SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
         
                                       OR

         TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
         _________________.

                        Commission file number: 000-21137


                            R&G FINANCIAL CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

   Puerto Rico                                                66-0532217
--------------------------------------------------------------------------------
(State of incorporation                                   (I.R.S. Employer
 or organization)                                        Identification No.)

     280 Jesus T. Pinero Avenue
     Hato Rey, San Juan, Puerto Rico                            00918
--------------------------------------------------------------------------------
(Address of principal executive offices)                     (Zip Code)

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


Indicate by checkmark  whether  Registrant (a) has filed all reports required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  report(s)  and  (b) has  been  subject  to such  filing
requirements for at least 90 days.

                              YES [ X ]    NO [   ]

Number of  shares  of Class B Common  Stock  outstanding  as of March 31,  1998:
4,924,474.  (Does not include 9,220,278 Class A Shares of Common Stock which are
exchangeable into Class B Shares of Common Stock at the option of the holder.)
<PAGE>
                            R&G FINANCIAL CORPORATION

                                      INDEX



Part I  -  Financial Information
                                                                            Page

Item 1.    Consolidated Financial Statements ..................................3

           Consolidated Statement of Financial Condition as of
                    March 31, 1998 (Unaudited) and December 31, 1997...........3

           Consolidated Statements of Income for the Three
                    Months Ended March 31, 1998 and 1997 (Unaudited)...........4

           Consolidated Statements of Comprehensive Income for the Three
                    Months Ended March 31, 1998 and 1997 (Unaudited)...........5

           Consolidated Statements of Cash Flows for the Three Months
                    Ended March 31, 1998 and 1997 (Unaudited) ................ 6

           Notes to Unaudited Consolidated Financial Statements .............. 7


Item 2.    Management's Discussion and Analysis


Part II  - Other Information

Item 1.           Legal Proceedings ..........................................18

Item 2.           Changes in Securities ......................................18

Item 3.           Defaults upon Senior Securities ............................18

Item 4.           Submission of Matters ......................................18

Item 5.           Other Information ..........................................18

Item 6.           Exhibits and Reports on Form 8-K ...........................18

                  Signatures .................................................19


                                        2
<PAGE>
                         PART 1 - FINANCIAL INFORMATION

Item 1:           Consolidated Financial Statements

<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                           March 31,        December 31,
                                                                             1998               1997
                                                                        --------------     --------------
                                                                         (Unaudited)
<S>                                                                     <C>                <C>           
ASSETS
Cash and due from banks
Money market investments:                                               $   21,371,646     $   32,607,001
    Securities purchased under agreements to resell
    Time deposits with other banks                                          21,292,213         16,000,000
    Federal funds sold                                                      12,708,690         16,758,722
Mortgage loans held for sale, at lower of cost or market                          --            3,000,000
Mortgage-backed securities held for trading, at fair value                  56,196,609         46,885,323
Mortgage-backed securities available for sale, at fair value               409,883,636        400,457,456
Mortgage-backed securities held to maturity, at amortized cost              45,328,594         46,003,849
(estimated market value: 1998 - $ 32,075,652; 1997 - $33,185,672)
Investment securities held for trading, at fair value                       32,427,551         33,326,472
Investment securities available for sale, at fair value                        589,333            581,332
Investment securities held to maturity, at amortized cost                   77,876,643         75,863,353
(estimated market value: 1998 - $ 6,247,081; 1997 - $10,655,981)
Loans receivable, net                                                        6,271,909         10,692,802
Accounts receivable, including advances to investors, net                  813,080,315        765,059,419
Accrued interest receivable                                                  6,413,901          7,358,663
Mortgage servicing rights                                                   10,707,124         10,345,722
Premises and equipment                                                      23,724,878         21,212,998
Other assets                                                                10,247,827          9,527,559
                                                                            12,745,948         15,064,845
                                                                        --------------     --------------
                                                                        $1,560,866,817     $1,510,745,516
                                                                        ==============     ==============

<PAGE>

<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                           March 31,        December 31,
                                                                             1998               1997
                                                                        --------------     --------------
                                                                         (Unaudited)
<S>                                                                     <C>                <C>           
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Deposits
     Federal funds purchased                                            $  763,393,297     $  722,418,494
     Securities sold under agreements to repurchase                               --           10,000,000
     Notes payable                                                         392,885,988        382,282,810
     Advances from FHLB                                                    174,495,643        159,304,315
     Other secured borrowings                                               62,000,000         42,000,000
     Accounts payable and accrued liabilities                                     --           34,359,168
     Other liabilities                                                      16,883,458         15,871,770
                                                                             3,368,645          3,205,043
                                                                        --------------     --------------
Subordinated  notes                                                      1,413,027,031      1,369,441,600
                                                                        --------------     --------------
                                                                             3,250,000          3,250,000
                                                                        --------------     --------------
Stockholders'equity:
     Preferred stock, $.01 par value, 10,000,000 shares authorized,
      none issued and outstanding                                                 --                 --
     Common stock:
          Class A - $.01 par value, 10,000,000 shares authorized,
           9,220,278 issued  and outstanding                                    92,203             92,203
          Class B - $.01 par value, 15,000,000 shares authorized,               49,245             49,245
           4,924,474 issued and outstanding                                 38,347,818         38,347,818
     Additional paid-in capital                                            102,901,737         96,129,140
     Retained earnings                                                       2,215,172          2,215,172
     Capital reserves of the Bank                                              983,611          1,220,338
     Accumulated other comprehensive income
                                                                           144,589,786        138,053,916
                                                                        --------------     --------------
                                                                        $1,560,866,817     $1,510,745,516
                                                                        ==============     ==============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
                                                                      Three month
                                                                      period ended
                                                                       March 31,
                                                             ------------------------------
                                                                 1998               1997
                                                             ------------      ------------
                                                             (Unaudited)
<S>                                                          <C>               <C>         
Interest income:
     Loans                                                   $ 18,656,942      $ 15,344,276
     Money market and other investments                         1,428,203         1,543,297
     Mortgage-backed securities                                 7,691,106         3,520,921
                                                             ------------      ------------
          Total interest income                                27,776,251        20,408,494
                                                             ------------      ------------
Interest expense:
     Deposits                                                   8,345,253         7,731,489
     Securities sold under agreements to repurchase             5,693,530         1,313,134
     Notes payable                                              2,969,761         2,057,987
     Secured borrowings                                              --             974,166
     Other                                                        781,866           278,647
                                                             ------------      ------------
          Total interest expense                               17,790,410        12,355,423
                                                             ------------      ------------
Net interest income                                             9,985,841         8,053,071
Provision for loan losses                                      (1,500,000)       (1,250,000)
                                                             ------------      ------------
Net interest income after provision for loan losses             8,485,841         6,803,071
                                                             ------------      ------------
Other income:
     Net gain on origination and sale of loans                  7,392,555         5,489,406
     Net profit on trading account                                 14,580            16,635
     Net gain on sales of investments available for sale          149,468            24,984
     Loan administration and servicing fees                     3,687,057         3,308,411
     Service charges, fees and other                            1,184,384           852,733
                                                             ------------      ------------
                                                               12,428,044         9,692,169
                                                             ------------      ------------
          Total revenues                                       20,913,885        16,495,240
                                                             ------------      ------------

<PAGE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
                                                                      Three month
                                                                      period ended
                                                                       March 31,
                                                             ------------------------------
                                                                 1998               1997
                                                             ------------      ------------
                                                             (Unaudited)
<S>                                                          <C>               <C>         
Operating expenses:
     Employee compensation and benefits                         3,558,222         3,142,339
     Office occupancy and equipment                             1,824,971         1,605,238
     Other administrative and general                           4,794,354         4,097,743
                                                             ------------      ------------
                                                               10,177,547         8,845,320
Income before income taxes                                     10,736,338         7,649,920
                                                             ------------      ------------
Income tax expense:
     Current                                                    1,860,651         1,707,090
     Deferred                                                   1,395,852           907,821
                                                             ------------      ------------
                                                                3,256,503         2,614,911
                                                             ------------      ------------
          Net income                                         $  7,479,835      $  5,035,009
                                                             ============      ============

Earnings per common share - Basic                                   $0.53             $0.36
                                                             ------------      ------------
                          - Diluted                                 $0.51             $0.35
                                                             ------------      ------------
Weighted average number of shares outstanding - Basic          14,144,752        14,144,752
                                              - Diluted        14,522,752        14,516,753


</TABLE>



        The accompanying notes are an integral part of these statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>
R&G Financial Corporation
Consolidated Statements of Comprehensive Income


                                                                               Three Month
                                                                               period ended
                                                                                March 31,
                                                                      ----------------------------
                                                                          1998             1997
                                                                      -----------      -----------
                                                                      (Unaudited)


<S>                                                                   <C>              <C>        
Net Income                                                            $ 7,479,835      $ 5,035,009
                                                                      -----------      -----------

Other comprehensive income, before tax:

Unrealized gains (losses) on securities:

     Arising during period                                               (238,609)      (1,593,124)
     Less: Reclassification adjustments for gains included in
     net income                                                          (149,468)         (24,984)
                                                                      -----------      -----------
                                                                         (388,077)      (1,618,108)
                                                                      -----------      -----------

Comprehensive income, before tax                                        7,091,758        3,416,901

Income tax benefit related to items of other comprehensive income         151,350          631,062
                                                                      -----------      -----------

Other comprehensive income, net of tax                                $ 7,243,108      $ 4,047,963
                                                                      ===========      ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                        5

<PAGE>
<TABLE>
<CAPTION>
R&G  FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                    Three month
                                                                                                    period ended
                                                                                                     March, 31
                                                                                          --------------------------------
                                                                                              1998                1997
                                                                                          -------------      -------------
<S>                                                                                       <C>                <C>          
Cash flows from operating activities:
     Net income                                                                           $   7,479,835      $   5,035,009
                                                                                          -------------      -------------
           Adjustments to reconcile net income to net cash provided by
                 operating activities:
           Depreciation and amortization                                                        644,587            623,110
           Amortization of premium (accretion of discount) on investments and
                 mortgage-backed securities, net                                                (21,695)           (96,977)
           Amortization of deferred loan origination fees and accretion of
                 discount on loans, net                                                          71,678           (207,963)
           Amortization of servicing rights                                                     614,327            400,684
           Provision for loan losses                                                          1,500,000          1,250,000
           Provision for bad debts in accounts  receivable                                       75,000             75,000
           Gain on sales of mortgage loans                                                   (1,089,913)           (74,498)
           Gain on sales of investment securities available for sale                           (149,468)           (24,984)
           Unrealized profit on trading securities                                             (743,970)        (2,366,998)
           (Increase) decrease in mortgage loans held for sale                               (9,311,286)        34,528,070
           Net increase in mortgage-backed and investment securities held for trading        (8,690,211)       (52,032,900)
           Decrease (increase) in receivables                                                   508,360           (206,221)
           Decrease in other assets                                                           3,051,217            915,424
           Increase in notes payable                                                         15,191,328          7,568,537
           Increase in accounts payable and accrued liabilities                               1,225,264          3,178,694
           Increase (decrease) in other liabilities                                             163,602           (824,205)
                                                                                          -------------      -------------
               Total adjustments                                                              3,038,820         (7,295,227)
                                                                                          -------------      -------------
               Net cash used in operating activities                                         10,518,655         (2,260,218)
                                                                                          -------------      -------------
Cash flows from investing activities:
      Purchases of investment securities                                                    (24,500,846)       (27,649,800)
      Proceeds from sales and maturities of securities available for sale                    23,783,062          6,819,777
      Proceeds from maturities of securities held to maturity                                 4,405,420               --
      Principal repayments on mortgage-backed securities                                      1,770,729          2,122,488
      Proceeds from sales of loans                                                           24,399,022          3,814,538
      Net originations of loans                                                            (107,260,851)       (55,204,799)
      Purchases of  FHLB stock, net                                                          (1,693,500)          (550,457)
      Acquisition of premises and equipment                                                  (1,246,796)        (1,556,511)
      Net (increase) decrease in foreclosed real estate                                        (850,379)            17,511
      Acquisition of servicing rights                                                        (3,126,207)        (1,582,161)
                                                                                          -------------      -------------
               Net cash used by investing activities                                        (84,320,346)       (73,769,414)
                                                                                          -------------      -------------

<PAGE>

<CAPTION>
R&G  FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                    Three month
                                                                                                    period ended
                                                                                                     March, 31
                                                                                          --------------------------------
                                                                                              1998                1997
                                                                                          -------------      -------------
<S>                                                                                       <C>                <C>          
Cash flows from financing activities:
     Increase in deposits - net                                                              40,912,577         35,322,563
     Decrease in federal funds purchased                                                    (10,000,000)              --
     Increase in securities sold under agreements to repurchase - net                        10,603,178         23,438,269
     Payments on secured borrowings                                                                --             (952,180)
     Advances from FHLB                                                                      20,000,000          5,000,000
     Repayment of advances from FHLB                                                               --          (10,000,000)
     Cash dividends on common stock                                                            (707,238)          (540,252)
                                                                                          -------------      -------------
               Net cash provided by financing activities                                     60,808,517         52,268,400
                                                                                          -------------      -------------
Net decrease in cash and cash equivalents                                                   (12,993,174)       (23,761,232)
Cash and cash equivalents at  beginning of  period                                           68,365,723)        98,855,931
                                                                                          -------------      -------------
Cash and cash equivalents at end of period                                                $  55,372,549      $  75,094,699
                                                                                          =============      =============

Cash and cash equivalents include:
     Cash and due from banks                                                              $  21,371,646      $  22,814,749
     Securities purchased under agreements to resell                                         21,292,213         13,817,480
     Time deposits with other banks                                                          12,708,690         32,948,447
     Federal funds sold                                                                            --            5,514,023
                                                                                          -------------      -------------
                                                                                          $  55,372,549      $  75,094,699
                                                                                          =============      =============

</TABLE>

        The accompanying notes are an integral part of these statements.

                                       6
<PAGE>
R&G FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - REPORTING ENTITY AND BASIS OF PRESENTATION


Reporting entity

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

         R&G  Mortgage  is engaged  primarily  in the  business  of  originating
FHA-insured,  VA  guaranteed,  and privately  insured first and second  mortgage
loans on residential real estate. R&G Mortgage pools loans into  mortgage-backed
securities  and  collateralized  mortgage  obligation  certificates  for sale to
investors.  After  selling the loans,  it retains the  servicing  function.  R&G
Mortgage  is also a  seller-servicer  of  conventional  loans.  R&G  Mortgage is
licensed by the  Secretary of the Treasury of Puerto Rico as a mortgage  company
and is duly authorized to do business in the Commonwealth of Puerto Rico.

         The  Bank  provides  a  full  range  of  banking  services,   including
residential,  commercial and personal  loans and a diversified  range of deposit
products  through  sixteen  branches  located mainly in the northern part of the
Commonwealth  of Puerto Rico. The Bank also provides  private  banking and trust
and other  financial  services  to its  customers.  The Bank is  subject  to the
regulations  of certain  federal  and local  agencies,  and  undergoes  periodic
examinations by those regulatory agencies.

Basis of presentation

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting principles.  However, in the opinion of management,  the accompanying
unaudited consolidated financial statements contain all adjustments (principally
consisting of normal recurring  accruals)  necessary for a fair  presentation of
the  Company's  financial  condition  as of March 31,  1998 and the  results  of
operations  and changes in its cash flows for the three  months  ended March 31,
1998 and 1997.

         The results of  operations  for the three month  period ended March 31,
1998 are not  necessarily  indicative of the results to be expected for the year
ending December 31, 1998. The unaudited  consolidated  financial  statements and
notes  thereto  should  be  read  in  conjunction  with  the  audited  financial
statements and notes thereto for the year ended December 31, 1997.

         Certain  reclassifications (not affecting income before income taxes or
net  income)  have been made to the  consolidated  statements  of income for the
quarter  ended  March 31,  1997 to conform to the  presentation  for the quarter
ended March 31, 1998.

                                        7
<PAGE>
Basis of consolidation

         All  significant  inter-company  balances  and  transactions  have been
eliminated in the accompanying unaudited financial statements.

Reporting Comprehensive Income

         Effective  January 1, 1998, the Company adopted  Statement of Financial
Accounting  Standard No. 130- "Reporting  Comprehensive  Income." This Statement
establishes  standards for reporting and displaying of comprehensive  income and
its components in general-purpose financial statements.  Comprehensive income is
intended to report all changes in the equity of a business  enterprise  during a
period  from  transactions  and other  events  or  circumstances,  except  those
resulting  from  investments  by or  distribution  to  owners.  The only item of
comprehensive  income  reported  by the  Company  is  the  unrealized  gains  on
securities available for sale which at January 1, 1998 amounted to $1.2 million,
net of tax.

Stock option plans

         The  pro-forma  net income and earnings per share  disclosures  for the
three month  periods  ended  March 31, 1998 and 1997  required by SFAS No. 123 -
"Accounting for  Stock-Based  Compensation,"  as if  compensation  cost had been
determined  based on the fair value at the grant date for awards  made under the
Company's  Stock  Option  Plan,  have not been made  because  the effects on net
income  and  earnings  per share of  compensation  costs so  determined  are not
significant.


NOTE 2  -         EARNINGS PER SHARE

         Basic  earnings  per common  share for the three months ended March 31,
1998 and 1997 are  computed  by  dividing  net  income  for such  periods by the
weighted  average  number  of shares of common  stock  outstanding  during  such
periods,  which was 14,144,752.  Outstanding stock options granted in connection
with the Company's Stock Option Plan are included in the weighted average number
of shares for  purposes  of the  diluted  earnings  per share  computation.  The
Company's  weighted average number of shares outstanding for purposes of diluted
earnings per share was  14,522,752  and  14,516,753  for the three month periods
ended March 31, 1998 and 1997, respectively.


NOTE 3  -         INVESTMENT AND MORTGAGE-BACKED SECURITIES

         The  carrying   value  and  estimated  fair  value  of  investment  and
mortgage-backed  securities  by  category  are shown  below.  The fair  value of
investment securities is based on quoted market prices and dealer quotes, except
for the investment in Federal Home Loan Bank (FHLB) stock which is valued at its
redemption value.

                                        8
<PAGE>
<TABLE>
<CAPTION>
                                                                      March 31, 1998
                                                              -----------------------------
                                                              Amortized cost    Fair value
                                                              --------------    -----------
                                                                        (Unaudited)
<S>                                                             <C>             <C>        
Investment securities held to maturity:
U.S. Treasury securities:
     Due within one year                                        $   309,908     $   310,872
                                                                -----------     -----------


Puerto Rico Government obligations:

     Due from five to ten years                                   5,945,947       5,920,155
     Due over ten years                                              16,054          16,054
                                                                -----------     -----------
                                                                  5,962,001       5,936,209
                                                                -----------     -----------
                                                                $ 6,271,909     $ 6,247,081
                                                                ===========     ===========

Mortgage-backed securities held to maturity:
     GNMA certificates:
          Due from one to five years                            $    46,022     $    46,750
          Due over ten years                                     17,828,733      17,266,109
                                                                -----------     -----------
                                                                 17,874,755      17,312,859

Federal National Mortgage Association (FNMA) certificates -
     Due over ten years                                          14,279,062      14,501,792
                                                                -----------     -----------

Federal Home Loan Mortgage Corporation (FHLMC)
  certificates -
     Due over ten years                                             273,734         261,001
                                                                -----------     -----------

                                                                $32,427,551     $32,075,652
                                                                ===========     ===========
</TABLE>

                                       9

<PAGE>
<TABLE>
<CAPTION>
                                                             March 31, 1998
                                                     -----------------------------
                                                     Amortized cost    Fair value
                                                     --------------    -----------
                                                               (Unaudited)
<S>                                                    <C>             <C>        
Mortgage-backed securities available for sale:
CMO residuals and other mortgage-backed securities     $ 7,650,337     $ 9,193,628
                                                       -----------     -----------

FNMA certificates:
     Due over ten years                                  9,109,309       9,075,177
                                                       -----------     -----------

FHLMC certificates:
     Due from one to five years                             44,571          44,446
     Due from five to ten years                            343,216         350,384
     Due over ten years                                 26,527,856      26,664,959
                                                       -----------     -----------
                                                        26,915,643      27,059,789
                                                       -----------     -----------
                                                       $43,675,289     $45,328,594
                                                       ===========     ===========
Investment securities available for sale:
U.S.  Treasury securities:
     Due within one year                               $   784,661     $   784,661
     Due from one to five years                         30,515,532      30,503,119
                                                       -----------     -----------
                                                        31,300,193      31,287,780
                                                       -----------     -----------
U.S. Government and agencies securities:
     Due from one to five years                         34,995,523      34,994,946
     Due from five to ten years                          5,022,188       4,994,350
                                                       -----------     -----------
                                                        40,017,711      39,989,296
                                                       -----------     -----------
FHLB stock                                               6,599,567       6,797,767
                                                       -----------     -----------

                                                       $77,917,471     $77,876,643
                                                       ===========     ===========
</TABLE>

         Mortgage  backed  securities  available for sale include  interest only
securities with an amortized cost of $3,022,667 as of March 31, 1998,  which are
primarily  associated  with  the sale in prior  years of  collaterized  mortgage
obligations. These sales were not made in connection with the Company's mortgage
banking activities.

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                                      March 31,
                                                                        1998
                                                                    ------------
                                                                    (Unaudited)
<S>                                                                 <C>         
Mortgage-backed securities held for trading:

     CMO Residuals (all interest only)                              $  7,986,377
     GNMA Certificates                                               401,897,259
                                                                    ------------
                                                                    $409,883,636
                                                                    ============
</TABLE>





                                       11
<PAGE>
NOTE 4  -          LOANS AND ALLOWANCE FOR LOAN LOSSES

   Loans consists of the following:
<TABLE>
<CAPTION>
                                                  March 31,        December 31,
                                                    1998               1997
                                               -------------      -------------
                                                (Unaudited)
<S>                                            <C>                <C>          
Real estate loans:
     Residential - first mortgage              $ 518,201,255      $ 416,728,996
     Residential - second mortgage                17,603,924         17,831,079
     Construction                                 13,254,295         13,367,513
     Commercial                                   95,112,471         87,506,802
                                               -------------      -------------
                                                 644,171,945        595,434,390
Undisbursed portion of loans in process           (6,594,897)        (6,218,039)
Net deferred loan fees                               182,948            172,019
                                               -------------      -------------
                                                 637,759,996        589,388,370
                                               -------------      -------------
Other loans:
     Commercial                                   39,133,069         38,598,227
     Consumer:
        Secured by deposits                       12,413,924         12,471,772
        Secured by real estate                    85,706,982         81,251,989
        Other                                     44,914,337         50,632,418
Unamortized discount                                (122,991)          (151,460)
Unearned interest                                   (316,986)          (360,195)
                                               -------------      -------------
                                                 181,728,335        182,442,751
                                               -------------      -------------
        Total loans                              819,488,331        771,831,121
     Allowance for loan losses                    (6,408,016)        (6,771,702)
                                               -------------      -------------
                                               $ 813,080,315      $ 765,059,419
                                               =============      =============
</TABLE>

The changes in the allowance for loan losses follow:
<TABLE>
<CAPTION>
                                                     Three months ended
                                                          March 31,
                                               --------------------------------
                                                   1998                 1997
                                               -----------          -----------
                                                         (Unaudited)
<S>                                            <C>                  <C>        
Balance, beginning of period                   $ 6,771,698          $ 3,331,645
Provision for loan losses                        1,500,000            1,250,000
Loans charged-off                               (1,980,602)          (1,035,471)
Recoveries                                          44,920               99,435
                                               -----------          -----------
Balance, end of period                         $ 6,408,016          $ 3,645,609
                                               ===========          ===========
</TABLE>

                                       12
<PAGE>
NOTE 5  -         COMMITMENTS AND CONTINGENCIES

Commitments to developers providing end loans

         The Company has  outstanding  commitments  for various  projects in the
process of  completion.  Total  commitments  amounted  to  approximately  $415.9
million at March 31, 1998.  All  commitments  are subject to  prevailing  market
prices at time of closing  with no market risk  exposure  against the Company or
with firm back-to-back commitments extended in favor of the mortgagee.


Loans in process

         Loans in process  pending final  approval  and/or  closing  amounted to
approximately $135.6 million at March 31, 1998.


Commitments to buy and sell GNMA certificates

         As of March 31, 1998,  the Company had open  commitments  to issue GNMA
certificates of approximately $33.4 million.


Commitments to sell mortgage loans

         As of March 31, 1998 the Company had commitments to sell mortgage loans
to third party investors amounting to approximately $17.4 million.


Lease commitments

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


Other

         At March 31,  1998,  the  Company  is  liable  under  limited  recourse
provisions  resulting from the sale of loans to several  investors,  principally
FHLMC. The principal balance of these loans,  which are serviced by the Company,
amounts to approximately  $370.4 million at March 31, 1998.  Liability,  if any,
under the recourse provisions at March 31, 1998 is estimated by management to be
significant.

                                       13
<PAGE>
Item 2:           Management's Discussion and Analysis

Financial Condition

         At March  31,  1998,  the  Company's  total  assets  amounted  to $1.56
billion, as compared to $1.51 billion at December 31, 1997. The $50.1 million or
3.3% increase in total assets during the three month period ended March 31, 1998
was attributable to a $48.0 million or 6.3% increase in loans  receivable,  net,
which  reflects net  originations  following  repayments  and sales,  and a $9.3
million  or 19.9%  increase  in  mortgage  loans  held for sale,  reflecting  an
increase  in  the  volume  of  loan   originations  of   approximately   56%  to
approximately $282 million during the 1998 period. Such increases were partially
offset by a $13.0 million or 19.0% decrease in cash and cash  equivalents due to
the use of excess  liquidity  to fund  increased  loan  originations  during the
period.

         The  increase in the  Company's  assets were also  primarily  funded by
increased deposits of $41.0 million or 5.7%, by a $10.6 million or 2.8% increase
in securities  sold under  agreements to repurchase,  by a $15.2 million or 9.5%
increase  in notes  payable,  and by a $20.0  million or 47.6%  increase in FHLB
advances.

         At March 31,  1998,  the  Company's  stockholders'  equity  amounted to
$144.6  million,  which is an increase  of $6.5  million or 4.7% from the amount
reported at December 31, 1997.  The primary  reason for the increase was the net
income earned for the quarter, which was partially offset by a $236,000 decrease
in  unrealized  gains on  securities  available  for  sale,  net of  income  tax
benefits,  and $707,000 in dividends paid during the period.  At March 31, 1998,
the Bank's leverage and Tier 1 risk-based  capital  amounted to 7.22% and 11.95%
of adjusted total assets, respectively,  compared to a 4.0% minimum requirement,
and its total risk-based capital amounted to 13.01%, compared to an 8.0% minimum
requirement.

Results of Operations

         The Company reported net income of $7.5 million during the three months
ended March 31, 1998,  as compared to $5.0 million  during the prior  comparable
period.

         Total revenues  amounted to $20.9 million during the three months ended
March 31, 1998 compared to $16.5 million for the prior  comparable  period.  The
26.8% increase was due to an increase in net interest  income of $1.9 million or
24.0%  during the three  months  ended March 31, 1998 over the prior  comparable
period,  primarily due to a $3.3 million or 21.6% increase in interest income on
loans, primarily  associated  with an  increase  in the  average  balance of the
outstanding loan portfolio, and to a $4.2 million or 118.4% increase in interest
income on  mortgage-backed  securities due to an increase in securities held for
trading in the 1998 period.

         Contributing  to the 26.8%  increase in  revenues  during the March 31,
1998 quarter was a $1.9 million or 34.7% increase in net gain on origination and
sale of loans,  which reflects an increase in mortgage loan originations  during
the 1998 period,  and an increase in loan  administration  and servicing fees of
$379,000 or 11.4% due to an increase in the loan  servicing  portfolio.  Service
charges,  fees and other also  increased  by  $332,000 or 38.9% due mainly to an
increase in banking fees associated with an increased number of deposit accounts
during the 1998 period.

                                       14
<PAGE>
         Total  expenses  increased  by $1.3  million or 15.1%  during the three
months  ended  March 31, 1998 over the prior  comparable  period.  The  increase
during the three month  period in 1998 was due  primarily to a $416,000 or 13.2%
increase in employee  compensation and benefits associated with salary increases
to employees and higher loan production  during the 1998 period,  and a $220,000
or 13.7% increase in occupancy  expenses  related to the completion in late 1997
of the remodeling work of six branches  acquired in 1995 from another  financial
institution. These increases in expenses were accompanied by a $696,000 or 17.0%
increase  in other  miscellaneous  expenses  mainly  as a result  of a  $237,000
increase in advertising costs associated with an increase in loan production and
a $212,000 increase in amortization expenses of the Company's servicing asset.

         Total  income tax expense  increased  by  $641,000 or 24.5%  during the
three  months  ended  March  31,  1998  over the prior  comparable  period,  due
primarily to a $3.1 million or 40.3%  increase in income before taxes during the
1998 period. The Company's effective tax rate amounted to 30.3% during the three
month  period  ended  March 31, 1998  compared  to 34.2% in the 1997  comparable
period.  The decrease in 1998 of the Company's  effective tax rate was primarily
attributable to an increase in the Company's exempt interest income.

Liquidity and Capital Resources

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

         The  Company's  liquidity  management  is  both a daily  and  long-term
function of funds management. Liquid assets are generally invested in short-term
investments  such as securities  purchased under  agreements to resell,  federal
funds sold and certificates of deposit in other financial  institutions.  If the
Company requires funds beyond its ability to generate them  internally,  various
forms of both short and long-term  borrowings  provide an  additional  source of
funds.  At March 31, 1998, the Company had $138.4 million in borrowing  capacity
under warehousing lines of credit, $256.9 million in borrowings capacity under a
line of credit with the FHLB of New York and $ 15 million  under  federal  funds
lines of credit.  The Company has generally not relied upon brokered deposits as
a source of liquidity,  and does not anticipate a change in this practice in the
foreseeable future.

                                       15
<PAGE>
         At March 31,  1998,  the Company had  outstanding  commitments  (mainly
unused  lines of  credit)  to  originate  non-mortgage  loans of $15.0  million.
Certificates  of deposit  which are  scheduled to mature within one year totaled
$365.7 million at March 31, 1998,  and  borrowings  that are scheduled to mature
within the same period amounted to $548.5 million.  The Company anticipates that
it will have sufficient funds available to meet its current loan commitments.

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

         The FDIC also requires that banks meet a risk-based  capital  standard.
The  risk-based  capital  standard for banks  requires the  maintenance of total
capital (which is defined as Tier I capital and supplementary  (Tier 2) capital)
to risk  weighted  assets of 8%. In  determining  the  amount of risk-  weighted
assets,  all assets,  plus certain off balance sheet assets, are multiplied by a
risk-weight of 0% to 100%,  based on the risks the FDIC believes are inherent in
the type of asset or item.  The  components of Tier 1 capital are  equivalent to
those discussed above under the 3% leverage capital standard.  The components of
supplementary   capital  include  certain  perpetual  preferred  stock,  certain
mandatory  convertible  securities,  certain  subordinated debt and intermediate
preferred stock and general allowances for loan and lease losses.  Allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward  supplementary  capital cannot exceed 100% of core capital.  At March 31,
1998,  the Bank met  each of its  capital  requirements,  with  Tier 1  leverage
capital, Tier 1 risk-based capital and total risk-based capital ratios of 7.22%,
11.95% and 13.01%, respectively.

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

Inflation and Changing Prices

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

                                       16
<PAGE>
Subsequent events

         The Company's authorized number of shares of common stock was increased
from  25  million  shares  to  60  million   shares  at  the  Company's   Annual
Stockholders'  meeting  held on April 23,  1998 .  Through an  amendment  of the
Company's  Certificate  of  Incorporation,  the number of shares of common stock
designated  as Class A Shares was increased  from 10 million to 40 million,  and
the number of shares of common stock  designated as Class B Shares was increased
from 15 million to 20 million.

         On April 27,  1998 the Company  announced  its Board of  directors  had
approved a 2 for 1 stock split on the Company's  common stock, to be effected in
the form of a stock  dividend  of one  additional  share of  common  stock to be
issued on June 25, 1998 for each share of common stock held of record as of June
12, 1998. Following distribution of the additional shares, the Company will have
28,289,504   common  shares   outstanding   compared  to  14,144,752   presently
outstanding.


                                       17
<PAGE>
                           PART II - OTHER INFORMATION


Item 1:           Legal Proceedings

                  The  Registrant  is  involved  in  routine  legal  proceedings
                  occurring in the  ordinary  course of business  which,  in the
                  aggregate,  are believed by management to be immaterial to the
                  financial   condition   and  results  of   operations  of  the
                  Registrant.

Item 2:           Changes in Securities

                  Not applicable

Item 3:           Defaults Upon Senior Securities

                  Not applicable

Item 4:           Submission of Matters to a Vote of Security Holders

                  Not applicable

Item 5:           Other Information

Item 6:           Exhibits and Reports on Form 8-K

                  a)       Exhibits

                           No.
                           ---
                           27     Financial Data Schedule             E-1

                  b)       On  March  19,1998  the  Registrant  filed a Form 8-K
                           report  to  provide   information  on  the  Company's
                           proposed acquisition of Fajardo Federal Saving Bank.




                                       18
<PAGE>
                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                            R&G FINANCIAL CORPORATION



Date: May 12, 1998                          By:/S/ VICTOR J. GALAN
                                               -------------------
                                               Victor J. Galan, Chairman
                                               and Chief Executive Officer
                                               (Principal Executive Officer)



                                            By: /S/ JOSEPH R. SANDOVAL
                                               -----------------------
                                                Joseph R. Sandoval
                                                Vice President and
                                                Chief Financial Officer


                                       19