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, 1997
                                       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) 766-2424
--------------------------------------------------------------------------------
              (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,  1997:
2,735,839.  (Does not include 5,122,377 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, 1997 (Unaudited) and December 31, 1996             3

         Consolidated Statements of Income for the Three
                  Months Ended March 31, 1997 and 1996 (Unaudited)             4

         Consolidated Statements of Cash Flows for the Three Months
                  Ended March 31, 1997 and 1996 (Unaudited)                    5

         Notes to Unaudited Consolidated Financial Statements                  6

Item 2.  Management's Discussion and Analysis                                 14

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 to a Vote of Security Holders                 18

Item 5.   Other Information                                                   18

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


Signatures                                                                    19

                                       2

<PAGE>
                         PART I - FINANCIAL INFORMATION

Item 1:   Consolidated Financial Statements.
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

ASSETS
                                                                                     March 31,        December 31,    
                                                                                       1997              1996        
                                                                                 ---------------    ---------------
                                                                                   (Unaudited)                           
<S>                                                                              <C>                <C>            
Cash and due from banks ......................................................   $    22,814,749    $    31,989,944
Money market investments:
   Securities purchased under agreements to resell ...........................        13,817,480         19,633,178
   Time deposits with other banks ............................................        32,948,447         33,232,809
   Federal funds sold ........................................................         5,514,023         14,000,000
Mortgage loans held for sale, at lower of cost or market .....................        19,922,089         54,450,159
Mortgage-backed securities held for trading, at fair value ...................       163,316,426        108,146,120
Mortgage-backed securities available for sale, at fair value .................        46,377,292         50,841,165
Mortgage-backed securities held to maturity, at amortized cost
(estimated market value: 1997 - $34,810,480; 1996 - $37,104,391) .............        36,456,107         37,899,847
Investment securities held for trading, at fair value ........................         1,483,428          1,350,827
Investment securities available for sale, at fair value ......................        54,408,577         30,973,260
Investment securities held to maturity, at amortized cost
(estimated market value: 1997 - $5,216,138; 1996 - $5,241,146) ...............         5,371,389          5,269,850
Loans receivable, net ........................................................       654,173,343        603,750,621
Accounts receivable, including advances to investors, net ....................         5,603,950          5,764,331
Accrued interest receivable ..................................................         6,923,852          6,632,250
Mortgage servicing rights ....................................................        13,776,497         12,595,020
Excess servicing receivable ..................................................              --              770,408
Premises and equipment .......................................................         8,831,641          7,767,680
Other assets .................................................................        11,666,565         12,730,060
                                                                                 ---------------    ---------------
                                                                                 $ 1,103,405,855    $ 1,037,797,529
                                                                                 ===============    ===============

<PAGE>
<CAPTION>
                                                                                     March 31,        December 31,    
                                                                                       1997              1996        
                                                                                 ---------------    ---------------
                                                                                   (Unaudited)                           
<S>                                                                              <C>                <C>            
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits ..................................................................   $   651,035,093    $   615,567,481
   Securities sold under agreements to repurchase ............................       120,882,717         97,444,448
   Notes payable .............................................................       134,410,636        126,842,099
   Advances from FHLB ........................................................        10,000,000         15,000,000
   Other secured borrowings ..................................................        49,510,439         50,462,619
   Accounts payable and accrued liabilities ..................................        12,401,350          9,998,768
   Other liabilities .........................................................         2,775,017          3,599,222
                                                                                 ---------------    ---------------
                                                                                     981,015,252        918,914,637
                                                                                 ---------------    ---------------
Subordinated notes ...........................................................         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, 5,122,377 shares
        issued and outstanding in 1997 and 1996 ..............................            51,223             51,223
      Class B - $.01 par value, 15,000,000 shares authorized, 2,735,839 issued
        and outstanding in 1997 and 1996 .....................................            27,360             27,360
   Additional paid-in capital ................................................        38,410,683         38,410,683
   Retained earnings .........................................................        80,279,561         75,784,804
   Capital reserves of the Bank ..............................................         1,460,707          1,460,707
   Unrealized loss on securities available for sale ..........................        (1,088,931)          (101,885)
                                                                                 ---------------    ---------------
                                                                                     119,140,603        115,632,892
                                                                                 ---------------    ---------------
                                                                                 $ 1,103,405,855    $ 1,037,797,529
                                                                                 ===============    ===============
</TABLE>

         The accompanying notes are an integral part of this statement.

                                        3
<PAGE>
<TABLE>
<CAPTION>
                            R&G FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME



                                                            Three month
                                                           period ended
                                                             March 31,
                                                   ----------------------------

                                                       1997             1996
                                                   ------------    ------------
                                                            (Unaudited)
<S>                                                <C>             <C>         
Interest income:
   Loans .......................................   $ 15,344,276    $ 11,453,689
   Money market and other investments ..........      1,543,297         878,450
   Mortgage-backed securities ..................      3,520,921       3,658,704
                                                   ------------    ------------
      Total interest income ....................     20,408,494      15,990,843
                                                   ------------    ------------
Interest expense:
   Deposits ....................................      7,731,489       6,383,066
   Securities sold under agreements to
      repurchase ...............................      1,313,134       1,275,914
   Notes payable ...............................      2,057,987       1,081,503
   Secured borrowings ..........................        974,166       1,083,109
   Other .......................................        278,647          67,222
                                                   ------------    ------------
      Total interest expense ...................     12,355,423       9,890,814
                                                   ------------    ------------
Net interest income ............................      8,053,071       6,100,029
Provision for loan losses ......................     (1,250,000)         (6,525)
                                                   ------------    ------------
Net interest income after provision for
    loan losses ................................      6,803,071       6,093,504
                                                   ------------    ------------
Other income:
   Net gain on origination and sale of loans ...      1,822,865       1,971,044
   Unrealized profit on trading securities .....      2,366,998          53,335
   Net profit on trading account ...............         16,635         136,050
   Net gain on sales of investments available
      for sale .................................         24,984         329,225
   Loan administration and servicing fees ......      3,308,411       3,008,755
   Service charges, fees and other .............        852,733         944,481
                                                   ------------    ------------
                                                      8,392,626       6,442,890
                                                   ------------    ------------
        Total Revenues: ........................     15,195,697      12,536,394
                                                   ------------    ------------

<PAGE>
<CAPTION>
                                                            Three month
                                                           period ended
                                                             March 31,
                                                   ----------------------------

                                                       1997             1996
                                                   ------------    ------------
                                                            (Unaudited)
<S>                                                <C>             <C>         
Operating expenses:
   Employee compensation and benefits ..........      2,411,891       2,348,937
   Office occupancy and equipment ..............      1,605,238       1,412,636
   Other administrative and general ............      3,528,648       3,627,041
                                                   ------------    ------------
                                                      7,545,777       7,388,614
                                                   ------------    ------------
Income before minority interest and income
  taxes ........................................      7,649,920       5,147,780
                                                   ------------    ------------
Minority interest in the Bank ..................           --           184,861
                                                   ------------    ------------
Income before income taxes .....................      7,649,920       4,962,919
                                                   ------------    ------------
Income tax expense (credit):
   Current .....................................      1,707,090       2,042,359
    Deferred ...................................        907,821          (7,714)
                                                   ------------    ------------

                                                      2,614,911       2,034,645
                                                   ------------    ------------
      Net income ...............................   $  5,035,009    $  2,928,274
                                                   ------------    ------------

Earnings per common share ......................   $       0.64    $       0.56
                                                   ============    ============

Weighted average number of shares outstanding ..      7,858,216       5,189,044
</TABLE>


        The accompanying notes are an integral part of these statements.

                                        4
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                              Three month
                                                                                             period ended
                                                                                               March 31,
                                                                                    ------------------------------

                                                                                        1997               1996
                                                                                    -------------    -------------
                                                                                              (Unaudited)
<S>                                                                                 <C>              <C>          
Cash flows from operating activities:
   Net income ...................................................................   $   5,035,009    $   2,928,274
                                                                                    -------------    -------------

   Adjustments to reconcile net income to net cash provided by
      operating activities:
        Depreciation and amortization ...........................................         623,110          478,599
      Amortization of premium (accretion of discount) on investments and
        mortgage-backed securities, net .........................................         (96,977)          27,552
      Amortization of deferred loan origination fees and accretion of discount
        on loans ................................................................        (207,963)          46,175
      Amortization of excess servicing receivable ...............................            --             19,384
      Amortization of servicing rights ..........................................         400,684          291,375
      Provision for loan losses .................................................       1,250,000            6,525
      Provision for bad debts in accounts receivable ............................          75,000           75,000
      Gain on sales of mortgage loans ...........................................         (74,498)         (42,652)
      Gain on sale of investment securities available for sale ..................         (24,984)        (329,225)
      Unrealized profit on trading securities ...................................      (2,366,998)         (53,335)
      Minority interest in earnings of the Bank .................................            --            184,861
      Decrease (increase) in mortgage loans held for sale .......................      34,528,070       (4,547,519)
      Net increase in mortgage-backed securities held for trading ...............     (52,032,900)      (2,459,202)
       Increase in receivables ..................................................        (206,221)      (1,010,800)
       Decrease in other assets .................................................         915,424           26,335
      Increase (decrease) in notes payable ......................................       7,568,537       (7,545,175)
      Increase in accounts payable and accrued liabilities ......................       3,178,694        3,733,030
      (Decrease) increase in other liabilities ..................................        (824,205)         136,855
                                                                                    -------------    -------------
          Total adjustments .....................................................      (7,295,227)     (10,962,217)
         Net cash used in operating activities ..................................      (2,260,218)      (8,033,943)

<PAGE>
<CAPTION>
                                                                                              Three month
                                                                                             period ended
                                                                                               March 31,
                                                                                    ------------------------------

                                                                                        1997               1996
                                                                                    -------------    -------------
                                                                                              (Unaudited)
<S>                                                                                 <C>              <C>          
Cash flows from investing activities:
    Purchases of investment securities ..........................................   $ (27,649,800)   $ (22,900,000)
    Proceeds from sale and maturities of investment securities available for sale       6,819,777       12,643,887
    Proceeds from sales and maturities of investment securities held for trading             --               --
    Principal repayments on mortgage-backed securities ..........................       2,122,488        2,504,429
    Proceeds from sale of loans .................................................       3,814,538        2,058,869
    Net originations of loans ...................................................     (55,204,799)     (62,342,318)
    Purchases of FHLB stock, net ................................................        (550,457)        (795,600)
    Acquisition of premises and equipment .......................................      (1,556,511)        (729,004)
    Net decrease (increase) in foreclosed real estate ...........................          17,511         (440,667)
    Acquisition of servicing rights .............................................      (1,582,161)        (744,088)
                                                                                    -------------    ------------- 
          Net cash used by investing activities .................................     (73,769,414)     (70,744,492)
                                                                                    -------------    ------------- 

Cash flows from financing activities:
    Payments on long-term debt ..................................................            --           (400,001)
    Increase in deposits - net ..................................................      35,322,563       22,783,124
    Increase (decrease) in securities sold under agreements to repurchase - net .      23,438,269       (3,168,819)
    Payments on secured borrowings ..............................................        (952,180)      (1,256,048)
    Advances from FHLB ..........................................................       5,000,000             --
    Repayment of advances from FHLB .............................................     (10,000,000)            --
    Cash dividends on common stock ..............................................        (540,252)        (500,000)
          Net cash provided by financing activities .............................      52,268,400       17,458,256
    Net (decrease) in cash and cash equivalents .................................     (23,761,232)     (61,320,179)
    Cash and cash equivalents at beginning of period ............................      98,855,931      104,195,167
                                                                                    -------------    -------------
    Cash and cash equivalents at end of period ..................................   $  75,094,699       42,874,988
                                                                                    =============    =============
Cash and cash equivalents include:
    Cash and due from banks .....................................................   $  22,814,749    $  22,943,443
    Securities purchased under agreements to resell .............................      13,817,480        6,501,579
    Time deposits with other banks ..............................................      32,948,447       13,429,966
    Federal Funds Sold ..........................................................       5,514,023             --   
                                                                                    -------------    -------------
                                                                                    $  75,094,699    $  42,874,988
                                                                                    =============    =============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        5
<PAGE>
R&G FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1   -        REPORTING ENTITY, PUBLIC OFFERING AND STOCK OPTIONS
                  AND BASIS OF PRESENTATION

Reporting entity

         The accompanying  unaudited  consolidated  financial  statements of R&G
Financial Corporation (the "Company") include the accounts of R&G Mortgage Corp.
("R&G Mortgage"), a Puerto Rico corporation, and R-G Premier Bank of Puerto Rico
(the "Bank"),  a commercial bank chartered under the laws of the Commonwealth of
Puerto  Rico.  The  Company  was  formed in March  1996 for the sole  purpose of
becoming the parent  corporation  and sole  stockholder  of R&G Mortgage and the
Bank.  During 1996, the Company  acquired a 100% ownership  interest in the Bank
and  R&G  Mortgage.  See  Note  1  to  R&G  Financial's  Consolidated  Financial
Statements for the year ended December 31, 1996.

         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  fifteen  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,  1997 and the  results  of
operations  and changes in its cash flows for the three  months  ended March 31,
1997 and 1996.

                                        6

<PAGE>
         The results of  operations  for the three month  period ended March 31,
1997 are not  necessarily  indicative of the results to be expected for the year
ending December 31, 1997. 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, 1996.

         Certain  reclassifications (not affecting income before income taxes or
net income) have been made to the consolidated  statements of income and of cash
flows for the quarter  ended March 31, 1996 to conform to the  presentation  for
the quarter ended March 31, 1997.

Basis of consolidation

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

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

         Effective   January  1,  1997,  the  Company   adopted  SFAS  No.  125,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of Liabilities," as amended by SFAS No. 127. This Statement provides  accounting
and reporting  standards  for  transfers  and servicing of financial  assets and
extinguishments   of   liabilities   based  on  consistent   application   of  a
financial-components  approach  that  focuses on control.  Under that  approach,
after a transfer of financial  assets,  an entity  recognizes  the financial and
servicing  assets it controls and the  liabilities  it has  incurred,  and stops
recognizing financial assets when control has been surrendered,  and liabilities
when extinguished.

         This Statement  requires that  liabilities and derivatives  incurred or
obtained by transferors  as part of a transfer of financial  assets be initially
measured at fair value, if practicable.  It also requires that servicing  assets
and other retained interests in the transferred assets be measured by allocating
the  previous  carrying  amount  between the assets  sold,  if any, and retained
interest,  if any,  based  on  their  relative  fair  values  at the date of the
transfer.  Servicing assets and liabilities must be subsequently measured by (a)
amortization  in  proportion  to and over the period of estimated  net servicing
income or loss and (b) assessment for asset  impairment or increased  obligation
based on their fair value.

         Upon  the  adoption  of  this  Statement,   the  Company   reclassified
approximately  $770,000 of excess servicing receivable  associated with the sale
in  prior  years of  collateralized  mortgage  obligations  into  interest  only
mortgage backed  securities  held for trading,  recognizing no income or loss on
such transaction.  The adoption of this Statement had no effect on the Company's
financial condition or results of operations.


                                        7

<PAGE>
Stock option plans

         The  pro-forma  net income and earnings per share  disclosures  for the
three months  periods  ended March 31, 1997 and 1996  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

         Primary  earnings per common share for the three months ended March 31,
1997 and 1996 were  computed  by  dividing  net income  for such  periods by the
weighted  average  number  of shares of common  stock  outstanding  during  such
periods,  which was 7,858,216 and 5,189,044  shares for the three months periods
ended March 31, 1997 and 1996,  respectively.  Outstanding stock options granted
in  connection  with the  Company's  Stock  Option Plan were  excluded  from the
weighted  average  number  of  shares  because  their  dilutive  effect  is  not
significant.

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.
<TABLE>
<CAPTION>
                                                             March 31, 1997
                                                      --------------------------
                                                      Amortized cost  Fair value
                                                      --------------  ----------
                                                               (Unaudited)
<S>                                                     <C>           <C>       
Investment securities held to maturity:
U.S. Treasury securities:
     Due within one year ...........................    $   97,966    $   97,000
     Due from one to five years ....................       309,633       309,613
                                                        ----------    ----------
                                                           407,599       406,613
                                                        ----------    ----------
Puerto Rico Government obligations:
   Due within one year .............................     1,000,000     1,001,250
   Due from five to ten years ......................       533,188       500,000
   Due over ten years ..............................        66,150        66,150
                                                        ----------    ----------
                                                         1,599,338     1,567,400
                                                        ----------    ----------
Corporate securities -
    Due within one year ............................     3,364,452     3,242,125
                                                        ----------    ----------
                                                        $5,371,389    $5,216,138
                                                        ==========    ==========
 
                                        8
<PAGE>
<CAPTION>
                                                             March 31, 1997
                                                      --------------------------
                                                      Amortized cost  Fair value
                                                      --------------  ----------
                                                               (Unaudited)
<S>                                                    <C>           <C>       
Mortgage-backed securities held to maturity:
  GNMA certificates:
      Due from five to ten years ...................   $    92,018   $    94,127
      Due over ten years ...........................    20,594,307    19,201,890
                                                        ----------    ----------
                                                        20,686,325    19,296,017
                                                        ----------    ----------

  Federal National Mortgage Association
   (FNMA) certificates -
      Due over ten years ...........................    15,459,773    15,212,842
                                                        ----------    ----------

  Federal Home Loan Mortgage Corporation (FHLMC)
   certificates -
      Due over ten years ...........................       310,009       301,621
                                                        ----------    ----------

                                                       $36,456,107   $34,810,480
                                                       ===========   ===========




                                        9
<PAGE>
<CAPTION>
                                                            March 31, 1997
                                                     ---------------------------
                                                     Amortized cost  Fair value
                                                     --------------  -----------
                                                               (Unaudited)
<S>                                                    <C>           <C>        
Mortgage-backed securities available for sale:
CMO residuals and other mortgage-backed securities .   $ 7,051,610   $ 8,180,379
                                                       -----------   -----------

FNMA certificates:
   Due over ten years ..............................    10,335,812     9,863,123
                                                       -----------   -----------

FHLMC certificates:
   Due from five to ten years ......................       508,248       520,238
   Due over ten years ..............................    29,216,249    27,813,552
                                                       -----------   -----------
                                                        29,724,497    28,333,790
                                                       -----------   -----------

                                                       $47,111,919   $46,377,292
                                                       ===========   ===========
Investment securities available for sale:
U.S. Treasury securities:
    Due from one to five years .....................   $20,052,282   $19,614,060
U.S. Government and agencies securities:
    Due from five to ten years .....................    30,526,765    29,996,750
FHLB stock .........................................     4,797,767     4,797,767
                                                       -----------   -----------

                                                       $55,376,814   $54,408,577
                                                       ===========   ===========
</TABLE>


   Mortgage  backed   securities   available  for  sale  include  interest  only
securities with an amortized cost of $2,363,941 as of March 31, 1997,  which are
associated with the sale in prior years of collateralized  mortgage obligations.
These sales were not made in  connection  with the  Company's  mortgage  banking
activities.

   The interest rate risk on the above  available for sale U.S.  Government  and
agency  securities are being hedged with options and financial futures contracts
based on U.S.  Treasury  securities and  Eurodollars.  The Company also executes
hedging  strategies  for  all  mortgage-backed  securities  available  for  sale
(excluding  CMOs). At March 31, 1997, no futures  contracts were outstanding for
hedging  purposes.  Option contracts held for hedging purposes at March 31, 1997
consist  of put and call  options  on  futures  contracts  based on US  Treasury
Securities   with  notional   amounts  of  $30.0  million  and  $30.0   million,
respectively,  expiring in May, 1997.  Mortgage backed securities  available for
sale for which the Company  enters into  hedging  contracts  had a fair value of
approximately $38.2 million at March 31, 1997.


                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                               March 31,
                                                                 1997
                                                              -----------
                                                              (Unaudited)
<S>                                                           <C>        
Mortgage-backed securities held for trading:
      CMO Certificates .....................................  $15,147,000
      CMO Residuals (all interest only) ....................    8,895,121
      GNMA Certificates.....................................  139,274,305
                                                             ------------
                                                             $163,316,426
                                                             ============
</TABLE>


      The  Company  has  entered  into  various  agreements  with  an  unrelated
investment  management  firm whereby such firm has been  appointed as investment
advisor  with  respect  to a  portion  of the  Company's  securities  portfolio.
Pursuant to such agreements, this investment advisory firm makes recommendations
with respect to the purchase  and/or sale of otherwise  eligible  investments as
well as the  execution of various  hedging  strategies  to reduce  interest rate
risk,  mainly  through the use of various  financial  instruments.  At March 31,
1997,  this investment  advisory firm was managing  Company assets with a market
value of approximately  $40.3 million,  of which $4.3 million was designated for
trading,  including  short and long positions on futures  contacts with notional
amounts of $27.5  million and $7.5 million,  respectively,  which expire in June
1997,  and short and long  positions  on put  options on futures  contacts  with
notional amounts of $10.0 million and $10.0 million, respectively,  which expire
in May 1997. All positions on futures contacts and put options are based on U.S.
Treasury Securities.



                                       11

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

   Loans consists of the following:
<TABLE>
<CAPTION>
                                                                     March 31,
                                                                       1997
                                                                  -------------
                                                                   (Unaudited)
<S>                                                               <C>          
Real estate loans:
   Residential - first mortgage .........................         $ 416,059,131
   Residential - second mortgage ........................            16,350,975
   Construction .........................................             5,849,459
   Commercial ...........................................            73,940,941
                                                                  -------------
                                                                    512,200,506

Undisbursed portion of loans in process .................            (2,656,764)
Net deferred loan fees ..................................               271,902
                                                                  -------------
                                                                    509,815,644
                                                                    -----------

Other loans:
   Commercial ...........................................            33,526,428
   Consumer:
      Secured by deposits ...............................             9,741,286
      Secured by real estate ............................            46,498,381
      Other .............................................            59,011,761
   Unamortized discount .................................              (241,704)
   Unearned interest ....................................              (532,844)
                                                                  -------------
                                                                    148,003,308
                                                                    -----------


        Total loans .....................................           657,818,952
   Allowance for loan losses ............................            (3,645,609)
                                                                  -------------
                                                                  $ 654,173,343
                                                                  =============
</TABLE>
<PAGE>
         The changes in the allowance for loan losses follow:
<TABLE>
<CAPTION>
                                                        Three months ended
                                                             March 31,
                                                -------------------------------
                                                    1997                1996
                                                -----------         -----------
                                                          (Unaudited)

<S>                                             <C>                 <C>        
Balance, beginning of year .............        $ 3,331,645         $ 3,510,251
Provision for loan losses ..............          1,250,000               6,525
Loans charged-off ......................         (1,035,471)           (255,851)
Recoveries .............................             99,435              48,026
                                                -----------         -----------
Balance, end of year ...................        $ 3,645,609         $ 3,308,951
                                                ===========         ===========
</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 $456,787,000
at March 31, 1997. 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  amounting to
approximately $79,665,000 at March 31, 1997.

Commitments to buy and sell GNMA certificates

         As of March 31, 1997,  the Company had open  commitments  to issue GNMA
certificates of approximately $31,813,000.

Commitments to sell mortgage loans

As of March 31, 1997 the Company had commitments to sell mortgage loans to third
party investors amounting to $5.0 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,  1997,  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  $234,659,000  at March 31, 1997.  Liability,  if any,
under the recourse provisions at March 31, 1997 is estimated by management to be
insignificant.


                                       13

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

Financial Condition

         At March 31, 1997, the Company's total assets amounted to $1.1 billion,
as compared to $1.0  billion at December  31,  1996.  The $65.6  million or 6.3%
increase in total assets  during the three month period ended March 31, 1997 was
attributable to a $50.4 million or 8.4% increase in loans receivable, net, which
reflects net originations following repayments and sales, reflecting an increase
in the  volume of loan  originations  of  approximately  35.9% to  approximately
$180.5 million during the 1997 period as the Company attains a dominant position
in the  Puerto  Rico  mortgage  market,  a $55.2  million or 51.0%  increase  in
mortgage-backed  securities held for trading,  for the reasons  discussed below,
and a $23.4  million or 75.7%  increase in investment  securities  available for
sale,  principally  due to the purchase of  approximately  $20.1 million of U.S.
Treasury  securities  during the 1997 quarter,  which  increases  were partially
offset by a $34.5 million or 63.4%  decrease in mortgage loans held for sale due
to the  conversion  of such  loans  into  mortgage-backed  securities  held  for
trading, and a $23.8 million or 24.0% decrease in cash and cash equivalents.

         The increase in the Company's  assets was funded primarily by increased
deposits  of $35.5  million or 5.8%,  by a $23.4  million or 24.1%  increase  in
securities  sold under  agreements to repurchase,  and by a $7.6 million or 6.0%
increase in notes  payable,  which  increases  were  partially  offset by a $6.0
million or 9.1%  decrease in other  borrowings,  primarily  the net repayment of
$5.0 million of FHLB advances.

         At March 31,  1997,  the  Company's  stockholders'  equity  amounted to
$119.1  million,  which is an increase  of $3.5  million or 3.0% from the amount
reported at December 31, 1996.  The primary  reason for the increase was the net
income  earned  for the  quarter,  which was  partially  offset by  $987,000  of
unrealized loss on securities available for sale, net of income tax benefits. At
March 31, 1997, the Bank's  leverage and Tier 1 risk-based  capital  amounted to
7.91%  and  13.59%  of  adjusted  total  assets,  compared  to  a  4.0%  minimum
requirement, and its total risk-based capital amounted to 14.52%, compared to an
8.0% minimum requirement.

Results of Operations

         The Company reported net income of $5.0 million during the three months
ended March 31, 1997,  as compared to $2.9 million  during the prior  comparable
period. The significant  increase in net income during the three month period in
1997 over the  comparable  1996 period of $ 2.1  million or 72.0 % was  achieved
notwithstanding  the  Company  taking a $ 1.2  million ($ 759,000  net of taxes)
increase in the  provision  for loan losses  during the March 1997  quarter,  as
discussed below.

         Total revenues  amounted to $15.2 million during the three months ended
March 31, 1997 compared to $12.5 million for the prior  comparable  period.  The
21.2% increase was

                                       14
<PAGE>
due to an increase in net  interest  income of $2.0  million or 32.0% during the
three months ended March 31, 1997 over the prior  comparable  period,  primarily
due to a $3.9 million or 34.0%  increase in interest  income on loans.  However,
the  aforementioned  increase in the  provision  for loan  losses  significantly
offset the increase in net interest  income.  The increase in the  provision for
loan losses was taken both due to a $ 50.4  million  increase  in the  Company's
loan  portfolio  during  the same  period  as well as the  level of  charge-offs
experienced  by the Company  during the  quarter,  which  consist  primarily  of
consumer loans. During the quarter, the Company increased the loss factors which
are associated  with reserving for each of the loan categories in its portfolio,
taking into consideration the current delinquency  experience.  This resulted in
an increase to the Company's  provision  for loan losses of $500,000  during the
quarter.  During the first quarter of 1997, the Company  determined to limit the
origination  of  personal  loans to those  collateralized  by  mortgages  and to
refinancings of existing loans.

         Contributing  to the 21.2%  increase in  revenues  during the March 31,
1997  quarter  was a  change  of $2.3  million  in  unrealized  gain on  trading
securities  from a $53,000  unrealized  gain during the March 1996  quarter to a
$2.4  million  unrealized  gain during the 1997  quarter and an increase in loan
administration and servicing fees of $300,000 or 10.0% due to an increase in the
loan servicing portfolio.  Service charges,  fees and other decreased by $92,000
or 9.7%, while net profit on trading decreased by $119,000 or 87.8%.

         Total  expenses  increased  by $157,000 or 2.1% during the three months
ended March 31, 1997 over the prior comparable  period.  The increase during the
three month period in 1997 reflects the full operation of the Company's new data
processing center as well as increased costs associated with additional space at
branch  locations for parking and drive-in  tellers.  For the three months ended
March 31, 1997,  office occupancy and equipment  increased by $192,000 or 13.6%,
and  employee  compensation  and  benefits  increased  by  $63,000 or 2.7% These
increases  in  expenses  were  offset by a $98,000  or 2.7 %  decrease  in other
administrative and general expenses.

         Total  income tax expense  increased  by  $580,000 or 28.5%  during the
three  months  ended  March  31,  1997  over the prior  comparable  period,  due
primarily to a $2.7 million or 54.1%  increase in income before taxes during the
1997 period.

                                       15
<PAGE>
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, 1997, the Company had $138.4 million in borrowing  capacity
under unused  warehouse lines of credit and $40.0 million in borrowing  capacity
under a line of credit with the FHLB of New York.  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 March 31,  1997,  the Company had  outstanding  commitments  (mainly
unused  lines of  credit)  to  originate  non-mortgage  loans  of $9.6  million.
Certificates  of deposit  which are scheduled to mature within one year totalled
$346.0 million at March 31, 1997,  and  borrowings  that are scheduled to mature
within the same period amounted to $178.8 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 I leverage ratio for such other banks
to 4.0% to 5.0% or more. Under the FDIC's regulations, the highest-rated

                                       16
<PAGE>
banks are those that the FDIC  determines are not  anticipating  or experiencing
significant  growth and have well diversified risk,  including no undue interest
rate risk exposure,  excellent asset quality, high liquidity, good earnings and,
in general,  which are  considered a strong banking  organization  and are rated
composite 1 under the Uniform Financial Institutions Rating System.  Leverage or
core  capital is defined as the sum of common  stockholders'  equity  (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
and minority interests in consolidated subsidiaries, minus all intangible assets
other  than  certain  qualifying  supervisory  goodwill  and  certain  purchased
mortgage servicing rights.

         The FDIC also requires that banks meet a risk-based  capital  standard.
The  risk-based  capital  standard for banks  requires the  maintenance of total
capital (which is defined as Tier I capital and supplementary  (Tier 2) capital)
to risk  weighted  assets  of 8%. In  determining  the  amount of  risk-weighted
assets,  all assets,  plus certain off balance sheet assets, are multiplied by a
risk-weight of 0% to 100%,  based on the risks the FDIC believes are inherent in
the type of asset or item.  The  components of Tier I capital are  equivalent to
those discussed above under the 3% leverage capital standard.  The components of
supplementary   capital  include  certain  perpetual  preferred  stock,  certain
mandatory  convertible  securities,  certain  subordinated debt and intermediate
preferred stock and general allowances for loan and lease losses.  Allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward  supplementary  capital cannot exceed 100% of core capital.  At March 31,
1997,  the Bank met  each of its  capital  requirements,  with  Tier I  leverage
capital, Tier I risk-based capital and total risk-based capital ratios of 7.91%,
13.59% and 14.52%, 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.

                                       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

                  Not applicable

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.

                                       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 8, 1997                  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