First BanCorp. (FBP) 10-Q 2002 Q1 Quarterly report

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 March 31, 2002 Commission File 001-14793

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 León 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 May 10, 2002

26,571,952

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		PART I — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
	SIGNATURES

FIRST BANCORP
[CONTENTS]

PART I. FINANCIAL INFORMATION		PAGE
	Item 1. Financial Statements:
	Consolidated Statements of Financial Condition as of March 31, 2002 and December 31, 2001		3
	Consolidated Statements of Income for the three months ended on March 31, 2002 and 2001		4
	Consolidated Statements of Cash Flows for the three months ended on March 31, 2002 and 2001		5
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended on March 31, 2002 and the year ended on December 31, 2001		6
	Consolidated Statements of Comprehensive Income for the three months ended on March 31, 2002 and 2001		7
	Notes to Consolidated Financial Statements		8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
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		32
	Item 6. Exhibits and Report on Form 8-K		32
SIGNATURES			33

2

FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

			March 31, 2002			December 31, 2001
Assets
Cash and due from banks			$	51,150,620		$	59,898,550
Money market instruments				33,008,374			34,564,568
Investment securities available for sale, at market:
	Securities pledged that can be repledged			2,800,145,475			2,988,828,088
	Other investment securities			275,031,077			385,419,989
		Total investment securities available for sale		3,075,176,552			3,374,248,077
Investment securities held to maturity, at cost:
	Securities pledged that can be repledged			382,815,447			171,152,930
	Other investment securities			408,808,272			113,142,662
		Total investment securities held to maturity		791,623,719			284,295,592
Federal Home Loan Bank (FHLB) stock				35,629,500			22,890,600
Loans held for sale				3,628,902			4,629,562
Loans receivable				4,394,555,123			4,304,150,143
	Total loans			4,398,184,025			4,308,779,705
Allowance for loan losses				(99,466,766	)		(91,060,307	)
	Total loans — net			4,298,717,259			4,217,719,398
Other real estate owned				1,418,924			1,455,577
Premises and equipment — net				75,856,971			76,155,620
Accrued interest receivable				38,022,007			37,630,883
Due from customers on acceptances				63,458			262,153
Other assets				114,358,955			88,396,770
		Total assets	$	8,515,026,339		$	8,197,517,788
Liabilities and Stockholders’ Equity
Liabilities:
	Non-interest bearing deposits		$	211,728,405		$	239,850,816
	Interest bearing deposits			4,276,871,601			3,858,703,322
	Federal funds purchased and securities sold under agreements to repurchase			2,807,658,668			2,997,173,944
	Advances from FHLB			323,000,000			343,700,000
	Bank acceptances outstanding			63,458			262,153
	Accounts payable and other liabilities			117,622,143			70,547,126
				7,736,944,275			7,510,237,361
Subordinated notes				84,362,374			84,361,525
Stockholders’ equity:
	Preferred stock, authorized 50,000,000 shares: issued and outstanding 14,420,000 shares at $25.00 liquidation value per share (2001 - 10,740,000)			360,500,000			268,500,000
	Common stock, $1.00 par value, authorized 250,000,000 shares; issued 29,852,552 shares			29,852,552			29,852,552
	Less: Treasury stock (at par value)			(3,280,600	)		(3,280,600	)
	Common stock outstanding			26,571,952			26,571,952
	Additional paid-in capital			11,120,877			14,214,877
	Capital reserve			60,000,000			60,000,000
	Legal surplus			136,792,514			136,792,514
	Retained earnings			118,643,359			103,132,913
	Accumulated other comprehensive income — unrealized loss on securities available for sale, net of tax of $6,636,337 (2001-$2,097,785)			(19,909,012	)		(6,293,354	)
				693,719,690			602,918,902
Contingencies and commitments
		Total liabilities and stockholders’ equity	$	8,515,026,339		$	8,197,517,788

The accompanying notes are an integral part of these statements.

3

FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

			Three Months Ended
			March 31,		March 31,
			2002		2001
Interest income:
	Loans		$	83,494,479	$	91,237,301
	Investments			52,968,096		37,171,893
	Dividends on FHLB stock			253,288		341,072
		Total interest income		136,715,863		128,750,266
Interest expense:
	Deposits			32,543,519		44,265,034
	Short term borrowings			33,206,014		29,362,893
	Long term borrowings			1,695,111		2,648,050
		Total interest expense		67,444,644		76,275,977
		Net interest income		69,271,219		52,474,289
Provision for loan losses				19,800,499		15,000,000
Net interest income after provision for loan losses				49,470,720		37,474,289
Other income:
	Service charges on deposit accounts			2,478,104		2,385,603
	Other fees on loans			5,262,695		4,623,581
	Mortgage banking activities			481,504		108,252
	Gain on sale of investments			827,847		6,588,889
	Other operating income			3,440,620		2,777,237
		Total other income		12,490,770		16,483,562
Other operating expenses:
	Employees’ compensation and benefits			14,379,985		13,130,472
	Occupancy and equipment			6,827,228		5,810,258
	Business promotion			2,642,857		2,023,777
	Taxes			1,642,830		1,344,410
	Insurance			637,565		537,687
	Other			5,718,153		6,972,379
		Total other operating expenses		31,848,618		29,818,983
Income before income tax provision and cumulative effect of accounting change				30,112,872		24,138,868
Income tax provision				4,463,354		4,338,171
Income before cumulative effect of accounting change				25,649,518		19,800,697
Cumulative effect of accounting change, net of tax						(1,014,889	)
Net income			$	25,649,518	$	18,785,808
Net income available to common stockholders			$	19,496,241	$	15,617,057
Net income per common share (basic and diluted):
Income before cumulative effect of accounting change			$	0.73	$	0.63
Cumulative effect of accounting change						(0.04	)
Earnings per common share			$	0.73	$	0.59
Dividends declared per common share			$	0.15	$	0.13

The accompanying notes are an integral part of these statements.

4

FIRST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

				Three Months			Three Months
				Ended			Ended
				March 31, 2002			March 31, 2001
Cash flows from operating activities:
	Net income			$	25,649,518		$	18,785,808
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation		3,032,400			2,191,412
			Provision for loan losses		19,800,499			15,000,000
			Deferred tax asset provision		(4,711,069	)		(2,476,415	)
			Gain on sale of investments		(827,847	)		(6,588,889	)
			Increase in taxes payable		7,990,998			5,161,350
			Increase in accrued interest receivable		(391,124	)		(4,112,480	)
			(Decrease) increase in accrued interest payable		(234,342	)		6,776,636
			Amortization of deferred net loan fees		(380,201	)		77,668
			Decrease in loans held for sale		1,000,660
			Decrease in other assets		5,231,455			4,398,043
			Increase (decrease) in other liabilities		5,290,678			(6,565,902	)
			Total adjustments		35,802,107			13,861,423
			Net cash provided by operating activities		61,451,625			32,647,231
Cash flows from investing activities:
	Principal collected on loans				242,601,059			193,993,006
	Loans originated				(242,950,493	)		(335,767,853	)
	Purchase of loans				(108,164,420	)		(60,591,374	)
	Proceeds from sale of investments available for sale				32,339,811			201,195,628
	Purchase of securities held to maturity				(1,272,889,767	)		(29,012,587	)
	Purchase of securities available for sale				(6,697,672,750	)		(2,126,214,781	)
	Principal repayments and maturities of securities held to maturity				765,561,640			76,354,381
	Principal repayments of securities available for sale				6,945,918,714			1,835,211,115
	Additions to premises and equipment — net				(2,733,751	)		(4,087,146	)
	Purchase of FHLB stock				(12,738,900	)		(4,354,100	)
	Net cash used in investing activities				(350,728,857	)		(253,273,711	)
Cash flows from financing activities:
	Net increase in deposits				409,076,537			125,050,537
	Net decrease in federal funds purchased and securities sold under repurchase agreements				(188,170,358	)		(119,363,153	)
	FHLB advances paid/taken				(20,700,000	)		228,589,784
	Dividends				(10,139,071	)		(6,625,311	)
	Exercise of stock options							1,355,210
	Issuance of preferred stock				88,906,000
	Treasury stock acquired							(1,317,388	)
	Net cash provided by financing activities				278,973,108			227,689,679
	Net (decrease) increase in cash and cash equivalents				(10,304,124	)		7,063,199
	Cash and cash equivalents at beginning of period				94,463,118			65,392,939
	Cash and cash equivalents at end of period			$	84,158,994		$	72,456,138
Cash and cash equivalents include:
		Cash and due from banks		$	51,150,620		$	71,406,803
		Money market instruments			33,008,374			1,049,335
				$	84,158,994		$	72,456,138
___________________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
		Interest		$	67,678,987		$	69,499,341

The accompanying notes are an integral part of these statements.

5

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, 2000		$	165,000,000	$	26,424,152		$	16,567,516			$	50,000,000	$	126,792,514	$	69,275,152		$	(19,598,785	)
Net income																86,001,444
Other comprehensive income																			13,305,431
Issuance of preferred stock			103,500,000					(3,430,750	)
Addition to legal surplus														10,000,000		(10,000,000	)
Addition to capital reserve												10,000,000				(10,000,000	)
Treasury stock acquired					(86,200	)		(43,100	)	��						(1,800,385	)
Stock options exercised					234,000			1,121,211
Cash dividends:
	Common stock															(13,835,100	)
	Preferred stock															(16,508,198	)
December 31, 2001			268,500,000		26,571,952			14,214,877				60,000,000		136,792,514		103,132,913			(6,293,354	)
Net income																25,649,518
Other comprehensive income																			(13,615,658	)
Issuance of preferred stock			92,000,000					(3,094,000	)
Cash dividends:
	Common stock															(3,985,795	)
	Preferred stock															(6,153,277	)
March 31, 2002		$	360,500,000	$	26,571,952		$	11,120,877			$	60,000,000	$	136,792,514	$	118,643,359		$	(19,909,012	)

The accompanying notes are an integral part of these statements.

6

FIRST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

		Three Months Ended
		March 31,			March 31,
		2002			2001
Net income		$	25,649,518		$	18,785,808
Other comprehensive income, net of tax:
Unrealized (loss) gain on securities:
	Unrealized holding (losses) gains arising during the period net of tax of $4,745,514 (2001-$6,459,256)		(14,236,543	)		19,377,768
	Less: reclassification adjustment for gains included in net income net of tax of $206,962 (2001-$1,647,222)		(620,885	)		(4,941,667	)
Cumulative effect of accounting change, net of tax benefit of $331,500						994,500
Total other comprehensive (loss) income			(13,615,658	)		15,430,601
Comprehensive income		$	12,033,860		$	34,216,409

The accompanying notes are an integral part of these statements.

7

FIRST BANCORP
PART I — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 — NATURE OF BUSINESS

     First BanCorp (the Corporation) is a financial holding company offering a full range of financial services. First BanCorp is 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 wholly owned bank 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 it has 44 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 and residential mortgage loans. 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 offers brokerage services in selected branches through an alliance with a national brokerage house in Puerto Rico. 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).

     Effective August 2001, the Corporation entered into the insurance business through a wholly owned subsidiary, FirstBank Insurance Agency. This subsidiary is subject to the supervision, examination and regulation of the Office of the Commissioner of Insurance of Puerto Rico.

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, 2001 contained in the annual report of the Corporation. Certain amounts in the 2001 financial statements have been reclassified to conform with the 2002 presentation.

     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 March 31, 2002, and the results of operations and the cash flows for the three months ended on March 31, 2002 and 2001. The results of operations for the three months ended on March 31, 2002, are not necessarily indicative of the results to be expected for the entire year.

8

New accounting pronouncements

     During 2001 the Financial Accounting Standards Board issued the following statements of financial accounting standards (SFAS):

     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. This statement requires all business combinations to be accounted for using the purchase method of accounting. The provisions of this statement apply to all business combinations initiated after June 30, 2001. There have been no business combinations since that date.

     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. SFAS No. 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Specifically, under this statement, goodwill and other indefinite life intangibles will no longer be amortized but will be periodically evaluated for impairment. The standard also provides a methodology for evaluating impairment of goodwill and other intangibles based on fair value. The provisions of this statement apply to fiscal years beginning after December 15, 2001. Retroactive application is not permitted. The Corporation does not have goodwill. Management has reviewed the Corporation’s core deposit intangible assets as of January 1, 2002, and determined that there is no impairment of the intangible assets and that the useful life of ten years used to amortize them is the best estimate of the economic benefit period. At March 31, 2002, the Corporation has a core deposit intangible with a carrying amount of $6,969,623 (gross carrying amount of $9,170,846 and accumulated amortization of $2,201,223) included in the Other Assets category. The straight-line amortization expense for the quarter ended on March 31, 2002 amounted to $229,815. The estimated aggregate amortization expense for each of the five succeeding fiscal years will amount to approximately $919,260.

     SFAS No. 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets”- The objectives of this statement are to establish accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The provisions of this statement will be effective for financial statements issued for fiscal years beginning after June 15, 2002. Earlier application is encouraged. Management expects that the adoption of SFAS No. 143 will not have a significant impact on the Corporation’s financial position and the results of operations.

     SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets"- The scope of this statement is to develop a single accounting model for long-lived assets that are to be disposed of by sale, whether previously held and used or newly acquired. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Effective January 1, 2002, the Corporation adopted SFAS No. 144. This adoption did not have an impact on the Corporation’s financial position and the results of operations.

     3 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Corporation adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, on January 1, 2001. Upon adoption of SFAS No. 133, as amended, a loss of approximately $1.3 million was recognized in the statement of income as a cumulative effect, as a result of unamortized premium paid for caps of $1.5 million less an estimated fair market value of $200,000.

9

     Interest rate swaps had an unrealized loss of approximately $33,333,000 at March 31, 2002 ($15,053,000 at December 31, 2001).

4 — STOCKHOLDERS’ EQUITY

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 period ended on March 31, 2002, the Corporation issued 3,680,000 shares of preferred stock (4,140,000 shares-2001; 3,000,000 shares-2000; 3,600,000 shares-1999). The liquidation value per share is $25. Annual dividends of $1.8125 per share (issuance of 2002), 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 months ended on March 31, 2002 and 2001 are as follows:

					Three months ended
					March 31,
					2002			2001
(In thousands, except per share data)
Income before cumulative effect of accounting change					$	25,650		$	19,801
	and dividend on preferred stock
Dividend on preferred stock						(6,153	)		(3,169	)
Income before cumulative effect of accounting change						19,497			16,632
Cumulative effect of accounting change									(1,015	)
Net income available to common stockholders					$	19,497		$	15,617
Earnings per common share basic:
		Weighted average common shares outstanding				26,572			26,504
Income before cumulative effect of accounting change					$	0.73		$	0.63
Cumulative effect of accounting change									(0.04	)
Earnings per common share basic					$	0.73		$	0.59
Earnings per common share diluted:
		Weighted average common shares and share equivalents:
			Average common shares outstanding			26,572			26,504
			Common stock equivalents — Options			280			143
				Total		26,852			26,647
Income before cumulative effect of accounting change					$	0.73		$	0.63
Cumulative effect of accounting change									(0.04	)
Earnings per common share diluted					$	0.73		$	0.59

10

     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. At March 31, 2002, all options outstanding during the period have been included in the computation of outstanding shares. At March 31, 2001, 239,500 stock options were not included in the computation of outstanding shares because they were antidilutive.

     The stock option plan must be recognized either by the fair value method or the intrinsic value method. The Corporation uses the intrinsic value 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 method on awards granted to employees must make pro forma disclosures of net income and earnings per share, as if the fair value method of accounting had been applied. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period.

     During the three month period ended on March 31, 2002, the Corporation granted 348,500 options to buy shares of the Corporation’s common stock. Each option granted has an exercise price of $28.03, equal to the quoted market price of the stock at the grant date, therefore, no compensation cost was recognized on the options granted. No options were granted during the first quarter of 2001.

     Had compensation cost for the stock options granted during the first quarter of 2002 been determined based on the fair value at the grant date, the Corporation’s compensation cost, net income and earnings per common share would have been reduced to the pro forma amounts indicated below:

		Three months ended
		March 31, 2002
Pro forma information:
	(In thousands, except per share data)
Employees’ compensation and benefits		$	16,435
Net income-available to common stockholders		$	17,442
Earnings per common share-basic		$	0.66
Earnings per common share-diluted		$	0.65

     Management uses the binomial model for the computation of the fair value of each option granted to buy shares of the Corporation’s common stock. The fair value of each option granted during the quarter was estimated using the following assumptions: dividend yield of 2.98%; expected life of 3.29 years; expected volatility of 31.23%; and risk-free interest rate of 3.72%. The estimated fair value of the options granted was $5.897 per option.

6 — INVESTMENT SECURITIES

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

11

Investment Securities Available For Sale

					March 31, 2002
					Amortized		Unrealized					Market
					cost		gains		(losses)			value
				(Dollars in thousands)
U.S. Treasury Securities:
			Within 1 year
Obligations of other U.S Government Agencies:
			Within 1 year		$	257,035	$	3	$	(25	)	$	257,013
			After 5 to 10 years			500		1					501
			After 10 years			98,242		956		(1,002	)		98,196
Puerto Rico Government Obligations:
			After 5 to 10 years			4,858		152					5,010
			After 10 years			5,602		273					5,875
United States and Puerto Rico Government Obligations					$	366,237	$	1,385	$	(1,027	)	$	366,595
Mortgage backed securities:
FHLMC certificates:
			Within 1 year		$	4						$	4
			After 1 to 5 years			247	$	6					253
			After 5 to 10 years			12,151		542					12,693
			After 10 years			7,487		144	$	(8	)		7,623
						19,889		692	$	(8	)		20,573
	GNMA certificates:
			After 5 to 10 years			4,346		103		(19	)		4,430
			After 10 years			2,385,558		9,809		(16,772	)		2,378,595
						2,389,904		9,912		(16,791	)		2,383,025
	FNMA certificates:
			Within 1 year			30							30
			After 1 to 5 years			88		2					90
			After 5 to 10 years			104		4					108
			After 10 years			6,554		367					6,921
						6,776		373					7,149
Mortgage pass through certificates:
			After 10 years			1,621		29					1,650
Mortgage backed securities					$	2,418,190	$	11,006	$	(16,799	)	$	2,412,397
Corporate bonds:
		Within 1 year			$	19,280	$	220				$	19,500
		After 1 to 5 years				139,526		2,020	$	(6,854	)		134,692
		After 5 to 10 years				104,088		586		(3,775	)		100,899
		After 10 years
Corporate bonds					$	262,894	$	2,826	$	(10,629	)	$	255,091
Equity securities (without contractual maturity)					$	54,299	$	5,619	$	(18,824	)	$	41,094
Total Investments Securities
Available for Sale					$	3,101,620	$	20,836	$	(47,279	)	$	3,075,177

[Additional columns below]

[Continued from above table, first column(s) repeated]

					March 31, 2002		December 31, 2001
					Weighted											Weighted
					average		Amortized		Unrealized					Market		average
					yield%		cost		gains		(losses)			value		yield%
				(Dollars in thousands)
			Within 1 year				$	7,726	$	30				$	7,756		3.18
Obligations of other U.S Government Agencies:
			Within 1 year			1.74		407,324			$	(32	)		407,292		1.72
			After 5 to 10 years			5.59		500		1					501		5.59
			After 10 years			7.57		87,519		469		(1,805	)		86,183		7.55
Puerto Rico Government Obligations:
			After 5 to 10 years			6.25		4,458		128					4,586		6.19
			After 10 years			6.31		5,932		151					6,083		6.34
United States and Puerto Rico Government Obligations						3.44	$	513,459	$	779	$	(1,837	)	$	512,401		2.83
Mortgage backed securities:
FHLMC certificates:
			Within 1 year			4.39	$	8						$	8		5.85
			After 1 to 5 years			6.69		112	$	4					116		7.63
			After 5 to 10 years			7.31		13,211		576					13,787		7.29
			After 10 years			6.92		8,030		172	$	(6	)		8,196		6.95
						7.16		21,361		752		(6	)		22,107		7.16
	GNMA certificates:
			After 5 to 10 years			6.40		4,605		101					4,706		6.39
			After 10 years			6.50		2,515,953		12,672		(6,539	)		2,522,086		6.52
						6.50		2,520,558		12,773		(6,539	)		2,526,792		6.52
	FNMA certificates:
			Within 1 year			5.96
			After 1 to 5 years			7.15		158		4					162		6.92
			After 5 to 10 years			7.27		124		5					129		7.32
			After 10 years			7.77		7,095		408					7,503		7.96
						7.75		7,377		417					7,794		7.93
Mortgage pass through certificates:
			After 10 years			8.90		1,958		38					1,996		8.70
Mortgage backed securities						6.51	$	2,551,254	$	13,980	$	(6,545	)	$	2,558,689		6.53
Corporate bonds:
		Within 1 year				7.61	$	19,246	$	410				$	19,656		7.70
		After 1 to 5 years				6.57		118,919		1,770	$	(2,899	)		117,790		6.68
		After 5 to 10 years				7.36		114,855		77		(1,906	)		113,026		7.34
		After 10 years						18,531		328					18,859		7.35
Corporate bonds						6.96	$	271,551	$	2,585	$	(4,805	)	$	269,331		7.08
Equity securities (without contractual maturity)						1.21	$	45,115	$	4,901	$	(16,189	)	$	33,827		1.43
Total Investments Securities
Available for Sale						6.09	$	3,381,379	$	22,245	$	(29,376	)	$	3,374,248		5.95

     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.

12

Investment Securities Held to Maturity

			March 31, 2002											December 31, 2001
												Weighted											Weighted
			Amortized		Unrealized					Market		average		Amortized		Unrealized					Market		average
			cost		gains		(losses)			value		yield%		cost		gains		(losses)			value		yield%
			(Dollars in thousands)
U.S. Treasury Securities:
	Within 1 year		$	19,402			$	(2	)	$	19,400		1.75
Obligations of U.S Government Agencies:
	Within 1 year			325,000				(16	)		324,984		1.63
	After 10 years			373,952	$	10,410		(4,428	)		379,934		7.69	$	211,194	$	3	$	(6,466	)	$	204,731		7.39
Puerto Rico  Government
	Obligations:
	After 1 to 5 years			5,000							5,000		5.00		5,000							5,000		5.00
	After 10 years			4,150		375					4,525		6.50		4,084		228					4,312		6.50
United States and Puerto Rico Government Obligations			$	727,504	$	10,785	$	(4,446	)	$	733,843		4.80	$	220,278	$	231	$	(6,466	)	$	214,043		7.32
Corporate bonds:
		After 1 to 5 years	$	64,120	$	15	$	(157	)	$	63,978		3.62	$	64,018			$	(277	)	$	63,741		3.49
Total Investment Securities Held to Maturity			$	791,624	$	10,800	$	(4,603	)	$	797,821		4.70	$	284,296	$	231	$	(6,743	)	$	277,784		6.46

     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, in connection with the adoption of SFAS No. 133, the Corporation transferred a portfolio of $207 million of GNMA certificates from held to maturity into the available for sale category. The unrealized gain of $994,500, net of taxes, was reflected in other comprehensive income as a cumulative effect of the change in accounting principle.

7 — INVESTMENT IN FHLB STOCK

     At March 31, 2002 and December 31, 2001, there were investments in FHLB stock with book value of $35,629,500 and $22,890,600, respectively. The estimated market value of such investments is its redemption value.

8- IMPAIRED LOANS

     At March 31, 2002, the Corporation had $9.4 million ($10.7 million at December 31, 2001) in commercial and real estate loans over $1,000,000 considered impaired with an allowance of $2.8 million ($3.7 million at December 31, 2001), of which $1.3 million was established based on the fair value of the collateral (2001-$2 million) and $1.5 million was established based on the present value of expected future cash flows (2001-$1.7 million). The allowance for impairment loans is part of the allowance for loan losses. The average recorded investment in impaired loans amounted to $10.1 million for the three months ended on March 31, 2002 (2001 — $11.9 million). Interest income in the amount of approximately $102,743 and $41,911 was recognized on impaired loans for the period ended on March 31, 2002 and 2001, respectively.

13

9 — LOANS RECEIVABLE

     The following is a detail of the loan portfolio:

			March 31,			December 31,
			2002			2001
			(In thousands)
Residential real estate loans:
Secured by first mortgages:
	Conventional		$	1,015,125		$	955,573
	Insured by government agencies:
		Federal Housing Administration and Veterans Administration		26,602			25,211
		Puerto Rico Housing Bank and Finance Agency		22,344			23,513
Secured by second mortgages				7,586			8,088
				1,071,657			1,012,385
	Deferred net loan fees			(4,992	)		(5,107	)
Residential real estate loans				1,066,665			1,007,278
Commercial loans:
	Construction loans			211,432			219,396
	Commercial loans			1,235,304			1,238,173
	Commercial mortgage			731,050			688,922
Commercial loans				2,177,786			2,146,491
Finance leases				134,070			127,935
Consumer and other loans:
	Personal			360,089			362,490
	Personal lines of credit			11,129			11,216
	Auto			496,937			502,902
	Boat			43,815			39,570
	Credit card			168,269			176,226
	Home equity reserve loans			1,839			1,851
	Unearned interest			(66,044	)		(71,810	)
Consumer and other loans				1,016,034			1,022,445
Loans receivable				4,394,555			4,304,149
Loans held for sale				3,629			4,630
Total loans				4,398,184			4,308,779
Allowance for loan losses				(99,467	)		(91,060	)
Total loans-net			$	4,298,717		$	4,217,719

14

10 — 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. 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 of the Corporation’s financial statements for the year ended December 31, 2001 contained in the annual report of the Corporation.

     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 Treasury and Investment segment and other segments. 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 are based on market rates.

15

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

	Treasury and									Commercial
	Retail			Investments			Corporate			Total
For the quarter ended March 31, 2002:
Interest income	$	53,750		$	53,221		$	29,745		$	136,716
Net (charge) credit for transfer of funds		(11,089	)		25,072			(13,983	)
Interest expense		(14,716	)		(52,729	)					(67,445	)
Net interest income		27,945			25,564			15,762			69,271
Provision for loan losses		(12,945	)					(6,855	)		(19,800	)
Segment income	$	15,000		$	25,564		$	8,907		$	49,471
Average earning assets	$	2,125,998		$	3,723,122		$	2,127,754		$	7,976,874

	Treasury and									Commercial
	Retail			Investments			Corporate			Total
For the quarter ended March 31, 2001:
Interest income	$	53,996		$	37,513		$	37,241		$	128,750
Net (charge) credit for transfer of funds		(1,538	)		28,402			(26,864	)
Interest expense		(20,106	)		(56,170	)					(76,276	)
Net interest income		32,352			9,745			10,377			52,474
Provision for loan losses		(12,453	)					(2,547	)		(15,000	)
Segment income	$	19,899		$	9,745		$	7,830		$	37,474
Average earning assets	$	1,862,977		$	2,270,553		$	1,661,734		$	5,795,263

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

		Three months ended
		March 31,
		2002			2001
Net income:
Total income for segments		$	49,471		$	37,474
Other income			12,491			16,484
Operating expenses			(31,849	)		(29,819	)
Income taxes			(4,463	)		(4,338	)
Income before cumulative effect of accounting change			25,650			19,801
Cumulative effect of accounting change						(1,015	)
	Total consolidated net income	$	25,650		$	18,786
Average assets:
Total average earning assets for segments		$	7,976,874		$	5,795,263
Average non earning assets			319,132			289,408
	Total consolidated average assets	$	8,296,006		$	6,084,671

16

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

     SELECTED FINANCIAL DATA

		Three Months Ended
		March 31,
		2002		2001
Condensed income statements (in thousands):
	Interest income	$	136,716	$	128,750
	Interest expense		67,445		76,276
	Net interest income		69,271		52,474
	Provision for loan losses		19,800		15,000
	Net interest income after provision for loan losses		49,471		37,474
	Other income		11,663		9,895
	Gain on sale of investments		828		6,589
	Other operating expense		31,849		29,819
	Income before income tax expense and cumulative effect of accounting change		30,113		24,139
	Income tax expense		4,463		4,338
	Income before cumulative effect of accounting change		25,650		19,801
	Cumulative effect of accounting change				(1,015	)
	Net income	$	25,650	$	18,786
	Net income available to common stockholders	$	19,496	$	15,617
Per common share results (basic and diluted):
	Income before cumulative effect of accounting change	$	0.73	$	0.63
	Cumulative effect of accounting change				(0.04	)
	Net income per common share	$	0.73	$	0.59
	Cash dividends declared	$	0.15	$	0.13
Selected financial ratios (in percent):
	Average yield on earning assets (1)		7.54		9.12
	Cost of interest bearing liabilities		3.74		5.78
	Interest rate spread (1)		3.80		3.34
	Net interest margin (1)		4.15		3.86
	Net income to average total assets		1.24		1.23
	Net income to average total equity		15.17		16.60
	Net income to average common equity		22.31		21.72
	Average equity to average total assets		8.15		7.44
	Dividend payout ratio		20.44		22.13
	Efficiency ratio (2)		38.95		43.24

				March 31,		December 31,
				2002		2001
Regulatory capital ratios (in percent):
	Total capital to risk weighted assets				16.15		14.50
	Tier 1 capital to risk weighted assets				13.83		12.16
	Tier 1 capital to average assets				8.06		7.49
Balance sheet data (in thousands):
		Loans and loans held for sale		$	4,398,184	$	4,308,780
		Allowance for loan losses			99,467		91,060
		Investments			3,935,438		3,715,999
		Total assets			8,515,026		8,197,518
		Deposits			4,488,600		4,098,554
		Borrowings			3,215,021		3,425,236
		Total common equity			333,220		334,419
		Total equity			693,720		602,919
		Book value per common share		$	12.54	$	12.59
			Number of full service branches		48		48
			Loan origination offices		43		43

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

17

     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; gains on sales of investments; and income taxes.

     For the quarter ended on March 31, 2002, the Corporation recorded earnings of $25,649,518 or $0.73 per common share (basic and diluted), a per share increase of 23.7% as compared to earnings of $18,785,808 or $0.59 per common share (basic and diluted) for the first quarter of 2001.

     Net Interest Income

     Net interest income for the three months ended on March 31, 2002 increased by $16.8 million, as compared with the same period in 2001; or by $26.5 million on a taxable equivalent basis. The interest rate spread and net interest margin, on a taxable equivalent basis, amounted to 3.80% and 4.15%, respectively, for the first quarter of 2002 as compared to 3.34% and 3.86%, respectively, for the first quarter of 2001.

     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.

18

PART I			Three months ended March 31,
			Average volume				Interest income (1) / expense				Average rate (1)
			2002		2001		2002		2001		2002			2001
			(Dollars in thousands)
Earning assets:
	Money market instruments		$	44,469	$	5,177	$	200	$	68		1.82	%		5.33	%
	Government obligations			837,021		564,262		11,546		9,963		5.59	%		7.16	%
	Mortgage backed securities			2,459,453		1,487,801		47,377		25,691		7.81	%		7.00	%
	FHLB stock			23,457		18,633		253		341		4.37	%		7.42	%
	Corporate bonds			340,950		197,270		5,984		4,133		7.12	%		8.50	%
	Total investments			3,705,350		2,273,143		65,360		40,196		7.15	%		7.17	%
	Residential real estate loans			1,033,069		755,763		16,558		15,614		6.50	%		8.38	%
	Construction			212,774		212,417		2,888		5,148		5.51	%		9.83	%
	Commercial loans			1,952,038		1,471,375		26,917		32,158		5.59	%		8.86	%
	Finance leases			131,501		124,626		3,655		3,676		11.27	%		11.96	%
	Consumer loans			1,023,155		1,043,069		34,487		35,443		13.67	%		13.78	%
Total loans(2)				4,352,537		3,607,250		84,505		92,039		7.87	%		10.35	%
		Total earning assets	$	8,057,887	$	5,880,393	$	149,865	$	132,235		7.54	%		9.12	%
Interest-bearing liabilities:
	Deposits		$	4,095,233	$	3,205,325	$	32,544	$	44,265		3.22	%		5.60	%
	Other borrowed funds			2,888,810		2,027,897		30,998		30,440		4.35	%		6.09	%
	FHLB advances			325,869		114,667		3,903		1,571		4.86	%		5.56	%
	Total interest-bearing liabilities		$	7,309,912	$	5,347,889	$	67,445	$	76,276		3.74	%		5.78	%
Net interest income							$	82,420	$	55,959
Interest rate spread												3.80	%		3.34	%
Net interest margin												4.15	%		3.86	%

(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.

19

PART II			Three months ended on March 31,
			2002 compared to 2001
			Variance			Variance
			due to			due to			Total
			volume			rate			variance
			(In thousands)
Interest income on earning assets:
	Money market instruments		$	350		$	(218	)	$	132
	Government obligations			4,338			(2,755	)		1,583
	Mortgage backed securities			18,426			3,260			21,686
	FHLB stock			72			(160	)		(88	)
	Corporate bonds			2,751			(900	)		1,851
		Total investments		25,937			(773	)		25,164
	Consumer loans			(678	)		(278	)		(956	)
	Real estate loans			5,152			(4,207	)		945
	Construction loans			38			(2,298	)		(2,260	)
	Commercial loans			8,710			(13,951	)		(5,241	)
	Finance leases			200			(221	)		(21	)
		Total loans		13,422			(20,955	)		(7,533	)
		Total interest income		39,359			(21,728	)		17,631
Interest expense on interest bearing liabilities:
	Deposits			9,897			(21,618	)		(11,721	)
	Other borrowed funds			11,230			(10,672	)		558
	FHLB advances			2,733			(401	)		2,332
		Total interest expense		23,860			(32,691	)		(8,831	)
Change in net interest income			$	15,499		$	10,963		$	26,462

     Total interest income includes tax equivalent adjustments based on the Puerto Rico income tax rate of $13.1 million for the three months ended on March 31, 2002, and of $3.5 million for the three months ended on March 31, 2001. 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.

20

     Interest Income

     Interest income increased by $8.0 million for the three months ended on March 31, 2002 as compared to the same period for 2001. When adjusted to a taxable equivalent basis, interest income increased by $17.6 million for the three months ended on March 31, 2002 as compared to the same period in 2001. The yield on earning assets, on a taxable equivalent basis, amounted to 7.54% and 9.12% for the three months ended on March 31, 2002 and 2001, respectively. The improvement in the interest income for the periods analyzed was due to the increase in the average volume of earning assets, partially offset by a lower yield due to lower market rates. The average volume of earning assets increased by $2,177.5 million for the three months ended on March 31, 2002, as compared to the same period in 2001.

     The average volume of total investments increased by $1,432.2 million for the three month period ended on March 31, 2002 as compared with the same period in 2001, mostly concentrated in government obligations, mortgage backed securities and corporate bonds.

     The average volume of the loan portfolio increased by $745.3 million for the three months ended on March 31, 2002 as compared with the same period in 2001, mostly concentrated in residential real estate and commercial loans. Residential real estate and commercial loans increased by $277.3 million and $480.7 million, respectively, for the three months ended on March 31, 2002 as compared to the same period in 2001.

     Interest Expense

     Interest expense decreased by $8.8 million for the three months ended on March 31, 2002 as compared with the amount recorded in the same period of 2001. The decrease in the interest expense for the quarter ended on March 31, 2002 when compared with the same period last year, was the result of a decrease in the cost of interest bearing liabilities, due to lower market rates, causing a positive rate variance of $32.7 million, partially offset with an increase in the average volume of interest bearing liabilities generating a negative volume variance of $23.9 million. The cost of interest bearing liabilities decreased from 5.78% for the three month period ended on March 31, 2001 to 3.74% for the three month period ended on March 31, 2002.

     Provision for Loan Losses

     For the three months ended on March 31, 2002, the Corporation provided $19.8 million for possible loan losses, as compared to $15.0 million for the same period of 2001. 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 absorb losses inherent in the loan portfolio. 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, fair value of the underlying collateral, financial condition of the borrowers, and, as such, includes amounts based on judgments and estimates made by Management. 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.

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     The allowance for loan losses on commercial and real estate loans over $1 million is determined based on the present value of expected future cash flows or the fair value of the collateral, if the loan is collateral dependent.

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

			Three months ended
			March 31,
			2002			2001
			(Dollars in thousands)
Allowance for loan losses, beginning of period			$	91,060		$	76,919
Provision for loan losses				19,801			15,000
Loans Charge-Offs:
	Residential real estate			(36	)		(114	)
	Commercial			(846	)		(5,025	)
	Finance leases			(733	)		(663	)
	Consumer			(11,605	)		(10,117	)
	Total charge-offs			(13,220	)		(15,919	)
Recoveries of loans previously charged-off:
	Commercial			11			61
	Finance leases			70			54
	Consumer			1,745			1,524
		Total recoveries		1,826			1,639
Net charge-offs				(11,394	)		(14,280	)
Allowance for loan losses, end of period			$	99,467		$	77,639
Allowance for loan losses to total loans				2.26	%		2.11	%
Net charge-offs annualized to average loans outstanding during the period				1.05	%		1.58	%

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Other Income

		Three months ended
		March 31,
		2002		2001
		(Dollars in thousands)
Other fees on loans		$	5,263	$	4,624
Service charges on deposit accounts			2,478		2,386
Mortgage banking activities			482		108
Rental income			551		537
Insurance income			426
Other commissions			437		100
Other operating income			1,868		1,976
Other income before gain on sale of investments and dividend on equity securities			11,505		9,731
Gain on sale of investments			828		6,589
Dividend on equity securities			158		164
	Total	$	12,491	$	16,484

     Other income primarily consists of fees on loans; service charges on deposit accounts; commissions derived from various banking, securities and insurance activities; and gains on sale of investments. Other fees on loans consist mainly of credit card fees and late charges collected on loans. The increase of approximately $639,000 during the first quarter of 2002 when compared with the first quarter of 2001 was mainly due to fees generated on the increased portfolio of loans.

     Service charges on deposit accounts represent an important and stable source of other income for the Corporation.

     Mortgage banking activities income reflects the servicing fees on residential mortgage loans originated by the Corporation and subsequently securitized or sold, and gain on sale of loans.

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

     Insurance income includes the commissions earned by the new subsidiary FirstBank Insurance Agency, Inc.

     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, and an agreement with a national brokerage house in Puerto Rico to offer brokerage services in selected branches.

     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 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.

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     Other Operating Expenses

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

		Three months ended
		March 31,
		2002		2001
		(Dollars in thousands)
Employees’ compensation and benefits		$	14,380	$	13,130
Occupancy and equipment			6,827		5,810
Business promotion			2,643		2,024
Taxes			1,643		1,344
Insurance			638		538
Net cost of operations and disposition of other real estate owned			121		101
Professional fees			740		545
Servicing and processing fees			1,285		1,315
Communications			1,299		1,291
Supplies and printing			284		333
Other			1,989		3,388
	Total	$	31,849	$	29,819

     Operating expenses increased to $31.8 million for the three months ended on March 31, 2002, as compared to $29.8 million for the same period in 2001. The increase in operating expenses for 2002 is mainly the result of technology investments and the general growth in the subsidiary Bank’s operations.

     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 38.95% for the three months period ended March 31, 2002 as compared to 43.24% for the same period last year.

     Provision for Income Tax

     The provision for income tax amounted to $4.5 million (or 14.8% of pretax earnings) for the three months ended on March 31, 2002 as compared to $4.3 million (or 18.0% of pretax earnings) for the same period in 2001. 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.

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     FINANCIAL CONDITION

     Assets

     Total assets as of March 31, 2002 amounted to $8,515 million, an increase of $317 million as compared to total assets as of December 31, 2001 of $8,198 million. The increase was mainly the result of an increase of $89 million in total loans and $219 million in total investments and money market instruments.

     The composition of loans receivable:

		March 31,		December 31,		Increase
		2002		2001		(Decrease)
		(Dollars in thousands)
Residential real estate loans		$	1,070,294	$	1,011,908	$	58,386
Commercial real estate loans			731,050		688,922		42,128
Construction loans			211,432		219,396		(7,964	)
Commercial loans			1,235,304		1,238,173		(2,869	)
	Total commercial		2,177,786		2,146,491		31,295
Finance leases			134,070		127,935		6,135
Consumer and other loans			1,016,034		1,022,445		(6,411	)
	Total	$	4,398,184	$	4,308,779	$	89,405

     The fluctuation in the loans receivable category was the net result of total loan origination and purchases of $351.1 million and repayments and other adjustments of $261.7 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 $31.3 million in the commercial loan portfolio and of $58.4 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 $6.1 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 March 31, 2002, total non-performing assets amounted to $78 million (0.91% of total assets) as compared to $79 million (0.96% of total assets) at December 31, 2001 and $74 million (1.25% of total assets) at December 31, 2000. The Corporation’s allowance for loan losses to non-performing loans ratio was 139.7% at March 31, 2002 as compared to 124.7% and 113.6% at December 31, 2001 and 2000, respectively.

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

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

		March 31,			December 31,
		2002			2001			2000
		(Dollars in thousands)
Non-accruing loans:
	Residential real estate	$	18,915		$	18,540		$	15,977
	Commercial and commercial real estate		30,883			29,378			31,913
	Finance leases		2,422			2,469			2,032
	Consumer		18,981			22,611			17,794
			71,201			72,998			67,716
Other real estate owned (OREO)			1,419			1,456			2,981
Other repossessed property			5,040			4,596			3,374
Total non-performing assets		$	77,660		$	79,050		$	74,071
Past due loans		$	26,121		$	27,497		$	16,358
Non-performing assets to total assets			0.91	%		0.96	%		1.25	%
Non-performing loans to total loans			1.62	%		1.69	%		1.94	%
Allowance for loan losses		$	99,467		$	91,060		$	76,919
Allowance to total non-performing loans			139.70	%		124.74	%		113.59	%

     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 $19 million (1.77% of total residential real estate loans) at March 31, 2002, as compared to $19 million (1.83% of total residential real estate loans) and $16 million (2.14% of total residential real estate loans) at December 31, 2001 and 2000, respectively.

     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 $31 million (1.42% of total commercial loans) at March 31, 2002 as compared to $29 million (1.37% of total commercial loans) and $32 million (2.01% of total commercial loans) at December 31, 2001 and 2000, respectively. At March 31, 2002, there were only one non-accruing commercial loan of over $1 million, of $1.2 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 million (1.81% of total finance leases) at March 31, 2002, as compared to $2 million (1.93% of total finance leases) and $2 million (1.65% of total finance leases) at December 31, 2001 and 2000, 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 million (1.87% of the total consumer loan portfolio) at March 31, 2002, $23 million (or 2.21% of the total consumer loan portfolio) at December 31, 2001 and $18 million (or 1.71% of the total consumer loan portfolio) at December 31, 2000.

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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.

     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 March 31, 2002, total liabilities amounted to $7,821 million, an increase of $226 million as compared to $7,595 million as of December 31, 2001. The increase in total liabilities was mainly due to: (1) an increase in total deposits of $390 million; (2) an increase in accounts payable and other liabilities of $47 million; net of a decrease in federal funds and securities sold under agreements to repurchase of $190 million; and (4) a decrease in advances from FHLB of $21 million.

     The Corporation maintains unsecured standby lines of credit with other banks. At March 31, 2002, the Corporation’s total unused lines of credit with these banks amounted to approximately $180,000,000 (2001 — $180,000,000). At March 31, 2002, the Corporation has an available line of credit with the FHLB guaranteed with excess collateral, in the amount of $17,000,000. At March 31, 2002, the Corporation has available collateral that can be pledged with the FHLB to obtain additional line of credit in the amount of $627,000,000.

     Capital

     Total stockholders’ equity as of March 31, 2002 amounted to $694 million, increasing by $91 million from the amount as of December 31, 2001. The increase was mainly the result of earnings for the period ended on March 31, 2002 of $26 million, the issuance of 3,680,000 shares of preferred stock at $89 million, reduced by a negative fluctuation in the valuation of securities available for sale of $14 million, and dividends paid of $10 million.

     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.

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     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 March 31, 2002 and December 31, 2001, the most recent notification from FDIC, categorized the Corporation as 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
			(Dollars in thousands)
At March 31, 2002
	Total Capital (to Risk-Weighted Assets):
		First BanCorp	$	776,500		16.15	%	$	384,759		8	%	$	480,948		10	%
		FirstBank		600,239		12.64	%		379,927		8	%		474,909		10	%
	Tier I Capital (to Risk-Weighted Assets):
		First BanCorp	$	665,383		13.83	%	$	192,379		4	%	$	288,569		6	%
		FirstBank		489,867		10.31	%		189,964		4	%		284,945		6	%
	Tier I Capital (to Average Assets):
		First BanCorp	$	665,383		8.06	%	$	247,614		3	%	$	412,689		5	%
		FirstBank		489,867		6.01	%		244,675		3	%		407,792		5	%
At December 31, 2001
	Total Capital (to Risk-Weighted Assets):
		First BanCorp	$	678,679		14.50	%	$	374,498		8	%	$	468,123		10	%
		FirstBank		590,652		12.75	%		370,472		8	%		463,090		10	%
	Tier I Capital (to Risk-Weighted Assets):
		First BanCorp	$	569,255		12.16	%	$	187,249		4	%	$	280,874		6	%
		FirstBank		481,850		10.41	%		185,236		4	%		277,854		6	%
	Tier I Capital (to Average Assets):
		First BanCorp	$	569,255		7.49	%	$	228,074		3	%	$	380,124		5	%
		FirstBank		481,850		6.40	%		225,738		3	%		376,231		5	%

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     Dividends

     During the period ended March 31, 2002, the Corporation declared a quarterly cash dividend of $0.15 per common share representing a 15% increase over the quarterly cash dividend of $0.13 per common share declared for the same period in 2001. Total dividends declared per common share for the period ended on March 31, 2002 amounted to $4 million for an annualized dividend payout ratio of 20.44% as compared to $3.5 million for the period ended March 31, 2001 (or a 22.13% dividend payout ratio). Dividends declared on preferred stock amounted to $6.2 million for the period ended on March 31, 2002 as compared to $3.2 million for the same period last year.

     Contractual Obligations and Commitments

     The following table presents a detail of the maturities of contractual debt obligations and commitments to extend credit:

			Total		Less than 1 year		1-3 years		After 5 years
Contractual Obligations:
	Federal funds purchased and securities
		sold under agreements to repurchase	$	2,797,155	$	822,195	$	156,500	$	1,818,460
	Advances from FHLB			323,000				50,000		273,000
	Subordinated Notes			84,362				84,362
Total Contractual Cash Obligations			$	3,204,517	$	822,195	$	290,862	$	2,091,460
Other Commitments:
	Lines of Credit		$	299,321	$	299,321
	Standby Letters of Credit			25,415		25,415
	Other Commercial Commitments			628,873		628,873
Total Commercial Commitments			$	953,609	$	953,609

     The Corporation has obligations and commitments to make future payments under contracts, such as debt, and under other commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since certain commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. In the case of credit cards and personal lines of credit, the Corporation can at any time and without cause, cancel the unused credit facility.

     The Corporation has obligations to make future payments under lease agreements contracts. The maturities of the operational leases are included on page 75 of the Corporation’s annual report to security holders for the year ended December 31, 2001.

     Critical Accounting Policies and Practices

     The information required herein is incorporated by reference from page 43 of the annual report to security holders for the year ended December 31, 2001.

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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 the past, 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 pages 41 to 43 of the annual report to security holders for the year ended December 31, 2001.

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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

     On April 30, 2002 First BanCorp held its annual meeting of stockholders. The number of shares present in person and/or by proxy at such meeting was 24,730,145 representing 93.07% of the 26,571,952 shares of common stock issued and outstanding on March 15, 2002. March 15, 2002 was the record date for the determination of the stockholders entitled to vote at the meeting.

     The following was voted upon at the Annual Meeting of Stockholders:

     (a) The election of the following directors:

	For		Withheld
Annie Astor-Carbonell		22,542,445		2,187,700
Rafael Bouet-Souffront		24,674,693		55,452
Jorge L. Díaz		23,620,268		1,109,877

     The following are the directors whose terms of office continue:

Angel Alvarez-Pérez

Juan Acosta Reboyras

José Julián Alvarez

José L. Ferrer Canals

Héctor M. Nevares

José Teixidor

     (b) Ratification of the appointment of PricewaterhouseCoopers as the Corporation’s Independent Accountants for fiscal year 2002.

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     The appointment of PricewaterhouseCoopers was ratified as follows:

For	21,606,620
Against	55,452
Abstain	3,068,073

ITEM 5. OTHER INFORMATION

     Not applicable.

ITEM 6. EXHIBITS AND REPORT ON FORM 8-K

a)	None
b)	On April 25, 2002, the Corporation filed a Report on Form 8-K, reporting under item 5, a Definitive Agreement to acquire JPMorgan Chase’s Eastern Caribbean Region business in the U.S. Virgin Islands, British Virgin Islands and Barbados. The transactions contemplated in the Definitive Agreement are subject to regulatory approval.

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SIGNATURES

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

		First BanCorp. Name of the Corporation
Date: May 13, 2002	By:	/s/ Angel Alvarez-Pérez Angel Alvarez-Pérez, Esq. Chairman, President and Chief Executive Officer
Date: May 13, 2002	By:	/s/ Annie Astor-Carbonell Annie Astor-Carbonell Senior Executive Vice President and Chief Financial Officer

33