Street, Mayaguez, Puerto
Rico 00680. Holding will serve as its Resident Agent, at this same address.

THIRD

The term of existence of Holding is perpetual.

FOURTH

The purpose of Holding is to engage, for profit, in any lawful acts
or businesses for which corporations may be organized under the General
Corporations Law of the Commonwealth of Puerto Rico, as amended from time to
time (hereinafter, as so amended, the "Corporations Law").

FIFTH

The business and activities of Holding shall be under the authority
of a Board of Directors composed of the number of directors fixed from time to
time by resolution of an absolute majority of the Board of Directors, provided
that the number of directors shall be an odd number and not less than five (5)
nor more than nine (9). The Board of Directors shall be divided into three
classes of approximately equal numbers of directors. The members of each class
shall be elected by Holding's stockholders at the annual meeting for three-year
terms and shall remain in office until their successors have been duly elected
and qualified. A majority of the directors holding office shall constitute a
quorum at meetings of the Board of Directors.

The directors shall have such qualifications, shall be subject to
such responsibilities, shall comply with such requirements and shall hold office
pursuant to the provisions of the Corporations Law and the By-laws of Holding.

Any vacancy in the Board of Directors may be filled by a majority of
the votes of the directors then holding office. A director elected to fill a
vacancy so created shall be elected to serve the term of such directorship and
until a successor has been duly elected and sworn in their office.

Upon the filing of this Certificate of Incorporation at the
Department of State of the Commonwealth of Puerto Rico, the following persons,
having the indicated mailing addresses, shall serve as the initial directors of
Holding, which directors shall hold office, unless sooner removed or
disqualified, until the end of their terms at the annual meeting of Holding in
the year indicated below and until their successors are elected or are
appointed.

<PAGE> 2

<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF DIRECTORS TERMS ENDING
<S> <C>
Fidel Pino Cros 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Pedro R. Dominguez 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Fredeswinda G. Frontera 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Angel Luis Rosas 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Cesar A. Ruiz 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Frank C. Stipes 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

Cornelius Tamboer 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680

</TABLE>

The personal liability of the directors of Holding in cases of
monetary claims for damages resulting from the breach of the fiduciary duties as
director is eliminated, provided that this provision does not eliminate or limit
the liability of the director for: (i) any breach of the duty of loyalty of the
director to Holding or its stockholders; (ii) acts or omissions not in good
faith, or which involve intentional misconduct or knowing violations of law;
(iii) unlawful payments of dividends or purchase and redemption of stock; or
(iv) any transaction where the director derives an improper personal benefit.

SIXTH

The authorized capital stock of Holding shall be THREE HUNDRED
TWENTY MILLION DOLLARS ($320,000,000) represented by THREE HUNDRED MILLION
(300,000,000) shares of common stock, $1.00 par value per share (the "Common
Stock"), and TWENTY MILLION (20,000,000) shares of preferred stock, $1.00 par
value per share ("Preferred Stock"). The shares may be issued by Holding from
time to time as authorized by the Board of Directors without the further
approval of stockholders, except as otherwise provided in this Article SIXTH or
to the extent that such approval is required by governing law, rule or
regulation.

The holders of Common Stock and Preferred Stock shall be entitled to
dividends at the rate and on the conditions and terms which shall be stated in
the resolutions providing for the issuance of

2
<PAGE> 3

such stock and adopted by the Board of Directors pursuant to the Corporations
Law. When dividends have been paid on the Preferred Stock in accordance with the
preferences to which they are entitled, or when such dividends have been
declared and set aside for payment, then dividends may be paid on the Common
Stock from the remaining assets of Holding which are available for the payment
of dividends, pursuant to provisions of the Corporations Law.

The holders of the Preferred Stock shall have, upon dissolution of
Holding, or upon any distribution of its assets, the rights stated in the
resolutions providing for the issue of such stock and adopted by the Board of
Directors pursuant to the Corporations Law.

The Board of Directors is expressly authorized to provide, when it
deems necessary, for the issuance of shares of Preferred Stock in one or more
series, with such voting powers, full or limited, but not to exceed ten votes
per share, or without voting powers; and with such designations, powers,
preferences, rights, qualifications, limitations or restrictions thereof, as
shall be expressed in the resolution or resolutions of the Board of Directors,
authorizing such issuance, including (but without limiting the generality of the
foregoing) the following:

(a) the designation of such series;

(b) the dividend rate of such series, the conditions and
dates upon which the dividends shall be payable, the
preference or relation which such dividends shall
bear to the dividends payable on any other class or
classes of capital stock of Holding, and whether
such dividends shall be cumulative or
non-cumulative;

(c) whether the shares of such series shall be subject
to redemption by Holding, and if made subject to
such redemption, the terms and conditions of such
redemption;

(d) the terms and amount of any sinking fund provided
for the purchase or redemption of the shares of such
series;

(e) whether the shares of such series shall be
convertible and if provision be made for conversion,
the terms of such conversion;

(f) the extent, if any, to which the holders of such
shares shall be entitled to vote; provided, however,
that in no event, shall any holder of any series of
preferred stock be entitled to more than ten votes
for each such share;

(g) the restrictions and conditions, if any, upon the
issue or re-issue of any additional preferred stock
ranking on a parity with or prior to such shares as
to dividends or upon dissolution; and

(h) the rights of the holders of such shares upon
dissolution of, or upon distribution of assets of
Holding, which rights may be different in the case
of a voluntary dissolution.

SEVENTH

The Board of Directors has approved the issuance of shares of its
7.125% Non-Cumulative, Convertible Preferred Stock, Series A, liquidation
preference $25.00 per share, par value $1.00 per share, which shall have the
same terms and preferences as the 7.125% Non-Cumulative, Convertible Preferred
Stock, 1998 Series A, liquidation preference $25.00 per share, par value $1.00
per share, previously issued by Westernbank Puerto Rico, with only such changes
as necessary to reflect the

3
<PAGE> 4

change in issuer. The Board of Directors of Holding has fixed the powers,
preferences, rights, and qualifications, limitations and restrictions as
follows:

1. Designation; Ranking.

(a) The designation of such series of Preferred Stock
shall be "7.125% Non-Cumulative, Convertible Preferred Stock, Series
A" (hereinafter referred to as "Series A Preferred Stock"), and the number of
shares constituting such series shall be 1,219,000, which number may be
increased (but not above the total number of shares of Preferred Stock) or
decreased (but not below the number of shares of Series A Preferred Stock then
outstanding) from time to time by the Board of Directors.

(b) The Series A Preferred Stock will, with respect to
dividend rights and rights on liquidation, rank (i) senior to all
classes of the Common Stock and to all other equity securities issued by Holding
the terms of which specifically provide that such equity securities will rank
junior to the Series A Preferred Stock (or to all series of Preferred Stock in
general) as to dividends and the distribution of assets upon liquidation (the
Common Stock, together with such other equity securities, being hereinafter
referred to as "Junior Stock"); (ii) on a parity with all equity securities
issued by Holding the terms of which specifically provide that such equity
securities will rank on a parity to the Series A Preferred Stock (or to all
series of Preferred Stock in general) as to dividends or the distribution of
assets upon liquidation ("Parity Stock"); and (iii) junior to all equity
securities issued by Holding the terms of which specifically provide that such
equity securities will rank senior to the Series A Preferred Stock (or to all
series of Preferred Stock in general) as to dividends or the distribution of
assets upon liquidation. For this purpose, the term "equity securities" does not
include debt securities convertible into or exchangeable for equity securities.

(c) Holding may not issue capital stock of Holding
ranking, as to dividend rights or rights on liquidation, senior to the
Series A Preferred Stock except with the consent of the holders of at least
two-thirds of the aggregate liquidation preference of the Series A Preferred
Stock and any series of Parity Stock at the time outstanding.

2. Dividend Rights.

(a) The holders of Series A Preferred Stock shall be
entitled to receive when, as and if declared by the Board of Directors
of Holding, out of assets of Holding legally available therefor, cash dividends,
accruing from the date of original issuance (the "Issue Date") at the annual
rate per share of 7.125% of the liquidation preference of $25 per share
(equivalent to $ 1.78125 per share per annum), (the "Dividends"), payable, when,
as and if declared by the Board of Directors, monthly in arrears on the 15th day
of each month (each monthly period ending on any such date being hereinafter
referred to as a "dividend period"), at such annual rate. Dividends in each
dividend period shall accrue from the first day of such period, whether or not
declared or paid for the prior dividend period (except that the first Dividends
payable after the Issue Date shall accrue from the Issue Date). Each declared
Dividend shall be payable to holders of record as they appear at the close of
business on the stock register of Holding on such record dates, not exceeding 45
days preceding the payment dates thereof, as shall be fixed by the Board of
Directors of Holding. The amount of Dividends paid for any monthly dividend
period will be computed on the basis of twelve 30-day months and a 360-day year.
The amount of Dividends payable for any period shorter than a full monthly
dividend period will be computed on the basis of the actual number of days
elapsed in such period.

(b) Dividends shall be non-cumulative. Holding is not
obligated or required to declare or pay Dividends, even if it has
funds available for the payment of such dividends. If the Board of Directors of
Holding or an authorized committee thereof does not declare a Dividend payable
on a dividend payment date, then the holders of such Series A Preferred Stock
shall have no

4
<PAGE> 5

right to receive a Dividend in respect of the dividend period ending on such
dividend payment date and Holding will have no obligation to pay a Dividend
accrued for such dividend period or to pay any interest thereon, whether or not
dividends on such Series A Preferred Stock or the Common Stock are declared for
any future dividend period.

(c) If all Dividends due and payable for each of the
twelve previous monthly dividend periods (or such fewer dividend
periods as there actually are) shall not have been declared and paid, or
declared and a sum sufficient for the payment thereof shall not have been set
apart for such payments, or Holding has defaulted on the payment of the
redemption price of any Series A Preferred Stock called for redemption, no
dividends shall be declared or paid or set aside for payment and no other
distribution shall be declared or made or set aside for payment upon the Junior
Stock, nor shall any Junior Stock be redeemed, purchased or otherwise acquired
for any consideration (or any monies to be paid to or made available for a
sinking fund for the redemption of any such stock) by Holding (except by
conversion into or exchange for other Junior Stock).

(d) When Dividends and dividends upon any Parity Stock
are not paid in full (or a sum sufficient for such full payment is
not set apart), all Dividends and dividends upon any Parity Stock shall be
declared pro rata so that the amount of dividends declared upon such series of
capital stock shall in all cases bear to each other the same ratio that full
Dividends for the then-current dividend period (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods) and full
dividends, including required or permitted accumulations, if any, on such Parity
Stock, bear to each other.

(e) Subject to any applicable laws and regulations, each
Dividend payment will be made by U.S. dollar check drawn on a bank
in New York, New York or San Juan, Puerto Rico and mailed to the record holder
thereof at such holder's address as it appears on the register for such Series A
Preferred Stock.

3. Conversion Rights.

(a) At any time on or after 90 days after the Issue
Date, unless previously redeemed, any holder of record of the Series A Preferred
Stock may convert, at its option, any outstanding share of the Series A
Preferred Stock owned by such holder into .995 shares (subject to adjustment
upon certain events) of fully paid and non-assessable Common Stock (calculated
as to each conversion to the nearest 1/100th of a share) for each share of
Series A Preferred Stock. The right to convert a share of the Series A Preferred
Stock called for redemption will terminate at the close of business on the fifth
Business Day immediately prior to the date fixed for redemption (the "Redemption
Date") for such share, unless Holding fails to pay the applicable redemption
price. The conversion ratio per share of Series A Preferred Stock is subject to
adjustment upon certain events, including (a) the issuance of Common Stock as a
dividend or distribution with respect to the outstanding Common Stock, (b)
subdivisions of the Common Stock, (c) the issuance to holders of Common Stock of
rights or warrants to subscribe for Common Stock at less than the then-current
market price, (d) the distribution to holders of Common Stock of any shares of
capital stock of Holding (other than Common Stock) or evidences of indebtedness
or assets (excluding cash dividends or distributions paid from retained
earnings), or rights or warrants to subscribe for securities of Holding other
than those described above, (e) any distribution consisting exclusively of cash
(excluding any cash portion of distributions referred to in (d) above, or cash
distributed upon a merger or consolidation to which the third succeeding
paragraph applies) to all or substantially all holders of Common Stock in an
aggregate amount that, combined together with (i) all other such all-cash
distributions made within the then preceding 12 months in respect of which no
adjustment has been made and (ii) any cash and the fair market value of other
consideration paid or payable in respect of any tender or exchange offer by
Holding or any of its subsidiaries for Common Stock concluded within the
preceding 12 months in respect of which no adjustment has been made, exceeds 15%
of Holding's market capitalization (defined as being the product of the then
current market price

5
<PAGE> 6

of the Common Stock times the number of shares of Common Stock then outstanding)
on the record date of such distribution, and (f) the completion of a tender or
exchange offer made by Holding or any of its subsidiaries for Common Stock that
involves an aggregate consideration that, together with (i) any cash and other
consideration payable in a tender or exchange offer by Holding or any of its
subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender or exchange offer in respect of which no adjustment
has been made and (ii) the aggregate amount of any such all-cash distributions
referred to in (e) above to all holders of Common Stock within the 12 months
preceding the expiration of such tender or exchange offer in respect of which no
adjustments have been made, exceeds 15% of Holding's market capitalization on
the expiration of such tender offer. No adjustments in the conversion ratio will
be required, however, unless the adjustment would require a change of at least
one percent in the conversion ratio. Each adjustment of less than one percent in
the conversion ratio will be carried forward and taken into account in any
subsequent adjustment. The adjustment will be made not later than such time as
may be required in order to preserve the tax-free nature of a distribution to
the holders of shares of Common Stock. Holding will be entitled to make such
reductions in the conversion ratio, in addition to those required by the
provisions described above, as it in its discretion may determine to be
advisable in order that certain stock related distributions which may be made by
Holding to its stockholders will not be taxable.

In items (a) and (b) above in this Section
3(a), the conversion ratio per share of Series A Preferred Stock in effect
immediately prior to such actions shall be adjusted so that the holders of any
shares of Series A Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock or other capital
stock of Holding that they would have owned or been entitled to receive
immediately following such actions had such shares of Series A Preferred Stock
been converted immediately prior to the occurrence of such events. An adjustment
made pursuant to this paragraph shall become effective immediately after the
record date, in the case of a dividend or distribution, or immediately after the
effective date, in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this paragraph, the holders of
any shares of Series A Preferred Stock thereafter surrendered for conversion
shall become entitled to receive shares of two or more classes of capital stock
or shares of Common Stock and other capital stock of Holding, the Board of
Directors (whose determination shall be conclusive) shall determine the
allocation of the adjusted conversion ratio between or among of such shares of
capital stock or shares of Common Stock and other capital stock.

In item (c) above in this Section 3(a), the
holders of any shares of Series A Preferred Stock shall be entitled to
receive such rights, warrants or options to subscribe for or purchase shares of
Common Stock that they would have received or been entitled to receive if such
shares of Series A Preferred Stock had been converted into shares of Common
Stock immediately prior to the issuance of such rights, warrants or options.
Such computation shall be made successively whenever any such rights, warrants
or options are issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights,
warrants or options. In determining whether any rights, warrants or options
entitle the holders to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at less than such current market
price, there shall be taken into account any consideration received by Holding
for such rights, warrants or options (and for such convertible securities), and
the value of such consideration, if other than cash, shall be determined by the
Board of Directors (whose determination shall be conclusive). If at the end of
the period during which such rights, warrants or options are exercisable not all
such rights, warrants or options shall have been exercised, the rights, warrants
or options that the holders of Series A Preferred Stock were entitled to receive
shall be adjusted based on the number of additional shares of Common Stock
actually issued.

In item (d) above in this Section 3(a), the
holders of any shares of Series A Preferred Stock shall be entitled to
receive such shares of capital stock, evidences of indebtedness or assets, and
such rights, warrants or options to subscribe for or purchase capital stock of
Holding, that

6
<PAGE> 7
\

they would have received or been entitled to receive if such shares of Series A
Preferred Stock had been converted into shares of Common Stock immediately prior
to the issuance of such shares of capital stock, evidences of indebtedness or
assets, and such rights, warrants or options to subscribe for or purchase
capital stock of Holding.

In items (e) and (f) above in this Section 3(a),
each holder of shares of Series A Preferred Stock who converts such shares into
shares of Common Stock will be entitled to receive upon such conversion, in
addition to the shares of Common Stock, such additional consideration such
stockholder would have received had such shares of Series A Preferred Stock
been converted into shares of Common Stock immediately prior to the record date
of such distributions described in items (e) and (f) above in this Section
3(a).

Notwithstanding anything in this section to the contrary, with
respect to any rights, warrants or options, if such rights, warrants or options
are only exercisable upon the occurrence of certain triggering events, then for
purposes of this section such rights, warrants or options shall not be deemed
issued or distributed until such triggering events occur and such rights,
warrants or options become exercisable.

(b) No fractional shares of Common Stock will be issued
upon conversion of Series A Preferred Stock. Any fractional
interest in a share of Common Stock resulting from a conversion of a share of
Series A Preferred Stock will be paid in cash based on the closing price of
Common Stock on the trading day immediately preceding the day of conversion.

(c) Conversion of Series A Preferred Stock will be
effected by surrendering certificates evidencing such shares, together
with a proper assignment of the certificates to Holding or in blank, to the
office or agency to be maintained by Holding for that purpose. In case fewer
than all the shares represented by any such certificate are converted, a new
certificate shall be issued representing the unconverted shares without cost to
the holder thereof.

(d) In case of any reclassification or change of
outstanding shares of Common Stock (other than a change in par value, or
as a result of a subdivision or combination), or in case of any consolidation of
Holding with, or merger of Holding with or into, any other entity that results
in a reclassification, change, conversion, exchange or cancellation of
outstanding shares of Common Stock or any sale or transfer of all or
substantially all of the assets of Holding, each holder of Series A Preferred
Stock then outstanding will have the right thereafter to convert its Series A
Preferred Stock into the kind and amount of securities, cash and other property
that the holder would have been entitled to receive if the holder had held the
Common Stock issuable upon the conversion of the Series A Preferred Stock
immediately prior to such reclassification, change, consolidation, merger, sale
or transfer.

(e) In the event that Holding consummates any
consolidation or merger or similar business combination, pursuant to which
the outstanding shares of Common Stock are by operation of law exchanged solely
for or changed, reclassified or converted into stock, securities or cash or any
other property, or any combination thereof, the Series A Preferred Stock will,
in connection with such consolidation, merger or similar business combination,
be assumed by and become preferred stock of such successor or resulting
corporation, having in respect of such corporation, insofar as possible, the
same powers, preferences and relative rights, and the qualifications,
limitations or restrictions thereon, that the Series A Preferred Stock had
immediately prior to such transaction, except that after such transaction each
share of Series A Preferred Stock will be convertible on the terms and
conditions described above, into the nature and kind of consideration so
receivable by a holder of the number of shares of Common Stock into which such
Series A Preferred Stock could have been converted immediately prior to such
transaction. If by virtue of the structure of such transaction, however, a
holder of Common Stock is required to make an election with respect to the
nature and kind of consideration to be received in such transaction,

7
<PAGE> 8

which election cannot practicably be made by the holder of the Series A
Preferred Stock, then the Series A Preferred Stock, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, will
be converted into or exchanged for the aggregate amount of stock, securities,
cash or other property (payable in kind) receivable by a holder of the number of
shares of Common Stock into which such Series A Preferred Stock could have been
converted immediately prior to such transaction if the holder of Common Stock
failed to exercise any rights of election. The rights of the Series A Preferred
Stock as preferred stock of the successor or resulting corporation will
successively be subject to adjustment after any such transaction as nearly
equivalent as practicable to the adjustments in existence prior to such
transaction. Holding will not consummate any such merger, consolidation or
similar transaction unless all then outstanding Series A Preferred Stock will be
assumed and authorized by the successor or resulting corporation as provided
above.

(f) Upon the conversion of Series A Preferred Stock, no
dividends thereon will be due or payable for any period unless previously
declared, but not yet paid.

4. Liquidation Preferences.

(a) In the event of any liquidation of Holding,
whether voluntary or involuntary, the holders of Series A Preferred Stock shall
be entitled to receive out of the assets of Holding available for distribution
to shareholders an amount equal to $25 per share, plus accrued and unpaid
dividends, if any, for the then-current monthly dividend period to the date of
payment, and no more (the "Liquidation Preference"), before any distribution
shall be made to the holders of Junior Stock. After payment of the full amount
of such liquidating distributions, the holders of Series A Preferred Stock will
not be entitled to any further participation in any distribution of the
remaining assets of Holding.

(b) In the event that the assets of Holding available
for distribution to shareholders upon any liquidation of Holding, whether
voluntary or involuntary, shall be insufficient to pay in full the amounts
payable with respect to the Series A Preferred Stock and any Parity Stock, the
holders of Series A Preferred Stock and Parity Stock shall share ratably in any
distribution of assets of Holding in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.

(c) The merger or consolidation of Holding with or into
any other entity, the merger or consolidation of any other entity with or into
Holding, or the sale, lease or conveyance of all or substantially all of the
property or business of Holding, shall not be deemed to constitute a
liquidation of Holding within the meaning of this Section 4.

5. Redemption

(a) Holders of the Series A Preferred Stock will have no
right to require Holding to redeem or repurchase the Series A Preferred Stock,
and such shares are not subject to any sinking fund or similar obligation.

(b) The Series A Preferred Stock will not be redeemable
prior to July 1, 2002. On or after such date, the Series A Preferred Stock will
be redeemable at the option of Holding, in whole or in part, at any time or
from time to time, at the option of Holding upon not less than 30 nor more than
60 days' notice by mail, at the redemption prices set forth below, during the
12-month periods beginning on July 1 of the years set forth below, plus accrued
and unpaid dividends, if any, for the then-current dividend period to the date
fixed for redemption.

8
<PAGE> 9

<TABLE>
<CAPTION>
Year
- ----
<C> <C>
2002 ........................................................ $26.00
2003 ........................................................ $25.75
2004 ........................................................ $25.50
2005 ........................................................ $25.25
2006 and thereafter ......................................... $25.00
</TABLE>

(c) If less than all of the outstanding shares of the
Series A Preferred Stock are to be redeemed at the option of Holding,
the total number of shares to be redeemed in such redemption shall be determined
by the Board of Directors and the shares to be redeemed shall be allocated pro
rata or by lot as may be determined by the Board of Directors or by such other
method as the Board of Directors may approve and deem fair and appropriate,
including any method to conform to any rule or regulation of any national or
regional stock exchange or automated quotation system upon which the shares of
the Series A Preferred Stock may at the time be listed or eligible for
quotation; provided that, the shares of a holder must be redeemable in full
unless Holding obtains a ruling from the Puerto Rico Treasury Department or an
opinion from reputable counsel knowledgeable in Puerto Rico income tax matters
to the effect that the redemption in part of the holder's shares is not
equivalent to a dividend under Puerto Rico law.

(d) Notice of any redemption shall be given by first
class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior
to the date fixed for redemption to each holder of record of the Series A
Preferred Stock to be redeemed, at their respective addresses appearing on the
stock books of Holding. Notice so mailed shall be conclusively presumed to have
been duly given whether or not actually received, and failure to duly give such
notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series A Preferred Stock. Such notice
shall state: (i) the Redemption Date; (ii) the redemption price; (iii) the
number of shares of Series A Preferred Stock to be redeemed and, if less than
all the shares held by such holder are to be redeemed, the number of such shares
to be so redeemed from such holder; (iv) the place where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
after such Redemption Date the shares to be redeemed shall not accrue dividends.
If such notice is mailed as aforesaid, and if on or before the Redemption Date
funds sufficient to redeem the shares called for redemption are set aside by
Holding in trust for the account of the holders of the shares to be redeemed,
notwithstanding the fact that any certificate for shares called for redemption
shall not have been surrendered for cancellation, on and after the Redemption
Date the shares represented thereby so called for redemption shall be deemed to
be no longer outstanding, dividends thereon shall cease to accrue, and all
rights of the holders of such shares as stockholders of Holding shall cease,
except the right to receive the redemption price, without interest, upon
surrender of the certificate representing such shares. Upon surrender in
accordance with the aforesaid notice of the certificate for any shares so
redeemed (duly endorsed or accompanied by appropriate instruments of transfer,
if so required by Holding in such notice), the holders of record of such shares
shall be entitled to receive the redemption price, without interest. In case
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without cost
to the holder thereof.

(e) At its option, Holding may, on or prior to the
Redemption Date, irrevocably deposit the aggregate amount payable upon
redemption of the shares of the Series A Preferred Stock to be redeemed with a
bank or trust bank designated by Holding having its principal office in New
York, New York, San Juan, Puerto Rico, or any other city in which Holding shall
at that time maintain a transfer agent with respect to its capital stock, and
having a combined capital surplus (as shown by its latest published statement)
of at least $50,000,000 (hereinafter referred to as the "Depository"), to be
held in trust by the Depository for payment to the holders of the Series A
Preferred Stock to be redeemed. If such deposit is made and the funds so
deposited are made

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<PAGE> 10

immediately available to the holders of the Series A Preferred Stock to be
redeemed, Holding shall thereupon be released and discharged (subject to the
provisions described in the next paragraph) from any obligation to make payment
of the amount payable upon redemption of the Series A Preferred Stock to be
redeemed, and the holders of such shares shall look only to the Depository for
such payment.

(f) Any funds remaining unclaimed at the end of two
years from and after the Redemption Date in respect of which such funds
were deposited shall be returned to Holding forthwith and thereafter the holders
of the Series A Preferred Stock called for redemption with respect to which such
funds were deposited shall look only to Holding for the payment of the
redemption price thereof. Any interest accrued on any funds deposited with the
Depository shall belong to Holding and shall be paid to it from time to time on
demand. Any of the Series A Preferred Stock which shall at any time have been
redeemed shall, after such redemption, have the status of authorized but
unissued preferred shares, without designation as to series, until such shares
are once more designated as part of a particular series by the Board of
Directors.

6. Voting Rights.

(a) Except as expressly required by applicable law, or
except as indicated below, the holders of the Series A Preferred Stock will not
be entitled to receive notice of or attend or vote at any meeting of the
stockholders of Holding.

(b) If at the time of any annual meeting of Holding's
stockholders for the election of directors, Holding has failed to pay
or declare and set aside for payment a monthly Dividend for each of the 18
preceding monthly dividend periods, the number of directors then constituting
the Board of Directors of Holding shall be increased by one (if not already
increased by one due to a default in preference dividends), and at such annual
meeting the holders of the Series A Preferred Stock, along with the holders of
any other series of Preferred Stock which may have voting rights due to
Holding's failure to pay dividends, will be entitled to elect such additional
director to serve on Holding's Board of Directors. Such director elected by the
holders of the Series A Preferred Stock and any other Preferred Stock shall
continue to serve as director until the earlier of (i) the full term for which
he or she shall have been elected or (ii) the payment of 12 monthly Dividends.

(c) Unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the affirmative
vote or consent of the holders of at least two-thirds of the aggregate
liquidation preference of the Series A Preferred Stock and of the shares of any
Parity Stock at the time outstanding, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which the holders of
Series A Preferred Stock and any such other series of Parity Stock shall vote
together as a single class without regard to series, shall be necessary for
authorizing, effecting or validating any variation or abrogation of the powers,
preferences, rights, privileges, qualifications, limitations and restrictions of
the Series A Preferred Stock or any such other series of Parity Stock by way of
amendment, alteration or repeal of any of the provisions of the Certificate of
Incorporation of Holding, or of any amendment or supplement thereto, or
otherwise (including any certificate of amendment or any similar document
relating to any series of Preferred Stock). Notwithstanding the foregoing,
Holding may, without the consent or sanction of the holders of Series A
Preferred Stock, authorize or issue capital stock of Holding ranking, as to
dividend rights and rights on liquidation, winding up and dissolution, on a
parity with or junior to the Series A Preferred Stock.

(d) Unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the affirmative
vote or consent of the holders of at least two-thirds of the aggregate
liquidation preference of the Series A Preferred Stock and any other series of

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<PAGE> 11

Parity Stock at the time outstanding, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which the holders of
Series A Preferred Stock and any such other series of Parity Stock shall vote
together as a single class without regard to series, shall be necessary to
create, authorize or issue, or reclassify any authorized capital stock of
Holding into, or create, authorize or issue any obligation or security
convertible into or evidencing a right to purchase, any shares of any class of
stock of Holding ranking prior to both the Series A Preferred Stock and any
other series of Parity Stock. Subject to the foregoing, Holding's Certificate of
Incorporation may be amended to increase the number of authorized shares of
Preferred Stock without the vote of the holders of Preferred Stock, including
the Series A Preferred Stock. No vote of the holders of the Series A Preferred
Stock and any other series of Parity Stock will be required for Holding to
redeem or purchase and cancel the Series A Preferred Stock in accordance with
the Holding's Certificate of Incorporation.

7. Re-acquired Shares. Series A Preferred Stock redeemed, or
otherwise purchased or acquired by Holding shall be restored to the status of
authorized but unissued shares of Preferred Stock without designation as to
series.

EIGHTH

The holders of Common and Preferred Stock of Holding shall not have
any preemptive or preferential right of subscription to or purchase of any
shares, nor to any obligations convertible into any shares of Holding; whether
now or hereafter authorized, except as the Board of Directors, in its
discretion, may from time to time determine and at such price as the Board of
Directors may from time to time fix.

NINTH

Holding shall hold at least one annual meeting of stockholders each
year, at such place and date prescribed by the By-laws of Holding. Special
meetings may be called only by the President and Board of Directors.

The annual meeting shall be convened by mailing a notice to each
stockholder at least ten (10) days, but no more than sixty (60) days prior to
the date for the meeting.

Notices of special meetings of stockholders shall contain the same
information as notices of annual meetings of stockholders, but they shall also
contain information in connection with the reasons for the call to the meeting
and in connection with the different matters to be considered and voted upon at
the meeting. Notices prepared in accordance with these provisions shall be
required in order to hold a valid stockholders' meeting, and dispensing
therewith shall be excused only by the written consent of the stockholders.

TENTH

In order to be valid and unless a higher vote is required by
applicable law or this Certificate of Incorporation, such resolutions as may be
adopted at stockholders meetings shall be approved by the majority of the
outstanding shares of voting capital stock present or represented by proxy if a
quorum is present.

ELEVENTH

Holding shall indemnify any person who was or is a party or is
threatened to be made a party to any imminent, pending or resolved action, suit
or proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of Holding) by reason of the fact that he is
or was a director, officer, employee or agent of Holding, or is or was serving
at the request of Holding as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or any other enterprise, against
expenses (including attorneys' fees), judgments, fines

11
<PAGE> 12

and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if it is formally determined by
the Board of Directors, or other committee or entity empowered to make such
determination, that he acted in good faith and in a manner he reasonably deemed
consistent with and not opposed to the best interests of Holding, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith nor in a manner which he reasonably believed to be
consistent with or not opposed to the best interests of Holding and, with
respect to any criminal action or proceeding, the person did not have reasonable
cause to believe that his conduct was unlawful.

Holding shall indemnify any person who was or is a party or is
threatened to be made a party to any imminent, pending or resolved action, suit
or proceeding by or in the right of Holding to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of Holding, or is or was serving at the request of Holding as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or any other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if it is formally determined by the Board of
Directors, or other committee or entity empowered to make such determination,
that he acted in good faith and in a manner he reasonably deemed consistent with
or not opposed to the best interests of Holding, except that no indemnification
shall be made in respect of any claim, matter or controversy as to which such
person shall have been determined to be liable to Holding unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.

To the extent that a director, officer, employee or agent of Holding
has prevailed on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs 1 or 2 of this Article ELEVENTH, or in
defense of any claim, matter or controversy relating thereto, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.

Any indemnification under paragraphs 1 or 2 of this Article ELEVENTH
(unless ordered by a court) shall be made by Holding only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable norms of conduct set forth in those paragraphs. Such determination
shall be made (a) by a majority vote of the directors who were not parties to
such action, suit or proceeding, even if the directors constitute less than a
quorum, or (b) if there are no such directors of if such directors so determine,
by independent legal counsel in a written opinion, or (c) by the stockholders.

Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by Holding in advance of the final resolution of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it is ultimately determined
that he is not entitled to be indemnified by Holding as authorized in this
Article ELEVENTH.

The indemnification provided by this Article ELEVENTH shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any statute, by-law, agreement, vote of uninvolved
stockholders, directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.

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<PAGE> 13

Holding may purchase and maintain insurance, in such amounts as the
Board of Directors deems appropriate, in the name of any person who is or was a
director, officer, employee or agent of Holding, or is or was serving at the
request of Holding as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or any other enterprise, against
any liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not Holding has the power to
indemnify him against such liability pursuant to this Article ELEVENTH and
applicable law.

For purposes of this Article ELEVENTH, Holding includes any
constituent corporation of a consolidation or merger which is absorbed in a
consolidation or merger, which, if it had continued its independent legal
existence, would have had the power and the authority to compensate its
officers, directors, employees and agents.

TWELFTH

This Certificate of Incorporation may be amended in the manner
provided for herein and in the Corporations Law.

The By-laws of Holding may be amended, altered or modified or new
by-laws may be adopted by the Board of Directors or at any annual or special
meeting of stockholders in accordance with applicable provisions of the
Corporations Law.

Calls for meetings of stockholders shall clearly describe any and
all amendments to the Certificate of Incorporation or the By-laws to be
considered and voted upon at the meetings, but it shall not be necessary to
include in any such calls the wording of the amendments or the new text of the
paragraph or section, it being sufficient to designate therein the amendments by
the number of the paragraph or the section intended to be amended.

THIRTEENTH

The name and the postal and physical address of the sole
incorporator are as follows:

Name: Postal and Physical Address:

Frank C. Stipes 19 W. McKinley Street
Mayaguez, Puerto Rico 00680

I, the undersigned being the sole incorporator hereinbefore named
for the purposes of executing this Certificate of Incorporation pursuant to the
Corporations Law, hereby swear that the statements contained herein are true.

Given at Mayaguez, Puerto Rico, this 3rd day of February, 1999.

/s/ Frank C. Stipes
----------------------------
Frank C. Stipes

<PAGE> 1
EXHIBIT 3.2

BY-LAWS
OF
W HOLDING COMPANY, INC.

ARTICLE I

STOCKHOLDERS

SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at the principal office of W Holding Company, Inc.
("Holding") or at such other place as the Board of Directors may determine.

SECTION 2. ANNUAL MEETINGS. A meeting of the stockholders of Holding for
the election of directors and for the transaction of any other business of
Holding shall be held annually within 150 days after the end of Holding's fiscal
year on the fourth Thursday of May, if not a legal holiday, and if a legal
holiday, then on the next day following which is not a legal holiday, at 1:30
p.m., or at such other date and time within such 150-day period as the Board of
Directors may determine.

SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, may be called at any time by the Board of Directors or the
person or persons authorized by the Certificate of Incorporation of Holding.

SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with procedures determined by the Chairman of the Board
or a majority of the directors, and in accordance with applicable law. The Board
of Directors shall designate, when present, either the Chairman of the Board or
President to preside at such meetings.

SECTION 5. NOTICE OF MEETINGS. Notice of meetings of stockholders shall be
mailed to each stockholder of Holding at least ten (10) but not more than sixty
(60) days prior to the date for each such meeting.

SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, the Board of Directors shall fix in advance a date as the record date
for any such determination of stockholders. Such date in any case shall be not
more than sixty (60) days prior to the date on which the particular action,
requiring such determination of stockholders, is to be taken and in the case of
a stockholder meeting, not less than ten (10) days prior to the meeting. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this Section 6, such determination shall apply to
any adjournment thereof:

SECTION 7. VOTING LIST. At least ten (10) days before each meeting of the
stockholders, the officer or agent having charge of the stock transfer books for
shares of Holding shall make a complete list of the stockholders entitled to
vote at such meeting, or any adjournment thereof, arranging in alphabetical
order the stockholders list including the number of shares held by each. This
list of stockholders shall be kept on file at the principal office of Holding
and shall be subject to inspection by any stockholder at any time during usual
business hours for a period of ten (10) days prior to such meeting. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the entire time of
the meeting. The original stock transfer book shall constitute prima facie
evidence of the stockholders entitled to examine such list or transfer books or
to vote an any meeting of stockholders.

SECTION 8. QUORUM. One third of the outstanding shares represented in
person or by proxy shall constitute a quorum at a meeting of stockholders. If
less than a quorum is represented at a

<PAGE> 2

meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice; provided that the date of the adjourned
meeting shall not be less than eight (8) days after the date for which the first
meeting was called. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been at the
meeting as originally notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.

SECTION 9. PROXIES. At all meetings of stockholders, a stockholder may vote
by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholders or, in the absence of such direction, as
determined by the proxy holder designated by the Board of Directors. Proxies
must be filed with the Secretary of Holding. No proxy shall be valid after
eleven (11) months from the date of its execution except for a proxy coupled
with an interest.

SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
executor, guardian or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares in his name, upon presentation of the
appropriate supporting legal documents. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name. Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority to do so is
contained in an appropriate order of the court or other public authority by
which such receiver was appointed.

A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.

SECTION 11. CUMULATIVE VOTING. Stockholders shall not be entitled to
cumulate their votes for the election of directors.

SECTION 12. INSPECTOR OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. Any
such appointment shall not be altered at the meeting. If inspectors of election
are not so appointed, the Chairman of the Board or the President may, and at the
request of not fewer than ten percent (10%) of the votes represented at the
meeting shall, make such appointment at the meeting. If appointed at the
meeting, the majority of the votes present shall determine whether one or three
inspectors are to be appointed. In case any person appointed as inspector fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
by the Board of Directors in advance of the meeting, or at the meeting by the
Chairman of the Board or the President.

The duties of such inspectors shall include: determining the number of
shares of stock and the voting power of each share, the shares of stock
represented at the meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents; and
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders.

SECTION 13. NOMINEES. Only persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible for election as
directors. The Board of

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<PAGE> 3

Directors shall act as a nominating committee for selecting nominees for
election as directors. Nominations of persons for election to the Board of
Directors may be made at a meeting of stockholders by or at the direction of the
Board of Directors or by any stockholder entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 13. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of Holding. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of
Holding at least one hundred and fifty (150) days prior to the annual meeting.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of Holding which are beneficially owned by such person, and (iv) any
other information relating to such person that is required to be disclosed in
solicitations or proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving notice (i) the name and address,
as they appear on Holding's books, of such stockholder and (ii) the class and
number of shares of Holding which are beneficially owned by such stockholder. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of Holding
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of Holding unless nominated in accordance with the
procedures set forth in this Section 13. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with procedures prescribed in the by-laws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.

SECTION 14. BUSINESS AT ANNUAL MEETING. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of Holding. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of Holding at least
one hundred and fifty (150) days prior to the annual meeting. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on Holding's books, of the stockholder proposing such business, (c)
the class and number of shares of Holding which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 14. The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that a matter of business
was not properly brought before the meeting in accordance with the provisions of
this Section 14, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.

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<PAGE> 4

ARTICLE II

BOARD OF DIRECTORS

SECTION 1. GENERAL POWERS. The business and affairs of Holding shall be
under the direction of the Board of Directors. The Board of Directors shall
annually elect a Chairman of the Board and a President from among its members
and shall designate, when present, either the Chairman of the Board or the
President to preside at its meetings.

SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of such
number of directors as established from time to time by resolution of the Board
of Directors approved by an absolute majority of directors; provided that the
total number of directors shall be an odd number and not less than five nor more
than nine. The Board of Directors shall be divided into three classes as nearly
equal in number as possible. The members of each class shall be elected for a
term of three years and until their successors are elected and qualified. One
class shall be elected by ballot annually.

SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held within or outside the Commonwealth of Puerto Rico.

SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board or the President or
two-thirds of the directors.

SECTION 5. NOTICE. Written notice of any special meeting shall be given to
each director at least two (2) days prior to the meeting if delivered personally
or by fax or telegram or at least five (5) days prior to the meeting if
delivered by mail at the address at which the director is most likely to be
reached. Such notice shall be deemed to be delivered when deposited in the U.S.
mail so addressed, with postage thereon prepaid if mailed or when delivered to
the telegraph company if sent by telegram. Any director may waive notice of any
meeting by a writing filed with the Secretary. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.

SECTION 6. QUORUM. A majority of the directors shall constitute a quorum
for the transaction of business at any meeting of the Board of Directors, but if
less than such majority is present at a meeting, a majority of the directors
present may adjourn the meeting from time to time. Notice of any adjourned
meeting shall be given in the same manner as prescribed by Section 5 of this
Article II.

SECTION 7. MANNER OF ACTING. The vote of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by applicable laws or
regulations or by the Certificate of Incorporation of Holding or these By-laws.

SECTION 8. ACTIONS WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, give their written consent to such action and the
written consent shall be stored in the minutes of meetings of the Board of
Directors or committees, as the case may be.

SECTION 9. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of a

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telephone conference, or other medium of communication, by which all of the
persons who participate in the meeting hear each other simultaneously.
Participation of the Board in this manner shall constitute presence in person at
such meeting.

SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the principal office of Holding addressed
to the Chairman of the Board or the President. Unless otherwise specified
therein, such resignation shall take effect upon receipt thereof by the Chairman
of the Board or the President.

SECTION 11. VACANCIES. Any vacancy occurring in the Board of Directors,
including newly created directorship, may be filled by the affirmative vote of a
majority of the remaining directors. A director elected to fill a vacancy so
created shall be elected to serve the full term of such directorship and until a
successor has been duly elected and sworn in their office.

SECTION 12. COMPENSATION. No director shall be entitled to any salary as
such; but the Board of Directors may fix, from time to time, a reasonable fee to
be paid to each director for his or her services in attending meetings of the
Board of Directors or of any authorized committee. The Board of Directors may
also provide that such compensation, as it deems reasonable, shall be paid to
any or all of its members for services rendered to Holding other than attendance
at meetings of the Board of Directors or its committees.

ARTICLE III

COMMITTEES

SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by a
majority of the Board of Directors, may designate one or more committees, each
one of which shall be composed of one or more directors of Holding. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member in any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members present at any meeting and not disqualified from voting,
whether or not these members constitute quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. To the extent authorized by the resolution of the
Board of Directors, such committees shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of Holding,
including the power to order the stamping of the corporate seal on all documents
which so require it. Notwithstanding the foregoing, such committees shall not
have the power to: remove or elect officers; amend the Certificate of
Incorporation (except that a committee may, to the extent authorized by a
resolution of the Board of Directors providing for the issue of shares or stock,
fix the designations and any of the preferences or rights or such shares
relating to dividends, redemption, dissolution, any distribution of the assets
of the corporation or the conversion or exchange of such shares for shares of
any class or classes, or any other series of the same or another class of stock
of Holding, or fix the number of stock of any series or authorize the increase
or decrease in the number of shares of any series); adopt an agreement of merger
or consolidation; make recommendations to the stockholders regarding the sale,
lease or exchange of all or a substantial portion of the property or assets of
Holding; approve resolutions which recommend a dissolution or which recommend a
revocation of a dissolution, or which amend the by-laws of Holding; and unless
the resolution for the creation of a committee, the By-laws or the Certificate
of Incorporation so provides, such committee shall not have the power to declare
dividends, authorize the issuance of capital stock or adopt an agreement of
merger. Such committees shall have such name or names which from time to time
the Board of Directors shall determine by resolution.

SECTION 2. MINUTES, REPORTS. Minutes shall be kept of all meetings of the
committees. The minutes of each meeting, together with such reports in writing
as may be required to fully

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explain any business or transactions, shall be submitted to the Board of
Directors at the next regular session after each meeting. The Board of Directors
shall approve or disapprove the minutes and/or reports and record such action in
the minutes of the meeting.

SECTION 3. APPOINTMENT, TERM OF OFFICE. Members of the committees shall be
appointed by the Board for such term as the Board may determine, and all members
of the committees shall serve at the pleasure of the Board.

SECTION 4. QUORUM. A majority of the members of any committee shall
constitute a quorum. A majority of the votes cast shall decide every question or
matter submitted to a committee.

SECTION 5. EX OFFICIO MEMBERS. The Chairman and the President, and any
officer acting in the absence of the President, shall be ex officio members of
all the committees.

ARTLCLE IV

OFFICERS

SECTION 1. POSITIONS. The officers of Holding shall be a President, one or
more Vice Presidents, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may also designate the
Chairman of the Board as an officer. The President shall be the Chief Executive
Officer, unless the Board of Directors unanimously designates the Chairman of
the Board or another executive officer as the Chief Executive Officer. The
President shall be a director of Holding. The offices of the Secretary and the
Treasurer may be held by the same person and a Vice President may also be either
the Secretary or the Treasurer. The Board of Directors may designate one or more
Vice Presidents as Executive Vice Presidents or Senior Vice Presidents. The
Board of Directors may also elect or authorize the appointment of such other
officers as the business of Holding may require. The Secretary shall record all
minutes of all meetings of the stockholders of Holding and of the Board of
Directors in a book which shall be kept for such purpose. The officers shall
have such authority and perform such duties as the Board of Directors may from
time to time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
to their respective offices.

SECTION 2. ELECTION AND TERM OF OFFICE. The officers of Holding shall be
elected annually at the first meeting of the Board of Directors held after the
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The Board of Directors may authorize Holding
to enter into an employment contract with any officer in accordance with
regulations of the Board and applicable law; but no such contract shall impair
the right of the Board of Directors to remove any officer at any time in
accordance with Section 3 of this Article IV.

SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever, in its judgment, the best interests of Holding will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.

SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.

SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors.

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ARTICLE V

STOCK AND STOCK CERTIFICATES

SECTION 1. TRANSFER. Shares of stock shall be transferable on the books of
Holding, and a transfer book shall be kept in which all transfers of stock shall
be recorded.

SECTION 2. STOCK CERTIFICATES. Certificates of stock shall bear the
signature of the Chairman, the President or any Vice President (which may be
engraved, printed or impressed), and shall be signed manually or by facsimile
process by the Secretary or an Assistant Secretary, or any other officer
appointed by the Board of Directors for that purpose, to be known as an
Authorized Officer, and the seal of Holding shall be engraved thereon. Each
certificate shall recite on its face that the stock represented thereby is
transferable on the books of Holding only upon being properly endorsed.

SECTION 3. OWNER OF RECORD, ATTACHMENT, PLEDGE. Shares of stock are
transferable by all means recognized by law if there is no attachment levied
against them under competent authority, but as long as the transfer is not
signed and recorded in the transfer books of Holding, Holding shall be entitled
to consider as owner thereof the party who appears as such in said books.

SECTION 4. LOST OR DESTROYED STOCK CERTIFICATES. In the event any
certificate of stock shall be lost or destroyed, a new certificate may be issued
in its place upon receiving such proof of loss and such bond of indemnity
therefore as may be satisfactory to management.

SECTION 5. TRANSFER AGENT. The Board of Directors may designate any person,
whether or not an officer of Holding, as stock transfer agent or registrar of
Holding with respect to stock certificates or other securities issued by
Holding.

ARTICLE VI

MISCELLANEOUS PROVISIONS

SECTION 1. FISCAL YEAR. The fiscal year of Holding shall end on the 31st
day of December of each year.

SECTION 2. DIVIDENDS. The Board of Directors may from time to time declare,
and Holding may pay dividends in cash or in shares of the capital stock of
Holding, in the manner and upon the terms and conditions provided by applicable
laws and regulations and Holding's Certificate of Incorporation.

SECTION 3. CONFLICT WITH NEW LAWS. The provisions of these By-laws in
conflict with any and all new statutes shall become superseded to the extent
inconsistent with all new statutes without affecting the validity of the
remaining provision hereof.

SECTION 4. AMENDMENTS. These By-laws may be amended, altered, or modified
and new by-laws may be adopted by the Board of Directors or at any annual or
special meeting of stockholders in accordance with applicable provisions of law
and Holding's Certificate of Incorporation.

<PAGE> 1
EXHIBIT 10.1

WESTERNBANK PUERTO RICO
1999 QUALIFIED STOCK OPTION PLAN

Westernbank Puerto Rico, a Puerto Rico-chartered commercial bank
(the "Bank") sets forth herein the terms of this 1999 Qualified Stock Option
Plan (the "Plan") as follows:

1. PURPOSE; TYPES OF OPTIONS

The Plan is intended to advance the interests of the Bank by
providing eligible individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in the Bank, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of the Bank and its subsidiaries, and will encourage such eligible
individuals to remain in the employ or service of the Bank or one or more of its
subsidiaries. Each stock option granted under the Plan (an "Option") is intended
to be a "qualifying stock option" within the meaning of Section 1046 of the
Puerto Rico Internal Revenue Code of 1994, as amended, or the corresponding
provision of any subsequently-enacted tax statute, as amended from time to time
(the "Code") (a "Qualifying Option").

2. ADMINISTRATION

(a) Board. The Plan shall be administered by the Board
of Directors of the Bank (the "Board"), which shall have the full power and
authority to take all actions and to make all determinations required or
provided for under the Plan or any Option granted or Option Agreement (as
defined in Section 8 below) entered into hereunder and all such other actions
and determinations not inconsistent with the specific terms and provisions of
the Plan deemed by the Board to be necessary or appropriate to the
administration of the Plan or any Option granted or Option Agreement entered
into hereunder. All such actions and determinations shall be by the affirmative
vote of a majority of the members of the Board present at a meeting at which any
issue relating to the Plan is properly raised for consideration or without a
meeting by written consent of the Board executed in accordance with the Bank's
Certificate of Incorporation and By-Laws, and with applicable law. The
interpretation and construction by the Board of any provision of the Plan or of
any Option granted or Option Agreement entered into hereunder shall be final and
conclusive.

(b) Committee. The Board may from time to time
appoint a Stock Option Committee (the "Committee") consisting of not less than
two members of the Board. In the discretion of the Board, the Committee may be
comprised of members each of whom qualifies as a "non-employee director" as
defined in Rule 16b-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934 (the "Exchange Act"), in order to qualify grants
under the Plan for the exemption provided by such Rule. The Board, in its sole
discretion, may provide that the role of the Committee shall be limited to
making recommendations to the Board concerning

<PAGE> 2

any determinations to be made and actions to be taken by the Board pursuant to
or with respect to the Plan, or the Board may delegate to the Committee such
powers and authorities related to the administration of the Plan, as set forth
in Section 2(a) above, as the Board shall determine, consistent with the
Certificate of Incorporation and By-Laws of the Bank and applicable law. The
Board may remove members, add members, and fill vacancies on the Committee from
time to time, all in accordance with the Bank's Certificate of Incorporation and
By-Laws, and with applicable law. The majority vote of the Committee, or acts
reduced to or approved in writing by a majority of the members of the Committee,
shall be the valid acts of the Committee.

(c) No Liability. No member of the Board or of
the Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted or Option Agreement entered into
hereunder.

(d) Delegation to the Committee. In the event
that the Plan or any Option granted or Option Agreement entered into hereunder
provides for any action to be taken by or determination to be made by the Board,
such action may be taken by or such determination may be made by the Committee
if the power and authority to do so has been delegated to the Committee by the
Board as provided for in Section 2(b) above. Unless otherwise expressly
determined by the Board, any such action or determination by the Committee shall
be final and conclusive.

3. STOCK

The stock that may be issued pursuant to Options
granted under the Plan shall be shares of common stock, par value $1.00 per
share, of the Bank (the "Stock"), which shares may be treasury shares or
authorized but unissued shares. The number of shares of Stock that may be issued
pursuant to Options granted under the Plan shall not exceed in the aggregate
4,200,000 shares. The foregoing number of shares is subject to adjustment as
provided in Section 17 below. If any Option expires, terminates, or is
terminated or canceled for any reason prior to exercise in full, the shares of
Stock that were subject to the unexercised portion of such Option shall be
available for future Options granted under the Plan.

4. ELIGIBILITY

(a) Eligible Individuals. Options may be granted
under the Plan to any employee of the Bank or any "parent" or "subsidiary
corporation" (a "Subsidiary") thereof within the meaning of Section 1046(c) of
the Code as the Board shall determine and designate from time to time prior to
expiration or termination of the Plan.

(b) Multiple Grants. An individual may hold more
than one Option, subject to such restrictions as are provided herein.

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5. EFFECTIVE DATE AND TERM OF THE PLAN

(a) Effective Date. The effective date of the Plan
shall be the date on which the Plan shall have been approved by the Board and
the stockholders of the Bank, in accordance with this Section 5(a). The Plan
shall be effective as of the later of (1) the date the Plan is adopted by the
Board or (2) the date the Plan is approved by stockholders of the Bank in
accordance with 1046(c)(2) of the Code; provided, that such approval of
stockholders must occur within one year before or after the adoption of the Plan
by the Board. If the stockholders fail to approve the Plan within one year after
the Plan is approved by the Board, or if the Board fails to adopt the Plan
within one year after the Plan is approved by stockholders, the Plan shall be
null and void and of no effect. No Options shall be granted under the Plan
before it has been approved by the Board and the stockholders of the Bank, as
set out in this Section 5(a).

(b) Term. The Plan shall terminate on the date 10
years from the effective date.

6. GRANT OF OPTIONS

Subject to the terms and conditions of the Plan, the Board may, at
any time and from time to time, after the effective date and prior to the date
of termination of the Plan, grant to such eligible individuals as the Board may
determine ("Optionees"), Options to purchase such number of shares of the Stock
on such terms and conditions as the Board may determine, including any terms or
conditions which may be necessary to qualify such Options as Qualifying Options.
The date on which the Board approves the grant of an Option (or such later date
as is specified by the Board) shall be considered the date on which such Option
is granted.

7. LIMITATION ON QUALIFYING STOCK OPTIONS

The aggregate market value (determined at the time in which the
Option is granted) of the Stock shares with respect to which Qualifying Options
may be exercised for the first time by an individual during any calendar year
(under all qualified option plans of the Bank or any Subsidiary) may not exceed
$100,000. An Option shall not constitute a qualifying stock option for purposes
of Section 1046 of the Code to the extent that the aggregate fair market value
(determined at the time the option is granted) of the stock with respect to
which Qualifying Options are exercisable for the first time by any Optionee
during any calendar year (under the Plan and all other plans of the Bank and any
Subsidiary) exceeds $100,000. This limitation shall be applied by taking Options
into account in the order in which they were granted.

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<PAGE> 4

8. OPTION AGREEMENTS

All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements"), to be executed by the Bank and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar provisions; provided, however, that all such Option
Agreements shall comply with all terms of the Plan. Any amendment or
modification to an Option Agreement shall be made by a written instrument
approved by the Board and executed by or on behalf of the Bank and the Optionee
(or permitted transferee of the Optionee).

9. OPTION PRICE

The purchase price of each share of the Stock subject to an Option
(the "Option Price") shall be fixed by the Board and stated in each Option
Agreement, and shall be not less than 100 percent of the fair market value of a
share of the Stock on the date the Option is granted, determined in accordance
with Section 1046(c)(4) of the Code.

10. TERM AND EXERCISE OF OPTIONS

(a) Term. Each Option granted under the Plan
shall terminate and all rights to purchase shares thereunder shall cease upon
the expiration of 10 years from the date such Option is granted, or on such date
prior thereto as may be fixed by the Board and stated in the Option Agreement
relating to such Option.

(b) Option Period and Limitations on Exercise.
Each Option shall be exercisable, in whole or in part, at any time and from time
to time, over a period commencing on or after the date of grant and ending upon
the expiration or termination of the Option, as the Board shall determine and
set forth in the Option Agreement relating to such Option. Without limiting the
foregoing, the Board, subject to the terms and conditions of the Plan, may in
its sole discretion provide that an Option may not be exercised in whole or in
part for any period or periods of time during which such Option is outstanding;
provided, however, that any such limitation on the exercise of an Option
contained in any Option Agreement may be rescinded, modified or waived by the
Board, in its sole discretion, at any time and from time to time after the date
of grant of such Option, so as to accelerate the time at which the Option may be
exercised. Each Option shall be exercisable, in whole or in part, at any time
and from time to time, over a period commencing on the date of grant and ending
upon the expiration of the Option.

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<PAGE> 5

exercised. The minimum number of shares of Stock with respect to which an Option
may be exercised, in whole or in part, at any time shall be the lesser of 100
shares or the maximum number of shares available for purchase under the Option
at the time of exercise. Payment of the Option Price for the shares of Stock
purchased pursuant to the exercise of an Option shall be made (i) in cash or in
cash equivalents; (ii) through the tender to the Bank of shares of Stock, which
shares shall be valued, for purposes of determining the extent to which the
Option Price has been paid thereby, at their fair market value (determined in
the manner described in Section 9 above) on the date of exercise; (iii) by
delivering a written direction to the Bank that the Option be exercised pursuant
to a "cashless" exercise/sale procedure (pursuant to which funds to pay for
exercise of the option are delivered to the Bank by a broker upon receipt of
stock certificates from the Bank) or a cashless exercise/loan procedure
(pursuant to which the optionees would obtain a margin loan from a broker to
fund the exercise) through a licensed broker acceptable to the Bank whereby the
stock certificate or certificates for the shares of Stock for which the Option
is exercised will be delivered to such broker as the agent for the individual
exercising the Option and the broker will deliver to the Bank cash (or cash
equivalents acceptable to the Bank) equal to the Option Price for the shares of
Stock purchased pursuant to the exercise of the Option plus the amount (if any)
of federal and other taxes that the Bank, may, in its judgment, be required to
withhold with respect to the exercise of the Option; or (iv) by a combination of
the methods described in (i), (ii), and (iii); provided, however, that the Board
may in its discretion impose and set forth in the Option Agreement such
limitations or prohibitions on the use of shares of Stock to exercise Options as
it deems appropriate. Payment in full of the Option Price need not accompany the
written notice of exercise if the Option is exercised pursuant to the cashless
exercise/sale procedure described above. If shares of Stock that are acquired by
the Optionee through exercise of an Option or an option issued under another
stock option plan maintained by the Bank are surrendered in payment of the
Option Price, the Stock surrendered in payment must have been (i) held by the
Optionee for more than six months at the time of surrender, or (ii) acquired
under an Option granted not less than six months prior to the time of surrender.
Promptly after the exercise of an Option and the payment in full of the Option
Price of the shares of Stock covered thereby, the individual exercising the
Option shall be entitled to the issuance of a Stock certificate or certificates
evidencing his ownership of such shares. An individual holding or exercising an
Option shall have none of the rights of a shareholder until the shares of Stock
covered thereby are fully paid and issued to him and, except as provided in
Section 17 below, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date of such issuance.

(d) Restrictions on Transfer of Stock. If an
Option is exercised before the date that is six months from the date of grant of
the Option and a sale of the shares of Stock acquired thereby would subject the
individual exercising the Option to liability under Section 16 of the Exchange
Act, then the certificate or certificates representing such shares shall bear a
legend restricting the transfer of the Stock

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covered thereby until the expiration of six months from such date, or for such
other period during which such a transfer would subject such individual to such
liability.

11. TRANSFERABILITY OF OPTIONS

During the lifetime of an Optionee to whom an Option is granted,
only such Optionee (or, in the event of legal incapacity or incompetence, the
Optionee's guardian or legal representative) may exercise the Option. No Option
shall be assignable or transferable by the Optionee to whom it is granted, other
than by will or the laws of descent and distribution.

12. TERMINATION OF EMPLOYMENT OR SERVICE

Upon the termination of the employment or service of an
Optionee with the Bank or a Subsidiary, other than by reason of the death or
"permanent and total disability" (within the meaning of Section 1046(d)(3) of
the Code) of such Optionee, any Option granted to an Optionee pursuant to the
Plan shall terminate three months after the date of such termination of
employment or service, unless earlier terminated pursuant to Section 10(a)
above, and such Optionee shall have no further right to purchase shares of Stock
pursuant to such Option; provided, however, that the Board may provide, by
inclusion of appropriate language in any Option Agreement, that the Optionee may
(subject to the general limitations on exercise set forth in Section 10(b)
above), in the event of termination of employment or service of the Optionee
with the Bank or a Subsidiary, exercise an Option, in whole or in part, at any
time subsequent to such termination of employment or service and prior to
termination of the Option pursuant to Section 10(a) above, either subject to or
without regard to any installment limitation on exercise imposed pursuant to
Section 10(b) above. Whether a leave of absence or leave on military or
government service shall constitute a termination of employment or service for
purposes of the Plan shall be determined by the Board, which determination shall
be final and conclusive. For purposes of the Plan, a termination of employment
or service with the Bank or a Subsidiary shall not be deemed to occur if the
Optionee is immediately thereafter employed by the Bank or any Subsidiary.

13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY

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appropriate language in any Option Agreement that, in the event of the death of
the Optionee, the executors or administrators or legatees or distributees of
such Optionee's estate may exercise an Option (subject to the general
limitations on exercise set forth in Section 10(b) above), in whole or in part,
at any time subsequent to such Optionee's death and prior to termination of the
Option pursuant to Section 10(a) above, either subject to or without regard to
any installment limitation on exercise imposed pursuant to Section 10(b) above.

(b) Disability. If an Optionee terminates employment
or service with the Bank or a Subsidiary because the Optionee is "disabled"
within the meaning of Section 1046(d)(3) of the Code (a "Disabled Optionee"),
then such Disabled Optionee shall have the right (subject to the general
limitations on exercise set forth in Section 10(b) above), at any time within
one year after such termination of employment or service and prior to
termination of the Option pursuant to Section 10(a) above, to exercise, in whole
or in part, any Option held by such Disabled Optionee at the date of such
termination of employment or service, whether or not such Option was exercisable
immediately prior to such termination of employment or service; provided,
however, that the Board may provide, by inclusion of appropriate language in any
Option Agreement, that the Optionee may (subject to the general limitations on
exercise set forth in Section 10(b) above), in the event of the termination of
employment or service of a Disabled Optionee with the Bank or a Subsidiary,
exercise an Option in whole or in part, at any time subsequent to such
termination of employment or service and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 10(b) above.
Whether an Optionee is a Disabled Optionee for purposes of this Plan shall be
determined by the Board in accordance with Section 1046(d)(3) of the Code, which
determination shall be final and conclusive.

14. USE OF PROCEEDS

The proceeds received by the Bank from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the Bank.

15. REQUIREMENTS OF LAW

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Option shall not be exercisable unless and until the shares of Stock covered by
such Option are registered or are subject to an available exemption from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.

16. AMENDMENT AND TERMINATION OF THE PLAN

The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes present and entitled to vote at a duly held
meeting of the shareholders of the Bank at which a quorum representing a
majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the amendment, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and By-Laws of the
Bank, change the requirements as to eligibility to receive Options or increase
the maximum number of shares of Stock in the aggregate that may be issued
pursuant to Options granted under the Plan (except as permitted under Section 17
hereof). Except as permitted under Section 17 hereof, no amendment, suspension
or termination of the Plan shall, without the consent of the holder of the
Option, alter or impair rights or obligations under any Option theretofore
granted under the Plan.

17. EFFECT OF CHANGES IN CAPITALIZATION

(a) Changes in Stock. If the outstanding shares
of Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Bank by reason of any
recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Bank, occurring after the effective date of the
Plan, the number and kinds of shares for the purchase of which Options may be
granted under the Plan shall be adjusted proportionately and accordingly by the
Bank. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised portion
of the Option outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share.

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any Option theretofore granted pursuant to the Plan shall pertain to and apply
to the securities to which a holder of the number of shares of Stock subject to
such Option would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or consolidation.

(c) Reorganization in Which the Bank Is Not the
Surviving Bank or Sale of Assets or Stock. Upon the dissolution or liquidation
of the Bank, or upon a merger, consolidation, reorganization or other business
combination of the Bank with one or more other entities in which the Bank is not
the surviving entity, or upon a sale of all or substantially all of the assets
of the Bank to another entity, or upon any transaction (including, without
limitation, a merger or reorganization in which the Bank is the surviving
corporation) approved by the Board which results in any person or entity (or
persons or entities acting as a group or otherwise in concert) owning 50 percent
or more of the combined voting power of all classes of stock of the Bank, the
Plan and all Options outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan and/or the assumption of the Options theretofore
granted, or for the substitution for such Options of new options covering the
stock of a successor entity, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares and exercise prices, in which
event the Plan and Options theretofore granted shall continue in the manner and
under the terms so provided. In the event of any such termination of the Plan,
each individual holding an Option shall have the right (subject to the general
limitations on exercise set forth in Section 10(b) above and except as otherwise
specifically provided in the Option Agreement relating to such Option),
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Board in its sole discretion shall
determine and designate, to exercise such Option in whole or in part, whether or
not such Option was otherwise exercisable at the time such termination occurs
and without regard to any installment limitation on exercise imposed pursuant to
Section 10(b) above. The Board shall send written notice of an event that will
result in such a termination to all individuals who hold Options not later than
the time at which the Bank gives notice thereof to its shareholders.

(d) Adjustments. Adjustments under this Section 17
related to stock or securities of the Bank shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.

(e) No Limitations on Bank. The grant of an Option
pursuant to the Plan shall not affect or limit in any way the right or power of
the Bank to make

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<PAGE> 10

adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.

18. DISCLAIMER OF RIGHTS

No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ or service of the Bank or any
Subsidiary, or to interfere in any way with the right and authority of the Bank
or any Subsidiary either to increase or decrease the compensation of any
individual at any time, or to terminate any employment or other relationship
between any individual and the Bank or any Subsidiary.

19. NONEXCLUSIVITY OF THE PLAN

Neither the adoption of the Plan nor the submission of the Plan to
the shareholders of the Bank for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
qualifying compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.

* * *

This Plan was duly adopted and approved by the Board of Directors of
the Bank by resolution at a meeting held on the _____ day of ________________,
1999.

---------------------------------------
Secretary of the Bank

This Plan was duly approved by the shareholders of the
Bank by resolution at a meeting held on the _____ day of

________________, _____.

---------------------------------------
Secretary of the Bank

- 10 -

<PAGE> 1
EXHIBIT 10.2

WESTERNBANK PUERTO RICO
1999 NONQUALIFIED STOCK OPTION PLAN

Westernbank Puerto Rico, a Puerto Rico-chartered commercial bank
(the "Bank") sets forth herein the terms of this 1999 Nonqualified Stock Option
Plan (the "Plan") as follows:

1. PURPOSE; TYPES OF OPTIONS

The Plan is intended to advance the interests of the Bank by
providing eligible individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in the Bank, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of the Bank and its subsidiaries, and will encourage such eligible
individuals to remain in the employ or service of the Bank or one or more of its
subsidiaries. Each stock option granted under the Plan (an "Option") shall
constitute an option that is not a "qualifying stock option" within the meaning
of Section 1046 of the Puerto Rico Internal Revenue Code of 1994, as amended, or
the corresponding provision of any subsequently-enacted tax statute, as amended
from time to time (the "Code") (a "Nonqualified Option").

2. ADMINISTRATION

(a) Board. The Plan shall be administered by the
Board of Directors of the Bank (the "Board"), which shall have the full power
and authority to take all actions and to make all determinations required or
provided for under the Plan or any Option granted or Option Agreement (as
defined in Section 7 below) entered into hereunder and all such other actions
and determinations not inconsistent with the specific terms and provisions of
the Plan deemed by the Board to be necessary or appropriate to the
administration of the Plan or any Option granted or Option Agreement entered
into hereunder. All such actions and determinations shall be by the affirmative
vote of a majority of the members of the Board present at a meeting at which any
issue relating to the Plan is properly raised for consideration or without a
meeting by written consent of the Board executed in accordance with the Bank's
Certificate of Incorporation and By-Laws, and with applicable law. The
interpretation and construction by the Board of any provision of the Plan or of
any Option granted or Option Agreement entered into hereunder shall be final and
conclusive.

<PAGE> 2

the Committee shall be limited to making recommendations to the Board concerning
any determinations to be made and actions to be taken by the Board pursuant to
or with respect to the Plan, or the Board may delegate to the Committee such
powers and authorities related to the administration of the Plan, as set forth
in Section 2(a) above, as the Board shall determine, consistent with the
Certificate of Incorporation and By-Laws of the Bank and applicable law. The
Board may remove members, add members, and fill vacancies on the Committee from
time to time, all in accordance with the Bank's Certificate of Incorporation and
By-Laws, and with applicable law. The majority vote of the Committee, or acts
reduced to or approved in writing by a majority of the members of the Committee,
shall be the valid acts of the Committee.

(c) No Liability. No member of the Board or of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted or Option Agreement entered into
hereunder.

(d) Delegation to the Committee. In the event that the
Plan or any Option granted or Option Agreement entered into hereunder provides
for any action to be taken by or determination to be made by the Board, such
action may be taken by or such determination may be made by the Committee if the
power and authority to do so has been delegated to the Committee by the Board as
provided for in Section 2(b) above. Unless otherwise expressly determined by the
Board, any such action or determination by the Committee shall be final and
conclusive.

3. STOCK

The stock that may be issued pursuant to Options granted
under the Plan shall be shares of common stock, par value $1.00 per share, of
the Bank (the "Stock"), which shares may be treasury shares or authorized but
unissued shares. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 4,200,000
shares, reduced by the number of shares issued pursuant to options granted under
the Bank's 1999 Qualified Stock Option Plan (the "Qualified Stock Option Plan").
The foregoing number of shares is subject to adjustment as provided in Section
16 below. If any Option granted under the Plan expires, terminates, or is
terminated or canceled for any reason prior to exercise in full, the shares of
Stock that were subject to the unexercised portion of such Option shall be
available for future Options granted under the Plan.

4. ELIGIBILITY

- 2 -
<PAGE> 3

(b) Multiple Grants. An individual may hold more than
one Option, subject to such restrictions as are provided herein.

5. EFFECTIVE DATE AND TERM OF THE PLAN

(a) Effective Date. The effective date of the
Plan shall be the date on which the Plan shall have been approved by the Board
and the stockholders of the Bank, in accordance with this Section 5(a). The Plan
shall be effective as of the later of (1) the date the Plan is adopted by the
Board or (2) the date the Plan is approved by stockholders of the Bank in
accordance with the Certificate of Incorporation and Bylaws of the Bank;
provided, that such approval of stockholders must occur within one year before
or after the adoption of the Plan by the Board. If the stockholders fail to
approve the Plan within one year after the Plan is approved by the Board, or if
the Board fails to adopt the Plan within one year after the Plan is approved by
stockholders, the Plan shall be null and void and of no effect. No Options shall
be granted under the Plan before it has been approved by the Board and the
stockholders of the Bank, as set out in this Section 5(a).

(b) Term. The Plan shall terminate on the date 10
years from the effective date.

6. GRANT OF OPTIONS

Subject to the terms and conditions of the Plan, the Board may, at
any time and from time to time, after the effective date and prior to the date
of termination of the Plan, grant to such eligible individuals as the Board may
determine ("Optionees"), Options to purchase such number of shares of the Stock
on such terms and conditions as the Board may determine. The date on which the
Board approves the grant of an Option (or such later date as is specified by the
Board) shall be considered the date on which such Option is granted.

7. OPTION AGREEMENTS

- 3 -
<PAGE> 4

8. OPTION PRICE

The purchase price of each share of the Stock subject to an Option
(the "Option Price") shall be fixed by the Board and stated in each Option
Agreement, and shall be not less than the par value of a share of the Stock on
the date the Option is granted.

9. TERM AND EXERCISE OF OPTIONS

(a) Term. Each Option granted under the Plan
shall terminate and all rights to purchase shares thereunder shall cease upon
the expiration of 10 years and one day from the date such Option is granted, or
on such date prior thereto as may be fixed by the Board and stated in the Option
Agreement relating to such Option.

(b) Option Period and Limitations on Exercise. Each
Option shall be exercisable, in whole or in part, at any time and from time to
time, over a period commencing on or after the date of grant and ending upon the
expiration or termination of the Option, as the Board shall determine and set
forth in the Option Agreement relating to such Option. Without limiting the
foregoing, the Board, subject to the terms and conditions of the Plan, may in
its sole discretion provide that an Option may not be exercised in whole or in
part for any period or periods of time during which such Option is outstanding;
provided, however, that any such limitation on the exercise of an Option
contained in any Option Agreement may be rescinded, modified or waived by the
Board, in its sole discretion, at any time and from time to time after the date
of grant of such Option, so as to accelerate the time at which the Option may be
exercised. Each Option shall be exercisable, in whole or in part, at any time
and from time to time, over a period commencing on the date of grant and ending
upon the expiration of the Option.

(c) Method of Exercise. An Option that is exercisable
hereunder may be exercised by delivery to the Bank on any business day, at its
principal office, addressed to the attention of the Committee, of written notice
of exercise, which notice shall specify the number of shares with respect to
which the Option is being exercised. The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part, at any time
shall be the lesser of 100 shares or the maximum number of shares available for
purchase under the Option at the time of exercise. Payment of the Option Price
for the shares of Stock purchased pursuant to the exercise of an Option shall be
made (i) in cash or in cash equivalents; (ii) through the tender to the Bank of
shares of Stock, which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their fair market
value (determined in the manner described in Section 8 above) on the date of
exercise; (iii) by delivering a written direction to the Bank that the Option be
exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the option are delivered to the Bank by a broker
upon receipt of stock

- 4 -
<PAGE> 5

certificates from the Bank) or a cashless exercise/loan procedure (pursuant to
which the optionees would obtain a margin loan from a broker to fund the
exercise) through a licensed broker acceptable to the Bank whereby the stock
certificate or certificates for the shares of Stock for which the Option is
exercised will be delivered to such broker as the agent for the individual
exercising the Option and the broker will deliver to the Bank cash (or cash
equivalents acceptable to the Bank) equal to the Option Price for the shares of
Stock purchased pursuant to the exercise of the Option plus the amount (if any)
of federal and other taxes that the Bank, may, in its judgment, be required to
withhold with respect to the exercise of the Option; or (iv) by a combination of
the methods described in (i), (ii), and (iii); provided, however, that the Board
may in its discretion impose and set forth in the Option Agreement such
limitations or prohibitions on the use of shares of Stock to exercise Options as
it deems appropriate. Payment in full of the Option Price need not accompany the
written notice of exercise if the Option is exercised pursuant to the cashless
exercise/sale procedure described above. If shares of Stock that are acquired by
the Optionee through exercise of an Option or an option issued under another
stock option plan maintained by the Bank are surrendered in payment of the
Option Price, the Stock surrendered in payment must have been (i) held by the
Optionee for more than six months at the time of surrender, or (ii) acquired
under an Option granted not less than six months prior to the time of surrender.
Promptly after the exercise of an Option and the payment in full of the Option
Price of the shares of Stock covered thereby, the individual exercising the
Option shall be entitled to the issuance of a Stock certificate or certificates
evidencing his ownership of such shares. An individual holding or exercising an
Option shall have none of the rights of a shareholder until the shares of Stock
covered thereby are fully paid and issued to him and, except as provided in
Section 16 below, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date of such issuance.

(d) Restrictions on Transfer of Stock. If an Option
is exercised before the date that is six months from the date of grant of the
Option and a sale of the shares of Stock acquired thereby would subject the
individual exercising the Option to liability under Section 16 of the Exchange
Act, then the certificate or certificates representing such shares shall bear a
legend restricting the transfer of the Stock covered thereby until the
expiration of six months from such date, or for such other period during which
such a transfer would subject such individual to such liability.

10. TRANSFERABILITY OF OPTIONS

No Option shall be assignable or transferable by the Optionee to
whom it is granted, other than by will or the laws of descent and distribution,
except that the Optionee may transfer an Option by gift: to a member of his
"Family" (as defined below) or to a trust for the exclusive benefit of the
Optionee, one or more members of the Optionee's Family, or any combination of
the foregoing, provided that any such transferee shall enter into a written
agreement to be bound by the terms of the Plan.

- 5 -
<PAGE> 6

For this purpose, "Family" shall mean the spouse, siblings, lineal ancestors and
descendants of the Optionee.

11. TERMINATION OF EMPLOYMENT OR SERVICE

Upon the termination of the employment or service
of an Optionee with the Bank or a Subsidiary, other than by reason of the death
or "permanent and total disability" (within the meaning of Section 1046(d)(3) of
the Code) of such Optionee, any Option granted to an Optionee pursuant to the
Plan shall terminate three months after the date of such termination of
employment or service, unless earlier terminated pursuant to Section 9(a) above,
and such Optionee shall have no further right to purchase shares of Stock
pursuant to such Option; provided, however, that the Board may provide, by
inclusion of appropriate language in any Option Agreement, that the Optionee may
(subject to the general limitations on exercise set forth in Section 9(b)
above), in the event of termination of employment or service of the Optionee
with the Bank or a Subsidiary, exercise an Option, in whole or in part, at any
time subsequent to such termination of employment or service and prior to
termination of the Option pursuant to Section 9(a) above, either subject to or
without regard to any installment limitation on exercise imposed pursuant to
Section 9(b) above. Whether a leave of absence or leave on military or
government service shall constitute a termination of employment or service for
purposes of the Plan shall be determined by the Board, which determination shall
be final and conclusive. For purposes of the Plan, a termination of employment
or service with the Bank or a Subsidiary shall not be deemed to occur if the
Optionee is immediately thereafter employed by the Bank or any Subsidiary.

12. RIGHTS IN THE EVENT OF DEATH OR DISABILITY

(a) Death. If an Optionee dies while in the employ or
service of the Bank or a Subsidiary or within the period following the
termination of employment or service during which the Option is exercisable
under Section 11 above or Section 12(b) below, the executors or administrators
or legatees or distributees of such Optionee's estate shall have the right
(subject to the general limitations on exercise set forth in Section 9(b)
above), at any time within one year after the date of such Optionee's death and
prior to termination of the Option pursuant to Section 9(a) above, to exercise
any Option held by such Optionee at the date of such Optionee's death, whether
or not such Option was exercisable immediately prior to such Optionee's death;
provided, however, that the Board may provide by inclusion of appropriate
language in any Option Agreement that, in the event of the death of the
Optionee, the executors or administrators or legatees or distributees of such
Optionee's estate may exercise an Option (subject to the general limitations on
exercise set forth in Section 9(b) above), in whole or in part, at any time
subsequent to such Optionee's death and prior to termination of the Option
pursuant to Section 9(a) above, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 9(b) above.

- 6 -
<PAGE> 7

(b) Disability. If an Optionee terminates employment
or service with the Bank or a Subsidiary because the Optionee is "disabled"
within the meaning of Section 1046(d)(3) of the Code (a "Disabled Optionee"),
then such Disabled Optionee shall have the right (subject to the general
limitations on exercise set forth in Section 9(b) above), at any time within one
year after such termination of employment or service and prior to termination of
the Option pursuant to Section 9(a) above, to exercise, in whole or in part, any
Option held by such Disabled Optionee at the date of such termination of
employment or service, whether or not such Option was exercisable immediately
prior to such termination of employment or service; provided, however, that the
Board may provide, by inclusion of appropriate language in any Option Agreement,
that the Optionee may (subject to the general limitations on exercise set forth
in Section 9(b) above), in the event of the termination of employment or service
of a Disabled Optionee with the Bank or a Subsidiary, exercise an Option in
whole or in part, at any time subsequent to such termination of employment or
service and prior to termination of the Option pursuant to Section 9(a) above,
either subject to or without regard to any installment limitation on exercise
imposed pursuant to Section 9(b) above. Whether an Optionee is a Disabled
Optionee for purposes of this Plan shall be determined by the Board in
accordance with Section 1046(d)(3) of the Code, which determination shall be
final and conclusive.

13. USE OF PROCEEDS

The proceeds received by the Bank from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the Bank.

14. REQUIREMENTS OF LAW

The Bank shall not be required to sell or issue any
shares of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the individual exercising the Option or the Bank of
any provisions of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations. Any
determination in this connection by the Board shall be final, binding, and
conclusive. The Bank shall not be obligated to take any affirmative action in
order to cause the exercise of an Option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority. As
to any jurisdiction that expressly imposes the requirement that an Option shall
not be exercisable unless and until the shares of Stock covered by such Option
are registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.

15. AMENDMENT AND TERMINATION OF THE PLAN

The Board may, at any time and from time to time, amend,
suspend or terminate the Plan as to any shares of Stock as to which Options have
not been

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<PAGE> 8

granted; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes present and entitled to vote at a duly held
meeting of the shareholders of the Bank at which a quorum representing a
majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the amendment, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and By-Laws of the
Bank, increase the maximum number of shares of Stock in the aggregate that may
be issued pursuant to Options granted under the Plan (except as permitted under
Section 16 hereof). Except as permitted under Section 16 hereof, no amendment,
suspension or termination of the Plan shall, without the consent of the holder
of the Option, alter or impair rights or obligations under any Option
theretofore granted under the Plan.

16. EFFECT OF CHANGES IN CAPITALIZATION

(a) Changes in Stock. If the outstanding shares of
Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Bank by reason of any
recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Bank, occurring after the effective date of the
Plan, the number and kinds of shares for the purchase of which Options may be
granted under the Plan shall be adjusted proportionately and accordingly by the
Bank. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised portion
of the Option outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share.

(b) Reorganization in Which the Bank Is the Surviving
Bank. Subject to Subsection (c) hereof, if the Bank shall be the surviving bank
in any reorganization, merger, or consolidation of the Bank with one or more
other banks, any Option theretofore granted pursuant to the Plan shall pertain
to and apply to the securities to which a holder of the number of shares of
Stock subject to such Option would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the Option Price per share so that the aggregate Option Price
thereafter shall be the same as the aggregate Option Price of the shares
remaining subject to the Option immediately prior to such reorganization,
merger, or consolidation.

- 8 -
<PAGE> 9

one or more other entities in which the Bank is not the surviving entity, or
upon a sale of all or substantially all of the assets of the Bank to another
entity, or upon any transaction (including, without limitation, a merger or
reorganization in which the Bank is the surviving corporation) approved by the
Board which results in any person or entity (or persons or entities acting as a
group or otherwise in concert) owning 50 percent or more of the combined voting
power of all classes of stock of the Bank, the Plan and all Options outstanding
hereunder shall terminate, except to the extent provision is made in writing in
connection with such transaction for the continuation of the Plan and/or the
assumption of the Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares and exercise prices, in which event the Plan and Options theretofore
granted shall continue in the manner and under the terms so provided. In the
event of any such termination of the Plan, each individual holding an Option
shall have the right (subject to the general limitations on exercise set forth
in Section 9(b) above and except as otherwise specifically provided in the
Option Agreement relating to such Option), immediately prior to the occurrence
of such termination and during such period occurring prior to such termination
as the Board in its sole discretion shall determine and designate, to exercise
such Option in whole or in part, whether or not such Option was otherwise
exercisable at the time such termination occurs and without regard to any
installment limitation on exercise imposed pursuant to Section 9(b) above. The
Board shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the time at which
the Bank gives notice thereof to its shareholders.

(d) Adjustments. Adjustments under this Section 16
related to stock or securities of the Bank shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.

(e) No Limitations on Bank. The grant of an Option
pursuant to the Plan shall not affect or limit in any way the right or power of
the Bank to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or assets.

17. DISCLAIMER OF RIGHTS

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<PAGE> 10

any employment or other relationship between any individual and the Bank or any
Subsidiary.

18. NONEXCLUSIVITY OF THE PLAN

* * *

This Plan was duly adopted and approved by the Board of Directors of
the Bank by resolution at a meeting held on the _____ day of ________________,
1999.

------------------------------------------
Secretary of the Bank

This Plan was duly approved by the shareholders of the Bank by
resolution at a meeting held on the _____ day of ________________, _____.

-----------------------------------------
Secretary of the Bank

- 10 -

<PAGE> 1

EXHIBIT 99.2

[WESTERNBANK LETTERHEAD]

April 23, 1999

U.S. Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549

Ladies and Gentlemen:

On behalf of W Holding Company, Inc. and Westernbank Puerto Rico, we make
the following representations in connection with the accompanying Registration
Statement on Form S-4 of W Holding Company, Inc. These representations are made
in accordance with Section F of Staff Accounting Bulletin Topic 1.

There are no anticipated changes in the stockholders' relative
equity ownership interest in the underlying bank assets, except for
redemption of no more than a nominal number of shares, if any, of
Westernbank held by unaffiliated persons who dissent;

No borrowings are anticipated to be incurred for such purposes as
organizing the holding company, to pay nonaffiliated persons who
dissent, or to meet minimum capital requirements;

There will be no new classes of stock authorized other than those
corresponding to the authorized stock of Westernbank immediately
prior to the reorganization;

There are no plans or arrangements to issue any additional shares to
acquire any business other than Westernbank; and,

<PAGE> 2
U.S. Securities and Exchange Commission
April 23, 1999
Page 2

There has been no material adverse change in the financial condition
of Westernbank since December 31, 1998, the latest fiscal year for
which audited financial statements are included in Westernbank's
annual report to stockholders.

/s/ Frank C. Stipes /s/ Freddy Maldonado
- ----------------------------------------- --------------------
Frank C. Stipes Freddy Maldonado
Chairman of the Board, Chief Financial Officer,
Chief Executive Officer and Vice President of Finance and
President of Westernbank Puerto Rico Investment of Westernbank
and W Holding Company, Inc. Puerto Rico and W Holding
Company, Inc.