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 SEPTEMBER 30, 1998
         
                                       OR

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

                        Commission file number: 000-21137


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

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

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

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


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

                              YES [ X ]    NO [   ]  


Number of shares of Class B Common Stock  outstanding  as of September 30, 1998:
10,146,091.  (Does not include  18,440,556  Class A Shares of Common Stock which
are  exchangeable  into  Class B Shares  of  Common  Stock at the  option of the
holder.)
<PAGE>
                            R&G FINANCIAL CORPORATION

                                      INDEX



Part I  -  Financial Information
                                                                           Page

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

            Consolidated Statement of Financial Condition as of
                 September 30, 1998 (Unaudited) and December 31, 1997......   3

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

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

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

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

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


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


Part II  - Other Information

Item 1.  Legal Proceedings ................................................. 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 1 - FINANCIAL INFORMATION

Item 1:  Consolidated Financial Statements
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                                                                       
                                                                                   September 30,   December 31,
                                                                                        1998           1997
                                                                                     ----------     ----------
                                                                                    (Unaudited)
                                                                                       (Dollars in thousands)
<S>                                                                                  <C>            <C>       
ASSETS                                                                                                            
                                                                                
Cash and due from banks ........................................................     $   20,635     $   32,607
Money market investments:                                                            
    Securities purchased under agreements to resell ............................          7,000         16,000 
    Time deposits with other banks .............................................         34,645         16,759 
    Federal funds sold .........................................................           --            3,000 
Mortgage loans held for sale, at lower of cost or market .......................        163,536         46,885 
Mortgage-backed securities held for trading, at fair value .....................        468,770        400,457 
Mortgage-backed securities available for sale, at fair value ...................         42,319         46,004 
Mortgage-backed securities held to maturity, at amortized cost                          
(estimated market value: 1998 - $ 29,256; 1997 - $33,186) ......................         29,451         33,326        
Investment securities held for trading, at fair value ..........................           --              581
Investment securities available for sale, at fair value ........................         46,527         75,863
Investment securities held to maturity, at amortized cost                      
(estimated market value: 1998 - $6,312; 1997 - $10,656) ........................          6,340         10,693    
Loans receivable, net ..........................................................        926,799        765,059   
Accounts receivable, including advances to investors, net ......................          7,442          7,359   
Accrued interest receivable ....................................................         12,936         10,346   
Servicing  asset ...............................................................         32,989         21,213   
Premises and equipment .........................................................         11,708          9,528   
Other assets ...................................................................         18,933         15,065
                                                                                     ----------     ----------
                                                                                     $1,830,030     $1,510,745
                                                                                     ==========     ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Deposits ..................................................................     $  875,492     $  722,418
     Federal funds purchased ...................................................           --           10,000
     Securities sold under agreements to repurchase ............................        440,238        382,283
     Notes payable .............................................................        167,388        159,304
     Advances from FHLB ........................................................        101,700         42,000
     Other secured borrowings ..................................................           --           34,359
     Accounts payable and accrued liabilities ..................................         27,761         15,872
     Other liabilities .........................................................          4,031          3,205
                                                                                     ----------     ----------

Subordinated  notes ............................................................      1,616,610      1,369,442
                                                                                     ----------     ----------
                                                                                           --            3,250
                                                                                     ----------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
                                                                                       
                                                                                   September 30,   December 31,
                                                                                        1998           1997
                                                                                     ----------     ----------
                                                                                    (Unaudited)
                                                                                       (Dollars in thousands)
<S>                                                                                  <C>            <C>       
Stockholders'equity:  
     Preferred stock, $.01 par value, 10,000,000 shares authorized:

          7.40% Monthly Income Preferred Stock, Series A, $25 liquidation value,
          2,000,000 shares authorized, issued and outstanding ..................         50,000           --     

      Common stock:
          Class A - $.01 par value, 40,000,000 shares authorized; issued and
           Outstanding - 18,440,556 shares in 1998 and 9,220,278 in 1997
          Class B - $.01 par value, 20,000,000 shares authorized; issued and ...            184             92
           Outstanding - 10,146,091 shares in 1998 and 4,924,474 in 1997 .......            102             49
     Additional paid-in capital ................................................         41,544         38,348
     Retained earnings .........................................................        117,509         96,129
     Capital reserves of the Bank ..............................................          2,215          2,215
     Accumulated other comprehensive income ....................................          1,866          1,220
                                                                                     ----------     ----------
                                                                                        213,420        138,054
                                                                                     ----------     ----------
                                                                                     $1,830,030     $1,510,745
                                                                                     ==========     ==========
</TABLE>
        The accompanying notes are an integral part of these statements.


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

                                                                         Three month                          Nine month
                                                                         period ended                        period ended
                                                                         September 30,                       September 30,
                                                                ------------------------------      ------------------------------
                                                                    1998              1997              1998              1997
                                                                ------------      ------------      ------------      ------------
                                                                         (Unaudited)                           (Unaudited)
                                                                        (Dollars in thousands except for per share data)
<S>                                                             <C>               <C>               <C>               <C>         
Interest income:
     Loans ................................................     $     24,591      $     18,859      $     64,735      $     50,818
     Money market and other investments ...................            1,425             1,295             4,391             4,024
     Mortgage-backed securities ...........................            8,446             6,059            23,374            14,543
                                                                ------------      ------------      ------------      ------------
          Total interest income ...........................           34,462            26,213            92,500            69,385
                                                                ------------      ------------      ------------      ------------
Interest expense:

     Deposits .............................................           10,128             8,363            27,557            24,131
     Securities sold under agreements to repurchase .......            7,320             3,936            19,175             7,754
     Notes payable ........................................            3,295             2,573             9,405             6,985
     Secured borrowings ...................................             --                 936              --               2,869
     Other ................................................            1,983               619             3,829             1,216
                                                                ------------      ------------      ------------      ------------
          Total interest expense ..........................           22,726            16,427            59,966            42,955
                                                                ------------      ------------      ------------      ------------
Net interest income .......................................           11,736             9,786            32,534            26,430
Provision for loan losses .................................           (1,500)           (1,700)           (4,500)           (4,645)
                                                                ------------      ------------      ------------      ------------
Net interest income after provision for loan losses .......           10,236             8,086            28,034            21,785
                                                                ------------      ------------      ------------      ------------
Other income:
     Net gain on origination and sale of loans ............            8,948             6,109            24,001            17,400
     Net profit (loss) on trading account .................             --                (386)               15              (744)
     Net gain on sales of investments available for sale ..              122                31               271                56
     Loan administration and servicing fees ...............            3,700             2,895            11,220             9,738
     Service charges, fees and other ......................            1,403             1,278             4,059             3,488
                                                                ------------      ------------      ------------      ------------
                                                                      14,173             9,927            39,565            29,938
                                                                ------------      ------------      ------------      ------------

          Total revenues ..................................           24,409            18,013            67,600            51,723
                                                               ------------      ------------      ------------      ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (continued)

                                                                         Three month                          Nine month
                                                                         period ended                        period ended
                                                                         September 30,                       September 30,
                                                                ------------------------------      ------------------------------
                                                                    1998              1997              1998              1997
                                                                ------------      ------------      ------------      ------------
                                                                         (Unaudited)                           (Unaudited)
                                                                        (Dollars in thousands except for per share data)
<S>                                                             <C>               <C>               <C>               <C>         
Operating expenses:
     Employee compensation and benefits ...................            4,181             3,269            11,951             9,485
     Office occupancy and equipment .......................            2,209             1,902             6,200             5,521
     Other administrative and general .....................            5,672             4,440            16,372            12,769
                                                                ------------      ------------      ------------      ------------
                                                                      12,062             9,611            34,523            28,135
                                                                ------------      ------------      ------------      ------------ 
Income before income taxes ................................           12,347             8,402            33,077            23,588
                                                                ------------      ------------      ------------      ------------
Income tax expense:
     Current ..............................................            2,759             1,067             5,366             3,893
     Deferred .............................................            1,051             1,284             3,723             3,231
                                                                ------------      ------------      ------------      ------------
                                                                       3,810             2,351             9,089             7,124
                                                                ------------      ------------      ------------      ------------

          Net income ......................................     $      8,537      $      6,051      $     23,988      $     16,464
                                                                ============      ============      ============      ============

 Earnings per common share - Basic ........................     $       0.30      $       0.21      $       0.85      $       0.58
                                                                ------------      ------------      ------------      ------------
                             Diluted ......................     $       0.29      $       0.21      $       0.82      $       0.57
                                                                ------------      ------------      ------------      ------------
Weighted average number of shares outstanding - Basic .....       28,487,599        28,289,504        28,355,536        28,289,504
                                              - Diluted ...       29,243,599        29,045,504        29,111,536        29,041,504

</TABLE>

     The accompanying notes are an integral part of these statements.

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



                                                                   Three month               Nine month
                                                                  period ended              period ended
                                                                 September 30,              September 30,
                                                           ----------------------      ----------------------
                                                             1998           1997         1998          1997
                                                                (Unaudited)                 (Unaudited)
                                                                         (Dollars in thousands)
<S>                                                        <C>           <C>           <C>           <C>     
Net Income ...........................................     $  8,537      $  6,051      $ 23,988      $ 16,464
                                                           --------      --------      --------      --------
Other comprehensive income, before tax:

Unrealized gains (losses) on securities:

    Arising during period ............................        1,020        (1,626)        1,330         1,358
    Less:   Reclassification adjustments for gains
            included in  net income ..................         (122)          (31)         (271)          (56)
                                                           --------      --------      --------      --------
                                                                898        (1,657)        1,059         1,302

Income tax (expense) benefit related to items of other
comprehensive income .................................         (350)         (646)         (413)         (508)
                                                           --------      --------      --------      --------

Other comprehensive income, net of tax ...............          548        (1,011)          646           794
                                                           --------      --------      --------      --------

Comprehensive income, net of tax .....................     $  9,085      $  5,040      $ 23,634      $ 17,258
                                                           ========      ========      ========      ========
</TABLE>
        The accompanying notes are an integral part of these statements.

                                      -5-
<PAGE>
<TABLE>
<CAPTION>
R&G  FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                         Nine month
                                                                                                        Period ended
                                                                                                        September 30,
                                                                                                 -----------------------
                                                                                                   1998            1997
                                                                                                 ---------      ---------
                                                                                                         (Unaudited)
                                                                                                   (Dollars in thousands)
<S>                                                                                              <C>            <C>      
Cash flows from operating activities:
     Net income ............................................................................     $  23,988      $  16,464
                                                                                                 ---------      ---------
           Adjustments to reconcile net income to net cash provided by operating activities:         2,104
           Depreciation and amortization ...................................................         2,104          2,013
           Amortization of premium (accretion of discount) on investments and
               mortgage-backed  securities, net ............................................           (45)          (321)
           Accretion of discount on loans, net .............................................          (136)          (375)
           Amortization of servicing rights ................................................         2,172          1,261
           Provision for loan losses .......................................................         4,500          4,645
           Provision for bad debts in accounts  receivable .................................           225            225
           Gain on sales of mortgage loans .................................................        (5,371)        (1,208)
           Gain on sales of investment securities available for sale .......................          (271)           (56)
           Unrealized profit on trading securities .........................................        (4,117)        (8,479)
           Increase in mortgage loans held for sale ........................................       (40,270)       (57,699)
           Net increase in mortgage-backed and investment securities held for
               trading .....................................................................       (63,615)      (205,263)
           Increase in receivables .........................................................        (2,724)        (3,215)
           Decrease in other assets ........................................................           879          1,441
           Increase in notes payable .......................................................         8,084         32,223
           Increase in accounts payable and accrued liabilities ............................        10,961          3,670
           Increase (decrease) in other liabilities ........................................           601           (549)
                                                                                                 ---------      ---------
               Total adjustments ...........................................................       (87,023)      (231,687)
                                                                                                 ---------      ---------
               Net cash used in operating activities .......................................       (63,035)      (215,223)
                                                                                                 ---------      ---------
Cash flows from investing activities:
      Purchases of investment securities ...................................................       (37,542)       (60,465)
      Proceeds from sales and maturities of securities available for sale ..................        72,367         25,403
      Proceeds from maturities of securities held to maturity ..............................         4,715            100
      Principal repayments on mortgage-backed securities ...................................         9,582          6,503
      Proceeds from sales of loans .........................................................       172,917         55,607
      Net originations of loans ............................................................      (422,252)      (146,963)
      Purchases of  FHLB stock, net ........................................................        (6,211)          (659)
      Net assets acquired, net of cash received ............................................         4,288           --   
      Acquisition of premises and equipment ................................................        (3,931)        (2,740)
      Net increase  in foreclosed real estate ..............................................        (1,139)          (302)
      Acquisition of servicing rights ......................................................       (13,947)        (6,448)
                                                                                                 ---------      ---------
               Net cash used by investing activities .......................................      (221,153)      (129,964)
                                                                                                 ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R&G  FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                                                                                         Nine month
                                                                                                        Period ended
                                                                                                        September 30,
                                                                                                 -----------------------
                                                                                                   1998            1997
                                                                                                 ---------      ---------
                                                                                                         (Unaudited)
                                                                                                   (Dollars in thousands)
<S>                                                                                              <C>            <C>      
Cash flows from financing activities:

     Increase in deposits - net ............................................................       131,938         86,808
     Decrease in federal funds purchased ...................................................       (10,000)          --
     Increase in securities sold under agreements to repurchase - net ......................        57,955        235,234
     Payments on secured borrowings ........................................................          --          (13,315)
     Advances from FHLB ....................................................................       114,400        151,700
     Repayment of advances from FHLB .......................................................       (58,400)      (124,500)
     Repayment of subordinated notes .......................................................        (3,250)          --   
     Payments on notes payable .............................................................          --           (2,400)
     Net proceeds from issuance of Series A Preferred Stock ................................        48,079           --   
     Capital contribution to subsidiary ....................................................           (12)          --
     Cash paid in lieu of fractional shares on stock split .................................          --              (11)
     Cash dividends on common stock ........................................................        (2,608)        (1,739)
                                                                                                 ---------      ---------
               Net cash provided by financing activities ...................................       278,102        331,777
                                                                                                 ---------      ---------
Net decrease in cash and cash equivalents ..................................................        (6,086)       (13,410)
Cash and cash equivalents at  beginning of  period .........................................        68,366         98,856
                                                                                                 ---------      ---------
Cash and cash equivalents at end of period .................................................     $  62,280      $  85,446
                                                                                                 =========      =========
Cash and cash equivalents include:
     Cash and due from banks ...............................................................     $  20,635      $  27,386
     Securities purchased under agreements to resell .......................................         7,000          7,501
     Time deposits with other banks ........................................................        34,645         50,559
                                                                                                 ---------      ---------
     Federal funds sold ....................................................................     $  62,280      $  85,446
                                                                                                 =========      =========

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

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


NOTE 1 - REPORTING ENTITY AND BASIS OF PRESENTATION


Reporting entity

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

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

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

Basis of presentation

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting principles.  However, in the opinion of management,  the accompanying
unaudited consolidated financial statements contain all adjustments  (consisting
of normal recurring accruals) necessary for a fair presentation of the Company's
financial  condition as of September 30, 1998, and the results of operations and
changes in its cash flows for the three and nine months ended September 30, 1998
and 1997.

         The results of  operations  for the three and nine month  periods ended
September 30, 1998 are not necessarily  indicative of the results to be expected
for the year ending  December 31, 1998.  The  unaudited  consolidated  financial
statements  and notes  thereto  should be read in  conjunction  with the audited
financial statements and notes thereto for the year ended December 31, 1997.

         Certain  reclassifications (not affecting income before income taxes or
net  income)  have been made to the  consolidated  statements  of income for the
three  and nine  month  periods  ended  September  30,  1997 to  conform  to the
presentation for the 1998 respective periods. 


                                      -7-
<PAGE>
Basis of consolidation

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

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

Accountings for Derivative Instruments and Hedging Activities

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

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

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



                                      -8-
<PAGE>
NOTE 2 - EARNINGS PER SHARE

         Basic  earnings  per common  share for the three and nine months  ended
September 30, 1998 and 1997 are computed by dividing net income for such periods
by the weighted average number of shares of common stock outstanding during such
periods,  which was  28,487,599  and  28,355,536  for the  three and nine  month
periods ended September 30, 1998, respectively, and 28,289,504 for the three and
nine month periods ended September 30, 1997.  Outstanding  stock options granted
in connection  with the Company's Stock Option Plan are included in the weighted
average  number  of  shares  for  purposes  of the  diluted  earnings  per share
computation.  The Company's  weighted  average number of shares  outstanding for
purposes of diluted  earnings per share was  29,243,599  and  29,045,504 for the
three  month  periods  ended  September  30,  1998 and 1997,  respectively,  and
29,111,536 and  29,041,504  for the nine month periods ended  September 30, 1998
and 1997, respectively.

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

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.



                                                                  September 30,
                                                                       1998
                                                                --------------
                                                                   (Unaudited)


Mortgage-backed securities held for trading:

     CMO residuals (all interest only)..................        $    7,581,271
     GNMA certificates..................................           461,188,966
                                                                --------------
                                                                $  468,770,237
                                                                ==============

                                       -9-
<PAGE>
<TABLE>
<CAPTION>

                                                          September 30, 1998
                                                      ----------------------------
                                                      Amortized cost    Fair value
                                                       -----------     -----------
                                                                (Unaudited)
<S>                                                    <C>             <C>         
Mortgage-backed securities available for sale:
CMO residuals and other mortgage-backed securities     $ 7,991,355     $ 9,703,108
                                                       -----------     -----------

FNMA certificates-
     Due over ten years ..........................       8,461,638       8,772,270
                                                       -----------     -----------

FHLMC certificates:
     Due from one to five years ..................          95,595          97,193
     Due from five to ten years ..................         253,515         258,610
     Due over ten years ..........................      22,562,506      23,487,857
                                                       -----------     -----------
                                                        22,911,616      23,843,660
                                                       -----------     -----------
                                                       $39,364,609     $42,319,038
                                                       ===========     ===========

Investment securities available for sale:
U.S. Government and agencies securities: .........     $29,997,015     $30,099,222
     Due from one to five years ..................       5,020,757       5,023,300
                                                       -----------     -----------
     Due from five to ten years ..................      35,017,772      35,122,522
                                                       -----------     -----------

FHLB stock .......................................      11,404,867      11,404,867
                                                       -----------     -----------
                                                       $46,422,639     $46,527,389
                                                       ===========     ===========
</TABLE>
 
         Mortgage  backed  securities  available for sale include  interest only
securities with an amortized cost of $3,393,687 as of September 30, 1998,  which
are  primarily  associated  with  the  sale by the  Company  in  prior  years of
collaterized mortgage obligations.  These sales were not made in connection with
the Company's mortgage banking activities.




                                      -10-
<PAGE>
<TABLE>
<CAPTION>
                                                                    September 30, 1998
                                                               -----------------------------
                                                               Amortized cost     Fair value
                                                               --------------     ----------
                                                                        (Unaudited)
<S>                                                             <C>             <C>         
Investment securities held to maturity:
U.S. Treasury securities-
     Due within one year ..................................     $   192,338     $   192,000

U.S. Government and agencies securities-
     Due within one year ..................................         201,266         200,640

Puerto Rico Government obligations-
     Due from five to ten years ...........................       5,946,059       5,919,355
                                                                -----------     -----------

                                                                $ 6,339,663     $ 6,311,995
                                                                ===========     ===========

Mortgage-backed securities held to maturity:
GNMA certificates:
     Due from one to five years ...........................     $    29,977     $    32,151
     Due over ten years ...................................      16,061,291      15,553,956
                                                                -----------     -----------
                                                                 16,091,268      15,586,107
                                                                -----------     -----------

Federal National Mortgage Association (FNMA) certificates -
     Due over ten years ...................................      13,110,495      13,426,858
                                                                -----------     -----------

Federal Home Loan Mortgage Corporation (FHLMC)
certificates -
     Due over ten years ...................................         249,564         242,812
                                                                -----------     -----------

                                                                $29,451,327     $29,255,777
                                                                ===========     ===========

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

   Loans consists of the following:
<TABLE>
<CAPTION>
                                                September 30,      December 31,
                                                    1998                1997
                                               -------------      -------------
                                                 (Unaudited)
<S>                                            <C>                <C>          
Real estate loans:
     Residential - first mortgage ........     $ 605,558,694      $ 476,728,996
     Residential - second mortgage .......        18,666,160         17,831,079
     Construction ........................        20,694,759         13,367,513
     Commercial ..........................       111,380,778         87,506,802
                                               -------------      -------------
                                                 756,300,391        595,434,390
Undisbursed portion of loans in process ..        (8,975,962)        (6,218,039)
Net deferred loan fees ...................           265,199            172,019
                                               -------------      -------------
                                                 747,589,628        589,388,370
                                               -------------      -------------
Other loans:
     Commercial ..........................        44,025,021         39,127,363
     Consumer:
        Secured by deposits ..............        15,349,809         12,471,772
        Secured by real estate ...........        84,028,404         81,251,989
        Other ............................        43,556,029         50,103,282
Unamortized discount .....................          (146,592)          (151,460)
Unearned interest ........................          (229,254)          (360,195)
                                               -------------      -------------
                                                 186,583,417        182,442,751

        Total loans ......................       934,173,045        771,831,121

     Allowance for loan losses ...........        (7,374,462)        (6,771,702)
                                               -------------      -------------
                                               $ 926,798,583      $ 765,059,419
                                               =============      =============
</TABLE>
The changes in the allowance for loan losses follow:
<TABLE>
<CAPTION>
                                                          Nine months ended
                                                            September 30,
                                                      --------------------------
                                                        1998              1997
                                                      -------           --------
                                                             (Unaudited)
                                                        (Dollars in thousands)
<S>                                                   <C>               <C>    
Balance, beginning of period ...............          $ 6,772           $ 3,332
Provision for loan losses ..................            4,500             4,645
Acquired reserves ..........................              363              --
Loans charged-off ..........................           (4,501)           (3,943)
Recoveries .................................              240               288 
                                                      -------           ------- 
Balance, end of period .....................          $ 7,374           $ 4,322 
                                                      =======           =======  
</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  $392.9
million at September 30, 1998. All commitments are subject to prevailing  market
prices at time of closing  with no market risk  exposure  against the Company or
with firm back-to-back commitments extended in favor of the mortgagee.

Loans in process

         Loans in process  pending final  approval  and/or  closing  amounted to
approximately $154.5 million at September 30, 1998.


Commitments to buy and sell GNMA certificates

         As of September  30, 1998,  the Company had open  commitments  to issue
GNMA certificates of approximately $19.0 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 September  30, 1998,  the Company is liable under  limited  recourse
provisions  resulting from the sale of loans to several  investors,  principally
FHLMC. The principal balance of these loans,  which are serviced by the Company,
amount to approximately $456.5 million at September 30, 1998. Liability, if any,
under the recourse  provisions  at September 30, 1998 is estimated by management
to be insignificant.



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

Financial Condition

         At September  30, 1998,  the  Company's  total assets  amounted to $1.8
billion, as compared to $1.5 billion at December 31, 1997. The $321.7 million or
21.3% increase in total assets during the nine month period ended  September 30,
1998 was primarily  attributable  to a $161.7 million or 21.1% increase in loans
receivable, net, which reflects net originations following repayments and sales,
a $68.3  million  or  17.1%  increase  in  mortgage-backed  securities  held for
trading,  and a $116.7  million or 248.8%  increase in  mortgage  loans held for
sale.

         The increase in the Company's  assets was funded primarily by increased
deposits of $153.1 million or 21.2%, a $59.7 million or 142.1%  increase in FHLB
advances,  and a $58.0  million  or 15.2%  increase  in  securities  sold  under
agreements to repurchase.

         At September 30, 1998, the Company's  stockholders'  equity amounted to
$213.4  million,  which is an increase of $75.4 million or 54.6% from the amount
reported at December  31,  1997.  The primary  reason for the  increase  was the
issuance of 2,000,000 shares in August 31,1998 of 7.40% Monthly Income Preferred
Stock, Series A, for an aggregate $50 million. Also contributing to the increase
in  stockholders'  equity was the net income  for the nine  month  period  ended
September 30, 1998 of $24.0 million,  which was partially offset by $2.6 million
of dividends paid during such period. At September 30, 1998, the Bank's leverage
and Tier 1  risk-based  capital  amounted to 9.01% and 15.47% of adjusted  total
assets,  respectively,  compared to a 4.0%  minimum  requirement,  and its total
risk-based capital amounted to 16.60%, compared to an 8.0% minimum requirement.

Results of Operations

         The  Company  reported  net income of $8.5  million  and $24.0  million
during the three and nine month periods ended September 30, 1998,  respectively,
as  compared  to $6.0  million  and $16.5  million  during the prior  comparable
periods,  or an increase  during such  periods of $2.5 million or 45.7% and $7.5
million or 41.1%, respectively.

         Total  revenues  for the nine month  period  ended  September  30, 1998
amounted to $67.6 million, a $15.9 million or 30.7% increase over the comparable
1997  period.  The  increase  in  revenues  during the nine month  period  ended
September  30,  1998  was  primarily  attributable  to a $6.1  million  or 23.1%
increase in net interest income and a $6.6 million or 37.9% increase in net gain
on  origination  and sale of  loans.  The  increase  in net  interest  income is
primarily due to a $13.9 million or 27.4% increase in interest  income on loans,
which is  primarily  associated  with an increase in the average  balance of the
outstanding loan portfolio,  and to a $8.8 million or 60.7% increase in interest
income on mortgage - backed securities due to an increase in securities held for
trading in the 1998 period.  The increase in net gain on origination and sale of
loans reflects an increase in mortgage loan originations during the 1998 period.
The volume of loan  originations  increased 56% to  approximately  $1.02 billion
during such period.  Contributing  also to the  increase in revenues  during the
nine month period ended  September 30, 1998 was a $1.5 million or 15.2% increase
in loan  administration and servicing fees, as the Company's servicing portfolio
expanded by 18.9% over the prior year to $3.6  billion,  and a $571,000 or 16.4%
increase in service charges,  fees and other miscellaneous  revenue sources, due
mainly to an increase in banking fees  associated  with an  increased  number of
deposit accounts during the 1998 period.

                                      -14-
<PAGE>
         Total  revenues for the quarter  ended  September  30, 1998 amounted to
$24.4 million,  a $6.4 million or 35.5% increase over the comparable  quarter in
1997.  The  increase in total  revenues  during the 1998  quarter was  primarily
attributable to a $2.1 million or 22.0% increase in net interest  income, a $2.8
million or 46.5%  increase  in net gain on  origination  and sale of loans and a
$805,000  or 27.8%  increase  in loan  administration  and  servicing  fees.  In
addition, an increase in trading revenue resulted from the absence of a $386,000
loss in the 1997 quarter.

         Total  expenses  increased  by $6.4  million  or 22.7%  during the nine
months ended September 30, 1998, over the prior comparable  period. The increase
during the nine month period  ended  September  30, 1998 was due  primarily to a
$2.1 million or 21.4% increase in employee  compensation and benefits associated
with an increase in the number of employees to accomodate higher loan production
during the 1998 period,  and a $679,000 or 12.3% increase in occupancy  expenses
related  to the  operation  of three  additional  branches  during  1998 and the
completion  (in late 1997) of the  remodeling  work of six branches  acquired in
1995 from another financial institution.  Other miscellaneous expenses increased
by  $3.6  million  or  28.2%  mainly  as a  result  of a  $652,000  increase  in
amortization  expenses of the Company's  servicing asset, a $845,000 increase in
advertising  costs, and other expense  increases  associated with an increase in
loan production.

          Total operating expenses increased by $2.4 million or 25.5% during the
three month period ended  September 30, 1998. The increase was due to a $912,000
or 27.9%  increase in employee  compensation  and benefits,  a $307,000 or 16.1%
increase in occupancy  expenses,  and a $1.2 million or 27.7%  increase in other
miscellaneous expenses.  These expenses increased during such three month period
for the reasons noted above.

         Total income tax expense increased by $1.5 million or 62.1% and $2.0 or
27.6%  during  the  three and nine  month  periods  ended  September  30,  1998,
respectively,  over the prior comparable periods.  The increase during the three
and nine month  periods  ended  September  30, 1998 is due  primarily  to a $3.9
million or 47.0% and a $9.5  million  or 40.2%,  respective  increase  in income
before taxes during such periods. Such increases also result from the absence of
a  $500,000  tax credit  recorded  in the third  quarter of 1997  related to the
purchase,  at a discount,  of certain  investment  tax  credits.  The  Company's
effective  tax rate  amounted to 30.9% and 27.5% during the three and nine month
periods  ended  September  30, 1998,  respectively,  compared to 33.9% and 32.3%
(excluding the referenced  $500,000 tax credit) in the 1997 comparable  periods.
The decrease in 1998 of the Company's effective tax rate is primarily associated
with an increase in the Company's  exempt interest income from an increased GNMA
mortgage backed securities portfolio.

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

                                      -15-
<PAGE>
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  September  30,  1998,  the Company had $166.0  million in  borrowing
capacity under warehousing lines of credit, $501.6 million in borrowing capacity
under a line of credit  with the FHLB of New York and $ 15 million of  borrowing
capacity  under  federal  funds lines of credit.  The Company has  generally not
relied upon brokered deposits as a source of liquidity,  and does not anticipate
a change in this practice in the foreseeable future.

         At  September  30, 1998,  the Company had  outstanding  commitments  to
extend  credit  totaling  $25.6  million.  Certificates  of  deposit  which  are
scheduled to mature  within one year  totaled  $456.7  million at September  30,
1998,  and  borrowings  that are  scheduled  to mature  within  the same  period
amounted to $637.6 million. The Company anticipates that it will have sufficient
funds available to meet its current loan commitments.

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

         The FDIC also requires that banks meet a risk-based  capital  standard.
The  risk-based  capital  standard for banks  requires the  maintenance of total
capital (which is defined as Tier I capital and supplementary  (Tier 2) capital)
to risk  weighted  assets  of 8%. In  determining  the  amount of  risk-weighted
assets,  all assets,  plus certain off balance sheet assets, are multiplied by a
risk-weight of 0% to 100%,  based on the risks the FDIC believes are inherent in
the type of asset or item.  The  components of Tier 1 capital are  equivalent to
those discussed above under the 3% leverage capital standard.  The components of
supplementary   capital  include  certain  perpetual  preferred  stock,  certain
mandatory  convertible  securities,  certain  subordinated debt and intermediate
preferred stock and general allowances for loan and lease losses.  Allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted
toward  

                                      -16-
<PAGE>
supplementary capital cannot exceed 100% of core capital. At September 30, 1998,
the Bank met each of its  capital  requirements,  with Tier 1 leverage  capital,
Tier 1 risk-based capital and total risk-based  capital ratios of 9.01%,  15.47%
and 16.60%, 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.

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

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


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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


                                      -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:  Other Information

                  Not applicable

Item 6:  Exhibits and Reports on Form 8-K

                  a)       Exhibits

                           No.
                           27     Financial Data Schedule          E-1

                  b)       On August 31, 1998 the Company  filed a Form 8-K with
                           respect  to the  completion  of the  offering  of its
                           Noncumulative   Perpetual  Monthly  Income  Preferred
                           Stock,  Series A. The Form 8-K included copies of the
                           Press Release and  Certificate  of  Designations  and
                           Preferences with respect to such Preferred Stock.



                                      -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:  November 4, 1998                      By: /S/ VICTOR J. GALAN
                                                 -------------------------
                                                 Victor J. Galan, Chairman
                                                 and Chief Executive Officer
                                                 (Principal Executive Officer)



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