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, 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 June 30,  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 June 30, 1997
                (Unaudited) and December 31, 1996............................  3

         Consolidated Statements of Income for the Three and Six Months Ended
                June 30, 1997 and 1996 (Unaudited)...........................  5

         Consolidated  Statements  of Cash Flows for the Three and Six Months
                Ended June 30, 1997 and 1996 (Unaudited) ....................  7

         Notes to Unaudited Consolidated Financial Statements ................10


Item 2.  Management's Discussion and Analysis................................ 16


Part II  - Other Information

Item 1.    Legal Proceedings .................................................22

Item 2.    Changes in Securities .............................................22

Item 3.    Defaults upon Senior Securities ...................................22

Item 4.    Submission of Matters to a Vote of Security Holders ...............22

Item 5.    Other Information .................................................23

Item 6.    Exhibits and Reports on Form 8-K ..................................23

Signatures ...................................................................24



                                        2
<PAGE>
                         Part 1 - FINANCIAL INFORMATION

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

                                                                      June 30,     December 31,
                                                                        1997            1996
                                                                   ----------     ----------
                                                                            (Unaudited)
                                                                         ($ in thousands)

<S>                                                                <C>            <C>
ASSETS

Cash and due from banks ......................................     $   33,739     $   31,990
Money market investments:
     Securities purchased under agreements to resell .........         14,005         19,633
     Time deposits with other banks ..........................         31,441         33,233
     Federal funds sold ......................................           --           14,000
Mortgage loans held for sale, at lower of cost or market .....         31,246         54,450
Mortgage-backed securities held for trading, at fair value ...        237,313        108,146
Mortgage-backed securities available for sale, at fair value .         46,760         50,841
Mortgage-backed securities held to maturity, at amortized cost
(estimated market value: 1997 - $35,117; 1996 - $37,104) .....         35,563         37,900
Investment securities held for trading, at fair value ........          1,393          1,351
Investment securities available for sale, at fair value ......         61,897         30,973
Investment securities held to maturity, at amortized cost
(estimated market value: 1997 - $5,394; 1996 - $5,241) .......          5,374          5,270
Loans receivable, net ........................................        719,803        603,751
Accounts receivable, including advances to investors, net ....          5,390          5,764
Accrued interest receivable ..................................          8,166          6,632
Mortgage servicing rights ....................................         15,162         12,595
Excess servicing receivable ..................................           --              770
Premises and equipment .......................................          8,949          7,768
Other assets .................................................         11,929         12,730
                                                                   ----------     ----------
                                                                   $1,268,130     $1,037,797
                                                                   ==========     ==========
                                         (Continued)
                                             
</TABLE>
                                              3
<PAGE>
<TABLE>
<CAPTION>
                                                                                                     June 30,      December 31,
                                                                                                       1997            1996
                                                                                                    ---------      ---------
                                                                                                    (Unaudited)
                                                                                                        ($ in thousands)
<S>                                                                                                <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Deposits ....................................................................................    $  674,021     $  615,567
  Securities sold under agreements to repurchase ..............................................       198,317         97,444
  Federal funds purchased .....................................................................        11,850           --
  Notes Payable ...............................................................................       164,812        126,842
  Advances from FHLB ..........................................................................        30,000         15,000
  Other secured borrowings ....................................................................        48,728         50,463
  Accounts payable and accrued liabilities: ...................................................         9,650          9,999
  Other liabilities ...........................................................................         2,803          3,599
                                                                                                    ---------      ---------
                                                                                                    1,140,181        918,914
                                                                                                    ---------      ---------
Subordinated notes ............................................................................         3,250          3,250
                                                                                                    ---------      ---------

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             51

          Class B - $.01 par value, 15,000,000 shares authorized, 2,735,839 shares issued and
                outstanding in 1997 and 1996 ..................................................            27             27

       Additional paid-in capital .............................................................        38,411         38,411
       Retained earnings ......................................................................        85,068         75,785
       Capital reserves of the Bank ...........................................................         1,461          1,461
       Unrealized loss on securities available for sale .......................................          (319)          (102)
                                                                                                    ---------      ---------

                                                                                                      124,699        115,633
                                                                                                    ---------      ---------
                                                                                                   $1,268,130     $1,037,797
                                                                                                   ==========     ========== 

                                   The accompanying notes are an integral part of this statement.
</TABLE>

                                                                  4

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


                                                                    Three month                  Six month
                                                                    period ended                period ended
                                                                      June 30,                    June 30,
                                                               ---------------------      ---------------------- 
                                                                1997          1996           1997          1996
                                                              --------      --------      --------      --------
                                                                    (Unaudited)                 (Unaudited)
                                                                   ($ in thousands except for per share data)
<S>                                                           <C>           <C>           <C>           <C>   
Interest Income:
     Loans ..............................................     $ 16,616      $ 13,916      $ 31,959      $ 25,370
     Money market and other investments .................        1,186           927         2,729         1,805
     Mortgage-backed securities .........................        4,962         3,511         8,484         7,170
                                                              --------      --------      --------      --------
         Total interest income ..........................       22,764        18,354        43,172        34,345
                                                              --------      --------      --------      --------
Interest expense:
     Deposits ...........................................        8,037         6,661        15,768        13,044
     Securities sold under agreements to repurchase .....        2,505         1,308         3,818         2,584
     Notes payable ......................................        2,354         1,880         4,412         2,962
     Secured borrowings .................................          959         1,057         1,933         2,140
     Other ..............................................          318           102           597           169
                                                              --------      --------      --------      --------
           Total interest expense .......................       14,173        11,008        26,528        20,899
                                                              --------      --------      --------      --------

Net interest income .....................................        8,591         7,346        16,644        13,446
Provision for loan losses ...............................       (1,695)         (351)       (2,945)         (357)
                                                              --------      --------      --------      --------
Net interest income after provision for loan losses .....        6,896         6,995        13,699        13,089
                                                              --------      --------      --------      --------

Other income:
      Net gain on origination and sale of loans .........        4,469         1,347         8,659         3,371
      Net profit (loss) on trading account ..............         (374)          451          (358)          587
      Net gain on sales of investments available for sale         --            --              25           329
      Loan administration and servicing fees ............        3,535         3,488         6,843         6,497
      Service charges, fees and other ...................        1,357           874         2,210         1,819
                                                              --------      --------      --------      --------
                                                                 8,987         6,160        17,379        12,603
                                                              --------      --------      --------      --------
           Total Revenues ...............................       15,883        13,155        31,078        25,692
                                                              --------      --------      --------      --------

                                                   (Continued)

</TABLE>

                                                           5
<PAGE>
<TABLE>
<CAPTION>
                                                              Three month                         Six month
                                                              period ended                        period ended
                                                                June 30,                            June 30,
                                                     ---------------------------      ---------------------------
                                                         1997            1996              1997            1996
                                                                (Unaudited)                      (Unaudited)
                                                                   ($ in thousands except for per share data)
<S>                                                  <C>             <C>              <C>             <C>
Operating expenses:
     Employee compensation and benefits ........           2,743           2,854            5,156           5,203
     Office occupancy and equipment ............           2,014           1,482            3,619           2,895
     Other administrative and general ..........           3,590           3,641            7,117           7,268
                                                     -----------     -----------      -----------     -----------
                                                           8,347           7,977           15,892          15,366
                                                     -----------     -----------      -----------     -----------
Income before minority interest and income taxes           7,536           5,178           15,186          10,326
Minority interest in the Bank ..................            --               224             --               409
                                                     -----------     -----------      -----------     -----------
Income before income taxes .....................           7,536           4,954           15,186           9,917
                                                     -----------     -----------      -----------     -----------

Income tax expense (credit):
     Current ...................................           1,119           2,732            2,826           4,774
     Deferred ..................................           1,039            (945)           1,947            (952)
                                                     -----------     -----------      -----------     -----------
                                                           2,158           1,787            4,773           3,822
                                                     -----------     -----------      -----------     -----------
       Net income ..............................     $     5,378     $     3,167      $    10,413     $     6,095
                                                     ===========     ===========      ===========     ===========
Eamings per common share .......................     $      0.68     $      0.61      $      1.33     $      1.17
                                                     ===========     ===========      ===========     ===========
Weighted average number of shares outstanding ..       7,858,216       5,189,044        7,858,216       5,189,044



                         The accompanying notes are an integral part of these statements. 


</TABLE>
                                                        6

<PAGE>
<TABLE>
<CAPTION>



R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                                  Six month
                                                                                                                period ended
                                                                                                                   June 30,
                                                                                                          ------------------------
                                                                                                             1997            1996
                                                                                                                  (Unaudited)
                                                                                                               ($ in thousands)
<S>                                                                                                       <C>            <C>
Cash flows from operating activities:
Net income ..........................................................................................     $  10,413      $   6,095
                                                                                                          ---------      ---------
Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation and amortization .....................................................................         1,324            990
  Amortization of premium (accretion of discount) on investments and mortgage- backed securities, net          (202)           116
  Amortization of deferred loan origination fees and accretion of discount on loans .................          (317)          (253)
  Amortization of excess servicing receivable .......................................................          --               39
  Amortization of servicing rights ..................................................................           813            653
  Provision for loan losses .........................................................................         2,945            357
  Provision for bad debts in accounts receivable ....................................................           150            150
  Gain on sales of mortgage loans ...................................................................          (125)           (95)
  Gain on sales of investment securities available for sale .........................................           (25)          (329)
  Unrealized (profit) loss on trading securities ....................................................        (5,604)           621
  Minority interest in earnings of the Bank .........................................................          --              409
  Decrease in mortgage loans held for sale ..........................................................        23,204          2,998
  Net increase in mortgage-backed securities held for trading .......................................      (122,793)       (23,467)
  Increase in receivables ...........................................................................        (1,309)        (2,147)
  Decrease (increase) in other assets ...............................................................           601         (2,389)
  Increase in notes payable .........................................................................        40,370         11,753
  (Decrease) increase in accounts payable and accrued liabilities ...................................          (139)           606
  (Decrease) increase in other liabilities ..........................................................          (796)            69
                                                                                                          ---------      ---------
         Total adjustments ..........................................................................       (61,903)        (9,919)
                                                                                                          ---------      ---------

         Net cash used in operating activities ......................................................       (51,490)        (3,824)
                                                                                                          ---------      ---------

                                                             (Continued)
</TABLE>


                                                                  7
<PAGE>
<TABLE>
<CAPTION>
                                                                                               Six month
                                                                                             period ended
                                                                                               June 30,
                                                                                        -----------------------
                                                                                           1997          1996
                                                                                        --------      --------
                                                                                             (Unaudited)
                                                                                           ($ in thousands)
<S>                                                                                     <C>          <C>
Cash flows for investing activities:
      Purchases of investment securities .............................................   (37,963)      (30,531)
      Proceeds from sale and maturities of investment securities available for sale ..     9,820        17,282
      Proceeds from sale and maturities of investment securities held for trading ....      --            --
      Principal repayments on mortgage-backed securities .............................     3,912         4,576
      Proceeds from sales of  loans ..................................................     6,016         4,929
      Net originations of loans ......................................................  (124,571)     (132,345)
      Purchases of FHLB stock, net ...................................................      (550)         (796)
      Acquisition of premises and equipment ..........................................    (2,243)         (701)
      Net increase in foreclosed real estate .........................................       (62)         (735)
      Acquisition of servicing rights ................................................    (3,380)         (564)
                                                                                        --------      --------
            Net cash used in investing activities ....................................  (149,021)     (138,885)
                                                                                        --------      --------
 Cash flows from financing activities:
      Proceeds from issuance of notes payable ........................................      --          50,000
      Payments on long-term debt .....................................................      --            (799)
      Increase in deposits - net .....................................................    58,383        44,832
      Increase (decrease) in securities sold under agreements to repurchase - net ....   100,873          (190)
      Increase in federal funds purchased ............................................    11,850          --
      Payments on notes payable ......................................................    (2,400)         --
      Payments on secured borrowings .................................................    (1,735)       (2,452)
      Advances from FHLB .............................................................    35,000         6,000
      Repayment of advances from FHLB ................................................   (20,000)       (1,000)
      Cash dividends on common stock .................................................    (1,130)         (500)
                                                                                        --------      --------
            Net cash provided by financing activities ................................   180,841        95,891
                                                                                        --------      --------


                                                  (Continued)
</TABLE>
                                                       8

<PAGE>
<TABLE>
<CAPTION>
                                                                    Six month
                                                                  period ended
                                                                    June 30,
                                                             -----------------------
                                                                1997          1996
                                                             --------      --------
                                                                  (Unaudited)
                                                                ($ in thousands)
<S>                                                          <C>            <C>
        Net decrease in cash and cash equivalents ......       (19,670)       (46,818)
        Cash and cash equivalents at beginning of period        98,856        104,195
                                                             ---------      ---------
        Cash and cash equivalents at end of period .....     $  79,186      $  57,377
                                                             =========      =========

Cash and cash equivalents include:
        Cash and due from banks ........................     $  33,739      $  21,520
        Securities purchased under agreements to resell         14,006         13,430
        Time deposits with other banks .................        31,441         22,427
                                                             ---------      ---------

                                                             $  79,186      $  57,377
                                                             =========      =========
                                                             



        The accompanying notes are an integral part of these statements. 
</TABLE>
                                        9
<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 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 June 30, 1997 and the
results of operations  and changes in its cash flows for the three and six month
periods ended June 30, 1997 and 1996.



                                       10
<PAGE>
               The  results of  operations  for the three and six month  periods
ended June 30, 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 for the quarter
and six month periods ended June 30, 1996 to conform to the presentation for the
quarter and six month periods ended June 30, 1997.


Basis of consolidation

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


Stock option plans

               The pro-forma net income and earnings per share  disclosures  for
the three and six month  periods  ended June 30, 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 and six month
periods  ended June 30, 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  shares for the three and
six month periods ended June 30, 1997, and 5,189,044 for the three and six month
periods ended June 30, 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.



                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                          June 30, 1997
                                                                   --------------------------- 
                                                                   Amortized cost  Fair value
                                                                           (unaudited)
<S>                                                                <C>             <C>
Investment securities held to maturity:
U.S. Treasury securities:
     Due within one year .....................................     $    99,491     $    99,000
     Due from one to five years ..............................         309,702         310,000
                                                                   -----------     -----------
                                                                       409,193         409,000
                                                                   -----------     -----------

Puerto Rico Government obligations:
     Due within one year .....................................       1,000,000       1,012,500
     Due from five to ten years ..............................         531,377         500,000
     Due over ten years ......................................          55,297          55,297
                                                                   -----------     -----------
                                                                     1,586,674       1,567,797
                                                                   -----------     -----------

Corporate securities -
     Due within one year .....................................       3,378,122       3,417,470
                                                                   -----------     -----------
                                                                   $ 5,373,989     $ 5,394,267
                                                                   ===========     ===========

Mortgage-backed securities held to maturity:
GNMA certificates:
     Due from five to ten years ..............................     $    70,228     $    71,173
     Due over ten years ......................................      19,934,889      19,127,203
                                                                   -----------     -----------
                                                                    20,005,117      19,198,376
                                                                   -----------     -----------

Federal National Mortgage Association (FNMA) certificates -
     Due over ten years ......................................      15,258,417      15,626,231
                                                                   -----------     -----------

Federal Home Loan Mortgage Corporation (FHLMC)  certificates -
     Due over ten years ......................................         300,016         291,898
                                                                   -----------     -----------

                                                                   $35,563,550     $35,116,505
                                                                   ===========     ===========
</TABLE>

                                              12
<PAGE>
<TABLE>
<CAPTION>
                                                                  June 30, 1997
                                                        --------------------------------
                                                        Amortized cost       Fair value
                                                          -----------        -----------
                                                          (Unaudited)
<S>                                                       <C>                <C>
Mortgage-backed securities available for sale:
CMO residuals and other mortgage-backed securities        $ 7,036,610        $ 8,165,379
                                                          -----------        -----------

FNMA certificates:
     Due over ten years ..........................         10,452,456         10,217,563
                                                          -----------        -----------

FHLMC certificates:
     Due from five to ten years ..................            449,850            461,934
     Due over ten years ..........................         28,554,808         27,914,865
                                                          -----------        -----------
                                                           29,004,658         28,376,799
                                                          -----------        -----------

                                                          $46,493,724        $46,759,741
                                                          ===========        ===========
Investment securities available for sale:
U.S.  Treasury securities:
     Due from one to five years ..................        $20,050,186        $19,881,260
                                                          -----------        -----------
U.S. Government and agencies securities:
     Due from one to five years ..................         32,496,820         32,355,168
     Due from five to ten years ..................          5,024,336          4,863,350
                                                          -----------        -----------

                                                           37,521,156         37,218,518
                                                          -----------        -----------
FHLB stock .......................................          4,797,767          4,797,767
                                                          -----------        -----------

                                                          $62,369,109        $61,897,545
                                                          ===========        ===========
</TABLE>
               Mortgage-backed  securities  available for sale include  interest
only securities with an amortized cost of $2,363,941 as of June 30, 1997,  which
are  associated  with  the  sale  in  prior  years  of   collaterized   mortgage
obligations. These sales were not made in connection with the Company's mortgage
banking activities.

               The  interest  rate  risk on the  above  available  for sale U.S.
Government  and agency  securities  were being hedged with options and financial
futures contracts based on U.S. Treasury securities and Eurodollars.  During the
quarter ended June 30, 1997, the Company discontinued all hedging activities for
such  securities.  The Company  continues to execute hedging  strategies for all
mortgage-backed  securities  available for sale  (excluding  CMOs).  At June 30,
1997, no futures or option contracts were outstanding for hedging purposes.

                                       13

<PAGE>
<TABLE>
<CAPTION>
                                                                June 30,
                                                                 1997
                                                              -----------
                                                              (Unaudited)
<S>                                                           <C>
Mortgage-backed securities held for trading:
     CMO Certificates.......................................  $ 15,147,000
     CMO Residuals (all interest only)......................     8,490,686
     GNMA Certificates......................................   213,675,463
                                                              ------------ 
                                                              $237,313,149
                                                              ============
</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,
including the purchase  and/or sale of futures and/or option  contracts based on
U.S. Treasury  Securities.  At June 30, 1997, this investment  advisory firm was
managing Company assets with a market value of approximately  $13.7 million,  of
which $3.8 million was designated  for trading.  No open positions on futures or
option contracts were outstanding at June 30, 1997 for trading purposes.





















                                       14
<PAGE>
NOTE 4  -                     LOANS AND ALLOWANCE FOR LOAN LOSSES

   Loans consist of the following:
<TABLE>
<CAPTION>
                                                                     June 30,
                                                                       1997
                                                                  -------------
                                                                    (Unaudited)
<S>                                                               <C>  
Real estate loans:
     Residential - first mortgage ......................          $ 466,758,260
     Residential - second mortgage .....................             16,801,018
     Construction ......................................              8,040,493
     Commercial ........................................             77,264,572
                                                                  -------------
                                                                    568,864,345

Undisbursed portion of loans in process ................             (4,093,129)
Net deferred loan fees .................................                314,578
                                                                  -------------
                                                                    565,085,792

Other loans:
     Commercial ........................................             34,584,601
     Consumer:
        Secured by deposits ............................             10,430,991
        Secured by real estate .........................             55,190,332
        Other ..........................................             59,619,891
Unamortized discount ...................................               (235,515)
Unearned interest ......................................               (462,908)
                                                                  -------------
                                                                    159,127,392

        Total loans ....................................            724,213,184
     Allowance for loan losses .........................             (4,410,639)
                                                                  -------------
                                                                  $ 719,802,545
                                                                  =============
</TABLE>
The changes in the allowance for loan losses follow:
<TABLE>
<CAPTION>
                                                           Six months ended
                                                                June 30,
                                                     --------------------------
                                                       1997               1996
                                                     -------            -------
                                                              (Unaudited)
                                                            ($ in thousands)
<S>                                                  <C>                <C>
Balance, beginning of year ...............           $ 3,332            $ 3,510
Provision for loan losses ................             2,945                357
Loans charged-off ........................            (2,090)              (771)
Recoveries ...............................               224                106
                                                     -------            -------
Balance, end of year .....................           $ 4,411            $ 3,202
                                                     =======            =======

</TABLE>
                                       15
<PAGE>
NOTE 5  -                    COMMITMENTS AND CONTINGENCIES

Commitments to developers providing end loans

               The Company has  outstanding  commitments  for the origination of
permanent  loans for  various  projects  in the  process  of  completion.  Total
commitments  amounted  to  approximately  $455,306,000  at June  30,  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 amount to
approximately $104,810,000 at June 30, 1997.


Commitments to buy and sell GNMA certificates

               As of June 30, 1997,  the Company had open  commitments  to issue
GNMA certificates of approximately $20,737,000.


Commitments to sell mortgage loans

               As of June 30, 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 June 30, 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,
amount to approximately  $226,519,000 at June 30, 1997. Liability, if any, under
the  recourse  provisions  at June 30, 1997 is  estimated  by  management  to be
insignificant.




                                       16


<PAGE>
               In July 1997 the  Government  of Puerto Rico  amended the tax law
that  provided tax  exemption on interest  income  generated by FHA and VA loans
secured by real  estate  property  located in Puerto  Rico and  mortgage  backed
securities  secured by such mortgage loans (GNMA's).  Under the amended law, FHA
and VA loans closed  prior to August 1, 1997,  will  contunue to be exempt.  The
interst  income on FHA and VA mortgage  loans  originated  on or after August 1,
1997 for purposes  other than to finance the  acquisition  of new  housing,  and
GNMA's secured by such loans, will no longer be exempt,  and would be taxed at a
preferential  17% tax rate to individuals and certain other taxpayers other than
corporations.  FHA and VA loans to finanace  the  purchase of new  housing,  and
GNMA's secured by such loans, will continue to be exempt.  While the Company has
benefited from the previously available tax exemption, management believes based
on currently  available  information  that the  adoption of the enacted  changes
should not have a significant adverse effect in the results of operations of the
Company.


Item 2:                      Management's Discussion and Analysis

Financial Condition

               At June 30, 1997,  the  Company's  total assets  amounted to $1.3
billion, as compared to $1.0 billion at December 31, 1996. The $230.3 million or
22.2%  increase in total assets  during the six month period ended June 30, 1997
was  primarily  attributable  to a $116.1  million  or 19.2%  increase  in loans
receivable, net, which reflects net originations following repayments and sales,
and a $129.2 million or 119.4% increase in  mortgage-backed  securities held for
trading,   reflecting  an  increase  in  the  volume  of  loan  originations  of
approximately  40.3% to  approximately  $419.9 million during the 1997 period as
the Company continues to increse its market position in Puerto Rico. The Company
also  experienced  a $30.9 million or 99.8%  increase in  investment  securities
available  for sale,  principally  due to the  purchase of  approximately  $38.0
million of U.S. Treasury and Government Agencies securities during the six month
period ended June 30, 1997.  Such  increases  were  partially  offset by a $23.2
million or 42.6%  decrease in mortgage loans held for sale due to the conversion
of such loans into  mortgage-backed  securities  held for  trading,  and a $19.7
million or 19.9% decrease in cash and cash equivalents.

               The  increase in the  Company's  assets was funded  primarily  by
increased deposits of $58.5 million or 9.5%, a $100.9 million or 103.5% increase
in  securities  sold under  agreements to  repurchase,  a $38.0 million or 29.9%
increase  in notes  payable,  and a $15.0  million  or 100.0%  increase  in FHLB
advances.

               At June 30, 1997, the Company's  stockholders' equity amounted to
$124.7  million,  which is an increase  of $9.1  million or 7.8% from the amount
reported at December 31, 1996.  The primary  reason for the increase was the net
income  earned  during  the six month  period  ended  June 30,  1997,  which was
partially  offset by $1.1 million of dividends paid during such period.  At June
30, 1997, the Bank's  leverage and Tier 1 risk-based  capital  amounted to 7.65%
and 12.63% of adjusted  total assets,  respectively,  compared to a 4.0% minimum
requirement, and its total risk-based capital amounted to 13.47%, compared to an
8.0% minimum requirement.

                                       17
<PAGE>
               Results of Operations

               The Company reported net income of $5.4 million and $10.4 million
during the three and six month  periods  ended June 30, 1997,  respectively,  as
compared to $3.2 million and $6.1 million during the prior  comparable  periods.
The significant increase in net income during the three and six month periods in
1997 over the comparable  1996 periods of $2.2 million or 69.8% and $4.3 million
or 70.8%,  respectively,  was achieved notwithstanding the Company taking a $2.6
million  ($1.6  million net of taxes)  increase in the provision for loan losses
during the six month period ended June 30, 1997, as discussed below.

               Total  revenues  for the six month  period  ended  June 30,  1997
amounted to $31.1 million,  a $5.4 million or 21.0% increase over the comparable
1996 period. The increase in revenues during the six month period ended June 30,
1997 was primarily  attributable  to a $5.3 million or 157% increase in net gain
on  origination  and sale of loans due to a change of $6.2 million in unrealized
profit  on  trading  securities  from a  $621,000  unrealized  loss  during  the
comparable  1996 period to a $5.6  million  unrealized  gain in the 1997 period,
which is  associated  with an increase in the market value of GNMA  certificates
held by the Company and an increase in the volume of mortgage  loans  originated
and  securitized  as the Company  attains a dominant  position in the market for
such loans in Puerto Rico. Also the Company had a $3.2 million or 23.8% increase
in net interest income, as the Bank recognized  significantly increased interest
income on its loan portfolio,  a $391,000 or 21.5% increase in service  charges,
fees,  and other due to  increased  fees on  deposit  accounts  and new  deposit
products and services,  and a $346,000 or 5.3%  increase in loan  administration
and servicing fees, as the Company's  servicing  portfolio expanded by 5.4% over
the prior year. 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 $118.1  million or 19.6%
increase in the Company's  loan  portfolio  during the 1997 period as well as to
increased net charge-offs  experienced by the Company associated  primarily with
consumer loans. Net charge-offs  totalled  approximately $1.9 million during the
six month  period  ended June 30, 1997.  During the first  quarter of 1997,  the
Company  increased the loss factors which are associated with reserving for each
of the loan categories in its portfolio,  taking into  consideration  the rising
delinquency  in  consumer  loans  experienced  by the  Company  and the  banking
industry in Puerto Rico. Even though the level of charge-offs leveled off during
the second  quarter of 1997,  management  has adopted  more  stringent  consumer
underwriting  procedures to address problems experienced generally in the market
for  personal  loans.  During  the  first  quarter  of 1997,  the  Company  also
determined to increase collateralized consumer lending.

               The  increase in the revenues for the six month period ended June
30, 1997 was also partially  offset by a $304,000 or 93.5% decrease in net gains
on sales of investment  securities  available for sale, and a change of $945,000
in net profit in trading from a $ 587,000 profit in the  comparable  1996 period
to a $ 358,000 loss during the six month period ended June 30, 1997.





                                       18
<PAGE>
               Total  revenues for the quarter  ended June 30, 1997  amounted to
$15.9 million,  a $2.7 million or 20.8% increase over the comparable  quarter in
1996.  The  increase in total  revenues  during the 1997  quarter was  primarily
attributable  to a $3.1 million or 232% increase in net gain on origination  and
sale of loans due to a change of $3.9  million in  unrealized  profit on trading
securities, from a $674,000 unrealized loss during the comparable 1996 period to
a $3.2  million  unrealized  gain in the 1997  period,  a $1.2  million or 16.9%
increase in net  interest  income,  and a $483,000 or 55.3%  increase in service
charges,  fees and other  miscellaneous  revenue  sources.  The  increase in the
revenues for the 1997 quarter was partially offset by a $1.3 million increase in
the  provision for loan losses and a change of $825,000 in net profit in trading
from a $451,000  profit in the comparable  1996 period to a $374,000 loss during
the three month period ended June 30, 1997.

               Employee compensation and benefits expenses decreased by $111,000
or 3.9%, and other  miscellaneous  expenses  decreased by $41,000 or 1.1% during
the second  quarter of 1997 as  management  continued  to  aggressively  control
operating  costs to enhance  profitability.  These  reductions  in expenses were
achieved  notwithstanding  an increase in loan  originations  during the quarter
ended June 30, 1997 over the comparable 1996 period. These decreases in expenses
were offset by a $532,000 or 35.9% increase in occupancy  expenses during in the
second  quarter of 1997 due to the  operation  during the full period in 1997 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.  The
increase in occupancy  expenses  resulted in a net  increase in total  operating
expenses  during the second  quarter of 1997 of $380,000 or 4.8% compared to the
prior respective 1996 period.  Total operating expenses for the six month period
ended June 30, 1997  increased by $536,000 or 3.5% due  principally to increased
occupancy expenses.

               Total  income tax  expense  increased  by  $371,000  or 20.8% and
$951,000 or 24.9%  during the three and six month  periods  ended June 30, 1997,
respectivively,  over the prior  comparable  periods,  due  primarily  to a $2.6
million or 52.1% and a $5.3  million or 53.1%  increase in income  before  taxes
during the three and six month periods ended June 30, 1997, respectively.


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






                                       19
<PAGE>
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 June 30, 1997,  the Company had $57.7  million in borrowing  capacity
under unused warehouse lines of credit and $20.0 million in borrowings  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 June 30, 1997, the Company had outstanding commitments (mainly
unused  lines of  credit)  to  originate  non-mortgage  loans of $13.7  million.
Certificates  of deposit  which are  scheduled to mature within one year totaled
$357.0  million at June 30, 1997,  and  borrowings  that are scheduled to mature
within the same period amounted to $320.9 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,






                                       20
<PAGE>
pluscertain  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, 1997, the
Bank met each of its capital requirements,  with Tier 1 leverage capital, Tier 1
risk-based  capital and total  risk-based  capital  ratios of 7.65%,  12.63% and
13.47%, 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.



















                                       21

<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

        The Company's Annual Meeting of Stockholders was held on April 24, 1997.

        1. With respect to the election of three  directors to serve  three-year
        terms expiring at the Annual Meeting of  Stockholders  to be held in the
        year  2000  or  until  their  respective   successors  are  elected  and
        qualified,  the  following  were the  number  of  shares  voted for each
        nominee:
<TABLE>
<CAPTION>
<S>                                                    <C>                                  <C>
                   Juan J. Diaz                        Class A - For  10,244,754            Withheld 0
                                                       Class B - For   1,875,267            Withheld 0

                   Gilberto Rivera-Arreaga             Class A - For  10,244,754            Withheld 0
                                                       Class B - For   1,875,267            Withheld 0

                   Laureano Carus Abarca               Class A - For  10,244,754            Withheld 0
                                                       Class B-  For  1,875,267             Withheld 0

        2.  With  respect  to the  ratification  of  the  appointment  of  Price
        Waterhouse  as the  Company's  independent  auditors for the fiscal year
        ending December 31, 1997, the following are the number of shares voted:
<S>                                                      <C>              <C>          <C>            <C>
                   Class A - For  10,244,754             Against            0          Abstain            0
                   Class B - For   1,870,717             Against          400          Abstain        4,150

</TABLE>

                                       22
<PAGE>
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.


















                                       23


<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: August 8, 1997                By: /S/ VICTOR J. GALAN
                                        -------------------
                                        Victor J. Galan, Chairman of the Board
                                        and Chief Executive Officer




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














                                       24