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, 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) 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, 1997:
4,924,474.  (Does not include 9,220,278 Class A Shares of Common Stock which are
exchangeable into Class B Shares of Common Stock at the option of the holder.)
<PAGE>



                            R&G FINANCIAL CORPORATION
                                      INDEX



Part I  -  Financial Information
                                                                           Page

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

           Consolidated Statement of Financial Condition as of
                    September 30, 1997 (Unaudited) and December 31, 1996..   3

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

           Consolidated Statements of Cash Flows for the Nine Months
                    Ended September 30, 1997 and 1996 (Unaudited) ........   7

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


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

Item 3.    Quantitative and Qualitative Disclosures about Market Risk.....  21

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 .............................................  22

Item 6.    Exhibits and Reports on Form 8-K ..............................  22

Signatures ...............................................................  23



                                        2
<PAGE>
                         Part 1 - FINANCIAL INFORMATION

Item 1:           Consolidated Financial Statements
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                                                                       September 30,     December 31,
                                                                           1997             1996
                                                                       -----------       ---------- 
                                                                       (Unaudited)        
                                                                               ($ in thousands)
ASSETS
<S>                                                                    <C>               <C>
Cash and due from banks...........................................     $    27,385       $   31,990
Money market investments:
     Securities purchased under agreements to resell..............           7,502           19,633 
     Time deposits with other banks...............................          50,560           33,233 
     Federal funds sold...........................................             ---           14,000

Mortgage loans held for sale, at lower of cost or market..........         112,149           54,450
Mortgage-backed securities held for trading, at fair value........         322,674          108,146
Mortgage-backed securities available for sale, at fair value......          46,415           50,841
Mortgage-backed securities held to maturity, at amortized cost
(estimated market value: 1997 - $34,478; 1996 - $37,104)..........          34,643           37,900
Investment securities held for trading, at fair value.............           1,335            1,351
Investment securities available for sale, at fair value...........          69,451           30,973
Investment securities held to maturity, at amortized cost
(estimated market value: 1997 - 5,261; 1996 - $5,241).............           5,273            5,270
Loans receivable, net.............................................         692,045          603,751
Accounts receivable, including advances to investors, net.........           6,111            5,764
Accrued interest receivable.......................................           9,274            6,632
Mortgage servicing rights.........................................          17,782           12,595
Excess servicing receivable.......................................             ---              770
Premises and equipment............................................           8,882            7,768
Other assets......................................................          11,203           12,730
                                                                       -----------       ---------- 

                                                                       $ 1,422,683       $1,037,797
                                                                       ===========       ========== 
</TABLE>
                                      (Continued)
                                        3
<PAGE>
<TABLE>
<CAPTION>
                                                                                                     September 30,     December 31,
                                                                                                          1997             1996
                                                                                                    -----------     -----------
                                                                                                     (Unaudited)    
                                                                                                            ($ in thousands)
<S>                                                                                                  <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

       Deposits ................................................................................     $   702,519     $   615,567
       Securities sold under agreements to repurchase ..........................................         332,678          97,444
       Federal funds purchased .................................................................            --              --
       Notes Payable ...........................................................................         156,665         126,842
       Advances from FHLB ......................................................................          42,200          15,000
       Other secured borrowings ................................................................          37,148          50,463
       Accounts payable and accrued liabilities: ...............................................          14,032           9,999
       Other liabilities .......................................................................           3,050           3,599
                                                                                                     -----------     -----------

                                                                                                       1,288,292         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, 9,220,278 shares issued and
                outstanding in 1997 (1996 - 5,122,377) .........................................              92              51

          Class B - $.01 par value, 15,000,000 shares authorized, 4,924,474 shares issued and
                outstanding in 1997 (1996 -2,735,839) ..........................................              49              27

       Additional paid-in capital ..............................................................          38,348          38,411

       Retained earnings .......................................................................          90,499          75,785

       Capital reserves of the Bank ............................................................           1,461           1,461

       Unrealized gain (loss) on securities available for sale .................................             692            (102)
                                                                                                     -----------     -----------

                                                                                                         131,141         115,633
                                                                                                     -----------     -----------

                                                                                                     $ 1,422,683     $ 1,037,797
                                                                                                     ===========     ===========
</TABLE>
The accompanying notes are an integral part of this statement.

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


                                                                    Three month                 Nine month
                                                                    period ended               period ended
                                                                    September 30,              September 30,
                                                              ----------------------      ----------------------
                                                                 1997         1996           1997          1996
                                                              --------      --------      --------      --------
                                                                    (Unaudited)               (Unaudited)
                                                                  ($ in thousands except for per share data)
<S>                                                           <C>           <C>           <C>           <C>   
Interest Income:
     Loans ..............................................     $ 18,859      $ 14,504      $ 50,818      $ 39,874
     Money market and other investments .................        1,295         1,087         4,024         2,892
     Mortgage-backed securities .........................        6,059         3,868        14,543        11,038
                                                              --------      --------      --------      --------
         Total interest income ..........................       26,213        19,459        69,385        53,804
                                                              --------      --------      --------      --------
Interest expense:
     Deposits ...........................................        8,363         7,010        24,131        20,054
     Securities sold under agreements to repurchase .....        3,936         1,362         7,754         3,946
     Notes payable ......................................        2,573         1,823         6,985         4,785
     Secured borrowings .................................          936         1,038         2,869         3,178
     Other ..............................................          619           457         1,216           626
                                                             ---------      --------      --------      --------
           Total interest expense .......................       16,427        11,690        42,955        32,589
                                                             ---------      --------      --------      --------

Net interest income .....................................        9,786         7,769        26,430        21,215
Provision for loan losses ...............................       (1,700)       (2,484)       (4,645)       (2,841)
                                                             ---------      --------      --------      --------
Net interest income after provision for loan losses .....        8,086         5,285        21,785        18,374
                                                             ---------      --------      --------      --------

Other income:
      Net gain on origination and sale of loans .........        4,511         4,584        13,170         7,955
      Net profit (loss) on trading account ..............         (386)         (386)         (744)          201
      Net gain on sales of investments available for sale           31          --              56           329
      Loan administration and servicing fees ............        2,895         3,128         9,738         9,625
      Service charges, fees and other ...................        1,278         1,113         3,488         2,932
                                                             ---------      --------      --------      --------
                                                                 8,329         8,439        25,708        21,042
                                                             ---------      --------      --------      --------
           Total Revenues ...............................       16,415        13,724        47,493        39,416            
                                                             ---------      --------      --------      --------
</TABLE>
                                   (Continued)
                                       5
<PAGE>
<TABLE>
<CAPTION>

                                                                    Three month                 Nine month
                                                                    period ended               period ended
                                                                    September 30,              September 30,
                                                              ----------------------      ----------------------
                                                                 1997         1996           1997          1996
                                                              --------      --------      --------      --------
                                                                    (Unaudited)               (Unaudited)
                                                                  ($ in thousands except for per share data) 
<S>                                                   <C>             <C>             <C>              <C>  

     Employee compensation and benefits ........           2,489           2,966            7,645           8,169
     Office occupancy and equipment ............           1,902           1,163            5,521           4,058
     SAIF one-time assessment ..................            --             2,508             --             2,508
     Other administrative and general ..........           3,622           3,382           10,739          10,650

                                                           8,013          10,019           23,905          25,385

Income before minority interest and income taxes           8,402           3,705           23,588          14,031
Minority interest in the Bank ..................            --                 9             --               418

Income before income taxes .....................           8,402           3,696           23,588          13,613


Income tax expense (credit):
     Current ...................................           1,067           1,615            3,893           6,389
     Deferred ..................................           1,284            (386)           3,231          (1,338)

                                                           2,351            1,229           7,124           5,051

       Net income ..............................      $    6,051      $    2,467      $    16,464      $    8,562
                                                      ==========      ==========      ===========      ==========

Eamings per common share .......................      $     0.43      $     0.22      $      1.16      $     0.86
                                                      ==========      ==========      ===========      ==========

Weighted average number of shares outstanding ..      14,144,752      11,193,720       14,144,752       9,962,578


</TABLE>

The accompanying notes are an integral part of these statements.


                                       6
<PAGE>
<TABLE>
<CAPTION>
R&G FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                                  Nine month
                                                                                                                 period ended
                                                                                                                 September 30,
                                                                                                           ------------------------
                                                                                                              1997            1996
                                                                                                           ---------      ---------
                                                                                                                 (Unaudited)
                                                                                                              ($ in thousands)
<S>                                                                                                        <C>            <C>
Cash flows from operating activities:
Net income ...........................................................................................     $  16,464      $   8,562
                                                                                                           ---------      ---------
Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation and amortization ......................................................................         2,013          1,500
  Amortization of premium (accretion of discount) on investments and mortgage- backed securities, net           (346)           204
  Amortization of deferred loan origination fees and accretion of discount on loans ..................          (375)          (389)
  Amortization of excess servicing receivable ........................................................          --               58
  Amortization of servicing rights ...................................................................         1,261            908
  Provision for loan losses ..........................................................................         4,645          2,841
  Provision for bad debts in accounts receivable .....................................................           225            225
  Gain on sales of mortgage loans ....................................................................        (1,208)          (856)
  Gain on sales of investment securities available for sale ..........................................           (56)          (329)
  Unrealized (profit) loss on trading securities .....................................................        (8,479)           (53)
  Minority interest in earnings of the Bank ..........................................................          --              418
 (Increase) decrease in mortgage loans held for sale .................................................       (57,699)         4,319
  Net increase in mortgage-backed securities held for trading ........................................      (205,278)       (36,060)
  Increase in receivables ............................................................................        (3,215)        (2,075)
  Decrease (increase) in other assets ................................................................         1,441         (4,700)
  Increase in notes payable ..........................................................................        32,223          2,776
  Increase (decrease) in accounts payable and accrued liabilities ....................................         3,670           (293)
  (Decrease) increase in other liabilities ...........................................................          (549)         2,594
                                                                                                                          ---------
         Total adjustments ...........................................................................      (231,727)       (28,912)
                                                                                                           ---------      ---------

         Net cash used in operating activities .......................................................      (215,263)       (20,350)
                                                                                                           ---------      ---------
</TABLE>

                                   (Continued)

                                        7

<PAGE>
<TABLE>
<CAPTION>
                                                                                                  Nine month
                                                                                                 period ended
                                                                                                 September 30,
                                                                                        --------------------------
                                                                                             1997            1996
                                                                                        ----------      ----------
                                                                                                 (Unaudited)
                                                                                              ($ in thousands)
<S>                                                                                     <C>             <C>   
Cash flows for investing activities:   
      Purchases of investment securities ..........................................        (61,825)        (49,064)
      Proceeds from maturities of investment securities held to maturity ..........            100             377
      Proceeds from sale and maturities of investment securities available for sale         25,403          22,013
      Proceeds from sale and maturities of investment securities held for trading .          1,400             400
      Principal repayments on mortgage-backed securities ..........................          6,503           6,152
      Proceeds from sales of  loans ...............................................         55,607          49,373
      Net originations of loans ...................................................       (146,963)       (184,014)
      Purchases of FHLB stock, net ................................................           (659)           (968)
      Acquisition of premises and equipment .......................................         (2,740)         (1,813)
      Net increase in foreclosed real estate ......................................           (302)           (511)
      Acquisition of servicing rights .............................................         (6,448)         (4,046)
                                                                                        ----------      ----------
                                                                                                        
            Net cash used in investing activities .................................       (129,924)       (162,101)
                                                                                        ----------      ----------
 Cash flows from financing activities:
      Proceeds from issuance of notes payable .....................................           --            60,500
      Payments on long-term debt ..................................................           --            (5,324)
      Increase in deposits - net ..................................................         86,808          77,192
      Increase  in securities sold under agreements to repurchase - net ...........        235,234         (28,757)

      Payments on notes payable ...................................................         (2,400)           --
      Payments on secured borrowings ..............................................        (13,315)         (3,589)
      Advances from FHLB ..........................................................        151,700           6,000
      Repayment of advances from FHLB .............................................       (124,500)         (7,000)
      Proceeds from issuance of common stock in initial public offering ...........           --            31,073
      Payment of cash in lieu of fractional shares on stock split .................            (11)           --

</TABLE>

                                   (Continued)



                                        8

<PAGE>
<TABLE>
<CAPTION>




                                                                         Nine month
                                                                        period ended
                                                                        September 30,
                                                                 ------------------------
                                                                    1997           1996
                                                                 ---------      ---------
                                                                        (Unaudited)
                                                                     ($ in thousands)
<S>                                                              <C>            <C>
   Cash dividends on common stock ..........................        (1,739)          (500)
                                                                 ---------      ---------
   Net cash provided by financing activities ...............       331,777        187,109
                                                                 ---------      ---------
        Net (decrease) increase in cash and cash equivalents       (13,410)         4,658
        Cash and cash equivalents at beginning of period ...        98,856        104,195
                                                                 ---------      ---------
        Cash and cash equivalents at end of period .........     $  85,446      $ 108,853
                                                                 =========      =========

Cash and cash equivalents include:
        Cash and due from banks ............................     $  27,386      $  24,800
        Securities purchased under agreements to resell ....         7,501         19,582
        Time deposits with other banks .....................        50,559         64,471
                                                                 ---------      ---------

                                                                 $  85,446      $ 108,853
                                                                 =========      =========

</TABLE>



                                                                             
        The accompanying notes are an integral part of these statements.



                                       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 Puerto Rico 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 September 30, 1997 and the results of
operations  and  changes in its cash flows for the three and nine month  periods
ended September 30, 1997 and 1996.








                                       10


<PAGE>

         The results of  operations  for the three and nine month  periods ended
September 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 nine month periods ended  September 30, 1996 to conform to the  presentation
for the quarter and nine month periods ended September 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 nine month periods ended  September 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 nine month periods
ended  September 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  14,144,752  shares for the three and nine month
periods ended September 30, 1997, and 11,193,720 and 9,962,578 for the three and
nine month periods ended September 30, 1996,  respectively.  The increase in the
weighted average number of shares  outstanding  reflects an 80% stock split paid
by the  Company  in  September  1997.  Per  share  information  for all  periods
presented  take into  consideration  the 80% stock  split paid by the Company in
September 1997.

         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>
                                                                      September 30, 1997
                                                                  ----------------------------
                                                                  Amortized cost    Fair value
                                                                           (Unaudited)
<S>                                                                <C>             <C>
Investment securities held to maturity:
U.S. Treasury securities:
     Due within one year .....................................     $   309,771     $   310,403
                                                                   -----------     -----------

Puerto Rico Government obligations:
     Due within one year .....................................       1,000,000       1,000,500
     Due from five to ten years ..............................         529,568         487,500
     Due over ten years ......................................          42,022          42,022
                                                                   -----------     -----------
                                                                     1,571,590       1,530,022
                                                                   -----------     -----------

Corporate securities -
     Due within one year .....................................       3,391,771       3,420,483
                                                                   -----------     -----------
                                                                   $ 5,273,132     $ 5,260,908
                                                                   ===========     ===========

Mortgage-backed securities held to maturity:
GNMA certificates:
     Due from one to five years ..............................     $    52,587     $    53,419
     Due over ten years ......................................      19,277,130      18,627,824
                                                                   -----------     -----------
                                                                    19,329,717      18,681,243

Federal National Mortgage Association (FNMA) certificates -
     Due over ten years ......................................      15,021,768      15,519,976
                                                                   -----------     -----------

Federal Home Loan Mortgage Corporation (FHLMC)  certificates -
     Due over ten years ......................................         291,350         276,380
                                                                   -----------     -----------

                                                                   $34,642,835     $34,477,599
                                                                   ===========     ===========

</TABLE>


                                       12


<PAGE>
<TABLE>
<CAPTION>



                                                          September 30, 1997
                                                       ---------------------------
                                                       Amortized cost   Fair value
                                                       ---------------------------
                                                                (Unaudited)
<S>                                                    <C>             <C>
Mortgage-backed securities available for sale:
CMO residuals and other mortgage-backed securities     $ 7,021,610     $ 8,396,982
                                                       -----------     -----------

FNMA certificates:
     Due over ten years ..........................       9,921,540       9,848,925
                                                       -----------     -----------

FHLMC certificates:
     Due from one to five years ..................          49,439          49,301
     Due from five to ten years ..................         379,570         390,748
     Due over ten years ..........................      27,897,878      27,728,726
                                                       -----------     -----------
                                                        28,326,887      28,168,775
                                                       -----------     -----------
                                                       $45,270,037     $46,414,682
                                                       ===========     ===========
Investment securities available for sale:
U.S.  Treasury securities:
     Due from one to five years ..................     $30,036,283     $30,134,143
                                                       -----------     -----------
U.S. Government and agencies securities:
     Due from one to five years ..................      29,495,921      29,455,037
     Due from five to ten years ..................       5,023,620       4,955,605
                                                       -----------     -----------
                                                        34,519,541      34,410,642
                                                       -----------     -----------

FHLB stock .......................................       4,906,067       4,906,067
                                                       -----------     -----------

                                                       $69,461,891     $69,450,852
                                                       ===========     ===========
</TABLE>
         Mortgage-backed  securities  available  for sale include  interest only
securities  with an amortized  cost of $2.4  million as of  September  30, 1997,
which  are  associated  with the sale in prior  years of  collaterized  mortgage
obligations (CMO'S).  These sales were not made in connection with the Company's
mortgage banking activities.

         The  interest  rate  risk  on  the  above  mortgage-backed   securities
available for sale (excluding  CMOs) are being hedged with options and financial
futures  contracts  based  on  U.S.  Treasury  securities  and  Eurodollars.  At
September 30, 1997, no futures or option  contracts were outstanding for hedging
purposes.



                                       13
<PAGE>
<TABLE>
<CAPTION>



                                                                  September 30,
                                                                      1997
                                                                  -------------
                                                                   (Unaudited)
<S>                                                               <C>
Mortgage-backed securities held for trading:
     CMO Certificates..................................           $ 15,228,000
     CMO Residuals (all interest only).................              8,382,756
     GNMA Certificates.................................            299,063,090
                                                                  ------------ 
                                                                  $322,673,846
                                                                  ============

</TABLE>



                                       14



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

   Loans consist of the following:

<TABLE>
<CAPTION>
                                                          September 30,
                                                              1997
                                                         -------------
                                                           (Unaudited)
<S>                                                       <C>
Real estate loans:
     Residential - first mortgage....................     $421,561,510
     Residential - second mortgage...................       17,143,042
     Construction....................................       11,262,757
     Commercial......................................       82,133,808
                                                          ------------ 
                                                           532,101,117

Undisbursed portion of loans in process..............       (5,718,469)
Net deferred loan fees...............................          387,790
                                                          ------------ 
                                                           526,770,438

Other loans:
     Commercial......................................       35,404,367
     Consumer:
        Secured by deposits..........................       11,788,556
        Secured by real estate.......................       68,154,293
        Other........................................       54,835,652
Unamortized discount.................................        (177,072)
Unearned interest....................................        (409,954)
                                                          ------------
                                                           169,595,842

        Total loans..................................      696,366,280
     Allowance for loan losses.......................      (4,321,649)
                                                           

                                                          $692,044,631
                                                          ============
</TABLE>
<PAGE>

The changes in the allowance for loan losses follow:

<TABLE>
<CAPTION>
                                                         Nine months ended
                                                            September 30,
                                                     -------------------------
                                                       1997             1996
                                                     --------          ------- 
                                                            (Unaudited)
                                                          ($ in thousands)
<S>                                                  <C>               <C>
Balance, beginning of year.......................    $  3,332          $ 3,510
Provision for loan losses........................       4,645            2,841
Loans charged-off................................      (3,943)          (1,187)
Recoveries.......................................         288              146
                                                     --------          ------- 
Balance, end of period...........................    $  4,322          $ 5,310
                                                     ========          ======= 
</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 $410.0 million at September 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 $94.6 million at September 30, 1997.


Commitments to buy and sell GNMA certificates

         As of September  30, 1997,  the Company had open  commitments  to issue
GNMA certificates of approximately $98.1 million.


Commitments to sell mortgage loans

         As of September 30, 1997 the Company had  commitments  to sell mortgage
loans to third party investors amounting to $71.4 million.

Lease commitments

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

Other

         At September  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 $271.7 million at September 30, 1997. Liability, if any,
under the recourse  provisions  at September 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 continue 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 will 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  changes to the Puerto  Rico Tax Law should not
have a significant adverse effect on the results of operations of the Company.

Item 2:           Management's Discussion and Analysis

Financial Condition

         At September  30, 1997,  the  Company's  total assets  amounted to $1.4
billion, as compared to $1.0 billion at December 31, 1996. The $384.9 million or
37.1% increase in total assets during the nine month period ended  September 30,
1997 was primarily  attributable  to a $88.3 million or 14.6%  increase in loans
receivable, net, which reflects net originations following repayments and sales,
a $214.6  million or 198.4%  increase  in  mortgage-backed  securities  held for
trading, and a $57.7 million or 106.0% increase in mortgage loans held for sale,
reflecting an increase in the volume of loan  originations of approximately  53%
from  $426.3  million to $654.0  million  during the 1997  period as the Company
continues  to increse its market  position  in Puerto  Rico.  The  Company  also
experienced  a  $38.5  million  or  124.2%  increase  in  investment  securities
available  for sale,  principally  due to the  purchase of  approximately  $60.5
million of U.S.  Treasury and government agency securities during the nine month
period  ended   September  30,  1997,   reduced  by  maturities   and  sales  of
approximately  $23.5 million.  Such  increases were partially  offset by a $23.4
million or 21.5% decrease in cash and cash equivalents.

         The increase in the Company's  assets was funded primarily by increased
deposits  of $86.9  million or 14.1%,  a $235.2  million or 241.4%  increase  in
securities  sold  under  agreements  to  repurchase,  a $29.8  million  or 23.5%
increase  in notes  payable,  and a $27.2  million  or 181.3%  increase  in FHLB
advances.

         At September 30, 1997, the Company's  stockholders'  equity amounted to
$131.1  million,  which is an increase of $15.5 million or 13.4% from the amount
reported at December 31, 1996.  The primary  reason for the increase was the net
income earned during the nine month period ended  September 30, 1997,  which was
partially  offset by $1.7  million of  dividends  paid  during such  period.  At
September 30, 1997, the Bank's leverage and Tier 1 risk-based  capital  amounted
to 7.29% and 12.48% of adjusted total assets,  respectively,  compared to a 4.0%
minimum  requirement,  and its total  risk-based  capital  amounted to 13.27% of
total risk-based assets, compared to an 8.0% minimum requirement.

         In  September  1997 a new  wholly-owned  subsidiary  of R&G Mortage was
organized.  Such subsidiary is primarily engaged in the origination of sub-prime
mortgage loans on residential real estate.



                                       17
<PAGE>
         Results of Operations

         The  Company  reported  net income of $6.1  million  and $16.5  million
during the three and nine month periods ended September 30, 1997,  respectively,
as  compared  to $2.5  million  and $8.6  million  during  the prior  comparable
periods.  The significant increase in net income during the three and nine month
periods in 1997 over the comparable 1996 periods,  of $3.6 million or 145.3% and
$7.9 million or 92.3%,  respectively,  takes into  consideration a one-time $2.5
million  assessment  ($1.6 million net of income  taxes) in September  1996 as a
result of federal legislation to recapitalize the Savings Association  Insurance
Fund (SAIF) administered by the FDIC.

         Total  revenues  for the nine month  period  ended  September  30, 1997
amounted to $47.5 million,  a $8.1 million or 20.5% increase over the comparable
1996  period.  The  increase  in  revenues  during the nine month  period  ended
September  30,  1997  was  primarily  attributable  to a $5.2  million  or 65.6%
increase in net gain on origination and sale of loans as the Company experiences
a  significant  increase in  unrealized  profit on trading  securities  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.  Also the  Company  had a $5.2  million  or 24.6%  increase  in net
interest income, as the Bank earned a significantly increased amount of interest
income on its loan and investment  portfolios,  and a $556,000 or 19.0% increase
in service  charges,  fees, and other due to increased fees on deposit  accounts
and new deposit  products and services.  The increase in net interest income was
partially offset by $1.8 million increase in the provision for loan losses.

         The increase in the  provision  for loan losses was taken both due to a
$88.3 million or 14.6% 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
$3.6 million during the nine month period ended  September 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.  The
Company's  actions reflect  increased  bankruptcies and resulting  delinquencies
experienced by lenders in Puerto Rico generally,  including the Company.  During
the  second  quarter  of  1997,   management  adopted  more  stringent  consumer
underwriting  procedures to address problems experienced generally in the market
for personal  loans,  and has  determined  to increase  collateralized  consumer
lending instead of personal loans.

         The increase in revenues for the nine month period ended  September 30,
1997 was also  partially  offset by a $273,000 or 83.0% decrease in net gains on
sales of investments  available for sale, and a change of $945,000 in net profit
(loss) on trading  account from a $ 201,000 profit in the comparable 1996 period
to a $744,000 loss during the nine month period ended  September  30, 1997.  The
Company records in its trading  account gains and losses  resulting from options
and futures contracts primarily designated as hedges against fluctuations in the
interest  rates of  specifically  identified  assets  or  liabilities.  The loss
experienced is primarily related to an increase in hedging activities as well as
increased volatility in market interest rates during 1997.







                                       18
<PAGE>
         Total  revenues for the quarter  ended  September  30, 1997 amounted to
$16.4 million,  a $2.7 million or 19.6% increase over the comparable  quarter in
1996.  The  increase in total  revenues  during the 1997  quarter was  primarily
attributable  to a $2.8 million or 53.0%  increase in net interest  income after
the provision for loan losses.

         Total operating expenses decreased by $2.0 million or 20.0% and by $1.5
million or 5.8% during the three and nine month periods ended September 30, 1997
over the comparable  1996 periods,  which take into  consideration  the one-time
$2.5 million  ($1.6 million net of income  taxes) SAIF  assessment.  Without the
assessment,  total expenses would have increased by $502,000 or 6.7% and by $1.0
million or 4.5% during the same respective periods. Without considering the SAIF
assessment,  the  increase  during  the  nine  month  period  in  1997  occurred
notwithstanding a $477,000 or 16.0% and a $524,000 or 6.4% reduction in employee
compensation and benefits.  Occupancy  expenses  increased $739,000 or 63.5% and
$1.5 million or 36.1% during the three and nine month  periods  ended  September
30, 1997, due principally to the operation during the full period in 1997 of the
Company's new data processing center, as well as increased costs associated with
the opening of a new branch  location and the completion of remodelling  work at
six  branches  acquired in prior years from  another  financial  institution  in
Puerto  Rico.  Other  miscellaneous  expenses  increased by $240,000 or 7.1% and
$89,000 or .8% during the same respective periods.

         Total  income tax expense  increased  by $1.1 million or 91.3% and $2.1
million or 41.0% during the three and nine month  periods  ended  September  30,
1997, respectivively, over the prior comparable periods, due primarily to a $4.7
million or 127.3% and a $10.0  million or 73.3%  increase in income before taxes
during the three and nine month periods ended September 30, 1997,  respectively.
The  Company's  effective  tax rate amounted to 28.0% and 30.2% during the three
and nine month  periods ended  September  30, 1997,  compared to 33.2% and 37.1%
during the same comparable  1996 periods.  The decrease in 1997 of the Company's
effective  tax rate was primarily  attributable  to an increase in the Company's
exempt interest income.


Liquidity and Capital Resources

         Liquidity  -  Liquidity  refers to the  Company's  ability to  generate
sufficient  cash to meet the  funding  needs of  current  loan  demand,  savings
deposit withdrawals, principal and interest payments with respect to outstanding
borrowings and to pay operating expenses.  It is management's policy to maintain
greater  liquidity  than  required  in order to be in a  position  to fund  loan
purchases and originations,  to meet withdrawals from deposit accounts,  to make
principal and interest  payments with respect to  outstanding  borrowings and to
make  investments  that take  advantage of interest  rate  spreads.  The Company
monitors its liquidity in accordance with guidelines  established by the Company
and  applicable  regulatory  requirements.  The Company's  need for liquidity is
affected  by loan  demand,  net  changes  in deposit  levels  and the  scheduled
maturities of its borrowings. The






                                       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  September  30,  1997,  the  Company had $65.9  million in  borrowing
capacity under unused  warehouse lines of credit and $210.4 million in borrowing
capacity  under  advances  agreements  and 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 September 30, 1997, the Company had outstanding  commitments (mainly
unused  lines of  credit)  to  originate  non-mortgage  loans  of $8.6  million.
Certificates  of deposit  which are  scheduled to mature within one year totaled
$369.5  million at September  30, 1997,  and  borrowings  that are  scheduled to
mature  within  the  same  period  amounted  to  $447.4  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
from 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>
plus certain off balance sheet assets,  are multiplied by a risk-weight of 0% to
100%,  based on the risks the FDIC believes are inherent in the type of asset or
item. The components of Tier 1 capital are equivalent to those  discussed  above
under the 3% leverage capital standard.  The components of supplementary capital
include  certain  perpetual  preferred  stock,  certain  mandatory   convertible
securities,  certain  subordinated  debt and  intermediate  preferred  stock and
general  allowances  for loan and  lease  losses.  Allowance  for loan and lease
losses  includable in supplementary  capital is limited to a maximum of 1.25% of
risk-weighted   assets.   Overall,   the  amount  of  capital   counted   toward
supplementary capital cannot exceed 100% of core capital. At September 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 7.29%,  12.48%,
and 13.27%, 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.


Item 3:           Quantitative and Qualitative Disclosures about Market Risk

         Not applicable.




                                       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

                  Not applicable

Item 5:           Other Information

                  Not applicable

Item 6:           Exhibits and Reports on Form 8-K

                  a)       Exhibits

                           No.
                           27     Financial Data Schedule                E-1

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












                                       22


<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 10, 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