First BanCorp. (FBP) 10-Q 2001 Q2 Quarterly report

THIS DOCUMENT IS A COPY OF THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 FILED ON AUGUST 15, 2001 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION. ALTERNATIVELY, FIRST BANCORP HAS REQUESTED AN ADJUSTMENT OF THE FILING DATE OF THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 PURSUANT TO RULE 13(B) OF REGULATION S-T.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 130
of the Securities Exchange Act of 1934

For the Quarter ended	Commission File 001-14793
June 30, 2001

First BanCorp.

(Exact name of Corporation as specified in its charter)

Puerto Rico	66-0561882
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1519 Ponce de Leon Avenue, Stop 23 Santurce, Puerto Rico	00908
(Address of principal office)	(Zip Code)

Corporation’s telephone number, including area code:

(787) 729-8200

Indicate by check mark whether the Corporation (1) has filed all reports required by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Corporation was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

Number of shares of the Corporation’s Common Stock outstanding as of August 13, 2001

26,596,852

FIRST BANCORP
[CONTENTS]

		PAGE
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements:
	Consolidated Statements of Financial Condition as of June 30, 2001 and December 31, 2000		3
	Consolidated Statements of Income for the three and six months ended on June 30, 2001 and 2000		4
	Consolidated Statements of Cash Flows for the six months ended on June 30, 2001 and 2000		5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended on June 30, 2001 and the year ended on December 31, 2000		6
	Consolidated Statements of Comprehensive Income for the three and six months ended on June 30, 2001 and 2000		7
	Notes to Consolidated Financial Statements		8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings		31
	Item 2. Changes in Securities		31
	Item 3. Defaults Upon Senior Securities		31
	Item 4. Submission of Matters to a Vote of Security Holders		31
	Item 5. Other Information		31
	Item 6. Exhibits and Report on Form 8-K		31
SIGNATURES			32

FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

			(Unaudited)
			June 30, 2001				December 31, 2000
Assets
Cash and due from banks			$	75,515,308		$	63,372,591
Money market instruments				14,135,510			2,020,348
Investment securities available for sale, at market:
	Securities pledged that can be repledged			1,628,318,078			1,621,457,451
	Other investment securities			576,976,065			280,205,723
		Total investment securities available for sale		2,205,294,143			1,901,663,174
Investment securities held to maturity, at cost:
	Securities pledged that can be repledged			84,706,302			268,432,581
	Other investment securities			23,747,938			42,562,921
		Total investment securities held to maturity		108,454,240			310,995,502
Federal Home Loan Bank (FHLB) stock				22,890,600			18,536,500
Loans receivable				3,857,495,096			3,498,198,207
Allowance for loan losses				(84,009,315	)		(76,918,973	)
	Total loans — net			3,773,485,781			3,421,279,234
Other real estate owned				3,192,698			2,981,472
Premises and equipment — net				76,304,741			72,087,346
Accrued interest receivable				36,068,223			27,969,551
Due from customers on acceptances				2,376,195			2,177,043
Other assets				112,980,822			96,573,820
		Total assets	$	6,430,698,261		$	5,919,656,581
Liabilities and Stockholders’ Equity
Liabilities:
	Non-interest bearing deposits		$	218,110,039		$	232,164,469
	Interest bearing deposits			3,471,255,288			3,113,819,927
	Federal funds purchased and securities sold under agreements to repurchase			1,685,748,586			1,856,436,127
	Advances from FHLB			294,000,000			67,000,000
	Notes payable			55,500,000			55,500,000
	Bank acceptances outstanding			2,376,195			2,177,043
	Accounts payable and other liabilities			69,124,633			67,550,152
				5,796,114,741			5,394,647,718
Subordinated notes				84,102,199			90,548,314
Stockholders’ equity:
	Preferred stock, authorized 50,000,000 shares; issued and outstanding 10,320,000 at $25.00 liquidation value per share			258,000,000			165,000,000
	Common stock, $1.00 par value, authorized 250,000,000 shares; issued 29,852,552 shares (2000 - 29,618,552 shares)			29,852,552			29,618,552
	Less: Treasury stock (at par value)			(3,255,700	)		(3,194,400	)
	Common stock outstanding			26,596,852			26,424,152
	Additional paid-in capital			14,558,077			16,567,516
	Capital reserve			50,000,000			50,000,000
	Legal surplus			126,792,514			126,792,514
	Retained earnings			93,746,667			69,275,152
	Accumulated other comprehensive income — unrealized loss on securities available for sale, net of tax			(19,212,789	)		(19,598,785	)
				550,481,321			434,460,549
Contingencies and commitments
		Total liabilities and stockholders’ equity	$	6,430,698,261		$	5,919,656,581

The accompanying notes are an integral part of these statements.

FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

			Three Months Ended				Six Months Ended
			June 30,		June 30,		June 30,			June 30,
			2001		2000		2001			2000
Interest income:
	Loans		$	89,078,153	$	79,220,471	$	180,315,454		$	154,649,915
	Investments			36,784,564		32,917,669		73,956,457			62,379,775
	Dividends on FHLB stock			314,742		308,857		655,814			598,357
		Total interest income		126,177,459		112,446,997		254,927,725			217,628,047
Interest expense:
	Deposits			41,388,925		35,913,033		85,653,959			67,279,221
	Short term borrowings			24,296,875		25,530,842		53,659,767			48,343,558
	Long term borrowings			2,391,160		2,665,912		5,039,211			5,347,625
		Total interest expense		68,076,960		64,109,787		144,352,937			120,970,404
		Net interest income		58,100,499		48,337,210		110,574,788			96,657,643
Provision for loan losses				17,800,000		11,158,000		32,800,000			23,178,000
Net interest income after provision for loan losses				40,300,499		37,179,210		77,774,788			73,479,643
Other income:
	Service charges on deposit accounts			2,384,642		2,207,445		4,770,245			4,614,828
	Fees on loans serviced for others			119,792		125,080		232,647			284,331
	Other fees on loans			5,171,189		4,335,171		9,794,770			7,742,678
	Mortgage banking activities			707,796				713,943
	Trading income					167,821					587,188
	Gain on sale of investments			2,937,887		2,276,901		9,526,776			4,789,583
	Other operating income			3,019,495		2,671,978		5,785,981			5,213,308
		Total other income		14,340,801		11,784,396		30,824,362			23,231,916
Other operating expenses:
	Employees’ compensation and benefits			13,462,053		12,952,655		26,592,525			25,412,936
	Occupancy and equipment			6,017,382		5,735,584		11,827,640			11,175,315
	Taxes and insurance			1,935,657		1,607,388		3,817,754			3,196,336
	Other			8,802,688		8,269,692		17,798,845			16,483,951
		Total other operating expenses		30,217,780		28,565,319		60,036,764			56,268,538
Income before income tax provision and cumulative effect of accounting change				24,423,520		20,398,287		48,562,386			40,443,021
Income tax provision				4,251,721		3,920,932		8,589,891			7,614,582
Income before cumulative effect of accounting change				20,171,799		16,477,355		39,972,495			32,828,439
Cumulative effect of accounting change, net of tax								(1,014,889	)
Net income			$	20,171,799	$	16,477,355	$	38,957,606		$	32,828,439
Net income available to common stockholders			$	17,003,049	$	14,874,230	$	32,620,103		$	29,622,189
Net income per common share-basic:
Income before cumulative effect of accounting change			$	0.64	$	0.55	$	1.27		$	1.08
Cumulative effect of accounting change								(0.04	)
Earnings per common share-basic			$	0.64	$	0.55	$	1.23		$	1.08
Net income per common share-diluted:
Income before cumulative effect of accounting change			$	0.64	$	0.55	$	1.26		$	1.08
Cumulative effect of accounting change								(0.04	)
Earnings per common share-diluted			$	0.64	$	0.55	$	1.22		$	1.08
Dividends declared per common share			$	0.13	$	0.11	$	0.26		$	0.22

The accompanying notes are an integral part of these statements.

FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

				Six Months			Six Months
				Ended			Ended
				June 30, 2001			June 30, 2000
Cash flows from operating activities:
	Net income			$	38,957,605		$	32,828,439
	Adjustments to reconcile net income to net cash:
			Depreciation		4,508,530			4,396,159
			Provision for loan losses		32,800,000			23,176,000
			Increase (decrease) in taxes payable		6,635,486			(17,339,301	)
		Increase in deferred tax asset			(3,149,127	)		(2,121,569	)
			Increase in accrued interest receivable		(8,098,672	)		(2,358,035	)
			Increase in accrued interest payable		3,584,482			841,051
			Amortization of deferred net loan fees		394,770			(181,006	)
			Gain on sale of investments		(9,526,775	)		(4,789,584	)
			Gain on sale of loans		(707,796	)
		Net originations of loans available for sale						(12,343,184	)
			Decrease in other assets		4,803,811			1,851,080
			(Decrease) increase in other liabilities		(4,865,149	)		9,907,505
		Total adjustments			26,379,560			1,039,116
		Net cash provided by operating activities			65,337,165			33,867,555
Cash flows from investing activities:
	Principal collected on loans				399,783,962			248,206,732
	Loans originated				(614,021,063	)		(558,195,293	)
	Purchase of loans				(202,888,515	)		(28,133,593	)
	Proceeds from sale of loans				22,218,832
	Proceeds from sale of investments				317,687,253			38,683,351
	Purchase of securities held to maturity				(80,801,786	)		(3,430,285	)
	Purchase of securities available for sale				(3,718,347,345	)		(3,012,021,586	)
	Principal repayments and maturities of securities held to maturity				76,354,381
	Principal repayments of securities available for sale				3,314,059,225			2,747,595,456
	Additions to premises and equipment — net				(8,725,925	)		(9,214,708	)
	Purchase of FHLB stock				(4,354,102	)
	Net cash used in investing activities				(499,035,083	)		(576,509,926	)
Cash flows from financing activities:
	Net increase in deposits				337,516,540			421,870,748
	Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements				(174,447,419	)		284,215,600
	FHLB advances taken (paid)				227,000,000			(6,500,000	)
	Payments of notes payable				(6,446,115	)		(737,934	)
	Payment of other borrowings							(149,353,415	)
	Change in debt securities issuance cost				(2,344,379	)		1,155,051
	Dividends				(13,260,653	)		(9,168,659	)
	Exercise of stock options				1,355,211
	Issuance of preferred stock				89,900,000
	Treasury stock acquired				(1,317,388	)		(21,130,950	)
		Net cash provided by financing activities			457,955,797			520,350,441
	Net increase (decrease) in cash and cash equivalents				24,257,879			(22,291,930	)
	Cash and cash equivalents at beginning of period				65,392,939			93,484,993
	Cash and cash equivalents at end of period			$	89,650,818		$	71,193,063
Cash and cash equivalents include:
		Cash and due from banks		$	75,515,308		$	65,601,676
		Money market instruments			14,135,510			5,591,387
				$	89,650,818		$	71,193,063
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
			Interest	$	140,768,455		$	120,129,353
			Income taxes		2,965,487			19,826,538

The accompanying notes are an integral part of these statements.

FIRST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

																	Accumulated
							Additional										other
		Preferred		Common			paid-in			Capital		Legal		Retained			comprehensive
		stock		stock			capital			reserve		surplus		earnings			income (loss)
December 31, 1999		$	90,000,000	$	28,060,552		$	19,863,466		$	40,000,000	$	126,792,514	$	58,834,676		$	(68,648,959	)
Net income															67,275,609
Other comprehensive income																		49,050,174
Issuance of preferred stock			75,000,000					(2,562,500	)
Addition to capital reserve											10,000,000				(10,000,000	)
Treasury stock acquired					(1,642,400	)		(821,200	)						(27,622,992	)
Stock options exercised					6,000			87,750
Cash dividends:
	Common stock														(11,804,599	)
	Preferred stock														(7,407,542	)
December 31, 2000			165,000,000		26,424,152			16,567,516			50,000,000		126,792,514		69,275,152			(19,598,785	)
Net income															38,957,606
Other comprehensive income																		385,996
Issuance of preferred stock			93,000,000					(3,100,000	)
Treasury stock acquired					(61,300	)		(30,650	)						(1,225,438	)
Stock options exercised					234,000			1,121,211
Cash dividends:
	Common stock														(6,923,153	)
	Preferred stock														(6,337,500	)
June 30, 2001		$	258,000,000	$	26,596,852		$	14,558,077		$	50,000,000	$	126,792,514	$	93,746,667		$	(19,212,789	)

The accompanying notes are an integral part of these statements.

FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

		Three Months Ended						Six Months Ended
		June 30,			June 30,			June 30,			June 30,
		2001			2000			2001			2000
Net income		$	20,171,799		$	16,477,355		$	38,957,606		$	32,828,439
Other comprehensive income, net of tax:
Unrealized gain (losses) on securities:
	Unrealized holding gains (losses) arising during the period		(12,841,190	)		8,587,700			6,536,578			17,205,240
	Less: reclassification adjustment for gains included in net income		(2,203,415	)		(1,707,676	)		(7,145,082	)		(3,592,187	)
Cumulative effect of accounting change, net of taxes									994,500
Total other comprehensive (loss) income			(15,044,605	)		6,880,024			385,996			13,613,053
Comprehensive income		$	5,127,194		$	23,357,379		$	39,343,602		$	46,441,492

The accompanying notes are an integral part of these statements.

FIRST BANCORP

PART I — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 — NATURE OF BUSINESS

     First BanCorp (the Corporation) is a bank holding company subject to the Federal Bank Holding Company Act and to the regulations, supervision, and examination of the Federal Reserve Board.

     FirstBank Puerto Rico (FirstBank or the Bank), the Corporation’s only direct subsidiary, is a commercial bank chartered under the laws of the Commonwealth of Puerto Rico. Its main office is located in San Juan, Puerto Rico, and has 45 full-service banking branches in Puerto Rico and four in the U.S. Virgin Islands. It also has loan origination offices in Puerto Rico focusing on consumer loans. Early in the year 2000, the Bank began offering brokerage services in selected branches through an alliance with UBSPaine Webber of Puerto Rico. In addition, through its wholly-owned subsidiaries, FirstBank operates other offices in Puerto Rico specializing in small personal loans, finance leases and vehicle rental. The Bank is subject to the supervision, examination and regulation of the Office of the Commissioner of Financial Institutions of Puerto Rico and the Federal Deposit Insurance Corporation (FDIC), which insures its deposits through the Savings Association Insurance Fund (SAIF).

2 — ACCOUNTING POLICIES

     The accounting and reporting policies of the Corporation and its subsidiaries conform with generally accepted accounting principles, and, as such, include amounts based on judgments, estimates and assumptions made by Management that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The accompanying unaudited financial statements have been prepared in accordance with the instructions for Form 10-Q. Complete information regarding the financial statements can be found in the notes to the financial statements for the year ended December 31, 2000 contained in the annual report of the Corporation.

     In the opinion of Management, the accompanying unaudited consolidated statements of financial condition and the related consolidated statements of income, of comprehensive income, of cash flows, and of changes in stockholders’ equity include all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the Corporation’s financial position at June 30, 2001, and the results of operations and the cash flows for the three and six months ended on June 30, 2001 and 2000. The results of operations for the three and six months ended on June 30, 2001, are not necessarily indicative of the results to be expected for the entire year.

     New accounting pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations”. This statement addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. The provisions of this statement shall apply to all business combinations initiated after June 30, 2001.

     In addition, in June 2001 the FASB issued SFAS No. 142 “Goodwill and Other Intangible Assets”. This statement addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition or subsequent to their acquisition. The provisions of this statement shall apply in fiscal years beginning after December 15, 2001. Retroactive application is not permitted.

     Management is presently analyzing the impact, if any, of the adoption of these statements on the consolidated statements of the Corporation.

3 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” on January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including derivative instruments that are embedded in other contracts, and for hedging activities.

     SFAS No. 133, as amended, standardizes accounting for derivative instruments by requiring the recognition of all derivatives (both assets and liabilities) in the statement of financial position at fair value. Under SFAS No. 133, changes in the fair value of derivative instruments are accounted for in current income or other comprehensive income, depending on their intended use and designation. The Corporation’s hedging program includes swaps used to hedge the fair value of certain deposits by converting the cost of the certificates of deposit from fixed to variable. Since the hedging relationship is 100 percent effective, there was no impact on the statement of income nor on comprehensive income on the implementation date or thereafter, because the gain or loss on the swap agreements is completely offset by the loss or gain on the certificates of deposit. The adoption of SFAS No. 133 resulted in a grossing up of the statement of financial condition to reflect the swaps and the certificates of deposit at fair value. At January 1, 2001, a swap asset of $49.6 million was recognized with a corresponding increase in certificates of deposit by the same amount. At June 30, 2001, the swap asset was adjusted by $5.9 million with the corresponding adjustment to certificates of deposit.

     For transactions that qualify for hedge accounting, SFAS No. 133 provides for a matching of the timing of gain or loss recognition on the hedging instrument with the recognition in earnings of (a) the changes in the fair value of the hedged asset, liability, or a firm commitment that are attributable to the hedged risk or (b) the effect of the exposure to the variability of cash flows from the hedged asset, liability, or forecasted transaction. The Corporation entered into interest rate protection agreements (Caps) to limit its exposure to rising interest rates on its borrowings. Under these agreements, the Corporation pays an up front premium or fee for the right to receive cash flow payments in excess of the predetermined cap rate; thus, effectively capping its interest rate cost for the duration of the agreement. In accordance with SFAS No. 133, Management designated these caps as cash-flow hedges. For a qualifying cash flow hedge, an interest rate cap is carried on the statement of financial condition at fair value with the time value change reflected through the current statement of income. The intrinsic value, if any, is reflected through comprehensive income and is reflected in future statements of income when payments are received from the counterparty. On January 1, 2001 a loss of $1 million (net of its estimated income tax effect) was recognized in the statement of income as a cumulative effect of the adoption of SFAS No. 133. For the period ended on June 30, 2001, a loss of $167,093 was recognized in interest expense on borrowings to adjust the fair value of the caps as of June 30, 2001.

4 — STOCKHOLDERS’ EQUITY

     Common stock

     Authorized common stock shares at June 30, 2001 and December 31, 2000 were 250,000,000, with a par value of $1.00. At June 30, 2001 the Corporation had 26,596,852 shares outstanding of common stock (December 31, 2000 — 26,424,152).

     Preferred stock

     The Corporation has 50,000,000 shares of authorized non-cumulative and non-convertible preferred stock with a par value of $1, redeemable at the Corporation’s option subject to certain terms. This stock may be issued in series and the shares of each series shall have such rights and preferences as shall be fixed by the Board of Directors when authorizing the issuance of that particular series. During the quarter ended on June 30, 2001, the Corporation issued 3,720,000 shares of preferred stock (3,000,000 shares-2000; 3,600,000 shares-1999). The liquidation value per share is $25. Annual dividends of $1.85 per share (issuance of 2001), of $2.0875 per share (issuance of 2000) and of $1.78125 per share (issuance of 1999), are payable monthly, if declared by the Board of Directors.

5 — EARNINGS PER COMMON SHARE

     The calculations of earnings per common share for the three and six months ended on June 30, 2001 and 2000 are as follows:

			Three months ended						Six months ended
			June 30,						June 30,
			2001			2000			2001			2000
(In thousands,except per share data)
Income before cumulative effect of accounting change and dividend on preferred stock			$	20,172		$	16,477		$	39,973		$	32,828
Dividend on preferred stock				(3,169	)		(1,603	)		(6,338	)		(3,206	)
Income before cumulative effect of accounting change				17,003			14,874			33,635			29,622
Cumulative effect of accounting change										(1,015	)
Net income available to common stockholders			$	17,003		$	14,874		$	32,620		$	29,622
	Earnings per common share — basic:
Weighted average common shares outstanding				26,597			27,042			26,550			27,315
Income before cumulative effect of accounting change			$	0.64		$	0.55		$	1.27		$	1.08
Cumulative effect of accounting change										(0.04	)
Earnings per common share — basic			$	0.64		$	0.55		$	1.23		$	1.08
	Earnings per common share — diluted:
Weighted average common shares and share equivalents:
	Average common shares outstanding:			26,597			27,042			26,550			27,315
	Common stock equivalents — Options			174			185			158			187
		Total		26,771			27,227			26,708			27,502
Income before cumulative effect of accounting change			$	0.64		$	0.55		$	1.26		$	1.08
Cumulative effect of accounting change										(0.04	)
Earnings per common share-diluted			$	0.64		$	0.55		$	1.22		$	1.08

     Stock options outstanding under the Corporation’s stock option plan for officers are common stock equivalents and, therefore, considered in the computation of earnings per common share — diluted. Common stock equivalents were computed using the treasury stock method.

     The stock option plan must be recognized either by the fair value based method or the intrinsic value method. The Corporation uses the intrinsic value based method of accounting. Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date over the amount an employee must pay to acquire the stock. Entities using the intrinsic value based method on awards granted to

employees must make pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting had been applied. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. During the six month periods ended on June 30, 2001 and 2000, no options were granted to buy shares of the Corporation’s common stock.

6 — INVESTMENT SECURITIES HELD FOR TRADING

     At June 30, 2001 and December 31, 2000, there were no securities held for trading purposes or options on such securities.

     During the three and six months ended on June 30, 2001, there was no net revenue from the sale of trading securities. During the three and six months ended on June 30, 2000, the net gain from the sale of trading securities amounted to $167,821 and $587,188, respectively. These earnings were included as trading income.

7 — INVESTMENT SECURITIES

     The amortized cost, gross unrealized gains and losses, approximate market value, weighted average yield and maturities of investment securities were as follows:

Investment securities available for sale

					June 30, 2001											December 31, 2000
							Unrealized							Weighted				Unrealized							Weighted
					Amortized							Market		average		Amortized							Market		average
					cost		gains		(losses)			value		yield%		cost		gains		(losses)			value		yield%
					(Dollars in thousands)
U.S. Treasury Securities:
				Within 1 year	$	2,530	$	49				$	2,579		6.48	$	499	$	2				$	501		6.04
				After 1 to 5 years													2,630		33					2,663		6.49
				After 5 to 10 years													39,624			$	(718	)		38,906		4.89
				After 10 years		20,023			$	(1,770	)		18,253		5.24		67,555				(455	)		67,100		5.50
Obligations of other U.S. Government Agencies:
				Within 1 year		387,090				(447	)		386,644		3.81		240,341		46					240,387		6.76
				After 1 to 5 years													31,705		144					31,849		7.86
				After 5 to 10 years		29,989		141					30,130		7.81		29,988		217					30,205		7.81
				After 10 years		97,665		439		(1,599	)		96,505		7.61		53,593		322		(3,302	)		50,613		7.66
Puerto Rico Government Obligations:
				After 1 to 5 years		20,000							20,000		4.85		20,000							20,000		7.41
				After 5 to 10 years		4,443		23		(1,498	)		2,968		6.19		429				(11	)		418		6.65
				After 10 years		7,976		245					8,221		6.51		8,840		39		(254	)		8,625		6.51
United States and Puerto Rico Government Obligations					$	569,716	$	898	$	(5,314	)	$	565,300		4.83	$	495,204	$	803	$	(4,740	)	$	491,267		6.69
Mortgage backed securities:
		FHLMC certificates:
				After 1 to 5 years	$	721	$	15				$	736		7.16	$	834	$	6				$	840		7.02
				After 5 to 10 years		14,477		323					14,800		7.29		8,088		27					8,115		6.22
				After 10 years		9,211		68					9,279		6.99		18,829		282					19,111		7.00
						24,409		406					24,815		7.17		27,751		315					28,066		6.77
	GNMA certificates:
				After 5 to 10 years		3,969		55					4,024		6.20		4,484			$	(81	)		4,403		6.22
				After 10 years		1,362,897		1,274	$	(14,483	)		1,349,688		6.57		1,291,460		593		(13,229	)		1,278,824		6.50
						1,366,866		1,329		(14,483	)		1,353,712		6.57		1,295,944		593		(13,310	)		1,283,227		6.50
	FNMA certificates:
				After 1 to 5 years		260		5					265		7.01		375		2					377		7.29
				After 5 to 10 years		156		5					161		7.25		125		1					126		6.84
				After 10 years		8,201		345					8,546		8.26		9,402		270		(14	)		9,658		8.16
						8,617		354					8,971		8.15		9,902		273		(14	)		10,161		8.11
Mortgage pass through certificates:
				After 10 years		2,173		52					2,225		8.87		2,286		66					2,352		8.96
Mortgage Backed Securities					$	1,402,065	$	2,138	$	(14,483	)	$	1,389,723		6.59	$	1,335,883	$	1,247	$	(13,324	)	$	1,323,806		6.52
Other investments:
			Within 1 year		$	20,183	$	208				$	20,390		7.63	$	19,645	$	84				$	19,729		7.29
			After 1 to 5 years			40,075				(1,204	)		38,872		8.10		27,416		295		(105	)		27,606		7.97
			After 5 to 10 years			128,764				(2,484	)		126,280		7.30		10,522		76					10,598		7.21
			After 10 years			20,001				(1	)		20,000		7.33		3,211				(60	)		3,151		6.31
Other investments					$	209,023	$	208	$	(3,689	)	$	205,542		7.49	$	60,794	$	455	$	(165	)	$	61,084		7.53
Equity securities (without contractual maturity)					$	50,106			$	(5,377	)	$	44,729		1.34	$	35,914			$	(10,408	)	$	25,506		1.91
Total Investments Securities Available for Sale					$	2,230,910	$	3,244	$	(28,861	)	$	2,205,294		6.11	$	1,927,795	$	2,505	$	(28,637	)	$	1,901,663		6.51

     Maturities for mortgage backed securities are based upon contractual terms assuming no repayments. The weighted average yield on investment securities held for sale is based on amortized cost; therefore it does not give effect to changes in fair value.

Investment securities held to maturity

				June 30, 2001											December 31, 2000
						Unrealized							Weighted				Unrealized							Weighted
				Amortized							Market		average		Amortized							Market		average
				cost		gains		(losses)			value		yield%		cost		gains		(losses)			value		yield%
Obligations of U.S. Government Agencies:
		After 1 to 5 years													$	10,000			$	(12	)	$	9,988		7.04
			After 10 years	$	104,499			$	(2,586	)	$	101,913		7.26		90,176	$	1,340		(5,119	)		86,397		7.53
Puerto Rico Government Obligations:
		After 10 years			3,955	$	170					4,125		6.50		3,831				(56	)		3,775		6.50
														��
United States and Puerto Rico Government obligations				$	108,454	$	170	$	(2,586	)	$	106,038		7.23	$	104,007	$	1,340	$	(5,187	)	$	100,160		7.44
Mortgage backed securities:
	GNMA certificates After 10 years														$	206,989	$	1,326				$	208,315		6.94
Mortgage backed securities															$	206,989	$	1,326				$	208,315		6.94
Total Investment Securities Held to Maturity				$	108,454	$	170	$	(2,586	)	$	106,038		7.23	$	310,996	$	2,666	$	(5,187	)	$	308,475		7.11

     Expected maturities of mortgage backed securities and certain other securities might differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At January, 1, 2001, the Corporation transferred a portfolio of $207 million of GNMA certificates held to maturity into the available for sale category.

8 — INVESTMENT IN FHLB STOCK

     At June 30, 2001 and December 31, 2000, there were investments in FHLB stock with book value of $22,890,600 and $18,536,500, respectively. The estimated market value of such investments is its redemption value.

9 — IMPAIRED LOANS

     At June 30, 2001, the Corporation had $5.9 million ($13.1 million at December 31, 2000) in commercial and real estate loans over $1,000,000 considered impaired with an allowance of $2.3 million ($7.8 million at December 31, 2000). The allowance for impairment loans is part of the allowance for loan losses. There were no consumer loans over $1,000,000 considered impaired as of June 30, 2001 and December 31, 2000. The average recorded investment in impaired loans amounted to $9.5 million for the six months ended on June 30, 2001 (2000 - $8.8 million). Interest income in the amount of approximately $84,000 and $77,000 was recognized on impaired loans for the period ended on June 30, 2001 and 2000, respectively.

10 — LOANS RECEIVABLE

     The following is a detail of the loan portfolio:

			June 30,			December 31,
			2001			2000
			(In thousands)
Residential real estate loans:
Secured by first mortgages:
	Conventional		$	799,040		$	695,344
	Insured by government agencies:
		Federal Housing Administration and Veterans Administration		21,473			20,004
		Puerto Rico Housing Bank and Finance Agency		25,766			28,037
Secured by second mortgages				8,629			8,964
				854,908			752,349
	Deferred net loan fees			(5,195	)		(5,557	)
Residential real estate loans				849,713			746,792
Commercial loans:
	Construction loans			229,777			203,955
	Commercial loans			1,071,390			947,709
	Commercial mortgage			540,248			438,321
Commercial loans				1,841,415			1,589,985
Finance leases				129,830			122,883
Consumer and other loans:
	Personal			372,383			388,696
	Personal lines of credit			12,591			12,852
	Auto			521,224			530,534
	Boat			33,356			33,954
	Credit card			179,780			174,797
	Home equity reserve loans			2,062			2,134
	Unearned interest			(84,859	)		(104,429	)
Consumer and other loans				1,036,537			1,038,538
Loans receivable				3,857,495			3,498,198
Allowance for loan losses				(84,009	)		(76,919	)
Total loans-net			$	3,773,486		$	3,421,279

11 — SEGMENT INFORMATION

     The Corporation has three reportable segments: Retail business, Treasury and Investments, and Commercial Corporate business. Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as the Corporation’s organizational chart, nature of the products, distribution channels and the economic characteristics of the products were also considered in the determination of the reportable segments.

     The Retail business segment is composed of the Corporation’s branches and loan centers together with the retail products of deposits and consumer loans. Consumer loans include loans such as personal, residential real estate, auto, credit card and small loans. Finance leases are also included in Retail business. The Commercial Corporate segment is composed of commercial loans (including commercial real estate and construction loans) and corporate services such as letters of credit and cash management. Certain small commercial loans originated by the branches were included in the Retail business for the periods ended on June 30, 2000. The Treasury and Investment segment is responsible for the Corporation investment portfolio and treasury functions.

     The accounting policies of the segments are the same as those described in Note 2 — “Summary of Significant Accounting Policies.”

     The Corporation evaluates the performance of the segments based on net interest income after the estimated provision for loan losses. The segments are also evaluated based on the average volume of its earning assets less the allowance for loan losses.

     The only intersegment transaction is the net transfer of funds between the segments and the Treasury and Investment segment. The Treasury and Investment segment sells funds to the Retail and Commercial Corporate segments to finance their lending activities and purchases funds gathered by those segments. The interest rates charged or credited by Investment and Treasury segment is based on market rates.

The following table presents information about the reportable segments (in thousands):

				Treasury and			Commercial
	Retail			Investments			Corporate			Total
For the quarter ended June 30, 2001:
Interest income	$	54,398		$	37,099		$	34,680		$	126,177
Net (charge) credit for transfer of funds		(3,846	)		24,865			(21,019	)
Interest expense		(18,860	)		(49,217	)					(68,077	)
Net interest income		31,692			12,747			13,661			58,100
Provision for loan losses		(14,790	)					(3,010	)		(17,800	)
Segment income	$	16,902		$	12,747		$	10,651		$	40,300
Average earning assets	$	1,927,782		$	2,327,290		$	1,727,054		$	5,982,126
For the period ended June 30, 2001
Interest income	$	108,394		$	74,612		$	71,921		$	254,927
Net (charge) credit for transfer of funds		(5,047	)		49,786			(44,739	)
Interest expense		(38,966	)		(105,387	)					(144,353	)
Net interest income		64,381			19,011			27,182			110,574
Provision for loan losses		(27,243	)					(5,557	)		(32,800	)
Segment income	$	37,138		$	19,011		$	21,625		$	77,774
Average earning assets	$	1,895,539		$	2,299,078		$	1,694,546		$	5,889,163

				Treasury and			Commercial
	Retail			Investments			Corporate			Total
For the quarter ended June 30, 2000:
Interest income	$	54,637		$	33,226		$	24,584		$	112,447
Net (charge) credit for transfer of funds		(2,407	)		19,720			(17,313	)
Interest expense		(17,912	)		(46,198	)					(64,110	)
Net interest income		34,318			6,748			7,271			48,337
Provision for loan losses		(8,747	)					(2,411	)		(11,158	)
Segment income	$	25,571		$	6,748			4,860		$	37,179
Average earning assets	$	1,827,790		$	1,953,546		$	1,053,111		$	4,834,447
For the period ended June 30, 2000:
Interest income	$	107,164		$	62,971		$	47,493		$	217,628
Net (charge) credit for transfer of funds		(4,225	)		36,285			(32,060	)
Interest expense		(34,771	)		(86,200	)					(120,971	)
Net interest income		68,168			13,056			15,433			96,657
Provision for loan losses		(14,593	)					(8,585	)		(23,178	)
Segment income	$	53,575		$	13,056		$	6,848		$	73,479
Average earning assets	$	1,782,291		$	1,869,635		$	1,014,639		$	4,666,565

The following table presents a reconciliation of the reportable segment financial information to the consolidated totals (in thousands):

			Three months ended						Six months ended
			June 30,						June 30,
			2001			2000			2001			2000
Net income:
Total income for segments			$	40,300		$	37,179		$	77,775		$	73,479
Other income				14,341			11,784			30,824			23,232
Operating expenses				(30,217	)		(28,565	)		(60,036	)		(56,267	)
Income taxes				(4,252	)		(3,921	)		(8,590	)		(7,615	)
Income before cumulative effect of				—			—			—			—
	accounting change			20,172			16,477			39,973			32,829
Cumulative effect of accounting change										(1,015	)		—
		Total consolidated net income	$	20,172		$	16,477		$	38,958		$	32,829
Average assets:
Total average earning assets for segments			$	5,982,126		$	4,834,447		$	5,889,164		$	4,666,565
Average non earning assets				370,904			256,608			329,687			241,302
		Total consolidated average assets	$	6,353,030		$	5,091,055		$	6,218,851		$	4,907,867

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

SELECTED FINANCIAL DATA

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2001		2000		2001			2000
Condensed income statements (in thousands):
	Interest income	$	126,177	$	112,447	$	254,928		$	217,628
	Interest expense		68,077		64,110		144,353			120,970
	Net interest income		58,100		48,337		110,575			96,658
	Provision for loan losses		17,800		11,158		32,800			23,178
	Net interest income after provision for loan losses		40,300		37,179		77,775			73,480
	Other income		11,403		9,507		21,298			18,442
	Gain on sale of investments		2,938		2,277		9,527			4,790
	Other operating expense		30,219		28,565		60,037			56,269
	Income before income tax expense and cumulative effect of accounting change		24,424		20,398		48,563			40,443
	Income tax expense		4,252		3,921		8,590			7,615
	Income before cumulative effect of accounting change		20,172		16,477		39,973			32,828
	Cumulative effect of accounting change		—		—		(1,015	)		—
	Net income	$	20,172	$	16,477	$	38,958		$	32,828
Per common share results-diluted:
	Income before cumulative effect of accounting change	$	0.64	$	0.55	$	1.26		$	1.08
	Cumulative effect of accounting change		—		—		(0.04	)		—
	Net income per common share — diluted	$	0.64	$	0.55	$	1.22		$	1.08
Selected financial ratios (in percent):
	Average yield on earning assets (1)		8.77		9.28		8.93			9.29
	Cost of interest bearing liabilities		4.92		5.68		5.34			5.57
	Interest rate spread (1)		3.85		3.60		3.59			3.72
	Net interest margin (1)		4.28		4.13		4.06			4.27
	Net income to average total assets		1.27		1.29		1.25			1.34
	Net income to average total equity		17.39		22.57		17.00			22.79
	Net income to average common equity		22.91		29.46		22.33			29.91
	Average equity to average total assets		7.30		5.73		7.37			5.87
	Dividend payout ratio		20.39		19.95		21.22			20.13
	Efficiency ratio (2)		41.71		47.51		42.46			46.93

				June 30,		December 31,
				2001		2000
Regulatory capital ratios (in percent):
	Total capital to risk weighted assets				15.70		14.43
	Tier 1 capital to risk weighted assets				12.83		11.23
	Tier 1 capital to average assets				8.50		7.28
Balance sheet data (in thousands):
		Loans receivable		$	3,857,495	$	3,498,198
		Allowance for loan losses			84,009		76,919
		Investments			2,350,774		2,233,216
		Total assets			6,430,698		5,919,657
		Deposits			3,689,365		3,345,984
		Borrowings			2,119,351		2,069,484
		Total common equity			292,481		269,461
		Total equity			550,481		434,461
		Book value per common share		$	11.00	$	10.20
			Number of full service branches		49		48
			Loan origination offices		42		38

(1)	On a taxable equivalent basis.
(2)	Other operating expenses to the sum of net interest income and other income.

     RESULTS OF OPERATIONS

     First BanCorp’s results of operations depend primarily upon its net interest income, which is the difference between the interest income earned on its earning assets, including investment securities and loans, and the interest expense on its interest bearing liabilities including deposits and borrowings. The Corporation’s results of operations also depend on the provision for loan losses; other income, mainly service charges and fees on loans; operating expenses, such as personnel, occupancy and other costs; and on gains on sales of securities.

     For the quarter ended on June 30, 2001, the Corporation recorded earnings of $20,171,799 or $0.64 per common share (basic and diluted), a per share increase of 16% as compared to earnings of $ 16,477,355 or $0.55 per common share (basic and diluted) for the second quarter of 2000. Earnings for the six months ended on June 30, 2001 amounted to $38,957,606 or $1.23 per common share (basic) and $1.22 per common share (diluted), as compared to earnings of $32,828,439 or $1.08 per common share (basic and diluted) for the same period of 2000. On a per share basis-diluted, earnings for the six months ended on June 30, 2001 increased by 13% as compared to earnings for the six months ended on June 30, 2000.

Net Interest Income

     Net interest income for the three and six months ended on June 30, 2001 increased by $9.8 million and $13.9 million, respectively, as compared with the same periods in 2000; or by $13.3 million and $17.7 million on a taxable equivalent basis. The interest rate spread and net interest margin, on a taxable equivalent basis, amounted to 3.85% and 4.28%, respectively, for the second quarter of 2001 as compared to 3.60% and 4.13%, respectively, for the second quarter of 2000. The interest rate spread and net interest margin on a taxable equivalent basis, amounted to 3.59% and 4.06%, respectively, for the six months ended on June 30, 2001 as compared to 3.72% and 4.27%, respectively, for the six months ended on June 30, 2000.

     Part I of the following table presents average volumes and rates on a taxable equivalent basis and Part II describes the respective extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affected the Corporation’s interest income and interest expense during the periods indicated. For each category of earning assets and interest bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in volume multiplied by old rates), (ii) changes in rate (changes in rate multiplied by old volumes). Rate-volume variances (changes in rate multiplied by the changes in volume) have been allocated to the changes in volume and changes in rate based upon their respective percentage of the combined totals.

PART I				Three months ended June 30,
				Average volume				Interest income (1) / expense							Average rate (1)
				2001		2000		2001		2000		2001				2000
				(Dollars in thousands)
Earning assets:
	Deposits at banks and other short-term investments			$	29,386	$	8,630	$	307	$	125		4.19	%			5.81	%
	Government obligations				571,042		519,694		9,071		8,801		6.37	%			6.81	%
	Mortgage backed securities				1,412,891		1,460,981		26,622		25,708		7.56	%			7.08	%
	FHLB stock				22,891		17,827		315		308		5.52	%			6.95	%
	Other investment				296,205		39,477		6,440		856		8.72	%			8.72	%
		Total investments			2,332,415		2,046,609		42,755		35,798		7.35	%			7.03	%
	Residential real estate loans				825,260		517,452		16,442		11,179		7.99	%			8.69	%
	Construction				223,284		168,982		4,557		4,196		8.19	%			9.99	%
	Commercial loans				1,523,432		1,150,400		30,182		25,953		7.95	%			9.07	%
	Finance leases				128,155		98,610		3,691		3,005		11.55	%			12.26	%
	Consumer loans				1,037,461		1,023,575		35,152		35,381		13.59	%			13.90	%
Total loans (2)					3,737,592		2,959,019		90,024		79,714		9.66	%			10.83	%
			Total earning assets	$	6,070,007	$	5,005,628	$	132,779	$	115,512		8.77	%			9.28	%
Interest-bearing liabilities:
	Deposits			$	3,360,525	$	2,686,233	$	41,389	$	35,913		4.94	%			5.38	%
	Other borrowed funds				1,889,217		1,825,318		23,146		27,772		4.91	%			6.12	%
	FHLB advances				294,523		26,351		3,541		425		4.82	%			6.49	%
	Total interest-bearing liabilities			$	5,544,267	$	4,537,902	$	68,076	$	64,110		4.92	%			5.68	%
Net interest income								$	64,703	$	51,402
Interest rate spread													3.85	%			3.60	%
Net interest margin													4.28	%			4.13	%

				Six months ended June 30,
				Average volume				Interest income (1) / expense							Average rate (1)
				2001		2000		2001		2000		2001				2000
				(Dollars in thousands)
Earning assets:
	Deposits at banks and other short-term investments			$	17,348	$	11,654	$	375	$	298		4.36	%			5.14	%
	Government obligations				567,671		499,782		19,043		16,580		6.76	%			6.67	%
	Mortgage backed securities				1,450,139		1,393,343		52,396		48,676		7.29	%			7.03	%
		FHLB stock			20,774		17,827		656		598		6.37	%			6.75	%
	Other investment				247,011		44,986		10,512		1,892		8.58	%			8.46	%
		Total investments			2,302,943		1,967,592		82,982		68,044		7.27	%			6.95	%
	Residential real estate loans				790,703		499,230		32,054		21,484		8.17	%			8.65	%
	Construction				217,881		156,503		9,690		7,768		8.97	%			9.98	%
	Commercial loans				1,497,514		1,103,412		62,231		50,009		8.38	%			9.11	%
	Finance leases				126,400		93,519		7,367		5,696		11.75	%			12.25	%
	Consumer loans				1,040,249		1,021,076		70,437		70,717		13.65	%			13.93	%
Total loans (2)					3,672,747		2,873,740		181,779		155,674		9.98	%			10.89	%
			Total earning assets	$	5,975,690	$	4,841,332	$	264,761	$	223,718		8.93	%			9.29	%
Interest-bearing liabilities:
	Deposits			$	3,283,354	$	2,581,762	$	85,654	$	67,279		5.26	%			5.24	%
	Other borrowed funds				1,958,174		1,753,204		53,586		52,576		5.52	%			6.03	%
	FHLB advances				205,092		36,105		5,112		1,116		5.03	%			6.22	%
	Total interest-bearing liabilities			$	5,446,620	$	4,371,071	$	144,352	$	120,971		5.34	%			5.57	%
Net interest income								$	120,409	$	102,747
Interest rate spread													3.59	%			3.72	%
Net interest margin													4.06	%			4.27	%

(1)	On a tax equivalent basis. The tax equivalent yield was computed dividing the interest rate spread on exempt assets by (1- statutory tax rate) and adding to it the cost of interest bearing liabilities. When adjusted to a tax equivalent basis, yields on taxable and exempt assets are comparative.
(2)	Non-accruing loans are included in the average balances.

PART II			Three months ended on June 30,									Six months ended on June 30,
			2001 compared to 2000									2001 compared to 2000
			Variance			Variance						Variance		Variance
			due to			due to			Total			due to		due to			Total
			volume			rate			variance			volume		rate			variance
			(In thousands)
Interest income on earning assets:
	Deposits at banks and other short-term investments		$	259		$	(77	)	$	182		$	135	$	(58	)	$	77
	Government obligations			858			(588	)		270			2,233		231			2,464
	Mortgage backed securities			(846	)		1,760			914			1,947		1,773			3,720
	FHLB stock			80			(73	)		7			96		(38	)		58
	Other investment			5,584						5,584			8,592		28			8,620
		Total investments		5,935			1,022			6,957			13,003		1,936			14,939
	Consumer loans			542			(770	)		(228	)		1,174		(1,454	)		(280	)
	Real estate loans			6,426			(1,164	)		5,262			12,190		(1,620	)		10,570
	Construction loans			1,239			(878	)		361			2,883		(961	)		1,922
	Commercial loans			7,780			(3,551	)		4,229			16,781		(4,559	)		12,222
	Finance leases			883			(197	)		686			1,959		(288	)		1,671
		Total loans		16,870			(6,560	)		10,310			34,987		(8,882	)		26,105
		Total interest income		22,805			(5,538	)		17,267			47,990		(6,946	)		41,044
Interest expense on interest bearing liabilities:
	Deposits			8,738			(3,262	)		5,476			18,118		257			18,375
	Other borrowed funds			926			(5,552	)		(4,626	)		5,841		(4,831	)		1,010
	FHLB advances			3,787			(672	)		3,116			4,731		(735	)		3,997
		Total interest expense		13,451			(9,485	)		3,966			28,690		(5,309	)		23,382
Change in net interest income			$	9,354		$	3,947		$	13,301		$	19,300	$	(1,637	)	$	17,662

     Total interest income includes tax equivalent adjustments based on the Puerto Rico income tax rate of $6.6 million and $9.8 million for the three and six months ended on June 30, 2001, and of $3.1 million and $6.1 million for the three and six months ended on June 30, 2000. The adjustments have been made on debt securities (primarily United States and Puerto Rico government obligations) and on loans guaranteed by United States and Puerto Rico government agencies. The computation considers the interest expense disallowance as required by the Puerto Rico tax law.

     Interest Income

     Interest income increased by $13.7 million and $37.3 million for the three and six months ended on June 30, 2001 as compared to the same periods for 2000. When adjusted to a taxable equivalent basis, interest income increased by $17.3 million and $41.0 million for the three and six months ended on June 30, 2001 as compared to the same periods in 2000. The yield on earning assets, on a taxable equivalent basis, amounted to 8.77% and 9.28% for the three months ended on June 30, 2001 and 2000, respectively, and 8.93% and 9.29% for the six months ended on June 30, 2001 and 2000, respectively. The improvement in the interest income for the periods analyzed was due to the increase in the average volume of earning assets. The average volume of earning assets increased by $1,064.4 million and $1,134.4 million for the three and six months ended on June 30, 2001, as compared to the same periods in 2000.

     The average volume of total investments increased by $285.8 million and $335.4 million for the three and six months period ended on June 30, 2001 as compared with the same periods in 2000, mostly concentrated in government obligations, mortgage backed securities and other investments.

     The average volume of the loan portfolio increased by $778.6 million and $799 million for the three and six months ended on June 30, 2001 as compared with the same periods in 2000, mostly concentrated in real estate and commercial loans. Residential real estate, construction loans, commercial loans, finance leases and consumer loans increased by $291.5 million, $61.4 million, $394.1 million, $32.9 million and $19.2 million, respectively, for the six months ended on June 30, 2001 as compared to the same period in 2000. The increase in the commercial real estate, construction and commercial loans portfolio resulted from the Corporation’s strategy of diversifying its asset base.

     Interest Expense

     Interest expense increased by $4.0 million and $23.4 million for the three and six months ended on June 30, 2001 as compared with the amounts recorded in the same periods of 2000. The increase in interest expense due to volume amounted to $13.5 million and $28.7 million for the three and six months ended on June 30, 2001 as compared to the same periods ended on June 30, 2000. The cost of interest bearing liabilities decreased from 5.68% and 5.57% for the three and six months period ended on June 30, 2000 to 4.92% and 5.34% for the three and six months period ended on June 30, 2001.

Provision for Loan Losses

     For the three and six months ended on June 30, 2001, the Corporation provided $17.8 million and $32.8 million, respectively, for possible loan losses, as compared to $11.2 million and $23.2 million for the same periods of 2000. The increase in the provision for loan losses was due to the growth of the total loan portfolio.

     The Corporation maintains an allowance for loan losses on its portfolio at a level that Management considers adequate to provide for probable losses in the portfolio based upon an evaluation of known and inherent risks. The Corporation establishes a quarterly allowance for loan losses based on its asset classification report to cover the

total amount of any assets classified as a “loss,” the probable loss exposure of other classified assets, and a percentage of the assets not classified. The adequacy of the allowance for loan losses is also based upon a number of additional factors including historical loan loss experience, current economic conditions, value of the underlying collateral, financial condition of the borrowers and other pertinent factors. Although Management believes that the allowance for loan losses is adequate, factors beyond the Corporation’s control, including factors affecting the Puerto Rico economy, may contribute to delinquencies and defaults thus necessitating additional reserves.

The following table sets forth an analysis of the activity in the allowance for loan losses during the periods indicated:

				Three months ended						Six months ended
				June 30,						June 30,
				2001			2000			2001			2000
				(Dollars in thousands)
	Allowance for loan losses, beginning of period			$	77,639		$	73,504		$	76,919		$	71,784
	Provision for loan losses				17,800			11,158			32,800			23,178
Loans Charge-Offs:
		Residential real estate									(107	)
		Commercial			(2,160	)		(1,003	)		(7,185	)		(1,800	)
		Finance leases			(689	)		(721	)		(1,352	)		(1,225	)
		Consumer			(10,501	)		(11,504	)		(20,625	)		(23,380	)
	Total charge-offs				(13,350	)		(13,229	)		(29,269	)		(26,406	)
	Recoveries of loans previously charged-off:
		Commercial			21			95			82			137
		Finance leases			42			61			96			116
		Consumer			1,857			2,511			3,381			5,291
			Total recoveries		1,920			2,667			3,559			5,544
	Net charge-offs				(11,430	)		(10,562	)		(25,710	)		(20,862	)
	Allowance for loan losses, end of period			$	84,009		$	74,100		$	84,009		$	74,100
	Allowance for loan losses to total loans				2.18	%		2.42	%		2.18	%		2.42	%
	Net charge-offs annualized to average loans outstanding during the period				1.22	%		1.43	%		1.40	%		1.45	%

Other Income

		Three months ended				Six months ended
		June 30,				June 30,
		2001		2000		2001		2000
		(Dollars in thousands)
Service charges on deposit accounts		$	2,385	$	2,207	$	4,770	$	4,615
Other fees on loans			5,171		4,335		9,795		7,743
Fees on loans serviced for others			120		125		233		284
Mortgage banking activities			708				714
Rental income			559		537		1,096		1,035
Other commissions			702		88		802		571
Other operating income			1,758		2,047		3,888		3,607
	Subtotal		11,403		9,339		21,298		17,855
Gain on sale of investments			2,938		2,277		9,527		4,790
Trading income					168				587
	Total	$	14,341	$	11,784	$	30,825	$	23,232

     Other income primarily consists of service charges on deposit accounts, fees on loans, commissions derived from various banking activities, the results of trading activities and gains on sale of investments. Service charges on deposit accounts represent an important and stable source of other income for the Corporation. Other fees on loans consist mainly of credit card fees and late charges collected on loans. The increase in this source of income to $5.2 million and $9.8 million for the three and six months ended on June 30, 2001, respectively, from $4.3 million and $7.7 million during the same periods in 2000 was due to fees generated on the increased portfolio of loans, and to the elimination on the prohibition of certain credit card fees in Puerto Rico. Fees on loans serviced for others reflect servicing fees on residential mortgage loans originated by the Corporation and subsequently securitized.

     Mortgage banking activities income is the result of a sale of a portfolio of mortgage loans to Fannie Mae during the second quarter of 2001.

     The Corporation’s second tier subsidiary, First Leasing and Rental Corporation, generates income on the rental of various types of motor vehicles.

     Other commissions income is the result of an agreement with Goldman, Sachs & Co. to participate in bond issues by the Government Development Bank of Puerto Rico.

     The other operating income category is composed of miscellaneous fees such as check fees and rental of safe deposit boxes. Other operating income also includes earned discounts on tax credits purchased and utilized against income tax payments, and other fees generated on the increased portfolio of commercial loans.

     The gains on sale of investment securities reflect market opportunities that arose and that are in consonance to the Corporation’s investment policies.

Other Operating Expenses

     The following table presents the detail of other operating expenses for the periods indicated:

		Three months ended				Six months ended
		June 30,				June 30,
		2001		2000		2001		2000
		(Dollars in thousands)
Employees’ compensation and benefits		$	13,463	$	12,953	$	26,593	$	25,413
Occupancy and equipment			6,018		5,736		11,828		11,175
Taxes and insurance			1,936		1,607		3,818		3,196
Net cost (gain) of operations and disposition of other real estate owned			27		19		128		55
Professional fees			619		629		1,164		1,348
Servicing and processing fees			1,188		1,444		2,503		2,958
Communications			1,368		1,374		2,659		2,737
Supplies and printing			325		281		658		618
Other			5,274		4,522		10,686		8,769
	Total	$	30,218	$	28,565	$	60,037	$	56,269

     Operating expenses increased to $30.2 million and $60.0 million for the three and six months ended June 30, 2001, respectively, as compared to $28.6 million and $56.3 million for the same periods in 2000. The increase in operating expenses for 2001 is mainly the result of the investments made in new technology, the general growth in the subsidiary Bank’s operations and the acquisition of a new branch in U.S. Virgin Islands (FVI).

     Management’s goal has been to make only expenditures that contribute clearly and directly to increase the efficiency and profitability of the Corporation. This control over other operating expenses has been an important factor contributing to the improvement in earnings in recent years. The Corporation’s efficiency ratio, which is the ratio of other operating expenses to the sum of net interest income and other income, was 42.5% for the six months period ended June 30, 2001 as compared to 46.9% for the same period last year.

Provision for Income Tax

     The provision for income tax amounted to $8.6 million (or 17.7% of pretax earnings) for the six months ended on June 30, 2001 as compared to $7.6 million (or 18.8% of pretax earnings) for the same period in 2000. The Corporation has maintained an effective tax rate lower than the statutory rate of 39% mainly by investing in obligations and loans exempt from federal and Puerto Rico income taxes.

     FINANCIAL CONDITION

Assets

     Total assets as of June 30, 2001 amounted to $6,431 million, an increase of $511 million as compared to total assets as of December 31, 2000 of $5,920 million. The increase was mainly the result of an increase of $359 million in total loans and $118 million in total investments.

     The composition of loans receivable:

		June 30,		December 31,		Increase
		2001		2000		(Decrease)
		(Dollars in thousands)
Residential real estate loans		$	849,713	$	746,792	$	102,921
Commercial real estate loans			540,248		438,321		101,927
Construction loans			229,777		203,955		25,822
Commercial loans			1,071,390		947,709		123,681
	Total commercial		1,841,415		1,589,985		251,430
Finance leases			129,830		122,883		6,947
Consumer and other loans			1,036,537		1,038,538		(2,001	)
	Total	$	3,857,495	$	3,498,198	$	359,297

     The fluctuation in the loans receivable category was the net result of total loan origination and purchases of $816.9 million and repayments and other adjustments of $457.6 million. The Corporation continued its strategy of diversifying its loan portfolio composition through the origination of commercial loans and residential real estate loans. This resulted in an increase of $251.4 million in the commercial loan portfolio and of $102.9 million in residential real estate loans. Finance leases, which are mostly composed of loans to individuals to finance the acquisition of an auto, increased by $6.9 million.

Non-performing Assets

     Total non-performing assets are the sum of non-accruing loans, OREO’s and other repossessed properties. Non-accruing loans are loans as to which interest is no longer being recognized. When loans fall into non-accruing status, all previously accrued and uncollected interest is charged against interest income.

     At June 30, 2001, total non-performing assets amounted to $68.4 million (1.06% of total assets) as compared to $74.1 million (1.25% of total assets) at December 31, 2000 and $57.4 million (1.22% of total assets) at December 31, 1999. The Corporation’s reserve to non-performing loans ratio was 136.0% at June 30, 2001 as compared to 113.6% and 133.4% at December 31, 2000 and 1999, respectively.

     Past due loans are loans delinquent 90 days or more as to principal and/or interest and still accruing interest.

     The following table presents non-performing assets at the dates indicated:

		June 30,			December 31,
		2001			2000			1999
		(Dollars in thousands)
Non-accruing loans:
	Residential real estate	$	14,539		$	15,977		$	8,633
	Commercial and commercial real estate		25,967			31,913			17,975
	Finance leases		2,054			2,032			2,482
	Consumer		19,210			17,794			24,726
			61,770			67,716			53,816
Other real estate owned (OREO)			3,193			2,981			517
Other repossessed property			3,392			3,374			3,112
Total non-performing assets		$	68,355		$	74,071		$	57,445
Past due loans		$	19,128		$	16,358		$	13,781
Non-performing assets to total assets			1.06	%		1.25	%		1.22	%
Non-performing loans to total loans			1.60	%		1.94	%		1.96	%
Allowance for loan losses		$	84,009		$	76,919		$	71,784
Allowance to total non-performing loans			136.00	%		113.59	%		133.39	%

     Non-accruing Loans

     Residential Real Estate Loans — The Corporation classifies all residential real estate loans delinquent 90 days or more in non-accruing status. Even though these loans are in non-accruing status, Management considers based on the value of the underlying collateral and the loan to value ratios, that no material losses will be incurred in this portfolio. Management’s understanding is based on the historical experience of the Corporation. Non-accruing residential real estate loans amounted to $14.5 million (1.71% of total residential real estate loans) at June 30, 2001, as compared to $16 million (2.14% of total residential real estate loans) and $8.6 million (1.82% of total residential real estate loans) at December 31, 2000 and 1999, respectively. The increase for the period ended on June 30, 2001 and the year 2000 as compared to the year ended 1999 is mainly due to the portfolio acquired from FVI.

     Commercial Loans — The Corporation places all commercial loans (including commercial real estate and construction loans) 90 days delinquent as to principal and interest in non-accruing status. The risk exposure of this portfolio is diversified. Non-accruing commercial loans amounted to $26 million (1.41% of total commercial loans) at June 30, 2001 as compared to $31.9 million (2.01% of total commercial loans) and $18 million (1.55% of total commercial loans) at December 31, 2000 and 1999, respectively. At June 30, 2001, there were only two non-accruing commercial loans of over $1 million, one is a $2.4 million and another of $1.4 million.

     Finance Leases — Finance leases are classified as non-accruing status when they are delinquent 90 days or more. Non-accruing finance leases amounted to $2.1 million (1.58% of total finance leases) at June 30, 2001, as compared to $2 million (1.65% of total finance leases) and $2.5 million (2.90% of total finance leases) at December 31, 2000 and 1999, respectively.

     Consumer Loans — Consumer loans are classified as non-accruing when they are delinquent 90 days in auto, boat and home equity reserve loans, 120 days in personal loans (including small loans) and 180 days in credit cards and personal lines of credit.

     Non-accruing consumer loans amounted to $19.2 million (1.85% of the total consumer loan portfolio) at June 30, 2001, $17.8 million (or 1.71% of the total consumer loan portfolio) at December 31, 2000 and $24.7 million (or 2.41% of the total consumer loan portfolio) at December 31, 1999.

     Other Real Estate Owned (OREO)

     OREO acquired in settlement of loans is carried at the lower of cost (carrying value of the loan) or fair value less estimated cost to sell off the real estate at the date of acquisition.

     Other Repossessed Property

     The other repossessed property category includes repossessed boats and autos acquired in settlement of loans. Repossessed boats are recorded at the lower of cost or estimated fair value. Repossessed autos are recorded at the principal balance of the loans less an estimated loss on the disposition of certain units.

     Past Due Loans

     Past due loans are accruing commercial and consumer loans, which are contractually delinquent 90 days or more. Past due commercial loans are current as to interest but delinquent in the payment of principal. Past due consumer loans include personal lines of credit and credit card loans delinquent 90 days up to 179 days and personal loans (including small loans) delinquent 90 days up to 119 days.

Sources of Funds

     As of June 30, 2001, total liabilities amounted to $5,880 million, an increase of $395 million as compared to $5,485 million as of December 31, 2000. The increase in total liabilities was mainly due to: (1) an increase in total deposits of $343 million; (2) an increase in advances from FHLB of $227 million; net of (3) a decrease in federal funds and securities sold under agreements to repurchase of $171 million.

     The Corporation maintains unsecured standby lines of credit with other banks. At June 30, 2001, the Corporation’s total unused lines of credit with these banks amounted to approximately $158,500,000 (2000 — $133,500,000). At June 30, 2001, the Corporation has an available line of credit with the FHLB guaranteed with excess collateral, in the amount of $21,280,606 (2000 - $66,841,562).

Capital

     Total stockholders’ equity as of June 30, 2001 amounted to $550 million, increasing by $116 million from the amount as of December 31, 2000. The increase was mainly the result of earnings for the period ended on June 30, 2001 of $39 million, the issuance of 3,720,000 shares of preferred stock at $90 million, the issuance of 234,000 shares of common stock through the exercise of stock options at a total cost of $1,355,211, reduced by dividends paid of $13 million, and the repurchase of 61,300 shares of common stock at a total cost of $1,317,388.

     The Corporation is subject to various regulatory capital requirements imposed by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk weightings and other factors.

     Capital standards established by regulations require the Corporation to maintain minimum amounts and ratios of Tier 1 capital to total average assets (leverage ratio) and ratios of Tier 1 and total capital to risk-weighted

assets, as defined in the regulations. The total amount of risk-weighted assets is computed by applying risk weighting factors to the Corporation’s assets, which vary from 0% to 100% depending on the nature of the asset.

     At June 30, 2001 and December 31, 2000, the Corporation was a well capitalized institution under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Corporation must maintain minimum total risk based, Tier 1 risk based and Tier 1 leverage ratios as set forth in the following table. Management believes that there are no conditions or events since that date that have changed that classification.

     The Corporation’s and its banking subsidiary’s regulatory capital positions were as follows:

			Regulatory requirements
								For capital
			Actual					Adequacy purposes					To be well capitalized
			Amount		Ratio			Amount		Ratio			Amount		Ratio
At June 30, 2001 (Dollars in thousands) Total Capital (to Risk-Weighted Assets):
		First BanCorp	$	653,658		15.70	%	$	333,062		8	%	$	416,327		10	%
		FirstBank		571,023		13.91	%		328,499		8	%		410,624		10	%
	Tier I Capital (to Risk-Weighted Assets):
		First BanCorp	$	534,042		12.83	%	$	166,531		4	%	$	249,796		6	%
		FirstBank		452,112		11.01	%		164,250		4	%		246,374		6	%
	Tier I Capital (to Average Assets):
		First BanCorp	$	534,042		8.50	%	$	188,404		3	%	$	314,006		5	%
		FirstBank		452,112		7.28	%		186,275		3	%		310,458		5	%
At December 31, 2000
	Total Capital (to Risk-Weighted Assets):
		First BanCorp	$	536,402		14.43	%	$	297,280		8	%	$	371,600		10	%
		FirstBank		469,774		12.76	%		294,516		8	%		368,145		10	%
	Tier I Capital (to Risk-Weighted Assets):
		First BanCorp	$	417,203		11.23	%	$	148,640		4	%	$	222,960		6	%
		FirstBank		351,001		9.53	%		147,258		4	%		220,887		6	%
	Tier I Capital (to Average Assets):
		First BanCorp	$	417,203		7.28	%	$	172,042		3	%	$	286,736		5	%
		FirstBank		351,001		6.18	%		170,307		3	%		283,846		5	%

Dividends

     During the period ended June 30, 2001, the Corporation declared two quarterly cash dividends of $0.13 per common share representing a 18% increase over the two quarterly cash dividends of $0.11 per common share declared for the same period in 2000. Total dividends declared per common share for the period ended on June 30, 2001 amounted to $6.9 million for an annualized dividend payout ratio of 21.22% as compared to $6 million for the period ended June 30, 2000 (or a 20.13% dividend payout ratio). Dividends declared on preferred stock amounted to $6.3 million for the period ended on June 30, 2001 as compared to $3.2 million for the same period last year.

Liquidity

     Liquidity refers to the level of cash and eligible investments readily available to meet loan and investment commitments, potential deposit outflows and debt repayments. The Corporation’s liquidity position and liquidity targets are reviewed on a weekly basis by the Asset Liability Management and Investment Committee, using measures of liquidity developed by Management.

     The Corporation’s principal sources of short-term funds are loan repayments, deposits, securities sold under agreements to repurchase, and lines of credit with the FHLB and other financial institutions. The Investment Committee reviews credit availability on a regular basis. In addition, the Corporation has securitized and sold auto and mortgage loans as a supplementary source of funding. Commercial paper had also provided additional funding.

The Corporation has obtained long-term funding through the issuance of notes and long-term institutional certificates of deposit. The Corporation’s principal uses of funds are the origination of loans and investments, and the repayment of maturing deposit accounts and borrowings.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information required herein is incorporated by reference from page 40 of the annual report to security holders for the year ended December 31, 2000.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The Corporation is a defendant in a number of legal proceedings arising out of, and incidental to its business. Based on its review with counsel on the development of these matters to date, Management is of the opinion that the ultimate aggregate liability, if any, resulting from these pending proceedings will not have a material adverse effect on the accompanying consolidated financial statements.

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 REPORT ON FORM 8-K

     Not applicable.

SIGNATURES

     Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

		First BanCorp.
		Name of the Corporation
Date: August 14, 2001	By:	/s/ Angel Alvarez-Perez, Esq.
		Angel Alvarez-Perez, Esq. Chairman, President and Chief Executive Officer
Date: August 14, 2001	By:	/s/ Annie Astor-Carbonell
		Annie Astor-Carbonell Senior Executive Vice President and Chief Financial Officer