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 JUNE 30, 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 June 30,  1998:
9,848,948. (Does not include 18,440,556 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
                  June 30, 1998 (Unaudited) and December 31, 1997..........  3

         Consolidated Statements of Income for the Three and Six
                  Months Ended June 30, 1998 and 1997 (Unaudited)..........  4

         Consolidated Statements of Comprehensive Income for the Three and 
                  Six Months Ended June 30, 1998 and 1997 (Unaudited)......  5

         Consolidated Statements of Cash Flows for the Six Months
                  Ended June 30, 1998 and 1997 (Unaudited) ................  6

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

Item 2   Management's Discussion and Analysis.............................. 14


Item 3   Quantitative and Qualitative Disclosures About Market Risk........ 17


Part II  - Other Information

Item 1.  Legal Proceedings ................................................ 17

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

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

Item 4.  Submission of Matters to a Vote of security Holders............... 18

Item 5.  Other Information ................................................ 19

Item 6.  Exhibits and Reports on Form 8-K ................................. 19

         Signatures ....................................................... 19
<PAGE>
                         PART 1 - FINANCIAL INFORMATION

Item 1:..Consolidated Financial Statements
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                                                                     
                                                                                  June 30,     December 31,
                                                                                    1998           1997
                                                                                 ----------     ---------- 
                                                                                 (Unaudited)
                                                                                   (Dollars in thousands)
ASSETS
<S>                                                                              <C>            <C>       
Cash and due from banks ....................................................     $   22,900     $   32,607
Money market investments:
    Securities purchased under agreements to resell ........................          8,000         16,000
    Time deposits with other banks .........................................         31,378         16,759
    Federal funds sold .....................................................           --            3,000
Mortgage loans held for sale, at lower of cost or market ...................         90,339         46,885
Mortgage-backed securities held for trading, at fair value .................        445,126        400,457
Mortgage-backed securities available for sale, at fair value ...............         43,645         46,004
Mortgage-backed securities held to maturity, at amortized cost
(estimated market value: 1998 - $ 30,905; 1997 - $33,186) ..................         31,124         33,326
Investment securities held for trading, at fair value ......................            597            581
Investment securities available for sale, at fair value ....................         76,765         75,863
Investment securities held to maturity, at amortized cost ..................
(estimated market value: 1998 - $6,229; 1997 - $10,656) ....................          6,264         10,693
Loans receivable, net ......................................................        944,403        765,059
Accounts receivable, including advances to investors, net ..................          6,998          7,359
Accrued interest receivable ................................................         12,090         10,346
Servicing  asset ...........................................................         28,602         21,213
Premises and equipment .....................................................         11,181          9,528
Other assets ...............................................................         15,523         15,065
                                                                                 ----------     ----------
                                                                                 $1,774,935     $1,510,745
                                                                                 ==========     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Deposits ..............................................................     $  820,919     $  722,418
     Federal funds purchased ...............................................         15,000         10,000
     Securities sold under agreements to repurchase ........................        425,069        382,283
     Notes payable .........................................................        217,789        159,304
     Advances from FHLB ....................................................        121,400         42,000
     Other secured borrowings ..............................................           --           34,359
     Accounts payable and accrued liabilities ..............................         18,868         15,872
     Other liabilities .....................................................          3,767          3,205

                                                                                 ----------     ----------
                                                                                  1,622,812      1,369,442
                                                                                 ----------     ----------
Subordinated  notes ........................................................           --            3,250
                                                                                 ----------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(continued)
                                                                                     
                                                                                  June 30,     December 31,
                                                                                    1998           1997
                                                                                 ----------     ---------- 
                                                                                 (Unaudited)
                                                                                   (Dollars in thousands)
<S>                                                                              <C>            <C>       
Stockholders'equity:
     Preferred stock, $.01 par value, 10,000,000 shares authorized, none
issued and outstanding .....................................................           --             --   
     Common stock:
          Class A - $.01 par value, 40,000,000 shares authorized; issued
          and outstanding - 18,440,556 shares in 1998 and 9,220,278 in 1997             184             92
          Class B - $.01 par value, 20,000,000 shares authorized; issued and
           outstanding - 9,848,948 shares in 1998 and 4,924,474 in 1997 ....             99             49
     Additional paid-in capital ............................................         38,194         38,348
     Retained earnings .....................................................        110,113         96,129
     Capital reserves of the Bank ..........................................          2,215          2,215
     Accumulated other comprehensive income ................................          1,318          1,220

                                                                                 ----------     ----------
                                                                                    152,123        138,054
                                                                                 ----------     ----------
                                                                                 $1,774,935     $1,510,745
                                                                                 ==========     ==========
</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                          Six month
                                                                       period ended                       period ended
                                                                         June 30,                            June 30,
                                                             ------------------------------      ------------------------------
                                                                 1998              1997              1998              1997
                                                             ------------      ------------      ------------      ------------
                                                                        (Unaudited)                         (Unaudited)
                                                                        (Dollars in thousands except for per share data)
<S>                                                          <C>               <C>               <C>               <C>         
Interest income:
     Loans .............................................     $     21,487      $     16,616      $     40,144      $     31,959
     Money market and other investments ................            1,538             1,186             2,966             2,729
     Mortgage-backed securities ........................            7,237             4,962            14,928             8,484
                                                             ------------      ------------      ------------      ------------
          Total interest income ........................           30,262            22,764            58,038            43,172
                                                             ------------      ------------      ------------      ------------
Interest expense:
     Deposits ..........................................            9,084             8,037            17,429            15,768
     Securities sold under agreements to repurchase ....            6,162             2,505            11,855             3,818
     Notes payable .....................................            3,140             2,354             6,110             4,412
     Secured borrowings ................................             --                 959              --               1,933
     Other .............................................            1,064               318             1,846               597
                                                             ------------      ------------      ------------      ------------ 
          Total interest expense .......................           19,450            14,173            37,240            26,528 
                                                             ------------      ------------      ------------      ------------
Net interest income ....................................           10,812             8,591            20,798            16,644  
Provision for loan losses ..............................           (1,500)           (1,695)           (3,000)           (2,945)
                                                             ------------      ------------      ------------      ------------ 
Net interest income after provision for loan losses ....            9,312             6,896            17,798            13,699 
Other income: ..........................................     ------------      ------------      ------------      ------------ 
                                                             
     Net gain on origination and sale of loans .........            7,660             5,802            15,053            11,291
     Net profit (loss) on trading account ..............             --                (374)               15              (358)
     Net gain on sales of investments available for sale             --                --                 149                25
     Loan administration and servicing fees ............            3,833             3,535             7,520             6,843
     Service charges, fees and other ...................            1,472             1,357             2,656             2,210
                                                             ------------      ------------      ------------      ------------
                                                                   12,965            10,319            25,393            20,011
                                                             ------------      ------------      ------------      ------------

          Total revenues ...............................           22,277            17,215            43,191            33,710
                                                             ------------      ------------      ------------      ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME(continued)

                                                                       Three month                          Six month
                                                                       period ended                       period ended
                                                                         June 30,                            June 30,
                                                             ------------------------------      ------------------------------
                                                                 1998              1997              1998              1997
                                                             ------------      ------------      ------------      ------------
                                                                        (Unaudited)                         (Unaudited)
                                                                        (Dollars in thousands except for per share data)
<S>                                                          <C>               <C>               <C>               <C>         
Operating expenses:
     Employee compensation and benefits ................            4,212             3,434             7,770             6,576
     Office occupancy and equipment ....................            2,166             2,014             3,991             3,619
     Other administrative and general ..................            5,906             4,231            10,700             8,329
                                                             ------------      ------------      ------------      ------------
                                                                   12,283             9,679            22,461            18,524
                                                             ------------      ------------      ------------      ------------
Income before income taxes .............................            9,994             7,536            20,730            15,186
                                                             ------------      ------------      ------------      ------------
Income tax expense:
     Current ...........................................              747             1,119             2,607             2,826
     Deferred ..........................................            1,276             1,039             2,672             1,947
                                                             ------------      ------------      ------------      ------------
                                                                    2,023             2,158             5,279             4,773
                                                             ------------      ------------      ------------      ------------

           Net income ..................................     $      7,971      $      5,378      $     15,451      $     10,413
                                                             ============      ============      ============      ============

Earnings per common share - Basic ......................     $       0.28      $       0.19      $       0.55      $       0.37
                                                             ------------      ------------      ------------      ------------
                            Diluted ....................     $       0.27      $       0.18      $       0.53      $       0.36
                                                             ------------      ------------      ------------      ------------
Weighted average number of shares outstanding - Basic ..       28,289,504        28,289,504        28,289,504        28,289,504
                                              - Diluted.       29,045,504        29,045,504        29,045,504        29,039,504
                                                               
</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                 Six month
                                                               period ended                period ended
                                                                  June 30,                    June 30,
                                                           ----------------------      ----------------------
                                                             1998          1997          1998          1997
                                                           --------      --------      --------      --------
                                                                (Unaudited)                (Unaudited)
                                                                         (Dollars in thousands)

<S>                                                        <C>           <C>           <C>           <C>     
Net Income ...........................................     $  7,971      $  5,378      $ 15,451      $ 10,413
                                                           --------      --------      --------      --------
Other comprehensive income, before tax:

Unrealized gains (losses) on securities:

     Arising during period ...........................          549         1,262           309          (331)
     Less: Reclassification adjustments for gains 
     included in net income ..........................           --            --          (149)          (25)
                                                           --------      --------      --------      --------
                                                                549         1,262           160          (356)

Income tax (expense) benefit related to items of other
comprehensive income .................................         (214)         (492)          (62)          139
                                                           --------      --------      --------      --------

Other comprehensive income, net of tax ...............          335           770            98          (217)
                                                           --------      --------      --------      --------

Comprehensive income, net of tax .....................     $  8,306      $  6,148      $ 15,549      $ 10,196
                                                           ========      ========      ========      ========


</TABLE>
        The accompanying notes are an integral part of these statements.

                                      -5-
<PAGE>
<TABLE>
<CAPTION>
R&G  FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                          Six month
                                                                                        Period ended
                                                                                          June 30,
                                                                                   ---------------------- 
                                                                                      1998        1997
                                                                                   ---------    ---------
                                                                                         (Unaudited)

                                                                                  (Dollars in thousands)
<S>                                                                                <C>          <C>      
Cash flows from operating activities:
     Net income
           Adjustments to reconcile net income to net cash provided by operating
             activities: .......................................................   $  15,451    $  10,413
                                                                                   ---------    ---------
           Depreciation and amortization .......................................       1,347        1,324
           Amortization of premium (accretion of discount) on investments and
             mortgage-backed securities, net ...................................          (9)        (202)  
           Amortization of deferred loan origination fees and accretion of     
             discount on loans, net ............................................        (109)        (317)   
           Amortization of servicing rights ....................................       1,323          813  
           Provision for loan losses ...........................................       3,000        2,945  
           Provision for bad debts in accounts  receivable .....................         150          150  
           Gain on sales of mortgage loans .....................................      (2,662)        (125) 
           Gain on sales of investment securities available for sale ...........        (149)         (25) 
           Unrealized profit on trading securities .............................      (1,888)      (5,604) 
           (Increase) decrease in mortgage loans held for sale .................     (43,454)      23,204  
           Net increase in mortgage-backed and investment securities held for     
             trading ...........................................................     (42,797)    (122,793)     
           Increase in receivables .............................................      (1,534)      (1,309)    
           Decrease in other assets ............................................         376          601   
           Increase in notes payable ...........................................      58,485       40,370     
           Increase (decrease) in accounts payable and accrued liabilities .....       3,013         (139)           
           Decrease in other liabilities .......................................         562         (796)   
                                                                                   ---------    ---------   
               Total adjustments ...............................................     (24,346)     (61,903)  
                                                                                   ---------    ---------   
               Net cash used in operating activities ...........................      (8,895)     (51,490)   
                                                                                   ---------    ---------  
Cash flows from investing activities:                                              
      Purchases of investment securities .......................................     (31,501)     (37,963)
      Proceeds from sales and maturities of securities available for sale ......      33,933        9,820
      Proceeds from maturities of securities held to maturity ..................       4,405         --
      Principal repayments on mortgage-backed securities .......................       5,730        3,912
      Proceeds from sales of loans .............................................      73,398        6,016
      Net originations of loans ................................................    (287,329)    (124,571)
      Purchases of  FHLB stock, net ............................................      (4,160)        (550)
      Acquisition of premises and equipment ....................................      (2,764)      (2,243)
      Net increase  in foreclosed real estate ..................................      (1,070)         (62)
      Acquisition of servicing rights ..........................................      (8,712)      (3,380)
                                                                                   ---------    ---------
               Net cash used by investing activities ...........................    (218,070)    (149,021)  
                                                                                   ---------    --------- 
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R&G  FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)

                                                                                          Six month
                                                                                        Period ended
                                                                                          June 30,
                                                                                   ---------------------- 
                                                                                      1998        1997
                                                                                   ---------    ---------
                                                                                         (Unaudited)

                                                                                  (Dollars in thousands)
<S>                                                                                <C>          <C>      
Cash flows from financing activities:
     Increase in deposits - net ................................................      98,421       58,383  
     Increase in federal funds purchased .......................................       5,000       11,850      
     Increase in securities sold under agreements to repurchase - net ..........      42,786      100,873
     Payments on secured borrowings ............................................        --         (1,735)  
     Advances from FHLB ........................................................      79,400       35,000
     Repayment of advances from FHLB ...........................................        --        (20,000)
     Repayment of subordinated notes ...........................................      (3,250)        --
     Payments on notes payable .................................................        --         (2,400)
     Capital contribution to subsidiary ........................................         (12)        -- 
     Cash dividends on common stock ............................................      (1,468)      (1,130)  
                                                                                   ---------    ---------
               Net cash provided by financing activities .......................     220,877      180,841 
                                                                                    ---------    ---------
Net decrease in cash and cash equivalents ......................................      (6,088)     (19,670)
Cash and cash equivalents at  beginning of  period .............................      68,366       98,856  
                                                                                   ---------    --------- 
Cash and cash equivalents at end of period .....................................   $  62,278    $  79,186
                                                                                   =========    =========  
Cash and cash equivalents include:                                                                        
     Cash and due from banks ...................................................   $  22,900    $  33,739  
     Securities purchased under agreements to resell ...........................       8,000       14,006  
     Time deposits with other banks.............................................      31,378       31,441                   
     Federal funds sold ........................................................        --           --
                                                                                   ---------    ---------  
                                                                                   $  62,278    $  79,186  
                                                                                   =========    ========= 
</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  Commissioner  of  Financial  Institutions  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  eighteen  branches located mainly in the northern part of the
Commonwealth of Puerto Rico. The Bank also provides private  banking,  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  (consisting
of normal recurring accruals) necessary for a fair presentation of the Company's
financial  condition  as of June 30,  1998,  and the results of  operations  and
changes in its cash flows for the three and six months  ended June 30,  1998 and
1997.

         The results of  operations  for the three and six month  periods  ended
June 30, 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
three and six month periods  ended June 30, 1997 to conform to the  presentation
for the 1998 respective periods. 


                                      -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  ("SFAS") No. 130- "Reporting  Comprehensive  Income." This
Statement  establishes  standards  for reporting  and  displaying  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.

Accountings for Derivative Instruments and Hedging Activities

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

     For a derivative  designated as hedging the exposure to changes in the fair
     value of a recognized asset or liability or a firm commitment  (referred to
     as a fair value  hedge),  the gain or loss is recognized in earnings in the
     period of change  together with the  offsetting  loss or gain on the hedged
     item attributable to the risk being hedged.

     For a derivative  designated as hedging the exposure to variable cash flows
     of a forecasted transaction (referred to as cash flow hedge), the effective
     portion  of the  derivative's  gain  or  loss is  initially  reported  as a
     component of other comprehensive income (outside earnings) and subsequently
     reclassified  into  earnings  when  the  forecasted   transaction   affects
     earnings.  The  ineffective  portion  of the  gain or loss is  reported  in
     earnings immediately.

     For a derivative designated as hedging the foreign currency exposure of a
     net  investment  in a foreign  operation,  the gain or loss is  reported in
     other  comprehensive  income  (outside  earnings) as part of the cumulative
     translation adjustment.

     For a derivative not designated as a hedging  instrument,  the gain or loss
     is recognized in earnings in the period of change.

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


                                      -8-
<PAGE>
Management is evaluating its hedging strategy in light of this new pronouncement
to establish the initial designation of its hedging activities and determine the
effect and timing of adoption.  However, due to the relatively limited extent to
which the Company is using  derivative  instruments and the simple nature of the
instruments  used,  management  does not  expect the  impact of  adoption  to be
significant.

NOTE 2  -         EARNINGS PER SHARE

         Basic earnings per common share for the three and six months ended June
30, 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 28,289,504.  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  29,045,504  for the three month  periods  ended June 30,
1998 and 1997,  respectively,  and  29,045,504  and 29,039,504 for the six month
periods ended June 30, 1998 and 1997, respectively.

         On June 25,  1998 the  Company  effected  a 2 for 1 stock  split on the
Company's  common stock, in the form of a stock dividend of one additional share
of common  stock for each  share of common  stock  held of record as of June 12,
1998.  Following   distribution  of  the  additional  shares,  the  Company  had
28,289,504  common shares  outstanding.  Per share  information  for all periods
presented take into  consideration  the stock splits paid by the Company in June
1998 and September 1997.

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.
                                                                      June 30,
                                                                        1998
                                                                  --------------
                                                                    (Unaudited)

Mortgage-backed securities held for trading:

     CMO residuals (all interest only).........................     $  8,020,658
     GNMA certificates.........................................      437,105,550
                                                                     -----------
                                                                    $445,126,208
                                                                    ============

                                      -9-
<PAGE>
<TABLE>
<CAPTION>
                                                            June 30, 1998
                                                      ----------------------------
                                                     Amortized cost    Fair value
                                                       -----------     -----------
                                                               (Unaudited)
<S>                                                    <C>             <C>         
Mortgage-backed securities available for sale:
CMO residuals and other mortgage-backed securities     $ 8,135,222     $ 9,784,843
                                                       -----------     -----------
FNMA certificates:
     Due over ten years ..........................       8,650,944       8,734,477
                                                       -----------     -----------
FHLMC certificates:
     Due from one to five years ..................         102,302         103,935
     Due from five to ten years ..................         267,419         272,438
     Due over ten years ..........................      24,348,684      24,749,005
                                                       -----------     -----------
                                                        24,718,405      25,125,378
                                                       -----------     -----------
                                                       $41,504,571     $43,644,698
                                                       ===========     ===========
Investment securities available for sale:
U.S.  Treasury securities:      
     Due within one year .........................     $   796,165     $   796,000   
     Due from one to five years ..................      30,514,345      30,543,368 
                                                       -----------     ----------- 
                                                        31,310,510      31,339,368 
                                                       -----------     ----------- 
U.S. Government and agencies securities:               
     Due within one year .........................       5,000,000       4,998,830    
     Due from one to five years ..................      26,345,956      26,359,825 
     Due from five to ten years ..................       5,021,473       5,000,810   
                                                       -----------     -----------  
                                                        36,367,429      36,359,465  
                                                       -----------     ----------- 
                                                                                     
FHLB stock .......................................       9,066,367       9,066,367  
                                                       -----------     -----------  
                                                                                    
                                                       $76,744,306     $76,765,200  
                                                       ===========     ===========  
</TABLE>                                                                 

         Mortgage  backed  securities  available for sale include  interest only
securities  with an amortized cost of $3,522,553 as of June 30, 1998,  which are
primarily associated with the sale by the Company 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>
                                                                      June 30, 1998
                                                              -----------------------------

                                                              Amortized cost     Fair value
                                                                -----------     -----------
                                                                      (Unaudited)
<S>                                                             <C>             <C>        
Investment securities held to maturity:
U.S. Treasury securities-
     Due within one year ..................................     $   309,977     $   310,000

Puerto Rico Government obligations-
     Due from five to ten years ...........................       5,953,560       5,919,424
                                                                -----------     -----------

                                                                $ 6,263,537     $ 6,229,424
                                                                ===========     ===========

Mortgage-backed securities held to maturity:
GNMA certificates:
     Due from one to five years ...........................     $    42,608     $    43,282
     Due over ten years ...................................      17,130,644      16,589,595
                                                                -----------     -----------
                                                                 17,173,252      16,632,877
                                                                -----------     -----------

Federal National Mortgage Association (FNMA) certificates -
     Due over ten years ...................................      13,689,027      14,017,261
                                                                -----------     -----------

Federal Home Loan Mortgage Corporation (FHLMC)
certificates -
     Due over ten years ...................................         261,466         254,544
                                                                -----------     -----------

                                                                $31,123,745     $30,904,682
                                                                ===========     ===========
</TABLE>
                                      -11-
<PAGE>
NOTE 4  -          LOANS AND ALLOWANCE FOR LOAN LOSSES

   Loans consists of the following:
<TABLE>
<CAPTION>
                                                 June 30,          December 31,
                                                   1998                1997
                                               -------------      -------------
                                                         (Unaudited)
<S>                                            <C>                <C>          
Real estate loans:
     Residential - first mortgage ........     $ 649,101,374      $ 476,728,996
     Residential - second mortgage .......        18,453,562         17,831,079
     Construction ........................        17,409,652         13,367,513
     Commercial ..........................        99,295,900         87,506,802
                                               -------------      -------------
                                                 784,260,488        595,434,390
Undisbursed portion of loans in process ..        (8,524,465)        (6,218,039)
Net deferred loan fees ...................            90,267            172,019
                                               -------------      -------------
                                                 775,826,290        589,388,370
                                               -------------      -------------
Other loans:
     Commercial ..........................        42,624,109         39,127,363
     Consumer:                                 
        Secured by deposits ..............        14,087,109         12,471,772 
        Secured by real estate ...........        76,186,607         81,251,989 
        Other ............................        42,776,592         50,103,282 
Unamortized discount .....................          (143,351)          (151,460)
Unearned interest ........................          (259,148)          (360,195)
                                               -------------      ------------- 
                                                 175,271,918        182,442,751 
                                               -------------      ------------- 

        Total loans ......................       951,098,208        771,831,121                                  
     Allowance for loan losses ...........        (6,694,925)        (6,771,702)
                                               -------------      ------------- 
                                               $ 944,403,283      $ 765,059,419 
                                               =============      ============= 
                                               
</TABLE> 
The changes in the allowance for loan losses follow:
<TABLE>
<CAPTION>
                                                          Six months ended
                                                              June 30,
                                                      -------------------------- 
                                                        1998              1997
                                                      -------           -------
                                                            (Unaudited)
                                                       (Dollars in thousands)
<S>                                                   <C>               <C>    
Balance, beginning of period ...............          $ 6,772           $ 3,332
Provision for loan losses ..................            3,000             2,945
Loans charged-off ..........................           (3,212)           (2,090)
Recoveries.................................               135               224
                                                      -------           -------
Balance, end of period .....................          $ 6,695           $ 4,411 
                                                      =======           =======
                                                      
</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  $407.4
million at June 30,  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 $150.7 million at June 30, 1998.


Commitments to buy and sell GNMA certificates

         As of June 30,  1998,  the Company had open  commitments  to issue GNMA
certificates of approximately $38.4 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 June  30,  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,
amount to  approximately  $379.7  million at June 30, 1998.  Liability,  if any,
under the recourse  provisions at June 30, 1998 is estimated by management to be
insignificant.


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

Financial Condition

         At June 30, 1998, the Company's  total assets amounted to $1.8 billion,
as compared to $1.5 billion at December 31,  1997.  The $264.2  million or 17.5%
increase in total  assets  during the six month  period  ended June 30, 1998 was
primarily   attributable  to  a  $179.3  million  or  23.4%  increase  in  loans
receivable, net, which reflects net originations following repayments and sales,
a $44.7  million  or  11.1%  increase  in  mortgage-backed  securities  held for
trading,  and a $43.4 million or 92.6% increase in mortgage loans held for sale,
respectively.

         The increase in the Company's  assets was funded primarily by increased
deposits of $98.5 million or 13.6%,  a $79.4 million or 189.0%  increase in FHLB
advances,  a $58.5  million  or 36.7%  increase  in notes  payable,  and a $42.8
million or 11.2% increase in securities sold under agreements to repurchase.

         At June 30, 1998, the Company's stockholders' equity amounted to $152.1
million, which is an increase of $14.1 million or 10.2% from the amount reported
at December  31,  1997.  The primary  reason for the increase was the net income
earned  during the six month  period ended June 30,  1998,  which was  partially
offset by $1.5 million of dividends  paid during such period.  At June 30, 1998,
the Bank's leverage and Tier 1 risk-based  capital  amounted to 6.83% and 11.42%
of adjusted total assets, respectively,  compared to a 4.0% minimum requirement,
and its total risk-based capital amounted to 12.44%, compared to an 8.0% minimum
requirement.

Results of Operations

         The  Company  reported  net income of $8.0  million  and $15.5  million
during the three and six month  periods  ended June 30, 1998,  respectively,  as
compared to $5.4 million and $10.4 million during the prior comparable  periods,
or an increase  during such periods of $2.6 million or 48.2% and $5.0 million or
48.4%, respectively.

         Total revenues for the six month period ended June 30, 1998 amounted to
$43.2 million, a $9.5 million or 28.1% increase over the comparable 1997 period.
The  increase in revenues  during the six month  period  ended June 30, 1998 was
primarily  attributable  to a $4.1  million or 25.0%  increase  in net  interest
income and a $3.8 million or 33.3% increase in net gain on origination  and sale
of loans.  The  increase  in net  interest  income is  primarily  due to an $8.2
million  or 25.6%  increase  in  interest  income on loans,  which is  primarily
associated  with an  increase  in the average  balance of the  outstanding  loan
portfolio,  and to a $6.4  million  or 75.9%  increase  in  interest  income  on
mortgage - backed  securities due to an increase in securities  held for trading
in the 1998 period.  The increase in net gain on  origination  and sale of loans
reflects an increase in mortgage loan originations  during the 1998 period.  The
volume of loan originations increased 63% to approximately $684.1 million during
such period.  Contributing also to the increase in revenues during the six month
period   ended  June  30,  1998  was  a  $677,000  or  9.9%   increase  in  loan
administration and servicing fees, as the Company's servicing portfolio expanded
by 13.1% over the prior year to $3.4 billion,  and a $446,000 or 20.2%  increase
in service charges,  fees and other miscellaneous revenue sources, due mainly to
an increase  in banking  fees  associated  with an  increased  number of deposit
accounts during the 1998 period.

                                      -14-
<PAGE>
         Total  revenues for the quarter  ended June 30, 1998  amounted to $22.3
million, a $5.1 million or 29% increase over the comparable quarter in 1997. The
increase in total revenues during the 1998 quarter was primarily attributable to
a $2.2 million or 25.8% increase in net interest income, a $1.8 million or 32.0%
increase  in net gain on  origination  and sale of loans and a $298,000  or 8.4%
increase in loan administration and servicing fees. In addition,  an increase in
trading  revenue  resulted  from  the  absence  of a  $374,000  loss in the 1997
quarter.

         Total expenses increased by $3.9 million or 21.2% during the six months
ended June 30, 1998, over the prior comparable periods.  The increase during the
six month  period  ended June 30, 1998 was due  primarily  to a $1.2  million or
18.2% increase in employee compensation and benefits associated with an increase
in the number of employees to  accomodate  a higher loan  production  during the
1998 period,  and a $372,000 or 10.3% 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.  Other miscellaneous expenses increased
by  $2.4  million  or  28.5%  mainly  as a  result  of a  $450,000  increase  in
advertising  costs associated with an increase in loan production and a $515,000
increase in amortization expenses of the Company's servicing asset.

          Total operating expenses increased by $2.6 million or 26.9% during the
three month period  ended June 30,  1998.  The increase was due to a $778,000 or
22.6%  increase  in  employee  compensation  and  benefits,  a $152,000  or 7.5%
increase in occupancy  expenses,  and a $1.7 million or 39.6%  increase in other
miscellaneous expenses.  These expenses increased during such three month period
for the reasons noted above.

         Total income tax expense decreased by $135,000 or 6.3% and increased by
$506,000 or 10.6%  during the three and six month  periods  ended June 30, 1998,
respectively,  over the prior comparable periods.  The decrease during the three
month period ended June 30, 1998 is primarily associated with the purchase, at a
discount,  of certain  investment  tax credits  during the period.  The increase
during the six month  period  ended  June 30,  1998 is due  primarily  to a $5.5
million or 36.5%  increase  in income  before  taxes  during  such  period.  The
Company's  effective  tax rate  amounted to 20.2% and 25.5% during the three and
six month periods  ended June 30, 1998,  compared to 28.6% and 31.4% in the 1997
comparable periods.  The decrease in 1998 of the Company's effective tax rate is
primarily  associated  with an increase in the Company's  exempt interest income
from GNMA mortgage backed securities .

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 

                                      -15-
<PAGE>
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 June 30, 1998, the Company had $141.0  million in borrowing  capacity
under warehousing lines of credit, $441.2 million in borrowings capacity under a
line of credit with the FHLB of New York and $ 15 million of borrowing  capacity
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.

         At June 30, 1998, the Company had outstanding  commitments to originate
non-mortgage loans of $19.1 million. Certificates of deposit which are scheduled
to  mature  within  one  year  totaled  $397.0  million  at June 30,  1998,  and
borrowings  that are  scheduled  to mature  within the same  period  amounted to
$695.2  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 June 30,
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 6.83%,
11.42% and 12.44%, respectively.

                                      -16-
<PAGE>
         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.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION  
REFORM ACT OF 1995

         In addition to historical information,  forward-looking  statements are
contained  herein that are subject to risks and  uncertainties  that could cause
actual results to differ materially from those reflected in the  forward-looking
statements.  Factors  that  could  cause  future  results  to vary from  current
expectations, include, but are not limited to, the impact of economic conditions
(both  generally  and more  specifically  in the  markets  in which the  Company
operates),  the impact of government  legislation and regulation  (which changes
from time to time and over which the  Company has no  control),  and other risks
detailed in this Form 10-Q and in the Company's  other  Securities  and Exchange
Commission ("SEC") filings. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof.  Readers should carefully review the risk factors  described in
other documents the Company files from time to time with the SEC.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

         Quantitative  and  qualitative   disclosures   about  market  risk  are
presented at December 31, 1997 in Item 7A of the Company's Annual report on Form
10-K.  Management  believes there have been no material changes in the Company's
market risk since December 31, 1997.


                           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.


                                      -17-
<PAGE>
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

         The  Company's  Annual  Meeting of  Stockholders  was held on April 23,
1998.

         1.   With respect to the election of four directors to serve three-year
              terms expiring at the Annual Meeting of Stockholders to be held in
              the year 2001 or until their respective successors are elected and
              qualified,  the following were the number of shares voted for each
              nominee:


Ana M.  Armendariz Class A - For  18,440,556  Withheld 0    Against        0
                   Class B - For   3,647,250  Withheld 0    Against    9,100
                                                                         

Victor L.  Galan   Class A - For  18,440,556  Withheld 0    Against        0
                   Class B - For   3,647,250  Withheld 0    Against    9,100

                                                                        
Benigno Fernandez  Class A - For  18,440,556  Withheld 0    Against        0
                   Class B - For   3,647,250  Withheld 0    Against    9,100
                                                                          

Pedro L.  Ramirez  Class A - For  18,440,556  Withheld 0    Against        0
                   Class B - For   3,647,250  Withheld 0    Against    9,100
                                                            

         2.   With respect to the  amendment  of the  Company's  certificate  of
              Incorporation  to  increase  the  authorized  number  of shares of
              Common Stock from 25,000,000 to 60,000,000,  the following are the
              number of shares voted:

                   Class A - For 18,440,556    Withheld  0    Against      0
                   Class B - For  3,648,410    Withheld 180   Against  9,210
                                              
 
         3.   With  respect  to the  ratification  of the  appointment  of Price
              Waterhouse  as the Company's  independent  auditors for the fiscal
              year ending  December 31, 1998,  the  following  are the number of
              shares voted:

                   Class A - For 18,440,556    Withheld 0     Against      0
                   Class B - For  3,657,800    Withheld 0     Against      0

                                      -18-
<PAGE>
Item 5.  Other Information

Deadlines for Shareholder Proposals

Pursuant to Rule 14a-5(e) under the Securities Exchange Act of 1934, as amended,
effective June 29, 1998:

(1)     The deadline for submitting  shareholder  proposals for inclusion in the
        Company's  proxy  statement  and form of proxy  for the  Company's  1999
        Annual  Meeting of  Stockholders  pursuant  to Rule 14a-8 is December 1,
        1998.

(2)     The date after which notice of a shareholder  proposal submitted outside
        the processes of Rule 14a-8 is considered untimely is December 31, 1998.


Item 6:  Exhibits and Reports on Form 8-K

                  a)    Exhibits

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

                  b)    No Form 8-K reports were filed during the quarter.



                                   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: July 31, 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-