10-K

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

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended December 31, 2002
	OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-14793

First BanCorp.
(Exact name of registrant 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)

Registrant’s telephone number, including area code:

(787) 729-8200

Securities registered under Section 12(b) of the Act:

Common Stock ($1.00 par value)

7.125% Noncumulative Perpetual Monthly Income
Preferred Stock, Series A (Liquidation Preference $25 per share)
8.35% Noncumulative Perpetual Monthly Income
Preferred Stock, Series B (Liquidation Preference $25 per share)
7.40% Noncumulative Perpetual Monthly Income
Preferred Stock, Series C (Liquidation Preference $25 per share)
7.25% Noncumulative Perpetual Monthly Income
Preferred Stock, Series D (Liquidation Preference $25 per share)

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Securities registered under Section 12(g) of the Act:

Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   [X]                  No [   ]

Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X]                  No [   ]

State the aggregate market value of the voting common stock held by nonaffiliates of the Corporation: Approximately $895,105,000 (based on the closing sales price of $25.133 at June 28, 2002 for such shares). Number of shares of Common Stock outstanding as of March 18, 2003:

39,955,285

Documents Incorporated by Reference

(1)  Portions of the Annual Report to security holders for the fiscal year ended December 31, 2002 are incorporated by reference in Part I, II and IV; and (2) Portions of the definite proxy statement filed on/or about March 28, 2003 are incorporated by reference in Part III.

Forward Looking Statements

When used in this Form 10-K or future filings by First BanCorp (First BanCorp or the “Corporation”) with the Securities and Exchange Commission, in the Corporation’s press releases or other public or shareholder communication, or in oral statements made with the approval of an authorized executive officer, the words or phrases “would be”, “will allow”, “intends to”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimated”, “project”, “believe”, or similar expressions are intended to identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

The future results of the Corporation could be affected by subsequent events and could differ materially from those expressed in forward-looking statements. If future events and actual performance differ from the Corporation’s assumptions, the actual results could vary significantly from the performance projected in the forward-looking statements.

The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities, competitive and regulatory factors and legislative changes, could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

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TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors, Executive Officers and Control Persons of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
PART IV
	Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EX-13 ANNUAL REPORT TO SHAREHOLDERS
EX-21 LIST OF SUBSIDIARIES
EX-99.1 CERTIFICATION OF THE CEO
EX-99.2 CERTIFICATION OF THE CFO

FIRST BANCORP

CONTENTS

PART I
	Item 1.	Business	4
	Item 2.	Properties	19
	Item 3.	Legal Proceedings	19
	Item 4.	Submission of Matters to a Vote of Security Holders	19
PART II
	Item 5.	Market for Registrant’s Common Stock and Related Stockholder Matters	20
	Item 6.	Selected Financial Data	21
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
	Item 8.	Financial Statements and Supplementary Data	21
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	21
PART III
	Item 10.	Directors, Executive Officers and Control Persons of the Registrant	22
	Item 11.	Executive Compensation	22
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	22
	Item 13.	Certain Relationships and Related Transactions	22
	Item 14.	Controls and Procedures	22
PART IV
	Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	23
SIGNATURES			25
CERTIFICATIONS			27

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PART I

Item 1. Business

GENERAL

     First BanCorp is a publicly owned financial holding company offering a full range of financial services through its wholly owned subsidiaries, FirstBank Puerto Rico (FirstBank) and FirstBank Insurance Agency. First BanCorp is subject to the Federal Bank Holding Company Act and to the regulations, supervision, and examination of the Federal Reserve Board. Its insurance subsidiary, FirstBank Insurance Agency, is subject to the supervision, examination and regulation of the Commissioner of Insurance of Puerto Rico.

     Based on total assets, the Corporation is the second largest bank holding company headquartered in the Commonwealth of Puerto Rico and the second depository institution in Puerto Rico. The Corporation had total assets of $9.644 billion, total deposits of $5.483 billion and total stockholders’ equity of $798.4 million at December 31, 2002.

     The Corporation’s wholly owned bank subsidiary, FirstBank, chartered in 1948, was the first savings and loan association established in Puerto Rico. It has been a stockholder-owned institution since January 1987. Effective at the close of business on October 31, 1994, FirstBank converted to a Puerto Rico chartered commercial bank. The Bank is subject to supervision, examination and regulation by the Office of the Commissioner of Financial Institutions of Puerto Rico (the Commissioner) and the Federal Deposit Insurance Corporation (FDIC), which insures its deposits through the Savings Association Insurance Fund (SAIF). FirstBank conducts its business through its main office located in San Juan, Puerto Rico, 43 full-service branches in Puerto Rico and 11 full-service branches in the U.S. and British Virgin Islands. The Bank also has nine loan origination offices focusing on mortgage loans, and two loan origination offices focusing on auto loans. The Bank offers brokerage services in selected branches through an alliance with a national brokerage house in Puerto Rico. FirstBank has four subsidiaries, First Leasing and Rental Corporation, a vehicle and daily rental company with six offices, First Federal Finance Corp. D/B/A Money Express “La Financiera”, a small loan company with 27 offices, FirstBank Insurance Agency V.I., Inc., with one office selling insurance in the U.S. Virgin Islands and First Trade Inc., a trade financing subsidiary with one office in the Virgin Islands and one office in Barbados. The Virgin Islands operations of FirstBank are regulated by the Virgin Islands Banking Board (for the USVI) and by the British Virgin Islands Financial Services Commission (for the BVI).

     In October 2002, the Corporation acquired JPMorgan Chase’s Eastern Caribbean Region business in the U.S. Virgin Islands, British Virgin Islands and Barbados. In addition to branches acquired, this transaction included the acquisition of the assets of the former Chase Trade, Inc., now the aforementioned First Trade, Inc., and of all outstanding shares of the former Chase Agency Services, Inc., now the aforementioned FirstBank Insurance Agency V.I., Inc.

     First BanCorp has distinguished itself by providing innovative marketing strategies and novel products to attract clients. Besides its branches and specialized lending offices, the Corporation has offered a telephone information service called “Telebanco” since 1983. This was the first telebanking service offered in Puerto Rico. First BanCorp clients have access to an extensive ATM network with access all over the world. The Corporation was also the first in Puerto Rico to open on weekends and the first to offer in-store branches to its clients. First BanCorp was also the first banking institution in

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Puerto Rico with a presence on the internet. The Corporation now offers a wide menu of internet banking services to its clients.

     First BanCorp is committed to providing the most efficient and cost effective banking services possible. Management’s goal is to make the Corporation the premier financial institution in Puerto Rico and the Virgin Islands, recognized for consistently exceeding the expectations of its clients, employees and stockholders.

     The information under the caption “President’s Letter” on pages 15 to 17 and the information under Note 30 — Segment Information on pages 78 to 80 of the Corporation’s annual report to security holders for the year ended December 31, 2002 are incorporated herein by reference.

WEBSITE ACCESS TO REPORTS

     We made our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 available free of charge on or through our internet website www.firstbankpr.com, (First BanCorp section, Company Filings link), as soon as reasonably practicable after we electronically file such material with, or furnish it to , the SEC.

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SUPERVISION AND REGULATION

     Bank Holding Company Activities and Other Limitations. The Corporation is subject to ongoing regulation, supervision, and examination by the Federal Reserve Board, and is required to file with the Federal Reserve Board periodic and annual reports and other information concerning its own business operations and those of its subsidiaries. In addition, under the provisions of the Bank Holding Company Act, a bank holding company must obtain Federal Reserve Board approval before it acquires directly or indirectly ownership or control of more than 5% of the voting shares of a second bank. Furthermore, Federal Reserve Board approval must also be obtained before such a company acquires all or substantially all of the assets of a second bank or merges or consolidates with another bank holding company. The Federal Reserve Board also has authority to issue cease and desist orders against holding companies and their non-bank subsidiaries.

     Under the Federal Reserve Board policy, a bank holding company such as the Corporation is expected to act as a source of financial strength to its main banking subsidiaries and to also commit support to them. This support may be required at times when, absent such policy, the bank holding company might not otherwise provide such support. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to the federal bank regulatory agency to maintain capital of a subsidiary bank will be assumed by the bankruptcy trustee and be entitled to a priority of payment. In addition, any capital loans by a bank holding company to any of its subsidiary banks must be subordinated in right of payment to deposits and to certain other indebtedness of such subsidiary bank. FirstBank is currently the only depository institution subsidiary of the Corporation.

     The Gramm-Leach-Bliley Act, revised and expanded the provisions of the Bank Holding Company Act by including a section that permits a bank holding company to elect to become a financial holding company to engage in a full range of financial activities. In 2000, the Corporation elected this option and is currently a financial holding company. The qualification requirements and the process for a bank holding company that elects to be treated as a financial holding company requires that all the subsidiary banks controlled by the bank holding company at the time of election to become a financial holding company must be and remain at all times well capitalized and well managed.

     The financial holding companies may engage, directly or indirectly, in any activity that is determined to be (i) financial in nature, (ii) incidental to such financial activity, or (iii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. The Gramm-Leach-Bliley Act, specifically provides that the following activities have been determined to be “financial in nature”: (a) Lending, trust and other banking activities; (b) Insurance activities; (c) Financial or economic advice or services; (d) Pooled investments; (e) Securities underwriting and dealing; (f) Existing bank holding company domestic activities; (g) Existing bank holding company foreign activities; and (h) Merchant banking activities. The Corporation offers insurance agency services through its wholly-owned subsidiary, FirstBank Insurance Agency, Inc. and through FirstBank Insurance Agency V. I., Inc., a subsidiary of FirstBank Puerto Rico.

     In addition, the Gramm-Leach-Bliley Act specifically gives the Federal Reserve Board the authority, by regulation or order, to expand the list of “financial” or “incidental” activities, but requires consultation with the U.S. Treasury, and gives the Federal Reserve Board authority to allow a financial holding company to engage in any activity that is “complementary” to a financial activity and does not “pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.”

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     State Chartered Non-Member Bank. FirstBank is subject to extensive regulation and examination by the Commissioner and the FDIC, and subject to certain requirements established by the Federal Reserve Board. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing and availability of deposited funds and the nature and amount of and collateral for certain loans. In addition to the impact of regulations, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.

     Dividend Restrictions. The Corporation is subject to certain restrictions generally imposed on Puerto Rico corporations (i.e., that dividends may be paid out only from the Corporation’s net assets in excess of capital or in the absence of such excess, from the Corporation’s net earnings for such fiscal year and/or the preceding fiscal year). The Federal Reserve Board has also issued a policy statement that provides that bank holding companies should generally pay dividends only out of current operating earnings.

     At present, the principal source of funds for the Corporation is earnings from FirstBank. The ability of FirsBank to pay dividends on its common stock is restricted by the Banking Law (as defined herein), the Federal Deposit Insurance Act and FDIC regulations. In general terms, the Puerto Rico Banking Law provides that when the expenditures of a bank are greater than receipts, the excess of expenditures over receipts shall be charged against undistributed profits of the bank and the balance, if any, shall be charged against the required reserve fund of the bank. If there is no sufficient reserve fund to cover such balance in whole or in part, the outstanding amount shall be charged against the bank’s capital account. The Puerto Rico Banking Law provides that until said capital has been restored to its original amount and the reserve fund to 20% of the original capital, the bank may not declare any dividends.

     In general terms, the Federal Deposit Insurance Act and the FDIC regulations restrict the payment of dividend when a bank is undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding such bank.

     Limitations on Transactions with Affiliates. Transactions between financial institutions such as the Bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act and by Regulation W, which becomes effective on April 1, 2003. An affiliate of a financial institution is any company or entity, which controls, is controlled by or is under common control with the financial institution. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the financial institution. Generally, Sections 23A and 23B of the Federal Reserve Act (i) limit the extent to which the financial institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary, as those provided to a non-affiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and other similar transactions.

     The Gramm-Leach-Bliley Act provides that financial subsidiaries of banks be treated as affiliates for purposes of sections 23A and 23B of the Federal Reserve Act, but provides that (i) the 10% capital limit on transactions between the bank and such financial subsidiary as an affiliate is not applicable, and (ii) the investment by the bank in the financial subsidiary does not include retained

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earnings in the financial subsidiary. Certain anti-evasion provisions have been included that relate to the relationship between any financial subsidiary of a bank and sister companies of the bank: (1) any purchase of, or investment in, the securities of a financial subsidiary by any affiliate of the parent bank is considered a purchase or investment by the bank; or (2) if the Federal Reserve Board determines that such treatment is necessary, any loan made by an affiliate of the parent bank to the financial subsidiary is to be considered a loan made by the parent bank.

     In addition, Sections 22(h) and (g) of the Federal Reserve Act, implemented through Regulation “O”, place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h) of the Federal Reserve Act loans to a director, an executive officer and to a greater than 10% stockholder of a financial institution, and certain affiliated interests of these, may not exceed, together with all other outstanding loans to such person and affiliated interests, the financial institution’s loans to one borrower limit, generally equal to 15% of the institution’s unimpaired capital and surplus. Section 22(h) of the Federal Reserve Act also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons and also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) of the Federal Reserve Act places additional restrictions on loans to executive officers.

     Capital Requirements. The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the Bank Holding Company Act. The Federal Reserve Board capital adequacy guidelines generally require bank holding companies to maintain total capital equal to 8% of total risk-adjusted assets, with at least one-half of that amount consisting of Tier I or core capital and up to one-half of that amount consisting of Tier II or supplementary capital. Tier I capital for bank holding companies generally consists of the sum of common stockholders’ equity and perpetual preferred stock, subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier I capital, less goodwill and, with certain exceptions, other intangibles. Tier II capital generally consists of hybrid capital instruments, perpetual preferred stock which is not eligible to be included as Tier I capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, generally allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics, with the categories ranging from 0% (requiring no additional capital) for assets such as cash to 100% for the bulk of assets which are typically held by a bank holding company, including multi-family residential and commercial real estate loans, commercial business loans and commercial loans. Off-balance sheet items also are adjusted to take into account certain risk characteristics.

     In addition to the risk-based capital requirements, the Federal Reserve Board requires bank holding companies to maintain a minimum leverage capital ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose does not include goodwill and any other intangible assets and investments that the Federal Reserve Board determines should be deducted from Tier I capital. The Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio requirement is the minimum for the top-rated bank holding companies without a supervisory, financial or operational weaknesses or deficiencies or those which are not experiencing or anticipating significant growth. Other bank holding companies will be expected to maintain Tier I leverage capital ratios of at least 4.0% or more, depending on their overall condition.

     FDIC Capital Requirements. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered non-member banks like the Bank. These

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requirements are substantially similar to those adopted by the Federal Reserve Board regarding bank holding companies, as described above.

     The FDIC also requires that banks meet a risk-based capital standard. The risk-based capital standard for banks requires the maintenance of total capital (which is defined as Tier I capital and supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining the amount of risk-weighted assets of 0% to 100%, weights used are based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier I capital are equivalent to those discussed above under the 3% leverage capital standard. The components of supplementary capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and generally allowances for loan and lease losses. Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital.

     The FDIC’s capital regulations establish a minimum 3.0% Tier I capital to total assets requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC’s regulation, the highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization and are rated composite I under the Uniform Financial Institutions Rating System. Leverage or core capital is defined as the sum of common stockholders’ equity including retained earnings, noncumulative perpetual preferred stock and related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill and certain purchased mortgage servicing rights. At December 31, 2002, the most recent notification from FDIC, categorized the Bank as a well-capitalized institution under the regulatory framework for prompt corrective action.

     Activities and Investments. The activities and equity investments of FDIC-insured, state-chartered banks such as the Bank are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investments of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met. In addition, an insured state-chartered bank may not, directly, or indirectly through a subsidiary, engage as “principal” in any activity that is not permissible for a national bank unless the FDIC has determined that such activity would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. Any insured state-chartered bank directly or indirectly engaged in any activity that is not permitted for a national bank must cease the impermissible activity.

     Puerto Rico Banking Law. As a commercial bank organized under the laws of Commonwealth, FirstBank is subject to supervision, examination and regulation by the Commissioner

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pursuant to the Puerto Rico Banking Law of 1933, as amended (the Banking Law). The Banking Law contains provisions governing the incorporation and organization, rights and responsibilities of directors, officers and stockholders as well as the corporate powers, lending limitations, capital requirements, investment requirements and other aspects of the Bank and its affairs. In addition, the Commissioner is given extensive rule making power and administrative discretion under the Banking Law.

     The Banking Law authorizes Puerto Rico commercial banks to conduct certain financial and related activities directly or through subsidiaries, including finance leasing of personal property and operating a small loan company.

     The Banking Law requires every bank to maintain a legal reserve which shall not be less than twenty percent (20%) of its demand liabilities, except government deposits (federal, state and municipal) which are secured by actual collateral. The reserve is required to be composed of any of the following securities or combination thereof: (1) legal tender of the United States; (2) checks on banks or trust companies located in any part of Puerto Rico, to be presented for collection during the day following that on which they are received, and (3) money deposited in other banks provided said deposits are authorized by the Commissioner, subject to immediate collection.

     The Banking Law permits Puerto Rico commercial banks to make loans to any one person, firm, partnership or corporation, up to an aggregate amount of fifteen percent (15%) of paid-in capital and reserve fund of the commercial bank. If such loans are secured by collateral worth at least twenty-five percent (25%) more than the amount of the loan, the aggregate maximum amount may reach one third of the paid-in capital of the commercial bank, plus its reserve fund. There are no restrictions under the Banking Law on the amount of loans which are wholly secured by bonds, securities and other evidences of indebtedness of the Government of the United States, of the Commonwealth of Puerto Rico, or by bonds, not in default, of municipalities or instrumentalities of the Commonwealth of Puerto Rico.

     The Banking Law prohibits Puerto Rico commercial banks from making loans secured by their own stock, and from purchasing their own stock, unless such purchase is made pursuant to a stock repurchase program approved by the Commissioner or is necessary to prevent losses because of a debt previously contracted in good faith. The stock so purchased by the Puerto Rico commercial bank must be sold by the bank in a public or private sale within one year from the date of purchase.

     The Banking Law provides that no officers, directors, agents or employees of a Puerto Rico commercial bank may serve or discharge a position of officer, director, agent or employee of another Puerto Rico commercial bank, financial company, savings and loan association, trust company, company engaged in granting mortgage loans or any other institution engaged in the money lending business in Puerto Rico. This prohibition is not applicable to the subsidiaries of a Puerto Rico commercial bank.

     The Banking Law requires that Puerto Rico commercial banks strike each year a general balance of their operations, and to submit such balance for approval to a regular general meeting of stockholders, together with an explanatory report thereon. The Banking Law also requires that at least ten percent (10%) of the yearly net income of a Puerto Rico commercial bank be credited annually, to a reserve fund. This apportionment is required to be done every year until such reserve fund shall be equal to the total paid in capital of the bank.

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     The Banking Law also provides that when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over receipts shall be charged against the undistributed profits of the bank, and the balance, if any, shall be charged against the reserve fund, as a reduction thereof. If there is no reserve fund sufficient to cover such balance in whole or in part, the outstanding amount shall be charged against the capital account and no dividend shall be declared until said capital has been restored to its original amount and the reserve fund to twenty percent (20%) of the original capital.

     The Finance Board, which is composed of the Commissioner, the Secretary of the Treasury, the Secretary of Commerce, the Secretary of Consumer Affairs, the President of the Economic Development Bank, the President of the Government Development Bank, and the President of the Planning Board, has the authority to regulate the maximum interest rates and finance charges that may be charged on loans to individuals and unincorporated businesses in Puerto Rico. The current regulations of the Finance Board provide that the applicable interest rate on loans to individuals and unincorporated businesses, including real estate development loans but excluding certain other personal and commercial loans secured by mortgages on real estate properties, is to be determined by free competition. Regulations adopted by the Finance Board deregulated the maximum finance charges on retail installment sales contracts, and for credit card purchases. These regulations do not set a maximum rate for charges on retail installment sales contracts and for credit card purchases and set aside previous regulations which regulated these maximum finance charges. Furthermore, there is no maximum rate set for installment sales contracts involving motor vehicles, commercial, agricultural and industrial equipment, commercial electric appliances and insurance premiums.

     International Banking Act of Puerto Rico (IBE Act). The business and operations of the First BanCorp and FirstBank IBE’s are subject to supervision and regulation by the Commissioner. Under the IBE Act, certain sales, encumbrances, assignments, mergers, exchange or transfer of shares, interest or participation in the capital of an international banking entity (an “IBE”) may not be initiated without the prior approval of the Commissioner. The IBE Act and the regulations issued thereunder by the Commissioner (the “IBE Regulations”) limit the business activities that may be carried out by an IBE. Such activities are limited in part to persons and assets located outside of Puerto Rico.

     Pursuant to the IBE Act and the IBE Regulations, the First BanCorp and FirstBank IBE’s must maintain books and records of all its transactions in the ordinary course of business. The First BanCorp and FirstBank are also required thereunder to submit to the Commissioner quarterly and annual reports of its financial condition and results of operations, including annual audited financial statements.

     The IBE Act empowers the Commissioner to revoke or suspend, after notice and hearing, a license issued thereunder if, among other things, the IBE fails to comply with the IBE Act, the IBE Regulations or the terms of its license, or if the Commissioner finds that the business or affairs of the IBE are conducted in a manner that is not consistent with the public interest.

     Insurance Operations Regulation. FirstBank Insurance Agency, Inc. is registered as an insurance agency with the Commissioner of Insurance of Puerto Rico. FirstBank Insurance Agency, Inc. is subject to regulations issued by the Commissioner of Insurance of Puerto Rico and FDIC relating to, among other things, licensing of employees, sales, solicitation and advertising practices, and consumer protections.

     Community Reinvestment. Under the Community Reinvestment Act (“CRA”), federally insured banks have a continuing and affirmative obligation to meet the credit needs of their entire community, including low and moderate-income residents, consistent with its safe and sound

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operation. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit and institution’s discretion to develop the type of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the federal supervisory agencies, as part of the general examination of supervised banks, to assess the bank’s record of meeting the credit needs of its community, assign a performance rating, and to take such record and rating into account in its evaluation of certain applications by such bank. The CRA also requires all institutions to make public disclosure of their CRA ratings. FirstBank received a “satisfactory” CRA rating in its most recent examination.

     Recent Legislation. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), which became law on July 30, 2002, added new legal requirements for public companies affecting corporate governance, accounting and corporate reporting.

     The Sarbanes-Oxley Act provides for, among other things:

• a prohibition on personal loans made or arranged by the issuer to its directors and executive officers (except for loans made by a bank subject to Regulation O);

• independence requirements for audit committee members;

• independence requirements for company auditors;

• certification of financial statements on Forms 10-K and 10-Q reports by the chief executive officer and the chief financial officer;

• the forfeiture by the chief executive officer and the chief financial officer of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by such officers in the twelve month period following initial publication of any financial statements that later require restatement due to corporate misconduct;

• disclosure of off-balance sheet transactions;

• two-business day filing requirements for insiders filing Form 4s;

• disclosure of a code of ethics for financial officers and filing a Form 8-K for a change in or waiver of such code;

• the reporting of securities violations “up the ladder” by both in-house and outside attorneys;

• restrictions on the use of non-GAAP financial measures in press releases and SEC filings;

• the formation of a public accounting oversight board; and

• various increased criminal penalties for violations of securities laws.

     The Sarbanes-Oxley Act contains provisions which became effective upon enactment on July 30, 2002 and provisions which will become effective from within 30 days to one year from enactment.

     The SEC has been delegated the task of enacting rules to implement various provisions. In addition, each of the national stock exchanges has proposed new corporate governance rules, including

12

rules strengthening director independence requirements for boards, the adoption of corporate governance codes and charters for the nominating, corporate governance and audit committees.

     As part of the USA Patriot Act, signed into law on October 26, 2001, Congress adopted the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the “Act”). The Act authorizes the Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to financial institutions such as banks, bank holding companies, broker-dealers and insurance companies. Among its other provisions, the Act requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering in United States private banking accounts and correspondent accounts maintained for non-United States persons or their representatives; and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign shell bank that does not have a physical presence in any country. In addition, the Act expands the circumstances under which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours.

MARKET AREA AND COMPETITION

     Puerto Rico, where the banking market is highly competitive, is the main geographic service area of the Corporation. According to the latest industry statistics published by the Commissioner, Puerto Rico has 17 banking institutions with approximately $67 billion in assets. The Corporation ranked second based on total assets. The largest bank in order of size was Banco Popular de Puerto Rico. Puerto Rico banks are subject to the same federal laws, regulations and supervision that apply to similar institutions on the United States mainland.

     In addition, the Corporation competes with brokerage firms with retail operations, credit unions, cooperatives, small loan companies and mortgage banks in Puerto Rico.

     The Corporation encounters intense competition in attracting and retaining deposits and in its consumer and commercial lending activities. The Corporation competes for loans with other financial institutions, some of which are larger and have available resources greater than those of the Corporation.

     Management believes that the Corporation has been able to compete effectively for deposits and loans by offering a variety of transaction account products and loans with competitive features, by pricing its products at competitive interest rates and by offering convenient branch locations and emphasizing the quality of its service. The Corporation’s ability to originate loans depends primarily on the rates and fees charged and the service it provides to its borrowers in making prompt credit decisions. There can be no assurance that in the future the Corporation will be able to continue to increase its deposit base or originate loans in the manner or on the terms on which it has done so in the past.

13

FINANCIAL CONDITION

     The Corporation’s total assets at December 31, 2002 amounted to $9,644 million, $1,446 million over the $8,198 million at December 31, 2001.

     The following table sets forth the maturity distribution of earning assets at December 31, 2002:

		As of December 31, 2002
		Maturities
				After one year
				through five years				After five years
				Fixed		Variable		Fixed		Variable
		One year		interest		interest		interest		interest
		or less		rates		rates		rates		rates		Total
		(In thousands)
Money market securities		$	273,660									$	273,660
Investment securities(1)			103,328	$	63,138	$	59,432	$	3,218,492	$	10,619		3,455,009
Loans(2):
	Residential real estate		61,627		87,219		99,472		817,825		787,925		1,854,068
	Construction		27,268		2,126				2,803		226,856		259,053
	Commercial and commercial real estate		423,580		58,368		267,497		163,349		1,319,511		2,232,305
	Lease financing		3,717		108,539				31,156				143,412
	Consumer		429,289		649,459		3,081		52,941		14,242		1,149,012
Total Loans			945,481		905,711		370,050		1,068,074		2,348,534		5,637,850
	Total	$	1,322,469	$	968,849	$	429,482	$	4,286,566	$	2,359,153	$	9,366,519

(1)	Equity securities and FHLB stock were included under the “one year or less category”.
(2)	Non-accruing loans were included under the “one year or less category”.

LENDING ACTIVITIES

     At December 31, 2002 First BanCorp’s lending activities include total commercial loans of $2,491 million (44% of total loans), total consumer loans of $1,149 million (20% of total loans), and total residential mortgage loans of $1,854 million (33% of total loans). The Corporation’s portfolio of commercial loans is composed in its majority of asset based financing and commercial real estate loans. Total commercial loans include $814 million in commercial real estate loans and $259 million in construction loans. The consumer loan portfolio consists principally of auto loans, personal loans and credit cards. The portfolio of finance leases of $143 million (3% of total loans), is mostly composed of loans to individuals to finance the acquisition of an auto.

14

     The following table sets forth the composition of First BanCorp’s total loans at the dates indicated.

			Year ended December 31,
			2002			2001			2000			1999			1998
			(In thousands)
Residential real estate loans:
	Secured by first mortgages:
		Conventional	$	1,778,046		$	955,573		$	695,344		$	395,885		$	237,561
		Insured by government agencies:
		Federal Housing Administration and Veterans Administration		41,805			25,211			20,004			6,543			8,185
		Puerto Rico Housing Corporation and Finance Agency		19,060			23,513			28,037			32,928			38,516
	Secured by second mortgages			7,650			8,088			8,964			5,706			4,956
				1,846,561			1,012,385			752,349			441,062			289,218
Deferred net loan fees				(3,247	)		(5,107	)		(5,557	)		(5,293	)		(6,848	)
Residential real estate loans				1,843,314			1,007,278			746,792			435,769			282,370
Commercial loans:
		Construction, land acquisition and land improvements		467,978			413,218			484,986			288,302			161,498
	Undisbursed portion of loans in process			(208,925	)		(193,822	)		(281,031	)		(156,234	)		(98,535	)
	Construction loans			259,053			219,396			203,955			132,068			62,963
	Commercial loans			1,418,792			1,238,173			947,709			655,417			368,549
	Commercial mortgage			813,513			688,922			438,321			371,643			332,219
Commercial loans				2,491,358			2,146,491			1,589,985			1,159,128			763,731
Finance leases				143,412			127,935			122,883			85,692			52,214
Consumer loans:
	Personal			424,332			373,706			401,548			435,858			472,716
	Auto			565,478			502,902			530,534			532,242			512,116
	Boat			53,017			39,570			33,954			37,018			32,209
	Credit card			164,172			176,226			174,797			168,045			125,956
	Home equity reserve			4,566			1,851			2,134			2,657			3,385
	Unearned finance interest			(62,553	)		(71,810	)		(104,429	)		(148,836	)		(145,284	)
Consumer and other loans				1,149,012			1,022,445			1,038,538			1,026,985			1,001,098
Loans receivable				5,627,096			4,304,149			3,498,198			2,707,574			2,099,413
Loans held for sale				10,754			4,630						37,794			20,642
		Total loans		5,637,850			4,308,779			3,498,198			2,745,368			2,120,054
Allowance for loan losses				(111,911	)		(91,060	)		(76,919	)		(71,784	)		(67,854	)
		Total loans-net	$	5,525,939		$	4,217,719		$	3,421,279		$	2,673,584		$	2,052,200

15

     The following table sets forth the composition of First BanCorp’s total loan portfolio before the allowance for loan losses and the estimated weighted average taxable equivalent interest rates of loans in each category at December 31, 2002.

		December 31, 2002
				Weighted
		(In thousands)		average rate
Residential real estate loans		$	1,854,068		5.43	%
Construction loans			259,053		5.13	%
Commercial and commercial real estate loans			2,232,305		5.03	%
Finance leases			143,412		10.14	%
Consumer loans:
	Auto		550,697		10.69	%
	Personal		377,303		16.47	%
	Credit card		164,172		14.98	%
	Boat		52,274		8.53	%
	Home equity reserve loans		4,566		7.45	%
Total consumer and other loans			1,149,012		13.13	%
Total		$	5,637,850		6.95	%

Loan Activity

     The following table sets forth certain additional data related to the Corporation’s loan portfolio net of the allowance for loan losses for the dates indicated:

	For the year ended December 31,
	2002			2001			2000			1999			1998
	(Dollars in thousands)
Beginning balance	$	4,217,719		$	3,421,279		$	2,673,584		$	2,052,200		$	1,901,590
Residential real estate loans originated and purchased		1,045,268			613,698			416,077			216,713			93,552
Commercial loans originated and purchased		581,654			798,038			555,530			623,590			307,009
Finance leases originated		54,750			45,094			65,646			51,618			34,427
Consumer loans originated		431,588			363,582			423,411			515,348			371,333
Total loans originated(1)		2,113,260			1,820,412			1,460,664			1,407,269			806,321
Sales and securitizations of loans		(80,446	)		(41,060	)					(1,267	)
Repayments and prepayments		(635,765	)		(897,832	)		(646,581	)		(719,964	)		(559,727	)
Other decreases(2)		(88,829	)		(85,080	)		(66,388	)		(64,654	)		(95,984	)
Net increase		1,308,220			796,440			747,695			621,384			150,610
Ending balance	$	5,525,939		$	4,217,719		$	3,421,279		$	2,673,584		$	2,052,200
Percentage increase		31.02	%		23.28	%		27.97	%		30.28	%		7.92	%

(1)	Loan origination includes $435 million acquired from JP Morgan Chase VI operations together with the assumption of $557 million in deposits.
(2)	Includes the change in the allowance for loan losses and cancellation of loans due to the repossession of the collateral.

16

INVESTMENT ACTIVITIES

     The Corporation’s investments are managed by the Treasury and Investment Division, under the supervision of the Senior Vice President, Treasury and Investments, who reports to the Corporation’s Senior Executive Vice President and Chief Financial Officer. Investment policy for the holding company is set by the Corporation’s Investment Committee, which includes the President and Chief Executive Officer, the Senior Executive Vice President and Chief Financial Officer, the Executive Vice President for Retail and Mortgage Banking, the Senior Vice President for Treasury and Investments, and the Economist. Significant investment transactions are reported to the Investment Committee.

     Investment policy for FirstBank, the principal subsidiary of First BanCorp, is set by the Bank’s Asset Liability Management and Investment Committee (ALCO), which has the same members of the Corporation’s Investment Committee. The ALCO sets investment policies, monitors liquidity trends, and conducts quarterly reviews of the Bank’s interest rate risk exposure. Significant investment transactions are reported to the ALCO.

     The Corporation’s investment policies are designed primarily to provide a portfolio of high credit quality while seeking high levels of net interest income within acceptable limits of interest rate risk, credit risk, capital and liquidity. Under the Corporation’s current policy, the Treasury and Investments Division is authorized to purchase and sell federal funds, certificates of deposit in other banks, bankers’ acceptances of commercial banks that are members of the FDIC, mortgage backed securities, United States and Puerto Rico obligations, corporate debt and stocks and other investments. In addition, the Treasury and Investments Division is authorized to invest in securities purchased under agreements to resell. As part of the Corporation’s asset and liability management, the Treasury and Investments Division also engages in hedging activities as approved by the Board of Directors and as set forth in the Corporation’s hedging policy monitored by the Investment Committee.

SOURCES OF FUNDS

     First BanCorp’s principal funding sources are branch-based deposits, retail brokered deposits, institutional deposits, federal funds purchased and securities sold under agreements to repurchase, and FHLB advances. Through its branch banking system First BanCorp offers individual non-interest bearing checking accounts, savings accounts, personal interest-bearing checking accounts, certificates of deposit, IRA accounts and commercial non-interest bearing checking accounts.

Deposit Accounts

     Deposits represent First BanCorp’s largest source of funding. The Corporation’s deposit accounts are insured up to applicable limits by the SAIF. Management makes retail deposit pricing decisions periodically through the ALCO, which adjusts the rates paid on retail deposits in response to general market conditions and local competition. Pricing decisions take into account the rates being offered by other local banks, LIBOR and mainland United States interest rates. The following table presents the amount and weighted average interest rates of deposit accounts as of each date indicated in the categories set forth below, including the percentage of total assets represented by those deposits.

17

		Weighted
		average
		rates at
		December31,			December 31,
		2002			2002			2001			2000
					(Dollars in thousands)
Non-interest bearing checking accounts					$	447,076		$	239,851		$	232,164
Saving accounts			1.82	%		921,103			469,452			430,298
Interest bearing checking accounts			1.70	%		230,743			205,760			170,631
Certificate accounts			2.83	%		3,883,996			3,183,491			2,512,891
	Total				$	5,482,918		$	4,098,554		$	3,345,984
Weighted average rate on interest bearing deposits			2.58	%
Total deposits as a percentage of total assets						56.85	%		50.00	%		56.52	%

     Certificate accounts include institutional deposits which consist mainly of brokered certificate of deposits, and certificates issued to agencies of the Government of Puerto Rico. Under FDIC regulations, a bank cannot accept, roll over or renew brokered deposits, which term is defined also to include any deposit with an interest rate more than 75 basis points above prevailing rates, unless (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC. The Bank has no such restrictions since it is a well capitalized institution.

     The following table presents a maturity summary of certificates of deposits with balances of $100,000 or more at December 31, 2002.

		(In thousands)
Three months or less		$	514,811
Over three months to six months			169,814
Over six months to one year			70,902
Over one year			2,624,222
	Total	$	3,379,749

Borrowings

     The following table presents the amount and weighted average interest rates of borrowings as of each date indicated in the categories set forth below.

		Weighted average
		rates at December 31,			December 31,
		2002			2002			2001			2000
					(Dollars in thousands)
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase			3.82	%	$	2,793,540		$	2,997,174		$	1,856,436
FHLB advances			4.34	%		373,000			343,700			67,000
Subordinated notes			8.04	%		82,815			84,362			90,548
Notes payable												55,500
Total			3.98	%	$	3,249,355		$	3,425,236		$	2,069,484
Total borrowed funds as a percentage of total assets						33.69	%		41.65	%		34.87	%
Weighted average interest rate during the period:
	Securities sold under agreements to repurchase					4.21	%		4.90	%		6.23	%

18

CAPITAL

     At December 31, 2002, total stockholders’ equity for the Corporation amounted to $798 million, an increase of $195 million as compared to $603 million at December 31, 2001. During 2002 First BanCorp issued $92 million of preferred stock.

Employees

     At December 31, 2002, the Corporation employed 1,973 persons. None of its employees are represented by a collective bargaining group. The Corporation considers its employees’ relations to be good.

Item 2. Properties

     At December 31, 2002, First BanCorp owned the following three main offices located in Puerto Rico:

	Main offices:
1.	Headquarters Offices – Located at First Federal Building, 1519 Ponce de León Avenue, Santurce, Puerto Rico, a 16 story office building. Approximately 61% of the building and an underground three levels parking lot are owned by the Corporation.
2.	EDP & Operations Center – A five story structure located at 1506 Ponce de León Avenue, Santurce, Puerto Rico. These facilities are fully occupied by the Corporation.
3.	Consumer Lending Center – A three story building with a three levels parking lot located at 876 Muñoz Rivera Avenue, corner Jesús T. Piñero Avenue, Hato Rey, Puerto Rico. These facilities are fully occupied by the Corporation.

     In addition, the Corporation owned 14 branch and office premises and an auto lot. The Corporation leased 40 branch premises, 28 loan and office centers and six other facilities. All these premises are located in Puerto Rico and in the Eastern Caribbean Region. Management believes that the Corporation’s properties are well maintained and are suitable for the Corporation’s business as presently conducted.

Item 3. Legal Proceedings

     The information required herein is incorporated by reference from page 80 of the annual report to security holders for the year ended December 31, 2002 (see Exhibit 13 to this Form 10-K).

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

     No matters were voted upon during the fourth quarter of 2002.

19

PART II

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters

     a) Market Information

     The information required herein is incorporated by reference from page 47 of the annual report to security holders for the year ended December 31, 2002.

     b) Holders

     The information required herein is incorporated by reference from page 47 of the annual report to security holders for the year ended December 31, 2002.

     c) Dividends

     The Corporation has a policy providing for the payment of quarterly cash dividends on its outstanding shares of common stock. Accordingly, the Corporation declared a cash dividend of $0.10 per share for each quarter of 2002, $0.09 per share for each quarter of 2001 and $0.07 per share for each quarter of 2000.

     The Puerto Rico Internal Revenue Code requires the withholding of income tax from dividends income derived by resident U.S. citizens, special partnerships, trusts and estates and by non-resident U.S. citizens, custodians, partnerships, and corporations from sources within Puerto Rico.

     Resident U.S. Citizens

     A special tax of 10% is imposed on eligible dividends paid to individuals, special partnerships, trusts and estates to be applied to all distributions unless the taxpayer specifically elects otherwise. Once this election is made it is irrevocable. However, the taxpayer can elect to include in gross income the eligible distributions received and take a credit for the amount of tax withheld. If he does not make this election in his tax return, then he can exclude from his gross income the distributions received and reported without claiming the credit for the tax withheld.

     Nonresident U.S. Citizens

     Have the right to certain exemptions when a Withholding Tax Exemption Certificate (Form 2732) is properly filled-in and filed with the Corporation. The Corporation as withholding agent is authorized to withhold a tax of 10% only from the excess of the income paid over the applicable tax-exempt amount.

     U.S. Corporations and Partnerships

     Corporations or partnerships not organized under Puerto Rico laws that have not engaged in business or trade in Puerto Rico during the taxable year in which the dividend is paid are subject to the 10% dividend tax withholding.

     Corporations or partnerships not organized under the laws of Puerto Rico that have engaged in trade or business in Puerto Rico corporations or partnerships are not subject to the 10% withholding, but they must declare the dividend as gross income in their Puerto Rico income tax return.

20

Item 6. Selected Financial Data

     The information required herein is incorporated by reference from page 8 through 9 of the annual report to security holders for the year ended December 31, 2002.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The information required herein is incorporated by reference from page 28 through 47 of the annual report to security holders for the year ended December 31, 2002.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The information required herein is incorporated by reference from page 44 through 45 of the annual report to security holders for the year ended December 31, 2002.

Item 8. Financial Statements and Supplementary Data

     The information required herein is incorporated by reference from page 49 through 82 of the annual report to security holders for the year ended December 31, 2002.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None

21

PART III

Item 10. Directors, Executive Officers and Control Persons of the Registrant

     The information required herein is incorporated by reference to the information under the captions “Information with respect to nominees for directors of the Company, directors whose terms continue and executive officers of the Company” and “Section 16(a) Compliance” in the Corporation’s definite proxy statement filed on/or about March 28, 2003.

Item 11. Executive Compensation

     The information required herein is incorporated by reference to the information under the captions “Compensation of Directors”, “Compensation of Executive Officers”, “Stock Options Plans”, “Options/Grants in Last Fiscal Year”, “Aggregate Options/SAR Exercises in Last Fiscal Year and Fiscal Year-End Options Values”, “Employment Agreements”, “Defined Contributions Retirement Plan”, “Report of the Compensation Committee”, “Compensation Committee Interlocks and Insider Participation”, “Other Employment Benefits”, “Deferred Compensation Plan” and “Performance of Common Stock” in the definite proxy statement filed on/or about March 28, 2003.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information required herein is incorporated by reference to the information under the caption “Beneficial Ownership of Securities” in the Corporation’s definite proxy statement filed on/or about March 28, 2003.

Item 13. Certain Relationships and Related Transactions

     The information required herein is incorporated by reference to the information under the caption “Business Transactions Between the Company and its Subsidiaries and Executive Officers and Directors” in the Corporation’s definite proxy statement filed on or about March 28, 2003.

Item 14. Controls and Procedures

     Within the 90-day period prior to the filing of this Annual Report on Form 10-K, an evaluation was carried out under the supervision and with the participation of First BanCorp Management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14 (c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

22

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) (1) The following financial statements are included in Item 8 thereof:

	- Report of Independent Accountants
	- Consolidated Statements of Financial Condition at December 31, 2002 and 2001.
	- Consolidated Statements of Income for Each of the Three Years in the Period Ended December 31, 2002.
	- Consolidated Statements of Changes in Stockholders’ Equity for Each of the Three Years in the Period Ended December 31, 2002.
	- Consolidated Statements of Comprehensive Income for each of the Three Years in the Period Ended December 31, 2002.
	- Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2002.
	- Notes to Consolidated Financial Statements.
(2)	Financial statement schedules.
	None.
(3)	Exhibits
	The exhibits listed on the Exhibits Index on section (c) below are filed herewith or are incorporated herein by reference.

(b)	Reports on Form 8-K.
	On January 17, 2003, the Corporation filed a Form 8-K.
(c)	See Index to Exhibits on page 24 for the exhibits filed as a part of this Form 10-K.
(d)	Financial data schedules
	Schedules are omitted because they are not applicable.

23

Index to Exhibits

No.	Exhibit
3.1	Certificate of Incorporation	(1	)
3.2	By-Laws	(1	)
4.0	Form of Common Stock Certificate	(1	)
10.1	FirstBank’s 1987 Stock Option Plan	(2	)
10.2	FirstBank’s 1997 Stock Option Plan	(2	)
10.3	Employment Agreements	(2	)
11.0	Statement Report to Shareholders for fiscal year ended December 31, 2002.	(3	)
13.0	Annual Report to shareholders for fiscal year ended December 31, 2002.	—
21.0	List of subsidiaries (direct and indirect)	—
99.1	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	—
99.2	Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	—

(1)	Incorporated by reference from Registration statement on Form-S-4 filed by the Corporation on April 15, 1998.
(2)	Incorporated by reference from the Form 10-K for the year ended December 31, 1998 filed by the Corporation on March 26, 1999.
(3)	Information is included on page 63 of the Corporation’s annual report to security holders and is incorporated by reference herein (See Exhibit 13.0).

24

SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST BANCORP

By: /s/ Angel Alvarez-Pérez
Angel Alvarez-Pérez, Esq
Chairman
President and Chief Executive Officer Date: 03/25/03

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Angel Alvarez-Pérez
Angel Alvarez-Pérez, Esq.
Chairman
President and Chief Executive Officer Date: 03/25/03

/s/ Annie Astor-Carbonell
Annie Astor-Carbonell, Director
Senior Executive Vice President and
Chief Financial Officer Date: 03/25/03

/s/ José Julián Alvarez-Bracero
José Julián Alvarez-Bracero, Director Date: 03/25/03

/s/ Rafael Bouet-Souffront
Rafael Bouet-Souffront, Director Date: 03/25/03

/s/ Jorge L. Díaz
Jorge L. Díaz, Director Date: 03/25/03

25

/s/ Héctor M. Nevares
Héctor M. Nevares, Director Date: 03/25/03

/s/ Juan Acosta-Reboyras
Juan Acosta-Reboyras, Director Date: 03/25/03

/s/ José Teixidor
José Teixidor, Director Date: 03/25/03

/s/ José L. Ferrer-Canals
José L. Ferrer-Canals, Director Date: 03/25/03

/s/ Laura Villarino-Tur
Laura Villarino-Tur
Senior Vice President and
Controller Date: 03/25/03

26

CERTIFICATIONS

I, Angel Alvarez-Pérez, certify that:

1.	I have reviewed this Annual Report on Form 10-K of First BanCorp;
2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the “Evaluation Date”); and
c)	Presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: 03/25/03
By: /s/ Angel Alvarez-Pérez
Angel Alvarez-Pérez, Esq.
Chairman, President and
Chief Executive Officer

27

CERTIFICATIONS

I, Annie Astor-Carbonell, certify that:

1.	I have reviewed this Annual Report on Form 10-K of First BanCorp;
2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the “Evaluation Date”); and
c)	Presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: 03/25/03
By: /s/ Annie Astor-Carbonell
Annie Astor-Carbonell
Senior Executive Vice President
and Chief Financial Officer

28 EX-13 3 g81589exv13.txt EX-13 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13.0 [PHOTO] [First BanCorp LOGO] 2002 ANNUAL REPORT [PHOTO] LEADERSHIP Leadership is Power. Vision. And setting standards. It provides us with the opportunity to open new markets, develop new products and set the groundwork toward the future. Experience is knowledge. Skill. And Wisdom. It gives us the ability to influence, achieve our goals and face new challenges. At First BanCorp we are, and have been, a leading institution in the banking industry for over 54 years. Experience is what has taken us, and continues to guide us, to higher levels of quality, growth and value. EXPERIENCE TABLE OF CONTENTS Financial Highlights 3 Highlights of Growth 5 Selected Financial Data 8 Offices and Corporate Structure 10 Business Profile 13 President's Letter 15 Economy 19 Board of Directors 20 First BanCorp Officers 22 Financial Review 27 Financial Statements 48 Stockholders' Information 83

1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- Market Price Per Common Share (end of year) $20.13 $13.83 $15.75 $19.00 $22.60 Return on Assets (percentage) 1.48 1.49 1.28 1.28 1.23 Diluted Earnings Per Common Share $ 1.16 $ 1.32 $ 1.47 $ 1.73 $ 2.01

2 2002 First BanCorp FINANCIAL HIGHLIGHTS In thousands (except for per share results) 2002 2001 ----------- ---------- Operating results: Net interest income $ 266,850 $ 236,055 Provision for loan losses 62,302 61,030 Other income 58,492 52,980 Other operating expenses 132,756 120,855 Income tax provision 22,327 20,134 Cumulative effect of accounting change (1,015) Net income 107,956 86,001 ----------- ---------- Per common share: Net income - basic $ 2.04 $ 1.74 Net income - diluted 2.01 1.73 ----------- ---------- Weighted average common shares: Basic 39,901 39,851 Diluted 40,553 40,144 ----------- ---------- At year end: Assets $ 9,643,852 $8,197,518 Loans 5,637,851 4,308,780 Allowance for loan losses 111,911 91,060 Investments 3,728,669 3,715,999 Deposits 5,482,918 4,098,554 Borrowings 3,249,355 3,425,235 Capital 798,424 602,919

1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- Return on common equity (percentage) 20.54 24.68 27.81 22.13 21.90 Net interest income (In millions) $166.2 $185.7 $190.8 $236.1 $266.9 Common stockholders' equity (In millions) $270.4 $204.9 $269.5 $334.4 $437.9

3 2002 First BanCorp [PHOTO] 4 2002 First BanCorp HIGHLIGHTS OF GROWTH This history begins in 1991, shortly after a new Management team headed by Angel Alvarez Perez took over the operations of the oldest Savings and Loan institution in Puerto Rico. At that time the Bank had less than $2 billion in total assets and approximately 900 employees, compared with $9.6 billion in assets and 2,000 employees today. In the 1991 Annual Report, Mr. Alvarez stated: "Net income for {1991} was $10.1 million or $1.77 per share {the equivalent of $0.15 per share today after allowing for subsequent stock splits}. This . . . is the most clear and tangible indication that First Federal {the Bank's name at that time} is on the road to a healthy recovery." The accompanying table shows the course of this "healthy recovery" over the following eleven years. Over that period the Corporation has reported consistent growth in assets and earnings without earnings restatements. Asset size increased more than five times from $1.9 billion to $9.6 billion. Net income grew more than ten times from $10.1 million to $108 million and earnings per common share diluted increased more than 13 times from $0.15 to $2.01. A milestone along this road came in 1994, with the conversion to a Commercial Bank charter. In that year's Annual Report, Mr. Alvarez said: "Our previous thrift charter contained significant limitations on lending which could have sidelined management's strategy of emphasizing growth in non-mortgage areas. With a commercial charter we are free to pursue our preferred business strategy." During the next few years Management laid the groundwork for later growth of the consumer side of the Bank's business. Mr. Alvarez described two important advances in the 1995 Annual Report: "In May we opened our small loan subsidiary, Money Express. Small loans are an important source of consumer credit in Puerto Rico, where many creditworthy families do not have the financial resources or the credit history required to obtain loans through regular banking channels . . .Starting in January {of 1996} we will be combining our auto leasing area with the car and truck rental operations of our existing subsidiary . . . under the name of First Leasing and Rental Corp." 5 2002 First BanCorp The accompanying table shows that FirstBank increased its branch network from 32 to 48 in the five years between 1994 and 1999. The new facilities included a modern "Superbranch" in Hato Rey with ample parking and drive through facilities. The consumer banking operations were centralized in this facility in 1996. In 1999 FirstBank acquired the Puerto Rico operations of the Royal Bank of Canada together with four Citibank branches in Puerto Rico and the U.S. Virgin Islands. Mr. Alvarez summarized the guiding philosophy of this consumer banking expansion as follows in the 1996 Annual Report: "FirstBank's Management has long recognized the importance of new data processing technologies that are revolutionizing the Banking industry. We strongly believe that face-to-face communication is at the heart of our customer relationships. Our goal is to find the appropriate balance between these two approaches to meet the needs of our clients in a cost-effective manner. Locally based management gives FirstBank a strong competitive advantage in doing this." Although the Bank grew rapidly, Management never lost sight of the need to maintain strict cost controls. The accompanying table shows the efficiency ratio improved dramatically from 63.69% to 40.81% over the period covered in the accompanying table. In the 1998 Annual Report Mr. Alvarez reiterated Management's commitment to cost control as follows: "In 1998 Management began a comprehensive re-design plan to streamline all corporate operations. The Corporation named the project `The Next Fifty' because Management launched it in the Corporation's fiftieth anniversary year as a way to initiate the second fifty years of growth. Management has invested most of the savings from this project in new technology." In the late 1990's the Bank began moving to diversify operations and strengthen its management team as it expanded more into commercial and mortgage lending. In 1998 the Corporation converted to a bank holding company structure. In that year's Annual Report Mr. Alvarez reported: ". . .we have enhanced our management team by bringing in senior executives with extensive experience in consumer, mortgage and commercial lending. We have also initiated active lending programs in construction lending and auto leasing, led by talented and experienced executives whom we have recently recruited. Over the next few years we expect our strengthened management team to improve efficiency and contribute new ideas that will help us to increase our market share." 6 2002 First BanCorp The Bank also began introducing more sophisticated products to grow in a highly competitive market with increasingly sophisticated clients. Besides adding state of the art business services such as cash management accounts, the Bank also added sophisticated deposit products. In 1999 it introduced the "Bonus Account", which rewards clients who have additional relationships with FirstBank. Deposits in this account have since grown to $173.7 million. The Bank was also expanding in other areas. In the Annual Report for 2000 Mr. Alvarez summarized recent developments as follows: "Management has been taking steps to diversify the Corporation's revenues by moving toward fee based activities in some areas. In 2000 FirstBank began offering brokerage services in selected branches through a new alliance {with a major international brokerage firm}. . . . Early in 2000 Management entered an agreement {with another large firm} to participate in bond issues by the Government Development Bank of Puerto Rico. Finally, First BanCorp reorganized as a financial holding company in 2000, opening the way for the Corporation to enter new lines of business permitted by the Gramm Leach Bliley Act." In 2001 First BanCorp followed up on this change by organizing an insurance subsidiary, the FirstBank Insurance Agency, which sells insurance in FirstBank branches. Also in 2001 Management embarked on a three-year project to improve service quality and efficiency in all of the Corporation's operations. To summarize our story, the table shows the broad outlines of how our institution has transformed itself from First Federal Savings Bank, a small Savings and Loan Institution, into First BanCorp, a diversified financial services organization. This transformation has increased net income tenfold over the 1991-2002 period, and has benefited shareholders, employees and clients of the Corporation. [PHOTO] 7 2002 First BanCorp SELECTED FINANCIAL DATA

(In thousands except for per share results) 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- CONDENSED INCOME STATEMENTS: YEAR ENDED Total interest income $ 540,033 $ 516,256 $ 463,388 $ 369,063 $ 321,298 Total interest expense 273,184 280,201 272,615 183,330 155,130 Net interest income 266,850 236,055 190,773 185,733 166,168 Provision for loan losses 62,302 61,030 45,719 47,961 76,000 Other income 58,492 52,980 50,032 32,862 58,240 Other operating expenses 132,756 120,855 113,049 101,271 91,798 Unusual item - SAIF assessment Income before income tax provision, extraordinary item and cumulative effect of accounting change 130,283 107,150 82,037 69,363 56,610 Provision for income tax 22,327 20,134 14,761 7,288 4,798 Income before extraordinary item and cumulative effect of accounting change 107,956 87,016 67,276 62,075 51,812 Extraordinary item Cumulative effect of accounting change (1,015) Net income 107,956 86,001 67,276 62,075 51,812 PER COMMON SHARE RESULTS (1): YEAR ENDED Income before extraordinary item and cumulative effect of accounting change diluted $ 2.01 $ 1.76 $ 1.47 $ 1.32 $ 1.16 Extraordinary item Cumulative effect of accounting change (0.03) Net income per common share diluted $ 2.01 $ 1.73 $ 1.47 $ 1.32 $ 1.16 Net income per common share basic $ 2.04 $ 1.74 $ 1.48 $ 1.33 $ 1.17 Cash dividends declared $ 0.40 $ 0.35 $ 0.29 $ 0.24 $ 0.20 Average shares outstanding 39,901 39,851 40,415 43,412 44,379 Average shares outstanding diluted 40,553 40,144 40,718 43,799 44,787 BALANCE SHEET DATA: END OF YEAR Loans and loans held for sale $5,637,851 $4,308,780 $3,498,198 $2,745,368 $2,120,054 Allowance for possible loan losses 111,911 91,060 76,919 71,784 67,854 Investments 3,728,669 3,715,999 2,233,216 1,811,164 1,800,489 Total assets 9,643,852 8,197,518 5,919,657 4,721,568 4,017,352 Deposits 5,482,918 4,098,554 3,345,984 2,565,422 1,775,045 Borrowings 3,249,355 3,425,236 2,069,484 1,803,729 1,930,488 Total common equity 437,924 334,419 269,461 204,902 270,368 Total equity 798,424 602,919 434,461 294,902 270,368 Book value per common share (1) 10.96 8.39 6.80 4.87 6.11 REGULATORY CAPITAL RATIOS (IN PERCENT): END OF YEAR Total capital to risk weighted assets 13.75 14.50 14.43 16.16 17.39 Tier 1 capital to risk weighted assets 11.90 12.16 11.23 11.64 11.55 Tier 1 capital to average assets 7.35 7.49 7.28 7.47 6.59 SELECTED FINANCIAL RATIOS (IN PERCENT): YEAR ENDED Net income to average total assets 1.23 1.28 1.28 1.49 1.48 Interest rate spread (2) 3.20 3.64 3.38 4.29 4.76 Net interest income to average earning assets (2) 3.56 4.08 3.91 4.85 5.27 Yield on average earning assets(2) 6.77 8.42 9.21 9.29 9.83 Cost on average interest bearing liabilities 3.57 4.78 5.83 5.00 5.07 Net income to average total equity 14.90 16.20 21.21 21.06 20.54 Net income to average common equity 21.90 22.13 27.81 24.68 20.54 Average total equity to average total assets 8.28 7.92 6.05 7.07 7.22 Dividend payout ratio 19.58 19.91 19.72 17.96 17.12 Efficiency ratio (3) 40.81 41.81 46.95 46.33 40.91 OFFICES: Number of full service branches 54 48 48 48 40 Loan origination offices 44 43 38 41 45

1- Amounts presented were recalculated, when applicable, to retroactively consider the effect of common stock splits. 2- Ratios for 1993 and thereafter were computed on a taxable equivalent basis. 3- Other operating expenses to the sum of net interest income and other income. 8 2002 First BanCorp

1997 1996 1995 1994 1993 1992 1991 - ----------- ----------- ----------- ---------- ---------- ---------- ---------- $ 285,160 $ 256,523 $ 208,488 $ 180,309 $ 159,433 $ 158,993 $ 171,789 130,429 113,027 96,838 76,674 72,413 85,986 109,942 154,731 143,496 111,650 103,635 87,020 73,007 61,847 55,676 31,582 30,894 17,674 18,669 13,596 16,444 39,866 29,614 48,268 18,169 17,123 13,563 18,895 83,268 82,498 65,628 60,760 56,994 54,745 51,423 9,115 55,653 49,915 63,396 43,370 28,480 18,229 12,875 8,125 12,281 14,295 12,385 6,525 2,879 1,420 47,528 37,634 49,101 30,985 21,955 15,350 11,455 (429) 6,840 (870) (1,400) 47,528 37,634 49,101 30,556 28,795 14,480 10,055 $ 1.05 $ 0.81 $ 1.05 $ 0.67 $ 0.42 $ 0.25 $ 0.17 (0.01) (0.02) (0.03) 0.14 $ 1.05 $ 0.81 $ 1.05 $ 0.66 $ 0.56 $ 0.23 $ 0.15 $ 1.05 $ 0.81 $ 1.07 $ 0.68 $ 0.63 $ 0.27 $ 0.17 $ 0.16 $ 0.13 $ 0.05 N/A N/A N/A N/A 45,054 46,191 45,888 44,966 43,983 42,876 42,876 45,306 46,428 46,677 46,289 49,419 51,098 49,856 $ 1,959,301 $ 1,896,074 $ 1,556,606 $1,501,273 $1,237,928 $1,182,409 $1,264,380 57,712 55,254 55,009 37,413 30,453 30,474 29,001 1,276,900 830,980 785,747 595,555 603,373 636,781 564,431 3,327,436 2,822,147 2,432,816 2,174,692 1,913,902 1,888,754 1,898,399 1,594,635 1,703,926 1,518,367 1,493,445 1,398,247 1,359,448 1,396,066 1,461,581 889,668 700,609 538,080 400,977 415,257 408,414 236,379 191,142 171,202 120,015 92,785 50,194 38,410 236,379 191,142 171,202 120,015 92,785 88,622 74,146 5.29 4.21 3.67 2.66 2.09 1.17 0.90 17.26 15.25 16.17 9.76 9.05 9.32 7.08 11.07 9.32 9.93 8.50 7.79 8.06 5.75 7.44 6.65 6.82 5.74 4.70 4.60 3.74 1.63 1.48 2.22 1.53 1.53 0.78 0.53 5.30 5.46 5.07 5.23 4.73 3.66 3.19 5.83 6.03 5.59 5.65 5.10 4.04 3.39 10.45 10.63 10.12 9.63 9.10 8.80 9.41 5.15 5.17 5.05 4.40 4.37 5.14 6.22 22.30 20.49 33.19 29.07 30.36 17.70 14.38 22.30 20.49 33.19 29.07 39.68 26.37 20.20 7.32 7.23 6.68 5.27 5.05 4.38 3.67 15.14 16.32 5.06 N/A N/A N/A N/A 42.79 47.66 41.04 49.88 54.73 63.24 63.69 36 36 36 32 33 33 33 44 47 43 23 9 4 1

9 2002 First BanCorp Offices PUERTO RICO 1. Aguada 2. Aguadilla 3. Isabela 4. San Sebastian 5. Arecibo 6. Manati 7. Vega Baja 8. Dorado 9. Toa Baja 10. Bayamon 11. Guaynabo 12. San Juan 13. Carolina 14. Rio Grande 15. Fajardo 16. Humacao 17. Caguas 18. Aguas Buenas 19. Cidra 20. Guayama 21. Cayey 22. Barranquitas 23. Ponce 24. Yauco 25. Cabo Rojo 26. Mayaguez 10 2002 First BanCorp Offices U.S., BRITISH VIRGIN ISLANDS & BARBADOS St Croix St Thomas St John Tortola Barbados 11 2002 First BanCorp [PHOTO] 12 2002 First BanCorp Business Profile First BanCorp ("the Corporation"), incorporated in Puerto Rico, is the financial holding company for FirstBank ("the Bank"), the second largest commercial bank in Puerto Rico. First BanCorp also owns an insurance subsidiary, FirstBank Insurance Agency. First BanCorp had total assets of $9.6 billion as of December 31, 2002. The Corporation operates in the Puerto Rico and Virgin Islands banking markets, offering a wide selection of financial services to a growing number of consumer and commercial customers. Commercial, consumer and mortgage loans and investment securities are the most important areas of its business. The Corporation has a $2.5 billion portfolio of commercial loans, commercial mortgages, construction loans and other related commercial products. Its commercial clients include businesses of all sizes covering a wide range of economic activities. First BanCorp has a $1.8 billion portfolio of residential mortgages. The institution also has $1.3 billion in consumer loans concentrated in auto loans and leases, personal loans and credit cards. Its $3.7 billion investment portfolio consists mostly of U.S. Treasury and agency securities and mortgage-backed securities. A strategic alliance with a major international firm allows FirstBank to offer brokerage services in its largest branches. Approximately 2,000 professionals and a sophisticated computer system support the business activities of the Corporation. First chartered in 1948, First BanCorp was the first savings bank established in Puerto Rico, under the name of "First Federal Savings and Loan Association". It has been a stockholder owned institution since 1987. In October, 1994 it became a Puerto Rico chartered commercial bank and assumed the name of "FirstBank Puerto Rico". Effective October 1, 1998 the Bank reorganized, making FirstBank Puerto Rico a subsidiary of the holding company First BanCorp. FirstBank, which is a well-capitalized institution under federal standards, operates 54 full-service branches including 11 offices in the U.S. and British Virgin Islands. In addition, the FirstBank Insurance Agency operates six sales offices within FirstBank branches. A subsidiary of FirstBank, Money Express, operates 27 small loan offices throughout Puerto Rico. FirstBank also operates First Leasing and Rental Corp., a subsidiary which rents and leases motor vehicles from six offices in Puerto Rico. Another FirstBank subsidiary, FirstBank Insurance Agency V.I., Inc., operates one office which sells insurance in the US Virgin Islands. Finally, FirstBank owns a trade financing subsidiary, First Trade Inc., which operates two offices: one in the U.S. Virgin Islands and one in Barbados. First BanCorp has distinguished itself by providing innovative marketing strategies and novel products to attract clients. Besides its branches and specialized lending offices, the Corporation has offered a telephone information service called "Telebanco" since 1983. This was the first telebanking service offered in Puerto Rico. First BanCorp clients have access to an extensive ATM network with access all over the world. The Corporation was also the first 13 2002 First BanCorp in Puerto Rico to open on weekends and the first to offer in-store branches to its clients. First BanCorp was also the first banking institution in Puerto Rico with a presence on the internet. The Corporation now offers a wide menu of internet banking services to its clients. First BanCorp and its subsidiaries are subject to supervision, examination and regulation by the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Commissioner of Financial Institutions of Puerto Rico. The FirstBank Insurance Agency is regulated by the Puerto Rico Insurance Commissioner. The Virgin Islands operations of FirstBank are regulated by the Virgin Islands Banking Board (for the USVI) and by the British Virgin Islands Financial Services Commission (for the BVI). First BanCorp is committed to providing the most efficient and cost effective banking services possible. Management's goal is to make the Corporation the premier financial institution in Puerto Rico and the Virgin Islands, recognized for consistently exceeding the expectations of its clients, employees and stockholders. [PHOTO] 14 2002 First BanCorp President's Letter TO OUR STOCKHOLDERS: On behalf of the Board of Directors and Officers of First BanCorp I am pleased to submit our annual report for 2002, another excellent year. In 2002 First BanCorp earned $108 million, representing $2.04 per common share (basic) or $2.01 per common share (diluted). Earnings increased 25.5% compared with 2001, when the Corporation earned $86 million, equivalent to $1.74 per common share (basic) or $1.73 per common share (diluted). Net interest income was a key factor in this outstanding performance, expanding by 13% or $30.8 million to $266.8 million during 2002. These results are outstanding when we consider the difficult economic and financial environment which prevailed last year. GROWTH IN 2002 First BanCorp grew substantially in spite of last year's economic slowdown, which affected Puerto Rico as well as the rest of the U.S. Assets rose 17% from $8.2 billion at year-end 2001 to $9.6 billion at the end of 2002. Net loans increased 31% to $5.5 billion, mostly due to increases of $345 million in commercial loans and $842 million in residential real estate loans. Consumer loans and finance leases grew by $142 million. Deposits increased 34% to $5.5 billion. During 2002 First BanCorp consolidated its position as the second largest commercial bank in Puerto Rico. FirstBank also expanded outside Puerto Rico. In October 2002, the Bank completed the acquisition of the operations of JP Morgan Chase Eastern Caribbean Region business in the Virgin Islands with $590 million in total assets. The purchase included several branch offices, a trade finance operation and an insurance agency. FirstBank is now one of the largest commercial banks in the U.S. and British Virgin Islands. Cassan Pancham, a seasoned executive with over 22 years of experience in Chase's Caribbean operations, heads up these operations. Our expanded presence in the Virgin Islands will increase geographic diversification and allow us to better serve our clients in that part of the Caribbean. KEY COMPETITIVE ADVANTAGES Our branch network has been one important factor in our successful growth. FirstBank has 43 branch offices in Puerto Rico, including 20 with drive up services, 16 in shopping centers and 7 in supermarkets. We are working to diversify our larger branches to give our clients superior service. A major international brokerage firm maintains offices in 13 FirstBank branches, while nine branches have specialized mortgage offices and six have offices of the FirstBank Insurance Agency. We are constantly improving the banking facilities. During 2002 we relocated the branch in Rexville Plaza, Bayamon and upgraded facilities in three other branches. Our purchase of the Chase operation in the Virgin Islands also strengthened our branch network in that region. FirstBank now has 11 branches on four islands in the U.S. and British Virgin Islands. 15 2002 First BanCorp Another key to our success is careful, prudent control of costs. For several years we have been investing in state of the art technology to improve service to our clients and increase efficiency. Operating expenses rose relatively little, from $120.9 million in 2001 to $132.8 million in 2002, in spite of the expansion we experienced. During 2002 the Corporation's efficiency ratio improved by one percent to 40.81%. The quality of our loan portfolio was another factor which contributed importantly to the Corporation's record profits last year. Starting in 1998 we have been improving loan underwriting, introducing tighter approval procedures and improving computer systems. These efforts have brought hard-won gains in asset quality. The year 2002 provided a severe test for these enhanced processes, and they have been performing well. In spite of large increases in the loan portfolio and a deteriorating economy, charge offs did not increase. During 2002 First BanCorp's loans net charge offs amounted to $41.5 million of loans on a net basis, compared with $46.9 million in 2001, $42.0 million in 2000, and $44.6 million in 1999. We have also increased reserves in line with the loan portfolio, which more than doubled from $2.7 billion at the end of 1999 to $5.6 billion at year-end 2002. The Bank provided $62 million for losses in 2002, $61 million in 2001, $46 million in 2000, and $48 million in 1999. This has allowed loan loss reserves to reach $111.9 million at the end of 2002 compared with $91.1 million for 2001, $76.9 million for 2000, and $71.8 million for 1999. As a result, asset quality has remained constant or improved. The reserve coverage ratio (allowance for loan losses as a percentage of non-performing loans) has remained above 100% for the last five years. At the end of 2002 the ratio of non-performing loans to total loans had fallen to 1.63%, compared with 1.69% at the end of 2001, 1.94% at the end of 2000, 1.96% at the end of 1999 and 2.69% at year-end 1998. Maintaining good asset quality has been one of the most important ingredients of our success during the recent economic slowdown. Finally, we rely heavily on our employees and the quality of service they provide to our clients. We are in the middle of a three-year effort to improve service quality in all areas of our operations. Quality teams composed of bank officers and employees are evaluating, redesigning and improving procedures throughout the organization. The goal of this project is to satisfy fully the banking needs of our consumer and corporate clients. COMMUNITY SERVICE AND CORPORATE IMAGE First BanCorp began operations in 1948 as "First Federal Savings Bank" and for many years was the leading Savings and Loan institution on the Island. Even after converting to a commercial bank in 1994 the Bank specialized in consumer lending for many years and still maintains strong ties with the Puerto Rican community, helping a number of charitable organizations. 16 2002 First BanCorp In response to the recent economic slowdown on the Island, we have been running a publicity campaign with the slogan "Puerto Rico stays ahead." The campaign encourages Puerto Ricans to think positively and improve their quality of life. Management is also encouraging employees to get involved in community activities. In addition, FirstBank has begun providing special benefits for senior citizens, including coupons in participating businesses and discounts on some of our services. FirstBank also made a $70 million loan for the construction of a medical office building in the southern city of Ponce. This project will include 93 medical offices, a 32,472 square foot shopping area and parking space for 600 cars. Finally, we are participating in a massive urban renewal project in Santurce, where our home offices are located. Bank officials have taken a leading role in organizing this project, which involves five local banks supported by a $50 million credit line from the Puerto Rico Housing Finance Authority. ENHANCING SHAREHOLDER VALUE The efforts of Management and employees have paid off in strong earnings growth in 2002. The Corporation experienced a return on common equity of 21.90% compared with 22.13% in the previous year. The return on assets was 1.23%, not very different from the 1.28% of 2001. Our stock price has reflected these strong results, and our shareholders experienced a return of 21.05% on their investment during 2002. Investors who held First BanCorp stock over the ten year period from year-end 1992 to year-end 2002 received a cumulative total return of 1,549%, equivalent to an annualized return of 32.33%. On September 30, 2002 the Bank also distributed a three for two stock split. The Corporation has traditionally followed a conservative dividend policy, in the belief that we can better serve our shareholders by reinvesting most of our profits in our growing business. In 2002 the dividend payout ratio was 19.58%. Officers and directors of First BanCorp own approximately eleven percent of its shares. This shows their confidence in First BanCorp's future and their commitment to keep its fundamentals sound. As First BanCorp begins another year of growth and service to Puerto Rico and the Virgin Islands, we are confident that our Corporation is stronger and better positioned than ever. We have a truly outstanding group of employees, officers and directors. I am confident that we can meet the challenges ahead, and that we will provide better service than ever to our clients, while benefiting employees and stockholders in the years to come. /s/ Angel Alvarez-Perez Chairman President Chief Executive Officer 17 2002 First BanCorp [PHOTO] 18 2002 First BanCorp ECONOMY The island of Puerto Rico is a U.S. Commonwealth with a population of 3.8 million, located in the Caribbean approximately 1,600 miles southwest of New York. Puerto Rico grew moderately over most of the 1990's but its growth has paused recently due to the U.S. recission. Real BNP fell by 0.2% in the 2002 fiscal year according to the Puerto Rico Planning Board. Puerto Rico's economic performance is a natural result of its increasing integration into the U.S. economy. Puerto Ricans are U.S. citizens and serve in the United States armed forces, and the island has several large U.S. military bases. The island uses U.S. currency and forms part of the U.S. financial system. Federal courts enforce U.S. laws here. Since Puerto Rico falls within the U.S. for purposes of customs and migration, there is full mobility of funds people and goods between Puerto Rico and the U.S. mainland. Puerto Rico banks are subject to the same Federal laws, regulations and supervision as other financial institutions in the rest of the U.S. The Federal Deposit Insurance Corporation insures the deposits of Puerto Rico chartered commercial banks, including FirstBank, the banking subsidiary of First BanCorp. Manufacturing is the backbone of Puerto Rico's economy, and many multinational corporations have substantial operations here. The island's pharmaceutical industry is especially strong. In recent years, however, a reduction of tax incentives combined with intense wage competition from other areas and the U.S. recession have been reducing island manufacturing employment. Still, Puerto Rico is becoming somewhat less dependent on manufacturing than it was in the early postwar period, as its economy has been diversifying with substantial investments in tourism, retail trade, services banking and transportation. During the recent slowdown construction, manufacturing and consumption have weakened somewhat. Tourism has been affected along with the rest of the Caribbean region, though new hotels and some economic recovery have mitigated this effect, island economists project real GNP growth in the 1% to 2% range during fiscal 2003, which is currently in progress. 19 2002 First BanCorp BOARD OF DIRECTORS Angel Alvarez-Perez Annie Astor-Carbonell Jose Teixidor Chairman [PHOTO] [PHOTO] [PHOTO] Jose Julian Alvarez-Bracero [PHOTO] 20 2002 First BanCorp *Juan Acosta-Reboyras Jorge L. Diaz [PHOTO] [PHOTO] Rafael Bouet-Souffront [PHOTO] Jose L. Ferrer-Canals Hector M. Nevares [PHOTO] [PHOTO] 21 2002 First BanCorp [PHOTO] First BanCorp Officers Fernando L. Batlle, Luis M. Beauchamp, Aurelio Aleman, Annie Astor-Carbonell, Angel Alvarez-Perez [PHOTO] Randolfo Rivera, Josianne M. Rossello, Miquel Mejias, Carmen G. Szendrey-Ramos, Cassan Pancham 22 2002 First BanCorp [PHOTO] Aida M. Garcia, Luis M. Cabrera, Laura Villarino, Dacio A. Pasarell 23 2002 First BanCorp PRESIDENT ANGEL ALVAREZ-PEREZ Chief Executive Officer SENIOR EXECUTIVE VICE PRESIDENTS ANNIE ASTOR-CARBONELL Chief Financial Officer LUIS M. BEAUCHAMP Wholesale Banking Executive and Chief Lending Officer EXECUTIVE VICE PRESIDENTS AURELIO ALEMAN Consumer Banking Executive FERNANDO L. BATLLE Retail and Mortgage Banking Executive DACIO A. PASARELL Operations and Technology Executive RANDOLFO RIVERA Commercial Banking Executive FIRST SENIOR VICE PRESIDENT CASSAN PANCHAM Eastern Caribbean Region Executive SENIOR VICE PRESIDENTS JOSE H. APONTE Commercial Mortgage Lending MIGUEL BABILONIA Consumer Risk Management LUIS M. CABRERA Treasury and Investments SALVADOR CALAF Government and Institutional JAMES E. CRITES Regional Credit Officer Eastern Caribbean Region AIDA M. GARCIA Human Resources MICHAEL GARCIA Consumer Collection FERNANDO IGLESIAS Special Loans ROGER LAY Internal Audit EMILIO MARTINO Credit Risk Management MIGUEL MEJIAS Information Systems CARMEN NIGAGLIONI Middle Market and Asset Based Financing JOHN ORTIZ Consumer Products and Credit Cards JORGE RENDON Facilities Management HAYDEE RIVERA Sales & Distribution Operations JULIO RIVERA Construction Lending NAYDA RIVERA General Auditor CARMEN ROCAFORT Corporate and Structured Finance JOSIANNE M. ROSSELLO Marketing and Public Relations DEMETRIO SANTIAGO Auto Wholesale HECTOR SANTIAGO Auto Business and Operations DENISE SEGARRA Branch Banking LUIS SUEIRO Commercial Wholesale Operations CARMEN GABRIELA SZENDREY-RAMOS General Counsel and Secretary of the Board of Directors LAURA VILLARINO Controller VICE PRESIDENTS ALEXIS AGUIAR Structured Finance WILLIAM ALVAREZ Indirect Business and Merchants JOSE ALVELO Information Systems VIVIAN ARTEAGA Commercial Department MARGA AVILES Consumer Loans Operations BEVERLY BACHETTI VIP Customer Group MARIA BENABE Consumer Collections ANA COLON Centralized Accounting MARIA CONOR-FREEMAN Lending and Client Group Eastern Caribbean Region WANDA COOPER FirstLine Customer Center LENITZIA DELGADO Corporate Services DEIDRE ELIAS Compliance Manager Eastern Caribbean Region LAURA ESCALANTE Compliance Officer MAYRA GASCOT Information Systems JOSE GOMEZ Mortgage Servicing and Operations DAVID GONZALEZ Corporate Business Development NELSON GONZALEZ Structured Finance PAUL GOURIEUX Consumer Credit Manager Eastern Caribbean Region RAHAMET HOSEIN Territory Manager British Virgin Islands TESSA HUGH Finance and Risk Manager Eastern Caribbean Region CAROL JACKSON Human Resources Manager Eastern Caribbean Region ARIANE LEWIS Branch Banking Manager Eastern Caribbean Region JOHN E. LEWIS System & Programming Manager Eastern Caribbean 24 2002 First BanCorp GILBERTO LOPEZ Middle Market MARCELO LOPEZ Regional Manager Sales & Distribution JUANITA MARRERO Mortgage Banking JOHN MCDONALD Commercial Department Eastern Caribbean Region JOSE NEGRON Auto Lot RICARDO NEGRON Mortgage Banking JOSE NEVAREZ Information Systems LUIS ORENGO Commercial Wholesale EDUARDO ORTIZ AUTO Wholesale MARIA CRISTINA ORUNA Customer Relationship Management & Service Quality OSVALDO PADILLA Corporate Services REYNALDO PADILLA Auto Finance DIONISIO RAMIREZ Construction Lending MIGDALIA RIVERA Middle Market SANDRA RIVERA Consumer Collections BELINDA RODRIGUEZ Remote Sales JOSE L. RODRIGUEZ Information Systems PEDRO ROMERO Assistant Controller ELIZABETH SANCHEZ Marine Finance ROBERTO SANCHEZ Consumer Loans Credit Risk JOSE J. SANTIAGO Commercial Wholesale RAMON SANTIAGO Asset Based Unit MIGUEL SANTIN Structured Finance CARMEN TORRES Branch Manager RALPH TORRES Regional Manager Sales & Distribution FIRST FEDERAL FINANCE CORPORATION DBA MONEY EXPRESS "LA FINANCIERA" ANGEL ALVAREZ-PEREZ Chief Executive Officer AURELIO ALEMAN President and Chief Operating Officer CARLOS POWER Senior Vice President and General Manager FIRST LEASING AND RENTAL CORPORATION ANGEL ALVAREZ-PEREZ Chief Executive Officer AURELIO ALEMAN President and Chief Operating Officer AGUSTIN DAVILA General Manager FIRSTBANK INSURANCE AGENCY, INC. ANGEL ALVAREZ-PEREZ Chief Executive Officer AURELIO ALEMAN President and Chief Operating Officer VICTOR SANTIAGO Vice President and General Manager FIRSTBANK INSURANCE AGENCY V.I., INC. ANGEL ALVAREZ-PEREZ Chief Executive Officer FERNANDO L. BATLLE President and Chief Operating Officer WALTER HAUCK Vice President and General Manager CASSAN A. PANCHAM First Senior Vice President FIRST TRADE INC. ANGEL ALVAREZ-PEREZ Chief Executive Officer FERNANDO L. BATLLE President and Chief Operating Officer PAMELA CLARKE Manager CASSAN A. PANCHAM First Senior Vice President 25 2002 First BanCorp [PHOTO] 26 2002 First BanCorp FINANCIAL REVIEW 27 2002 First BanCorp MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis relates to the accompanying consolidated financial statements of First BanCorp (the Corporation) and should be read in conjunction with the financial statements and the notes thereto. Information in the notes referred to in this discussion and analysis is hereby incorporated by reference herein. The use of terms such as "see", "refer to", "included in" or "explained in" shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made. FORWARD LOOKING STATEMENTS When used in this report and in other filings by First BanCorp with the Securities and Exchange Commission, in the Corporation's press releases or other public or shareholder communication, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be", "will be", "will determine", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "estimated", "project", "believe", or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The future results of the Corporation could be affected by subsequent events and could differ materially from those expressed in forward-looking statements. If future events and actual performance differ from the Corporation's assumptions, the actual results could vary significantly from the performance projected in the forward-looking statements. The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities, competitive and regulatory factors and legislative changes, could affect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. OVERVIEW The year 2002 was a challenging year for all business sectors. It followed a year, 2001, where the Federal Reserve Bank cut interest rates by a total of 475 basis points in an effort to stimulate the economy. The Fed monetary policy resulted in an additional cut of 50 basis points during 2002 to 1.25%, the lowest level in more than 40 years. During the economic slowdown, construction, manufacturing and consumption have weakened somewhat. First BanCorp grew substantially and improved its financial performance last year in spite of the economic slowdown. For the year 2002, First BanCorp recorded earnings of $107,956,351 or $2.04 per common share basic and $2.01 per common share diluted, compared to $86,001,444 or $1.74 per common share basic and $1.73 per common share diluted for 2001, and $67,275,609 or $1.48 per common share basic and $1.47 per common share diluted for 2000. For 2002 as compared to 2001, net income increased by $21,954,907 or $0.28 per common share diluted, and for 2001 as compared to 2000, by $18,725,835 or $0.26 per common share diluted. The increase in the Corporation's earnings is mainly attributed to the net interest income earned on the growing portfolio of average earning assets and other income, net of increases in operating expenses. Assets rose 17% from $8.2 billion at year-end 2001 to $9.6 billion at the end of 2002. Deposits increased 34% to $5.5 billion. Net loans increased 31 % to $5.5 billion, mostly due to increases of $345 million in commercial loans and $842 million in residential real estate loans. Consumer loans and finance leases grew by $142 million. In spite of increases in the loan portfolio and a deteriorating economy, charge offs have not been increasing, mainly attributed to prior years efforts that improved loan underwriting and implemented tighter approval procedures. During 2002, the Corporation restructured its portfolio of mortgage backed securities in order to shorten its duration and reduce its prepayment risk under current economic environment; this restructuring resulted in gains of approximately $40.1 million. Total gains on sales of $48.9 million were partially offset by impairment losses of $36.9 million recognized during the year. 28 2002 First BanCorp Another important factor in the Corporation's strategy is prudent control of costs. For several years the Corporation has been investing in state of the art technology to improve service to its clients and increase efficiency. Operating expenses rose relatively little, from $120.9 million in 2001 to $132.8 million in 2002. During 2002 the Corporation's efficiency ratio improved by one percent to 40.81%. Return on average assets was 1.23% for 2002, and 1.28% for 2001 and 2000. Return on average equity was 14.90% for 2002, 16.20% for 2001 and 21.22% for 2000. Return on average common equity was 21.90% for 2002, 22.13% for 2001 and 27.81 % for 2000. First BanCorp has also been expanding outside Puerto Rico. In October 2002 the Corporation completed a $590 million acquisition of the operations of JP Morgan Chase in the Virgin Islands. The expanded presence in the Virgin Islands will give the Corporation the opportunity to better serve its clients in that part of the 2002 Caribbean and provides with certain geographic diversification. CRITICAL ACCOUNTING POLICIES AND PRACTICES The accounting and reporting policies of the Corporation and its subsidiaries conform with accounting principles generally accepted in the United States of America. A summary of accounting policies and recently issued accounting pronouncements is included in Note 2 of the Corporation's financial statements. The reported amounts are based on judgments, estimates and assumptions made by Management that affect the recorded 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, if different assumptions or conditions prevail. INVESTMENTS The Corporation classifies its investments in debt and equity securities into trading, held to maturity and available for sale securities. The available for sale securities are carried at fair value, with unrealized holding gains and losses, net of deferred tax effects, reported in other comprehensive income as a separate component of stockholders' equity. The fair values of these securities were calculated based on quoted market prices and dealer quotes. Changes in the assumptions used in calculating the fair values, could affect the reported valuations. EVALUATION FOR OTHER-THAN-TEMPORARY IMPAIRMENTS ON AVAILABLE FOR SALE AND HELD TO MATURITY SECURITIES The Corporation evaluates its investment's securities for impairment. An impairment charge in the Consolidated Statements of Income is recognized when the decline in the fair value of investments below their cost basis is judged to be other-than-temporary. The Corporation considers various factors in determining whether it should recognize an impairment charge, including, but no limited to the length of time and extent to which the fair value has been less than its cost basis, and the Corporation's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. For debt securities, the Corporation also considers, among other factors, the investees repayment ability on its bond obligations and its cash and capital generation's ability. At December 31, 2002 the Corporation did not hold any investment securities with significant unrealized losses sustained for more than one year. The Corporation's accounting policy for other-than-temporary impairments is included in Note 2 of the Corporation's financial statements. During 2002, the Corporation experienced significant volatility in the market prices of its publicly traded equity investments and in addition two bonds in the Corporation's portfolio were downgraded to non investment grade quality by two credit rating agencies. See Note 10 of the Corporation's financial statements, which gives details as to impairments charges recognized during 2002. 29 2002 First BanCorp ALLOWANCE FOR LOAN LOSSES The Corporation maintains the allowance for loan losses at a level that Management considers adequate to absorb losses inherent in the loan portfolio. The adequacy of the allowance for loan losses is reviewed on a quarterly basis as part of the continuing evaluation of the quality of the assets. Groups of small balance, homogeneous loans are collectively evaluated for impairment. The portfolios of consumer loans, auto loans and finance leases are considered homogeneous and are evaluated collectively for impairment. In determining probable losses for each category of homogeneous pools of loans. Management uses historical information about loan losses over several periods of time that reflect varying economic conditions and adjusts such historical data based on the current conditions, considering information and trends on charge offs, non-accrual loans and delinquencies. The Corporation measures impairment individually for those commercial and real estate loans with a principal balance exceeding $1 million. An allowance is established based on the present value of expected future cash flows or the fair value of the collateral, if the loan is collateral dependent. Accordingly, the measurement of impairment for loans evaluated individually involves assumptions by Management as to the amount and timing of cash flows to be recovered and of appropriate discount rates. Where the loans are collateral dependent. Management generally obtains an independent appraisal. Those appraisals also involve estimates of future cash flows and appropriate discount rates or adjustments to comparable properties in determining fair values. The Corporation's primary lending area is Puerto Rico. At December 31, 2002, there is no significant concentration of credit risk in any specific industry. INCOME TAXES The Corporation is routinely subject to examinations from governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Corporation to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should tax laws change or the tax authorities determine that Management's assumptions were inappropriate, the result and adjustments required could have a material effect on the Corporation's results of operation. Information regarding income taxes is included in Note 25 of the Corporation's financial statements. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS During 2002, the Financial Accounting Standards Board (FASB) issued several accounting pronouncements, namely SFAS (Statement of Financial Accounting Standard) No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections, SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, SFAS No. 147, Acquisitions of Certain Financial Institutions, SFAS No. 148, Accounting for Stock-Based Compensation, and FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees. Management estimated that the adoption of these pronouncements did not have or will not have, as applicable depending on adoption date, a significant impact on the Corporation's financial statements. Refer to Note 2 of the Corporation's financial statements for a summary of the major provisions of these pronouncements. RESULTS OF OPERATIONS The Corporation's results of operations depend primarily on its net interest income, which is the difference between the interest income earned on interest earning assets, including investment securities and loans, and the interest expense on interest bearing liabilities, including deposits and borrowings. Also, the results of operations depend on the provision for loan losses, operating expenses (such as personnel, occupancy and other costs), other income (mainly service charges and fees on loans), gains on sale of investments and income taxes. 30 2002 First BanCorp NET INTEREST INCOME Net interest income increased to $267 million for 2002 from $236 million in 2001 and $191 million in 2000. The increase in net interest income for the year 2002 is the result of volume increases of $2,052 million in the Corporation's average loan and investment portfolios. The following table includes a detailed analysis of net interest income. Part I presents average volumes and rates on a tax equivalent basis and Part II presents the extent to which changes in interest rates and changes in volume of interest related assets and liabilities have affected the Corporation's net interest income. For each category of earning assets and interest bearing liabilities, information is provided on changes attributable to changes in volume (changes in volume multiplied by old rates), and changes in rate (changes in rate multiplied by old volumes). Rate-volume variances (changes in rate multiplied by changes in volume) have been allocated to the changes in volume and changes in rate based upon their respective percentage of the combined totals.

Interest income Part I Average volume (1) /expense Average rate (1) Year ended December 31, 2002 2001 2000 2002 2001 2000 2002 2001 2000 (Dollars in thousands) Earning assets: Money market instruments $ 60,522 $ 46,517 $ 9,293 $ 999 $ 1,476 $ 527 1.65% 3.17% 5.67% Government obligations 1,236,281 588,932 528,903 56,130 35,955 36,043 4.54% 6.11% 6.81% Mortgage backed securities 2,144,236 1,711,980 1,457,044 147,779 126,098 100,415 6.89% 7.37% 6.89% Corporate bonds 259,840 247,094 51,508 15,493 21,230 4,366 5.96% 8.59% 8.48% FHLB stock 32,586 21,841 18,008 1,635 1,289 1,249 5.02% 5.90% 6.94% ---------- ---------- ---------- -------- -------- -------- Total investments 3,733,465 2,616,364 2,064,756 222,036 186,048 142,600 5.95% 7.11% 6.91% ---------- ---------- ---------- -------- -------- -------- Consumer loans 1,048,283 1,036,637 1,026,044 142,612 140,050 140,635 13.60% 13.51% 13.71% Residential real estate loans 1,283,710 869,374 573,866 74,411 65,496 49,115 5.80% 7.53% 8.56% Construction loans 223,627 219,890 169,257 11,726 17,323 18,251 5.24% 7.88% 10.78% Commercial loans 2,080,892 1,584,910 1,210,783 110,315 119,867 110,808 5.30% 7.56% 9.15% Finance leases 136,851 127,872 103,114 14,659 14,661 12,499 10.71% 11.47% 12.12% ---------- ---------- ---------- -------- -------- -------- Total loans (2) 4,773,363 3,838,683 3,083,064 353,723 357,397 331,308 7.41% 9.31% 10.75% ---------- ---------- ---------- -------- -------- -------- Total earning assets $8,506,828 $6,455,047 $5,147,820 $575,759 $543,445 $473,908 6.77% 8.42% 9.21% ---------- ---------- ---------- -------- -------- -------- Interest bearing liabilities: Interest bearing checking accounts $ 215,462 $ 186,111 $ 162,456 $ 5,146 $ 5,926 $ 5,546 2.39% 3.18% 3.41% Savings accounts 609,324 436,595 433,937 14,603 12,954 12,792 2.40% 2.97% 2.94% Certificate accounts 3,622,918 2,859,181 2,173,244 113,486 141,878 134,945 3.13% 4.96% 6.20% ---------- ---------- ---------- -------- -------- -------- Interest bearing deposits 4,447,704 3,481,887 2,769,637 133,235 160,758 153,283 3.00% 4.62% 5.53% Other borrowed funds 2,868,212 2,125,022 1,851,524 123,925 106,858 116,130 4.32% 5.03% 6.27% FHLB advances 339,477 256,354 51,053 16,024 12,585 3,201 4.72% 4.91% 6.27% ---------- ---------- ---------- -------- -------- -------- Total interest bearing liabilities $7,655,393 $5,863,263 $4,672,214 $273,184 $280,201 $272,614 3.57% 4.78% 5.83% ---------- ---------- ---------- -------- -------- -------- Net interest income $302,575 $263,244 $201,294 ---------- ---------- ---------- -------- -------- -------- Interest rate spread 3.20% 3.64% 3.38% Net interest margin 3.56% 4.08% 3.91%

(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 of 39%) 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. 31 2002 First BanCorp Part II

2002 compared to 2001 2001 compared to 2000 Increase (decrease) Increase (decrease) Due to: Due to: Volume Rate Total Volume Rate Total -------- -------- -------- -------- -------- -------- (In thousands) Earning assets: Money market instruments $ 338 $ (815) $ (477) $ 1,646 $ (697) $ 949 Government obligations 34,457 (14,282) 20,175 3,878 (3,966) (88) Mortgage backed securities 30,815 (9,134) 21,681 18,437 7,246 25,683 Corporate bonds 928 (6,665) (5,737) 16,803 61 16,864 FHLB stock 587 (241) 346 246 (206) 40 -------- -------- -------- -------- -------- -------- Total investments 67,125 (31,137) 35,988 41,010 2,438 43,448 -------- -------- -------- -------- -------- -------- Consumer loans 1,580 982 2,562 1,505 (2,090) (585) Residential real estate loans 27,616 (18,701) 8,915 23,778 (7,397) 16,381 Construction loans 245 (5,842) (5,597) 4,729 (5,657) (928) Commercial loans 31,903 (41,455) (9,552) 30,796 (21,737) 9,059 Finance leases 993 (995) (2) 2,920 (758) 2,162 -------- -------- -------- -------- -------- -------- Total loans 62,337 (66,011) (3,674) 63,728 (37,639) 26,089 -------- -------- -------- -------- -------- -------- Total interest income 129,462 (97,148) 32,314 104,738 (35,201) 69,537 -------- -------- -------- -------- -------- -------- Interest bearing liabilities: Deposits 36,762 (64,285) (27,523) 36,152 (28,677) 7,475 Other borrowed funds 34,742 (17,675) 17,067 15,454 (24,726) (9,272) FHLB advances 4,002 (563) 3,439 11,476 (2,092) 9,384 -------- -------- -------- -------- -------- -------- Total interest expense 75,506 (82,523) (7,017) 63,082 (55,495) 7,587 -------- -------- -------- -------- -------- -------- Change in net interest income $ 53,956 $(14,625) $ 39,331 $ 41,656 $ 20,294 $ 61,950 -------- -------- -------- -------- -------- --------

Total interest income includes tax equivalent adjustments of $36 million, $27 million and $11 million for 2002, 2001, and 2000, respectively. On a tax equivalent basis, net interest income increased to $303 million for 2002 from $263 million for 2001, and $201 million for 2000. The interest rate spread and net interest margin amounted to 3.20% and 3.56%, respectively, for 2002, as compared to 3.64% and 4.08%, respectively, for 2001 and to 3.38% and 3.91 %, respectively, for 2000. 2002 COMPARED TO 2001 On a tax equivalent basis interest income increased by $32 million for 2002 as compared to 2001. On a tax equivalent basis the yield on earning assets was 6.77% for 2002 as compared to 8.42% for 2001. The increase in interest income resulted from the growth in the average volume of interest earning assets of $2,052 million in 2002, partially offset by lower yields due to lower market rates. The current economic slowdown has led the Federal Reserve Bank to cut the federal funds rate several times during the last two years to 1.25%, which has resulted in a lower average cost of fund (3.57% for the year ended 2002 versus 4.78% for the year ended 2001). On a rate/volume basis, the increase of $39 million in net interest income (on a tax equivalent basis) is the result of a positive volume variance of $54 million, net of a negative rate variance of $15 million. The negative rate variance was mainly due to the high level of variable rate assets, and the acceleration of prepayments on the Corporation's mortgage backed securities. As shown in Part I, the Corporation continued to experience growth in its loan portfolio during 2002. Total loans average volume increased by $935 million as compared to 2001. Residential real estate loans and commercial loans, accounted for the largest growth in the portfolio, with average volumes rising $414 million and $496 million, respectively. The growth in the commercial and residential real estate portfolios resulted mainly from the Corporation's ongoing strategy of maintaining a diversified asset base. For the loan portfolio, the growth in average volume represented an increase of $62 million in interest income due to volume. The $66 million decrease in interest income due to rate is mainly attributed to the floating rate characteristics of a portion of the Corporation's portfolio and to the origination of new loans in a lower rate environment. At December 31, 2002, approximately 75% of the commercial, 49% of the residential mortgage and 88% of the construction portfolios have floating rates. 32 2002 First BanCorp Average investment securities increased by $1,117 million. The average yield on investment securities was 5.95% in 2002 and 7.11 % in 2001, on a tax equivalent basis. The portfolio of investment securities contributed $67 million on the interest income increase due to volume partially offset by a decrease of $31 million in interest income due to rate. The yield on government obligations had a negative variance of 157 basis points declining from 6.11% in 2001 to 4.54% in 2002. The yield on mortgage backed securities also had a negative variance as it decreased 48 basis points from 7.37% in 2001 to 6.89% in 2002. Interest expense decreased by $7 million for 2002 as compared to 2001. This was the result of the decrease in the average rates of interest bearing liabilities which generated a positive rate variance of $83 million, that was partially offset by increases in the average volume of liabilities to support the Corporation's growth. 2001 COMPARED TO 2000 On a tax equivalent basis interest income increased by $70 million for 2001 as compared to 2000. On a tax equivalent basis the yield on earning assets was 8.42% for 2001 as compared to 9.21 % for 2000. The increase in interest income results from the growth in the average volume of interest earning assets of $1,307 million in 2001, partially offset by a lower yield due to lower market rates. On a rate/volume basis, the increase of $62 million in net interest income (on a tax equivalent basis) is the result of a positive volume variance of $42 million, plus a positive rate variance of $20 million. During the year 2001, the Federal Reserve Bank cut short term rates by a total of 475 basis points to 1.75%. Long term rates fell by less than 50 basis points, increasing the spread between short and long yields and increasing the Corporation's interest rate spread and net interest margin. For the loan portfolio, the growth in 2001 of $374 million in the average volume of commercial loans (including commercial real estate loans) represented an increase of $31 million in interest income due to volume, and a decrease of $22 million in interest income due to rate. The average portfolio of construction loans increased by $51 million for 2001, representing a positive volume variance of $5 million and a negative rate variance of $6 million. Management has been pursuing a consistent strategy of shifting the lending portfolio towards commercial lending without sacrificing the consumer area. The average portfolio of residential mortgage loans increased by $296 million for 2001, representing a positive volume variance of $24 million and a negative rate variance of $7 million. The average finance lease portfolio (mostly composed of consumer loans) increased by $25 million in 2001, representing a positive volume variance of $3 million. The increase of $11 million in the average volume of consumer loans in 2001, represented a positive variance in interest income due to volume of $2 million and a negative rate variance of $2 million. For the investment portfolio, the average volume of mortgage backed securities increased by $255 million in 2001. The tax equivalent yield on mortgage backed securities was 7.37% in 2001 and 6.89% in 2000. The portfolio of mortgage backed securities contributed $18 million in interest income due to volume and $7 million in interest income due to rate. The average volume of corporate bonds increased by $196 million for 2001 as compared to 2000, causing an increase in interest income of $17 million totally due to volume. Interest expense increased by $8 million for 2001 as compared to 2000. This was the result of the increase in the average volume of interest bearing liabilities of $1,191 million for 2001 as compared to 2000 which generated a negative volume variance of $63 million, partially offset by the decrease in the cost of interest bearing liabilities due to lower market rates, causing a positive rate variance of $55 million. The cost of interest bearing liabilities decreased from 5.83% for 2000 to 4.78% for 2001. PROVISION FOR LOAN LOSSES During 2002, the Corporation provided $62 million for loan losses, as compared to $61 million in 2001 and $46 million in 2000. Charge offs were stable despite weakened economic conditions. Net charge offs for 2002 amounted to $41.5 million, as compared to net charge offs for 2001 of $46.9 million, and of $42.0 million for 2000. Net charge offs to average loans outstanding has improved to 0.87% as compared to 1.22% and 1.36% for 2001 and 2000, respectively. 33 2002 First BanCorp The allowance activity for 2002, and previous four years was as follows:

Year ended December 31, 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Allowance for loan losses, beginning of year $ 91,060 $ 76,919 $ 71,784 $ 67,854 $ 57,712 Provision for loan losses 62,302 61,030 45,719 47,960 76,000 ---------- ---------- ---------- ---------- ---------- Loans charged off: Residential real state (555) (192) Commercial (4,643) (9,523) (3,463) (825) (880) Finance leases (2,532) (2,316) (2,145) (793) (3,438) Consumer (41,261) (42,349) (46,223) (52,047) (67,906) Recoveries 7,540 7,391 9,807 9,048 6,034 ---------- ---------- ---------- ---------- ---------- Net charge offs (41,451) (46,989) (42,024) (44,617) (66,190) ---------- ---------- ---------- ---------- ---------- Other adjustments (1) 100 1,440 587 332 ---------- ---------- ---------- ---------- ---------- Allowance for loan losses, end of year $ 111,911 $ 91,060 $ 76,919 $ 71,784 $ 67,854 ---------- ---------- ---------- ---------- ---------- Allowance for loan losses to year end total loans and loans held for sale 1.99% 2.11% 2.20% 2.61% 3.20% Net charge offs to average loans outstanding during the period 0.87% 1.22% 1.36% 1.90% 3.31%

(1) Other adjustments mainly consist of the carrying allowance of the loan portfolios acquired each year. The Corporation maintains the allowance for loan losses at a level that Management considers adequate to absorb losses inherent in the loan portfolio. The adequacy of the allowance for loan losses is reviewed on a quarterly basis as part of the continuing evaluation of the quality of the assets. This evaluation is based upon a number of factors, including the following: historical loan loss experience, projected loan losses, loan portfolio composition, 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. 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 presents the composition of other income: Year ended December 31,

Year ended December 31, 2002 2001 2000 -------- -------- -------- (In thousands) Other fees on loans $ 21,441 $ 19,632 $ 19,913 Service charges on deposit accounts 9,200 9,213 8,898 Mortgage banking activities 3,540 1,562 409 Rental income 2,285 2,293 2,434 Other commissions 1,081 1,511 1,340 Insurance income 2,269 700 Dividend on equity securities 705 669 698 Other operating income 10,032 7,794 8,071 -------- -------- -------- Other income before net gain on sale of investments, derivatives loss and trading income 50,553 43,374 41,763 -------- -------- -------- Net gain on sale of investments 48,873 9,606 7,850 Impairment on investments (36,872) -------- -------- -------- Net gain on sale of investments, and impairment 12,001 9,606 7,850 Derivatives loss (4,062) Trading income 419 -------- -------- -------- Total $ 58,492 $ 52,980 $ 50,032 -------- -------- --------

34 2002 First BanCorp Other income primarily consists of fees on loans, service charges on deposit accounts, commissions derived from various banking activities, securities and insurance activities, and the net gain of investments, net of derivatives losses. Other fees on loans consist mainly of credit card fees and late charges collected on loans. Service charges on deposit accounts represent an important and stable source of other income for the Corporation. Mortgage banking activities income includes gain on sale of loans and the servicing fees on residential mortgage loans originated by the Corporation and subsequently securitized or sold. Gains on sale of loans amounted to approximately $3.4 million in 2002 (2001-$1.2 million). No sales were made in 2000. The Corporation's subsidiary. First Leasing and Rental Corporation, generates income on the rental of various types of motor vehicles. This source of income has averaged approximately $2 million in the past three years. Insurance income consists of commissions earned by the new subsidiary FirstBank Insurance Agency, Inc., which started operations in May 2001. 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 gain on sale of investment securities reflects gains that resulted from sales that are in consonance to the Corporation's investment policies. A substantial portion earned in 2002 represents gains of $40.1 million on the sale of mortgage backed securities, realized as part of the restructuring of the investment portfolio, as explained in the Corporation's financial statements, see Note 10. In addition, during the year ended on December 31, 2002 losses of $37 million on other-than-temporary impairment of certain securities were recognized, as explained in the Corporation's financial statements, refer to Notes 2 and 10. As explained in Note 29 of the Corporation's financial statements, the derivatives loss consists mainly of an unrealized loss of $4.5 million due to the valuation to fair value of a portfolio of swaps that does not qualify for hedge accounting. OTHER OPERATING EXPENSE Other operating expenses amounted to $133 million for 2002 as compared to $121 million for 2001 and $113 million for 2000. The following table presents the components of other operating expenses:

Year ended December 31, 2002 2001 2000 -------- -------- -------- (In thousands) Salaries and benefits $ 59,432 $ 54,703 $ 50,014 Occupancy and equipment 29,015 24,992 22,792 Deposit insurance premium 746 645 547 Other taxes and insurance 8,915 7,804 6,355 Professional and service fees 7,685 7,931 8,740 Business promotion 9,304 7,506 8,468 Communications 5,865 5,395 5,573 Expense of rental equipment 1,588 1,578 1,525 Other 10,206 10,300 9,036 -------- -------- -------- Total $132,756 $120,854 $113,050 -------- -------- --------

35 2002 First BanCorp Management's goal is to limit expenditures to those that directly contribute to increase the efficiency, service quality and profitability of the Corporation. This control over other operating expenses has been an important factor contributing to the increase 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, improved to 40.81% for 2002 as compared to 41.81% and 46.95% for 2001 and 2000, respectively. The Corporation has maintained a better than average efficiency ratio, while it has provided the latest in delivery channels for its commercial and consumer financial products and services. The increase in operating expenses for 2002 is mainly the result of the Corporation's continuous investment in technology to provide the latest in delivery channels to its commercial and consumer lending business and to the general growth in the subsidiary Bank's operations. Operating expenses have also increased due to higher expenditures on advertising campaigns, which support the Corporation's growth and image. The salary and benefits category was affected by annual increases in salary and fringe benefits and an increase in the number of employees to support the Corporation's growth. INCOME TAX EXPENSE The provision for income tax amounted to $22 million (or 17% of pre-tax earnings) for 2002 as compared to $20 million (or 19% of pre-tax earnings) in 2001, and $15 million (or 18% of pre-tax earnings) in 2000. The Corporation has maintained an effective tax rate lower than the statutory rate of 39% mainly by investing in government obligations and mortgage backed securities exempt from U.S. and Puerto Rico income tax combined with gains on sale of investments held by the international banking division of the Corporation and the Bank. These divisions were created under the International Banking Entity Act of P. R., which provides for total P. R. tax exemption on its interest income, other income and gain on sale of investments. The decrease in the effective tax rate is mainly due to an increase in the portfolio of exempt investments and investments held in the Corporation's international banking divisions. For additional information relating to income taxes, see Note 25 of the Corporation's financial statements. 36 2002 First BanCorp FINANCIAL CONDITION The following table presents an average balance sheet for the following years:

December 31, 2002 2001 2000 ---------- ---------- ---------- (In thousands) Interest earning assets: Money market instruments $ 60,522 $ 46,517 $ 9,293 Government obligations 1,236,281 588,932 528,903 Mortgage backed securities 2,144,236 1,711,980 1,457,044 Corporate bonds 259,840 247,094 51,508 FHLB stock 32,586 21,841 18,008 ---------- ---------- ---------- Total investments 3,733,465 2,616,364 2,064,756 ---------- ---------- ---------- Commercial loans 2,080,892 1,584,910 1,210,783 Consumer loans 1,048,283 1,036,637 1,026,044 Residential real estate loans 1,283,710 869,374 573,866 Construction loans 223,627 219,890 169,257 Finance leases 136,851 127,872 103,114 ---------- ---------- ---------- Total loans 4,773,363 3,838,683 3,083,064 ---------- ---------- ---------- Total interest earning assets 8,506,828 6,455,047 5,147,820 Equity securities 52,703 48,122 29,254 Total non-earning assets (1) 188,691 198,233 62,302 ---------- ---------- ---------- Total assets $8,748,222 $6,701,402 $5,239,376 ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing liabilities: Interest bearing checking accounts $ 215,462 $ 186,111 $ 162,456 Savings accounts 609,324 436,595 433,937 Certificate accounts 3,622,918 2,859,181 2,173,244 ---------- ---------- ---------- Interest bearing deposits 4,447,704 3,481,887 2,769,637 Other borrowed funds 2,868,212 2,125,022 1,851,524 FHLB advances 339,477 256,354 51,053 ---------- ---------- ---------- Total interest bearing liabilities 7,655,393 5,863,263 4,672,214 Total non-interest bearing liabilities 368,315 307,237 250,135 ---------- ---------- ---------- Total liabilities 8,023,708 6,170,500 4,922,349 Stockholders' equity 724,514 530,902 317,027 ---------- ---------- ---------- Total liabilities and stockholders' equity $8,748,222 $6,701,402 $5,239,376 ---------- ---------- ----------

(1) Net of the allowance for loan losses and the valuation on investments securities available for sale. 37 2002 First BanCorp ASSETS The Corporation's total assets at December 31, 2002 amounted to $9,644 million, $1,446 million over the $8,198 million at December 31, 2001, mainly due to the growth in the loan portfolio. The following table presents the composition of the loan portfolio at year-end for each of the last five years:

December 31, % of % of % of % of % of 2002 Total 2001 Total 2000 Total 1999 Total 1998 Total ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- (Dollars in thousands) Residential real estate loans $1,854,068 33 $1,011,908 23 $ 746,792 21 $ 473,563 17 $ 303,011 14 ---------- --- ---------- --- ---------- --- ---------- --- ---------- --- Commercial real estate loans 813,513 14 688,922 16 438,321 13 371,643 14 332,219 16 Construction loans 259,053 5 219,396 5 203,955 6 132,068 5 62,963 3 Commercial loans 1,418,792 25 1,238,173 29 947,709 27 655,417 24 368,549 17 ---------- --- ---------- --- ---------- --- ---------- --- ---------- --- Total commercial 2,491,358 44 2,146,491 50 1,589,985 46 1,159,128 43 763,731 36 Finance leases 143,412 3 127,935 3 122,883 3 85,692 3 52,214 3 Consumer loans 1,149,012 20 1,022,445 24 1,038,538 30 1,026,985 37 1,001,098 47 ---------- --- ---------- --- ---------- --- ---------- --- ---------- --- Total $5,637,850 100 $4,308,779 100 $3,498,198 100 $2,745,368 100 $2,120,054 100 ---------- --- ---------- --- ---------- --- ---------- --- ---------- ---

Total loans receivable increased by $1,329 million in 2002 when compared with 2001. During 2002 the Corporation continued its strategy of diversifying its loan portfolio composition through the origination and purchase of commercial loans and residential real estate loans, while maintaining its investment in consumer loans. In addition, the Corporation acquired a banking operation in the U.S. and British Virgin Islands with $291 million in residential real estate loans, $40 million in commercial loans and $105 million in consumer loans. This acquisition provides the Corporation with a geographic diversification. The Corporation's strategy and the acquisition resulted in a significant increase of $345 million in the commercial loan portfolio and of $842 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 $15 million, and consumer loans increased by $127 million in 2002. The Corporation's investment portfolio at December 31, 2002 amounted to $3,729 million, an increase of $13 million when compared with the investment portfolio of $3,716 million at December 31, 2001. Mortgage backed securities represent a substantial balance of the Corporation's portfolio. These securities are subject to prepayment risk. As described in Note 10 of the Corporation's financial statements, during 2002, the Corporation restructured its portfolio to shorten maturities and reduce the existing prepayment risk under current interest rate scenario. Government obligations included approximately $644 million and $1.3 million in zero coupon bonds and government agency securities, respectively, that are callable. At December 31, 2002 money market instruments included approximately $237 million of FHLB discount notes maturing in less than ninety days, which collateralized repurchase agreements. Management of the Corporation will determine during 2003 how prepayments on the mortgage backed securities and repayments on the callable securities will be reinvested, considering, among other factors, the interest rate outlook. 38 2002 First BanCorp The composition and estimated tax equivalent weighted average interest and dividend yields of the Corporation's earning assets at December 31, 2002 were as follows:

Tax Equivalent Amount Weighted (In thousands) Average Rate -------------- -------------- Money market instruments $ 273,660 1.66% Government obligations 666,946 10.84% Mortgage backed securities 2,512,606 6.26% FHLB stock 35,629 5.58% Corporate bonds 198,174 6.93% Equity securities 41,654 1.72% ---------- Total investments 3,728,669 6.72% ---------- Consumer loans 1,149,012 13.13% Residential real estate loans 1,854,068 5.43% Construction loans 259,053 5.13% Commercial and commercial real estate loans 2,232,305 5.03% Finance leases 143,412 10.14% ---------- Total loans (1) 5,637,850 6.95% ---------- Total earning assets $9,366,519 6.86% ----------

(1) Excludes the reserve for loan losses. NON-PERFORMING ASSETS Total non-performing assets are the sum of non-accruing loans and investments, other real estate owned and other repossessed properties. Non-accruing loans and investments are loans and investments as to which interest is no longer being recognized. When loans and investments fall into non-accruing status, all previously accrued and uncollected interest is charged against interest income. At December 31, 2002, total non-performing assets amounted to $105 million (1.09% 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. Approximately $9.1 million of the increase in non-performing assets when compared to the amount at December 31, 2001 is attributed to a construction loan fully secured with finished homes, where the Corporation stopped accruing interest due to a slow down in the selling process of the homes. More than half of the project houses have been either sold or optioned and are in the process of closing. The remaining increase in non performing assets is attributed to a corporate bond of approximately $3.8 million, which was reclassified to non-accruing status during 2002, to non-performing assets acquired in the Virgin Islands and to the general growth in the Corporation's commercial loan portfolio. The Corporation's allowance for loan losses to non-performing loans was 121.95% at December 31, 2002 as compared to 124.74% and 113.59% at December 31, 2001 and 2000, respectively. 39 2002 First BanCorp The following table presents non-performing assets at the dates indicated:

December 31, 2002 2001 2000 1999 1998 -------- ------- ------- ------- ------- (Dollars in thousands) Non-accruing loans: Residential real estate $ 23,018 $18,540 $15,977 $ 8,633 $ 9,151 Commercial and commercial real estate 47,705 29,378 31,913 17,975 19,355 Finance leases 2,049 2,469 2,032 2,482 1,716 Consumer 18,993 22,611 17,794 24,726 26,736 -------- ------- ------- ------- ------- 91,765 72,998 67,716 53,816 56,958 -------- ------- ------- ------- ------- Other real estate owned 2,938 1,456 2,981 517 3,642 Other repossessed property 6,222 4,596 3,374 3,112 2,277 Investment securities 3,750 -------- ------- ------- ------- ------- Total non-performing assets $104,675 $79,050 $74,071 $57,445 $62,877 -------- ------- ------- ------- ------- Past due loans $ 24,435 $27,497 $16,358 $13,781 $15,110 Non-performing assets to total assets 1.09% 0.96% 1.25% 1.22% 1.57% Non-performing loans to total loans 1.63% 1.69% 1.94% 1.96% 2.69% Allowance for loan losses $111,911 $91,060 $76,919 $71,784 $67,854 Allowance to total non-performing loans 121.95% 124.74% 113.59% 133.39% 119.13%

NON-ACCRUING LOANS RESIDENTIAL REAL ESTATE LOANS - The Corporation classifies all 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, the loan to value ratios and historical experience, that no material losses will be incurred in this portfolio. Non-accruing real estate loans amounted to $23 million (1.24% of total residential real estate loans) at December 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. The increase as compared to 2001 is mainly attributed to non performing loans of approximately $4 million acquired in the Virgin Islands. COMMERCIAL LOANS - The Corporation places 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 $48 million (1.91% of total commercial loans) at December 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 December 31, 2002 there were five non-accruing commercial loans of over $1 million, for a total of $17.7 million including the afore mentioned non-accruing construction loan of $9.1 million. FINANCE LEASES - Finance leases are classified as non-accruing when they are delinquent 90 days or more. Non-accruing finance leases amounted to approximately $2 million at December 31, 2002, 2001 and 2000, representing 1.43%, 1.93% and 1.65%, respectively, of total finance leases. 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 (1.65% of the total consumer loan portfolio) at December 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. 40 2002 First BanCorp OTHER REAL ESTATE OWNED Other real estate owned 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 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. INVESTMENT SECURITIES This category presents the carrying amount of $3.8 million of the Corporation's investment in WorldCom Corporation bonds, which was reclassified to non-accruing status during the year, as more fully explained in Note 10 of the Corporation's financial statements. Management's impairment analysis on the investment in WorldCom Corporation bonds concluded that an other-than-temporary impairment of approximately $11.7 million had occurred. As aforementioned, the remaining $3.8 million were reclassified to non-accruing status. 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 The Corporation's principal funding sources are branch-based deposits, retail brokered deposits, institutional deposit, federal funds purchased, securities sold under agreements to repurchase, and FHLB advances. DEPOSITS Total deposits amounted to $5,483 million at December 31, 2002, as compared to $4,099 million and $3,346 million at December 31, 2001 and 2000, respectively. The following table presents the composition of total deposits:

December 31, 2002 2001 2000 ---------- ---------- ---------- (Dollars in thousands) Savings accounts $ 921,103 $ 469,452 $ 430,298 Interest bearing checking accounts 230,743 205,760 170,631 Certificates of deposit 3,883,996 3,183,491 2,512,891 ---------- ---------- ---------- Interest bearing deposits 5,035,842 3,858,703 3,113,820 Non-interest bearing deposits 447,076 239,851 232,164 ---------- ---------- ---------- Total $5,482,918 $4,098,554 $3,345,984 ---------- ---------- ---------- Weighted average rate during the period on interest bearing deposits 3.00% 4.62% 5.53% Interest bearing deposits: Average balance outstanding $4,447,704 $3,481,887 $2,769,637 Non-interest bearing deposits: Average balance outstanding $ 257,454 $ 233,254 $ 213,728

Total deposits are composed of branch-based deposits, brokered deposits and to a lesser extent of institutional deposits. Institutional deposits include certificates issued to agencies of the Government of Puerto Rico and to Governments in the Virgin Islands. 41 2002 First BanCorp Total deposits increased by approximately $1,384 million at December 31, 2002 when compared to December 31, 2001. This fluctuation was mainly due to: (1) an increase in branch-based deposits of $813 million and to (2) an increase of $456 million in brokered certificates of deposit. The increase in branch-based deposits reflects the acquisition of approximately $557 million in deposits in the Virgin Islands. Retail brokered certificates of deposits, which are certificates sold through brokers, represent a large portion of the Corporation's deposits. The total U.S. market for this source of funding approximates $280,000 million. At December 31, 2002, approximately 73% of retail brokered certificates of deposit held by the Corporation are callable, but only at Corporation's option. At December 31, 2002, the average life of callable and fixed term brokered certificates approximated 12 years and 2.54 years, respectively. As more fully explained in Note 29 to the Corporation's financial statements, the Corporation enters into interest rate swap agreements where it agrees to pay variable-rates of interest as a hedge against changes in the fair value of fixed-rate brokered certificates of deposit. The effect of this agreements is that interest expense of retail brokered certificates of deposits is generally variable interest rate. The interest rate swap agreements are not callable. BORROWINGS At December 31, 2002 total borrowings amounted to $3,249 million as compared to $3,425 million and $2,069 million at December 31, 2001 and 2000, respectively.

December 31, 2002 2001 2000 ---------- ---------- ---------- (Dollars in thousands) Federal funds purchased and securities sold under agreements to repurchase $2,793,540 $2,997,174 $1,856,436 Advances from FHLB 373,000 343,700 67,000 Subordinated notes 82,815 84,362 90,548 Notes payable 55,500 ---------- ---------- ---------- Total $3,249,355 $3,425,236 $2,069,484 ---------- ---------- ---------- Weighted average rate during the period 4.36% 5.02% 6.27%

The Corporation uses federal funds purchased, repurchase agreements, advances from FHLB and notes payable as additional funding sources. The borrowings of the Corporation consist primarily of federal funds purchased and securities sold under agreements to repurchase (repurchase agreements) which at December 31, 2002 amounted to $2,794 million or 86% of total borrowings. Repurchase agreements had a total weighted average cost of 3.82% during the year ended December 31, 2002. For more information on borrowings please refer to Notes 18 through 21 of the Corporation's financial statements. The composition and estimated weighted average interest rates of interest bearing liabilities at December 31, 2001, were as follows:

Amount Weighted (In thousands) Average Rate -------------- ------------ Interest bearing deposits $5,035,842 2.58% Borrowed funds 3,249,355 3.98% ---------- $8,285,197 3.13% ----------

42 2002 First BanCorp CONTRACTUAL OBLIGATIONS AND COMMITMENTS The following table presents a detail of the maturities of contractual debt obligations, operational leases and commitments to extend credit:

Payments Due/Commitments Expiration by Period (In thousands) Total Less than 1 year 1-3 years 4-5 years After 5 years ----- ---------------- --------- --------- ------------- Contractual Obligations: Federal funds purchased and securities sold under agreements to repurchase $2,793,540 $ 718,580 $156,500 $100,000 $1,818,460 Advances from FHLB 373,000 50,000 50,000 273,000 Subordinated Notes 82,815 82,815 ---------- ---------- -------- -------- ---------- Total Contractual Cash Obligations $3,249,355 $ 768,580 $289,315 $100,000 $2,091,460 ---------- ---------- -------- -------- ---------- Other Commitments: Lines of Credit $ 322,351 $ 322,351 Standby Letters of Credit 30,313 30,313 Other Commercial Commitments 729,369 729,369 Operating Leases 22,897 4,894 $ 6,905 $ 3,765 $ 7,333 ---------- ---------- -------- -------- ---------- Total Commercial Commitments $1,104,930 $1,086,927 $ 6,905 $ 3,765 $ 7,333 ---------- ---------- -------- -------- ----------

The Corporation has obligations and commitments to make future payments under contracts, such as debt and lease agreements, 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. CAPITAL During 2002, the Corporation increased its total capital from $603 million at December 31, 2001 to $798 million at December 31, 2002. Total capital increased by $195 million mainly due to earnings of $108 million, the issuance of 3,680,000 shares of preferred stock with a net proceed of $89 million, the issuance of 96,750 (as adjusted for 2002 stock split) shares of common stock through the exercise of stock options with proceeds of $1.3 million, a positive fluctuation in the valuation of securities available for sale, net of a negative valuation of fair value hedges of $40 million, and cash dividends of $42 million. The Corporation's objective is to maintain a solid capital position above the "well capitalized" classification under the federal banking regulations. The Corporation continues to exceed the well capitalized guidelines. To be in a "well capitalized" position, an institution should have: (i) a leverage ratio of 5% or greater; (ii) a total risk based capital ratio of 10% or greater; and (iii) a Tier 1 risk-based capital ratio of 6% or greater. At December 31, 2002 the Corporation had a leverage ratio of 7.35%; a total risk based capital ratio of 13.75%; and a Tier 1 risk-based capital ratio of 11.90%. DIVIDENDS In 2002, 2001 and 2000 the Corporation declared four quarterly cash dividends of $0.10, $0.09 and $0.07 per common share, respectively, for an annual dividend of $0.40, $0.35 and $0.29, respectively. Total cash dividends paid on common shares amounted to $16 million for 2002 (or a 19.58% dividend payout ratio), $14 million for 2001 (or a 19.91% dividend payout ratio) and $12 million for 2000 (or a 19.72% dividend payout ratio). Dividends declared on preferred stock amounted to $26 million in 2002, $17 million in 2001, and $7 million in 2000. Increase in dividends on preferred stocks resulted from the issuance of preferred stock of $92 million in 2002, $103.5 million in 2001 and $75 million in 2000. 43 2002 First BanCorp QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK First BanCorp manages its asset/liability position in order to limit the effects of changes in interest rates on net interest income, subject to other goals of Management and within guidelines set forth by the Board of Directors. The day-to-day management of interest rate risk, as well as liquidity management and other related matters, is assigned to the Asset Liability Management and Investment Committee of FirstBank (ALCO). The ALCO is composed of the following officers: President and CEO, the Senior Executive Vice President and Chief Financial Officer, the Executive Vice President for Retail and Mortgage Banking, the Senior Vice President of Treasury and Investments and the Economist. The ALCO meets on a weekly basis. The Economist also acts as secretary, keeping minutes of all meetings. An Investment Committee for First BanCorp also monitors the investment portfolio of the Holding Company, including a stock portfolio which amounted to $42 million at December 31, 2002. This Committee meets weekly and has the same membership as the ALCO Committee described previously. Committee meetings focus on, among other things, current and expected conditions in world financial markets, competition and prevailing rates in the local deposit market, reviews of liquidity, unrealized gains and losses in securities, recent or proposed changes to the investment portfolio, alternative funding sources and their costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory issues which may be pertinent to these areas. The ALCO approves funding decisions in light of the Corporation's overall growth strategies and objectives. On a quarterly basis the ALCO performs a comprehensive asset/liability review, examining the measures of interest rate risk described below together with other matters such as liquidity and capital. The Corporation uses simulations to measure the effects of changing interest rates on net interest income. These measures are carried out over a one year time horizon, assuming gradual upward and downward interest rate movements of 200 basis points. Simulations are carried out in two ways: (1) using a balance sheet which is assumed to be at the same levels existing on the simulation date, and (2) using a balance sheet which has growth patterns and strategies similar to those which have occurred in the recent past. These simulations assume gradual upward or downward movements of interest rates over the year of projection, with the change totaling 200 basis points at the end of the twelve month period. The balance sheet is divided into groups of similar assets and liabilities in order to simplify the process of carrying out these projections. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future funding sources and cost, the possible exercise of options, changes in prepayment rates, and other factors which may be important in determining the future growth of net interest income. All computations are done on a tax equivalent basis, including the effects of the changing cost of funds on the tax-exempt spreads of certain investments. The projections are carried out for First BanCorp on a fully consolidated basis. These simulations are highly complex, and they use many simplifying assumptions that are intended to reflect the general behavior of the Corporation over the period in question, but there can be no assurance that actual events will parallel these assumptions in all cases. For this reason, the results of these simulations are only approximations of the true sensitivity of net interest income to changes in market interest rates. Assuming a no growth balance sheet as of December 31, 2002, tax equivalent net interest income projected for 2003, would rise by $27.8 million (8.23%) under a rising rate scenario and would decrease by $1.5 million (0.5%) under falling rates. The same simulations were also carried out assuming that the Corporation would grow. As of December 31, 2002 the growing balance sheet simulations indicate that tax equivalent net interest income projected for 2003, would rise by $27.0 million (7.70%) under a rising rate scenario and would decrease by $0.8 million (0.2%) with falling rates. 44 2002 First BanCorp The simulation for the year 2002 assuming a no growth balance sheet as of December 31, 2001, concluded that under a rising rate scenario net interest income would have declined by $6.2 million (1.7%) and that under a falling rate scenario would have increased by $1.9 million (0.5%). The same simulations were also carried assuming that Corporation was going to grow. As of December 31, 2001, the growing balance sheet simulation indicated that the tax equivalent net interest income for 2002 would have fallen by $8.8 million (2.4%) under a rising interest rate scenario and increased by $3.8 million (1.0%) with falling rates. The Corporation compared 2002 projections with actual results. In the growth scenario, which is more realistic, the Bank projected taxable equivalent net interest income of $369.7 million under flat rates and $373.5 million under falling rates for 2002. In reality, taxable equivalent net interest income was $302.6 million. The most important reason for this difference was that FirstBank restructured its investment portfolio to reduce the Bank's exposure to rising rates. Some corporate bonds were sold and most 30 year MBS were replaced with 15 year securities at lower tax equivalent spreads. While these changes were going on, the Bank also had substantial investments in discount notes for short periods of time. These changes all led to smaller spreads than anticipated in the initial projection. Partially offsetting the effect of smaller spreads was a more rapid growth of the balance sheet. The consolidated balance sheet actually reached $9.64 billion at the end of 2002, compared with a projected figure of $8.68 billion in the baseline scenario. Part of this growth was due to the unanticipated purchase of a $590 million banking operation in the Virgin Islands, which closed in October, 2002. Substantial unanticipated growth also occurred in average commercial loans, which reached $2.30 billion by the end of 2002, compared with a projected figure of $2.00 billion in the baseline scenario. LIQUIDITY Liquidity refers to the level of cash and eligible investments to meet loan and investment commitments, potential deposit outflows and debt repayments. The Asset Liability Management and Investment Committee, using measures of liquidity developed by Management, reviews the Corporation's liquidity position on a weekly basis. The 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 supplementary sources 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 the repayment of maturing deposit accounts and borrowings. A large portion of the Corporation's funding represent retail brokered certificates of deposit. In the event that the Corporation falls under the ratios of a well-capitalized institution, it faces the risk of not being able to replace this source of funding. It is Management's believe that this possibility is remote. In addition, the average life of the retail brokered certificates of deposit was 9.54 years at December 31, 2002. Approximately 73% of these certificates are callable, but only at the Corporation's option. The Corporation's liquidity plan contemplates alternative sources of funding that could provide significant amounts of funding at reasonable cost. The alternative sources of funding include, among others, FHLB advances, lines of credits from other banks, sale of commercial loans participations, securitization of auto loans and commercial paper. IMPACT OF INFLATION AND CHANGING PRICES The financial statements and related data presented herein have been prepared in conformity with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. 45 2002 First BanCorp Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a greater impact on a financial institution's performance than the effects of general levels of inflation. Interest rate movements are not necessarily correlated with changes in the prices of goods and services. CONCENTRATION RISK The Corporation conducts its operations in a geographically concentrated area, as its main market is Puerto Rico. However, the Corporation continues diversifying its geographical risk as evidenced by recent acquisitions in the Virgin Islands. Puerto Rico's economy is generally similar to U.S. economy and its economic performance is a natural result of its increasing integration into the U.S. economy. At December 31, 2002, there is no significant concentration of credit risk in any specific industry. SELECTED QUARTERLY FINANCIAL DATA Financial data showing results of the 2002 and 2001 quarters is presented below. In the opinion of Management, all adjustments necessary for a fair presentation have been included:

2002 March 31 June 30 Sept. 30 Dec. 31 -------- -------- -------- -------- (In thousands, except for per share results) Interest income $136,716 $136,348 $129,606 $137,364 Net interest income 69,271 68,523 60,338 68,717 Provision for loan losses 19,801 14,501 14,000 14,001 Net income 25,650 26,979 27,357 27,971 Earnings per common share-basic $ 0.49 $ 0.51 $ 0.52 $ 0.53 Earnings per common share-diluted $ 0.49 $ 0.50 $ 0.51 $ 0.52

2001 March 31 June 30 Sept. 30 Dec. 31 -------- -------- -------- -------- (In thousands, except for per share results) Interest income $128,750 $126,178 $127,527 $133,801 Net interest income 52,474 58,101 61,989 63,491 Provision for loan losses 15,000 17,800 12,790 15,440 Net income 18,786 20,172 23,019 24,024 Earnings per common share-basic $ 0.39 $ 0.43 $ 0.45 $ 0.47 Earnings per common share-diluted $ 0.39 $ 0.43 $ 0.45 $ 0.47

46 2002 First BanCorp MARKET PRICES AND STOCK DATA The Corporation's common stock is traded in the New York Stock Exchange (NYSE) under the symbol FBP. On December 31, 2002, there were 640 holders of record of the Corporation's common stock. The following table sets forth the high and low prices of the Corporation's common stock for the periods indicated as reported by the NYSE.

Quarter ended High Low Last ---- --- ---- 2002: December $ 26.38 $ 22.08 $ 22.60 September 27.61 22.82 25.41 June 25.13 19.13 25.13 March 19.80 18.43 19.27 2001: December $ 20.00 $ 17.07 $ 19.00 September 20.00 16.00 17.24 June 17.99 15.32 17.99 March 17.42 13.00 17.27 2000: December $ 16.46 $ 13.67 $ 15.75 September 16.33 12.00 16.29 June 12.50 11.13 12.37 March 14.00 10.83 11.75

47 2002 First BanCorp FINANCIAL STATEMENTS [PHOTO] [PRICEWATERHOUSECOOPERS LOGO] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of First BanCorp. In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows present fairly, in all material respects, the financial position of First BanCorp. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Notes 2, 9 and 29 to the accompanying consolidated financial statements, in 2001 the Company adopted the Statement of Financial Accounting Standards No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended, which effect was accounted for as a cumulative effect of a change in accounting principle. /S/ PRICEWATERHOUSECOOPERS March 7, 2003 CERTIFIED PUBLIC ACCOUNTANTS (OF PUERTO RICO) License No. 216 Expires Dec. 1, 2004 Stamp 1838396 of the P.R. Society of Certified Public Accountants has been affixed to the file copy of this report CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31, 2002 2001 --------------- --------------- ASSETS Cash and due from banks $ 108,305,943 $ 59,898,550 --------------- --------------- Money market instruments 273,659,553 34,564,568 --------------- --------------- Investment securities available for sale, at market: Securities pledged that can be repledged 2,379,786,252 2,988,828,088 Other investment securities 336,987,292 385,419,989 --------------- --------------- Total investment securities available for sale 2,716,773,544 3,374,248,077 --------------- --------------- Investment securities held to maturity, at cost: Securities pledged that can be repledged 541,047,654 171,152,930 Other investment securities 161,558,730 113,142,662 --------------- --------------- Total investment securities held to maturity 702,606,384 284,295,592 --------------- --------------- Federal Home Loan Bank (FHLB) stock 35,629,500 22,890,600 --------------- --------------- Loans, net of allowance for loan losses of $111,911,470 (2001 - $91,060,307) 5,515,185,610 4,213,089,836 Loans held for sale, at lower of cost or market 10,753,585 4,629,562 --------------- --------------- Total loans 5,525,939,195 4,217,719,398 Other real estate owned 2,938,249 1,455,577 Premises and equipment, net 87,595,569 76,155,620 Accrued interest receivable 39,282,010 37,630,883 Due from customers on acceptances 304,346 262,153 Other assets 150,818,003 88,396,770 --------------- --------------- Total assets $ 9,643,852,296 $ 8,197,517,788 --------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Non-interest bearing deposits $ 447,076,347 $ 239,850,816 Interest bearing deposits 5,035,841,381 3,858,703,322 Federal funds purchased and securities sold under agreements to repurchase 2,793,539,832 2,997,173,944 Advances from FHLB 373,000,000 343,700,000 Bank acceptances outstanding 304,346 262,153 --------------- --------------- Accounts payable and other liabilities 112,851,285 70,547,126 --------------- --------------- 8,762,613,191 7,510,237,361 --------------- --------------- Subordinated notes 82,815,105 84,361,525 --------------- --------------- Stockholders' equity: Preferred stock, authorized 50,000,000 shares; issued and outstanding 14,420,000 shares at $25 liquidation value per share (2001 - 10,740,000) 360,500,000 268,500,000 --------------- --------------- Common stock, $1 par value, authorized 250,000,000 shares; issued 44,875,435 shares, including 14,958,383 shares issued on September 30, 2002 from a stock split (2001-29,852,552) 44,875,435 29,852,552 Less: Treasury stock, including 1,640,300 shares issued on September 30, 2002 from a stock split (at par value) (4,920,900) (3,280,600) --------------- --------------- Common stock outstanding 39,954,535 26,571,952 --------------- --------------- Additional paid-in capital 14,214,877 Capital reserve 70,000,000 60,000,000 Legal surplus 149,345,178 136,792,514 Retained earnings 145,243,124 103,132,913 Accumulated other comprehensive income (loss), net of tax of $11,127,054 (2001-$2,097,785) 33,381,163 (6,293,354) --------------- --------------- 798,424,000 602,918,902 --------------- --------------- Contingencies and commitments Total liabilities and stockholders' equity $ 9,643,852,296 $ 8,197,517,788 --------------- ---------------

The accompanying notes are an integral part of these statements. 50 2002 First BanCorp CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31, 2002 2001 2000 ------------- ------------ ------------ INTEREST INCOME: Loans $ 351,838,718 $353,777,585 $329,007,974 Investment securities 185,561,056 159,713,664 132,603,596 Short-term investments 998,710 1,475,521 527,155 Dividends on FHLB stock 1,634,899 1,289,125 1,248,755 ------------- ------------ ------------ Total interest income 540,033,383 516,255,895 463,387,480 ------------- ------------ ------------ INTEREST EXPENSE: Deposits 133,234,567 160,758,451 153,283,358 Short-term borrowings 117,127,270 97,952,979 105,326,693 Notes payable 6,797,889 8,904,611 10,803,634 Advances from FHLB 16,023,967 12,585,108 3,200,940 ------------- ------------ ------------ Total interest expense 273,183,693 280,201,149 272,614,625 ------------- ------------ ------------ Net interest income 266,849,690 236,054,746 190,772,855 PROVISION FOR LOAN LOSSES 62,301,996 61,030,000 45,718,500 ------------- ------------ ------------ Net interest income after provision for loan losses 204,547,694 175,024,746 145,054,355 ------------- ------------ ------------ OTHER INCOME: Other fees on loans 21,440,852 19,631,741 19,913,340 Service charges on deposit accounts 9,200,327 9,213,436 8,898,170 Mortgage banking activities 3,540,034 1,562,158 409,011 Trading income 419,367 Gain on sale of investments, net 12,000,487 9,606,314 7,850,472 Rental income 2,285,021 2,292,541 2,433,664 Derivatives loss, net (4,061,988) Other operating income 14,087,218 10,673,633 10,108,036 ------------- ------------ ------------ Total other income 58,491,951 52,979,823 50,032,060 ------------- ------------ ------------ OTHER OPERATING EXPENSES: Employees' compensation and benefits 59,432,111 54,702,977 50,014,110 Occupancy and equipment 29,015,200 24,991,540 22,791,863 Business promotion 9,304,277 7,506,040 8,468,916 Other taxes 6,857,010 5,973,897 5,054,748 Insurance 2,803,905 2,475,411 1,846,984 Other 25,343,669 25,204,513 24,872,883 ------------- ------------ ------------ Total other operating expenses 132,756,172 120,854,378 113,049,504 ------------- ------------ ------------ Income before income tax provision and cumulative effect of accounting change 130,283,473 107,150,191 82,036,911 INCOME TAX PROVISION 22,327,122 20,133,858 14,761,302 ------------- ------------ ------------ Income before cumulative effect of accounting change 107,956,351 87,016,333 67,275,609 Cumulative effect of accounting change, net of tax (1,014,889) ------------- ------------ ------------ NET INCOME $ 107,956,351 $ 86,001,444 $ 67,275,609 ------------- ------------ ------------ NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 81,550,077 $ 69,493,246 $ 59,868,067 ------------- ------------ ------------ NET INCOME PER COMMON SHARE BASIC: Income before cumulative effect of accounting change $ 2.04 $ 1.77 $ 1.48 Cumulative effect of accounting change (0.03) ------------- ------------ ------------ Earnings per common share basic $ 2.04 $ 1.74 $ 1.48 ------------- ------------ ------------ NET INCOME PER COMMON SHARE DILUTED: Income before cumulative effect of accounting change $ 2.01 $ 1.76 $ 1.47 Cumulative effect of accounting change (0.03) ------------- ------------ ------------ Earnings per common share diluted $ 2.01 $ 1.73 $ 1.47 ------------- ------------ ------------ DIVIDENDS DECLARED PER COMMON SHARE $ 0.40 $ 0.35 $ 0.29 ------------- ------------ ------------

The accompanying notes are an integral part of these statements 51 2002 First BanCorp CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31, 2002 2001 2000 ---------------- ---------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 107,956,351 $ 86,001,444 $ 67,275,609 ---------------- ---------------- --------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 11,710,016 9,844,282 9,014,068 Core deposit intangible amortization 1,165,488 919,261 866,330 Provision for loan losses 62,301,996 61,030,000 45,718,500 Deferred income tax benefit (8,610,812) (5,402,000) (4,356,000) Gain on sale of investments, net (12,000,487) (9,606,314) (7,850,472) Derivative loss 4,522,925 Net gain on sale of loans (3,416,222) (1,282,845) Increase (decrease) in accrued income tax payable 3,434,149 11,306,695 (19,474,679) Increase in accrued interest receivable (141,451) (9,661,332) (10,052,025) (Decrease) increase in accrued interest payable (1,364,672) 4,841,187 11,677,924 Amortization of deferred loan (fees) costs (1,544,375) 522,685 (144,768) Net origination of loans held for sale (40,264,215) (4,629,562) Decrease in other assets 39,671,318 22,893,906 4,657,136 Increase (decrease) in other liabilities 27,974,273 (9,395,151) 20,740,407 ---------------- ---------------- --------------- Total adjustments 83,437,931 71,380,812 50,796,421 ---------------- ---------------- --------------- Net cash provided by operating activities 191,394,282 157,382,256 118,072,030 ---------------- ---------------- --------------- CASH FLOWS FOR INVESTING ACTIVITIES: Principal collected on loans 635,765,469 897,831,839 646,581,300 Loans originated (903,166,444) (1,334,581,873) (1,222,590,263) Purchase of loans (734,531,121) (481,200,701) (238,055,000) Proceeds from sales of loans 83,862,533 42,343,060 Proceeds from sales of investment securities 2,242,654,071 847,716,293 58,452,236 Purchase of securities held to maturity (17,031,372,741) (254,818,754) (6,949,462) Purchase of securities available for sale (10,336,516,102) (12,462,323,482) (5,125,184,351) Principal repayments and maturities of securities held to maturity 16,613,061,948 74,529,997 Principal repayments of securities available for sale 8,816,493,581 10,377,705,993 4,692,427,578 Additions to premises and equipment (14,412,317) (13,912,556) (19,153,597) Net liabilities assumed on acquisition of business 73,357,625 Purchase of FHLB stock (12,738,900) (4,354,100) (710,000) ---------------- ---------------- --------------- Net cash used in investing activities (567,542,398) (2,311,064,284) (1,215,181,559) ---------------- ---------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 790,122,398 764,012,251 780,840,486 Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase (202,096,134) 1,134,888,478 403,553,556 Decrease in other short-term borrowings (152,484,084) FHLB advances taken 29,300,000 276,700,000 17,000,000 Payments of notes payable (1,550,000) (62,000,000) (3,125,000) Dividends (42,372,613) (30,343,298) (19,212,141) Issuance of preferred stock 88,906,000 100,069,250 72,437,500 Treasury stock acquired (1,929,685) (30,086,592) Exercise of stock options 1,340,843 1,355,211 93,750 ---------------- ---------------- --------------- Net cash provided by financing activities 663,650,494 2,182,752,207 1,069,017,475 ---------------- ---------------- --------------- Net increase (decrease) in cash and cash equivalents 287,502,378 29,070,179 (28,092,054) Cash and cash equivalents at beginning of year 94,463,118 65,392,939 93,484,993 ---------------- ---------------- --------------- Cash and cash equivalents at end of year $ 381,965,496 $ 94,463,118 $ 65,392,939 ---------------- ---------------- --------------- Cash and cash equivalents include: Cash and due from banks $ 108,305,943 $ 59,898,550 $ 63,372,591 Money market instruments 273,659,553 34,564,568 2,020,348 ---------------- ---------------- --------------- $ 381,965,496 $ 94,463,118 $ 65,392,939 ---------------- ---------------- ---------------

The accompanying notes are integral part of these statements. 52 2002 First BanCorp CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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 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 107,956,351 Other comprehensive income 39,674,517 Issuance of preferred stock 92,000,000 (3,094,000) Addition to legal surplus 12,552,664 (12,552,664) Addition to capital reserve 10,000,000 (10,000,000) Stock options exercised 64,500 1,276,343 Common stock split on September 30, 2002 13,318,083 (12,397,220) (920,863) Cash dividends: Common stock (15,966,339) Preferred stock (26,406,274) ------------ ----------- ----------- ----------- ------------ ----------- ------------ DECEMBER 31, 2002 $360,500,000 $39,954,535 $ $70,000,000 $149,345,178 $145,243,124 $ 33,381,163 ------------ ----------- ----------- ----------- ------------ ----------- ------------

The accompanying notes are an integral part of these statements. 53 2002 First BanCorp CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year ended December 31, 2002 2001 2000 ------------- ------------ ------------- NET INCOME $ 107,956,351 $ 86,001,444 $ 67,275,609 ------------- ------------ ------------- Other comprehensive income, net of tax: Unrealized gains on securities: Unrealized holding gains arising during the period, net of tax of $16,289,254 (2001-$6,820,246; 2000-$18,312,676) 48,867,763 20,460,738 54,938,028 Less: Reclassification adjustment for gains included in net income, net of tax of $3,000,122 (2001-$2,401,578; 2000-$1,962,618) (9,000,365) (7,204,736) (5,887,854) Cumulative effect of accounting change, net of tax benefit of $331,500 994,500 ------------- ------------ ------------- Unrealized gains on securities 39,867,398 14,250,502 49,050,174 Unrealized loss on fair value hedge attributable to credit risk, net of tax of $64,294 (2001-$315,024) (192,881) (945,071) ------------- ------------ ------------- Total other comprehensive income 39,674,517 13,305,431 49,050,174 ------------- ------------ ------------- COMPREHENSIVE INCOME $ 147,630,868 $ 99,306,875 $ 116,325,783 ------------- ------------ -------------

The accompanying notes are an integral part of these statements. 54 2002 First BanCorp NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - NATURE OF BUSINESS First BanCorp (the Corporation) is a financial holding company offering a full range of financial services. First BanCorp also offers insurance services through its wholly-owned insurance subsidiary, the FirstBank Insurance Agency. First BanCorp is subject to the Federal Bank Holding Company Act and its insurance subsidiary is subject to the supervision, examination and regulation of the Commissioner of Insurance of Puerto Rico. 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 43 full-service banking branches in Puerto Rico and 11 in the U.S. and British Virgin Islands. It has 11 loan origination offices in Puerto Rico focusing on consumer loans and residential mortgage loans. The Bank, through wholly-owned subsidiaries, operates 33 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). In October 2002, the Corporation acquired JPMorgan Chase's Eastern Caribbean Region business in the U.S. Virgin Islands, British Virgin Islands and Barbados. In addition to branches acquired, this transaction included the acquisition of the assets of the former Chase Trade, Inc., now First Trade, Inc., and of all outstanding shares of the former Chase Agency Services, Inc., now FirstBank Insurance Agency V.I., Inc. Total assets acquired in this transaction amounted to approximately $590 million, including approximately $435 million in loans receivable, and total deposits amounted to approximately $557 million. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of the Corporation and its subsidiaries conform with accounting principles generally accepted in the United States of America, 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. Following is a description of the more significant accounting policies followed by the Corporation: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and short-term money market instruments with original maturities of 90 days or less. INVESTMENT SECURITIES The Corporation classifies its investments in debt and equity securities into one of three categories: Held to maturity - Securities which the entity has the positive intent and ability to hold to maturity. These securities are carried at amortized cost. Trading - Securities that are bought and held principally for the purpose of selling them in the near term. These securities are carried at fair value, with unrealized gains and losses reported in earnings. Available for sale - Securities not classified as trading or as held to maturity. These securities are carried at fair value, with unrealized holding gains and losses, net of deferred tax effects, reported in other comprehensive income as a separate component of stockholders' equity. Premiums and discounts are amortized as an adjustment to interest income over the life of the related securities using a method that approximates the interest method. Realized gains or losses on securities are reported in earnings. When computing realized gains or losses, the cost of securities is determined on the specific identification method. 55 2002 First BanCorp OTHER-THAN-TEMPORARY IMPAIRMENTS The Corporation evaluates for impairment its debt and equity securities when their market value has remained below cost for six months or more or earlier if other factors indicative of potential impairment exist. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The Corporation employs a systematic methodology that considers available evidence in evaluating potential impairment of its investments. The impairment analysis on the fixed income investments is done placing special emphasis on the analysis of the cash position of the company, its cash and capital generation capacity, which could increase or diminish the company's ability to repay its bond obligations. The Corporation also considers its intent and ability to hold the fixed income securities. If Management believes, based on the analysis, that the company will not be able to service its debt and pay its obligations on a timely manner, the security is written down to Management's estimate of net realizable value. The equity securities impairment analyses are performed and reviewed quarterly based on the latest financial information and any supporting research report made by a major brokerage house. These analyses are very subjective and based, among other things, on relevant financial data such as capitalization, cash flow, liquidity, systematic risk, and debt outstanding. Management also considers the industry trends, the historical performance of the stock, as well as the Corporation's intent to hold the security for an extended period. If Management believes there is a low probability of achieving book value in a reasonable time frame, then an impairment will be recorded by writing the security down to market value. LOANS HELD FOR SALE Loans held for sale are stated at the lower of cost or market. The amount by which cost exceeds market value in the aggregate portfolio of loans held for sale, if any, is accounted for as a valuation allowance with changes included in the determination of net income. LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are stated at their outstanding balance less unearned interest and net deferred loan origination fees and costs. Unearned interest on installment loans (i.e., personal and auto) is recognized as income under a method, which approximates the interest method. Loans on which the recognition of interest income has been discontinued are designated as non-accruing. When loans are placed on non-accruing status, any accrued but uncollected interest income is reversed and charged against interest income. Consumer loans are classified as non-accruing when they are delinquent: 90 days or more for auto, boat and home equity reserve loans; 120 days or more for personal loans; and 180 days or more for credit cards and personal lines of credit. Commercial and mortgage loans are classified as non-accruing when they are delinquent 90 days or more. This policy is also applied to all impaired loans based upon an evaluation of the risk characteristics of said loans, loss experience, economic conditions and other pertinent factors. Loan losses are charged and recoveries are credited to the allowance for loan losses. The Corporation has defined impaired loans as loans with interest and/or principal past due 90 days or more and other specific loans for which, based on current information and events, it is probable that the debtor will be unable to pay all amounts due according to the contractual terms of the loan agreement. The Corporation measures impairment individually for those commercial and real estate loans with a principal balance exceeding $1 million. Groups of small balance, homogeneous loans are collectively evaluated for impairment. The portfolios of residential mortgage loans, consumer loans, auto loans and finance leases are considered homogeneous and are evaluated collectively for impairment. An allowance is established based on the present value of expected future cash flows or the fair value of the collateral, if the loan is collateral dependent. 56 2002 First BanCorp LOAN FEES AND COSTS Loan fees and costs incurred in the origination of loans are deferred and amortized using the interest method or under a method that approximates the interest method over the life of the loans as an adjustment to interest income. When a loan is paid off or sold, any unamortized net deferred fee (cost) is credited (charged) to income. SERVICING ASSETS The Corporation recognizes as separate assets the rights to service loans for others, whether those servicing assets are originated or purchased. The total cost of the loans to be sold with servicing assets retained is allocated to the servicing assets and the loans (without the servicing asset), based on their relative fair values. Servicing assets are amortized in proportion to and over the period of estimated net servicing income. Loan servicing fees, which are based on a percentage of the principal balances of the loans serviced, are credited to income as loan payments are collected. To estimate the fair value of servicing assets the Corporation considers the present value of expected future cash flows associated with the servicing assets. For purposes of measuring impairment of servicing assets, the Corporation stratifies such assets based on predominant risk characteristics of underlying loans. The amount of impairment recognized, if any, is the amount by which the servicing asset exceeds its estimated fair value. Impairment, if any, is charged against servicing income. OTHER REAL ESTATE OWNED Other real estate owned, acquired in settlement of loans, is recorded at the lower of cost (carrying value of the loan) or fair value minus estimated cost to sell the real estate. Gains or losses resulting from the sale of these properties and losses recognized on the periodic reevaluations of these properties are credited or charged to net cost (gain) of operations and disposition of other real estate owned. The cost of maintaining and operating these properties is expensed as incurred. PREMISES AND EQUIPMENT Premises and equipment are carried at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the individual assets. Depreciation of leasehold improvements is computed on the straight-line method over the terms of the leases or estimated useful lives of the improvements, whichever is shorter. Costs of maintenance and repairs, which do not improve or extend the life of the respective assets are expensed as incurred. Costs of renewals and betterments are capitalized. When assets are sold or disposed of, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in earnings. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Corporation sells securities under agreements to repurchase the same or similar securities. Generally, similar securities are securities from the same issuer, with identical form and type, similar maturity, identical contractual interest rates, similar assets as collateral and the same aggregate unpaid principal amount. The Corporation retains control over the securities sold under these agreements, accordingly, these agreements are considered financing transactions and the securities underlying the agreements remain in the asset accounts. The counter party to certain agreements may have the right to repledge the collateral by contract or custom. Such assets are presented separately in the statements of financial condition as securities pledged to creditors that can be repledged. ACCOUNTING FOR INCOME TAXES Deferred taxes arise because certain transactions affect the determination of income for financial reporting purposes in periods different from the period in which the transactions affect taxable income. Deferred taxes have been recorded based upon the Puerto Rico enacted tax rates. Current tax expense has been provided based upon the estimated tax liability incurred for tax return purposes. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. 57 2002 First BanCorp TREASURY STOCK The Corporation accounts for treasury stock at par value. Under this method, the treasury stock account is increased by the par value of each share of common stock reacquired. Any excess paid per share over the par value is debited to additional paid-in capital for the amount per share that it was originally credited. Any remaining excess is charged to retained earnings. STOCK OPTION PLAN The Corporation has a stock-based employee compensation plan, which is described more fully in Note 5. The Corporation accounts for the plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of the grant. The table below illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock Based Compensation, to stock-based employee compensation granted in year 2002 and 2000 (no options were granted during 2001).

Year ended December 31, Pro forma information 2002 2000 --------- --------- (In thousands, except per share data) Employees' compensation and benefits $ 61,647 $ 51,763 Net income-available to common stockholders $ 79,335 $ 58,119 Earnings per common share-basic $ 1.99 $ 1.44 Earnings per common share-diluted $ 1.96 $ 1.43

EARNINGS PER COMMON SHARE Earnings per share-basic is calculated by dividing income available to common stockholders by the weighted average number of outstanding common shares. The computation of earnings per share-diluted is similar to the computation of earnings per share-basic except that the weighted average common shares are increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Stock options outstanding under the Corporation's stock option plan are considered in the earnings per share-diluted by application of the treasury stock method, which assumes that proceeds for the exercise of options are used to repurchase common stock in the open market. Any stock splits or stock dividends are retroactively recognized in all periods presented in financial statements. COMPREHENSIVE INCOME Comprehensive income includes net income and several other items that current accounting standards require to be recognized outside of net income, primarily the unrealized gain (loss) on securities available for sale and the change in fair value attributable to credit risk on securities hedged with interest rate swaps, net of estimated tax effect. DERIVATIVE INSTRUMENTS On January 1, 2001, the Corporation adopted the Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. All derivatives are recognized in the statement of financial position at fair value. Changes in the fair value of derivative instruments are accounted for as current income or other comprehensive income, depending on their intended use and designation. 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 or liability, that are attributable to the hedged risk (fair value hedges) or (b) the effect of the exposure to the variability of cash flows from the hedged asset or liability (cash flows hedges). Note 29 describes in more detail the hedging transactions entered into by the Corporation. 58 2002 First BanCorp ACQUISITION OF BUSINESS Business combinations are accounted using the purchase method of accounting, as required by SFAS No. 141, Business Combinations. Assets acquired and liabilities assumed are recorded at estimated fair values at the date of acquisition. After initial recognition, any resulting intangible assets are accounted under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections - In April 2002, the FASB issued SFAS No. 145, which rescinds SFAS No. 4 and amends SFAS No. 13. This amendment became effective for transactions occurring after May 15, 2002. The adoption of this statement did not have a significant impact on the Corporation's financial statements. SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities - In June 2002, the FASB issued SFAS No. 146, which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. Management expects that the adoption of this statement will not have a significant impact on the Corporation's financial statements. SFAS No. 147, Acquisitions of Certain Financial Institutions - In October 2002, effective immediately, the FASB issued SFAS No. 147, which requires financial acquisitions of financial institutions to be accounted for in accordance with FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, SFAS No. 147 amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. The adoption of SFAS No. 147 did not have an impact on the Corporation's financial statements. SFAS No. 148, Accounting for Stock-Based Compensation- Transition and Disclosure an amendment of FASB Statement No. 123- In December 2002, the FASB issued SFAS No. 148, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. All required disclosures under SFAS No. 123, as amended by SFAS No. 148, are included in these financial statements. The Corporation has not adopted the fair value method for recognition of stock based compensation. FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees - In November 2002, the FASB issued this interpretation, which requires a guarantor of certain types of guarantees to recognize, at the inception of guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. These provisions for initial recognition are effective for guarantees that are issued or modified after December 31, 2002. In the case of the Corporation, these provisions apply for the standby letters of credit. See Note 29 for details of the letters of credit outstanding as of December 31, 2002. The adoption of this interpretation will not have a significant effect in the Corporation's financial statements. NOTE 3 - STOCKHOLDERS' EQUITY COMMON STOCK On August 27, 2002, the Corporation declared a three for two (or 50%) stock split on its 26,636,452 outstanding shares of common stock at September 13, 2002. As a result, a total of 14,958,383 additional shares of common stock were issued on September 30, 2002, of which 1,640,300 shares were recorded as treasury stock. All per share amounts have been adjusted for the effect of the stock split in the third quarter of 2002. STOCK REPURCHASE PLAN AND TREASURY STOCK The Corporation has a stock repurchase program under which from time to time it repurchases shares of common stock in the open market and hold them as treasury stock. Under this program, the Corporation repurchased a total of 86,200 shares of common stock at a cost of $1,929,685 during 2001, and 1,642,400 shares of common stock at a cost of $30,086,592 during 2000. No shares of common stock were repurchased during 2002. From the total amount of common stock repurchased, 4,920,900 shares, as adjusted for September 30, 2002 stock split, were held as treasury stock at December 31, 2002 (2001 - 3,280,600 shares) and were available for general corporate purposes. 59 2002 First BanCorp 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 2002, the Corporation issued 3,680,000 shares of preferred stock (2001-4,140,000 shares; 2000-3,000,000 shares; 1999-3,600,000 shares). The liquidation value per share is $25. Annual dividends of $1.8125 per share (issuance of 2002), $1.85 per share (issuance of 2001), $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. During the year, dividends declared on preferred stock amounted to $26,406,274 (2001 - $16,508,198; 2000 - $7,407,542). CAPITAL RESERVE The capital reserve account was established to comply with certain regulatory requirements of the Office of the Commissioner of Financial Institutions of Puerto Rico related to the issuance of subordinated notes by FirstBank in 1995. An amount equal to 10% of the principal of the notes is set aside each year from retained earnings until the reserve equals the total principal amount. At the notes repayment date the balance in capital reserve is to be transferred to the legal surplus account or retained earnings after the approval of the Commissioner of Financial Institutions of Puerto Rico. LEGAL SURPLUS The Banking Act of the Commonwealth of Puerto Rico requires that a minimum of 10% of FirstBank's net income for the year be transferred to legal surplus, until such surplus equals the total of paid in capital on common and preferred stock. Amounts transferred to the legal surplus account from the retained earnings account are not available for distribution to the stockholders. NOTE 4 - REGULATORY CAPITAL REQUIREMENTS 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 and certain off-balance sheet items, which vary from 0% to 100% depending on the nature of the asset. At December 31, 2002 and 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. 60 2002 First BanCorp The Corporation's and its banking subsidiary's regulatory capital positions were as follows:

Regulatory Requirements For capital To be well Actual adequacy purposes capitalized Amount Ratio Amount Ratio Amount Ratio -------- ----- -------- ----- -------- ----- (Dollars in thousands) At December 31, 2002 Total Capital (to Risk-Weighted Assets): First BanCorp $816,946 13.75% $475,155 8% $593,944 10% FirstBank 739,996 12.50% 473,617 8% 592,022 10% Tier I Capital (to Risk-Weighted Assets): First BanCorp $707,083 11.90% $237,578 4% $356,366 6% FirstBank 632,487 10.68% 236,809 4% 355,213 6% Tier I Capital (to Average Assets): First BanCorp $707,083 7.35% $288,628 3% $481,046 5% FirstBank 632,487 6.62% 286,801 3% 478,002 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%

NOTE 5 - STOCK OPTION PLAN The Corporation has a stock option plan covering certain employees. The options granted under the plan cannot exceed 20% of the number of common shares outstanding. Each option provides for the purchase of one share of common stock at a price not less than the fair market value of the stock on the date the option is granted. Stock options are fully vested upon issuance. The maximum term to exercise the options is ten years. The stock option plan provides for a proportionate adjustment in the exercise price and the number of shares that can be purchased in the event of a stock dividend, stock split, reclassification of stock, merger or reorganization and certain other issuance and distributions. Management uses the Black-Scholes option pricing model for the computation of the estimated fair value of each option granted to buy shares of the Corporation's common stock (refer to Note 2 for accounting policy). The fair value of each option granted during 2002 and 2000 (no options were granted during 2001) was estimated using the following assumptions: weighted dividend growth of 20% (2002) and 0% (2000); expected life of 3.29 years (2002) and 3.11 years (2000); weighted expected volatility of 31.76% (2002) and 31.74% (2000); and weighted risk-free interest rate of 3.66% (2002) and 5.36% (2000). The weighted estimated fair value of the options granted was $4.08 (2002) and $3.67 (2000) per option, as adjusted for the September 2002 stock split. 61 2002 First BanCorp Following is a summary of the activity related to stock options, adjusted to reflect the stock split of September 30, 2002:

Number Weighted Average of Options Exercise Price per Option At December 31, 1999 1,449,750 $ 11.38 Granted 477,000 $ 14.87 Exercised (9,000) $ 10.42 Canceled (10,500) $ 17.33 --------- At December 31, 2000 1,907,250 $ 12.24 Exercised (351,000) $ 3.86 Canceled (3,000) $ 18.92 --------- At December 31, 2001 1,553,250 $ 14.12 Granted 542,750 $ 18.96 Exercised (96,750) $ 13.86 --------- At December 31, 2002 1,999,250 $ 15.44 ---------

The exercise price of the options outstanding at December 31, 2002, as adjusted for September 2002 stock split, ranges from $10.42 to $25.99 and the weighted average remaining contractual life is approximately seven years. Following is additional information concerning the stock options outstanding at December 31, 2002.

Number of Exercise Price Contractual Options per Option Maturity --------- -------------- ----------- 300,000 $10.42 November 2007 75,000 $12.79 February 2008 60,000 $18.06 May 2008 18,000 $17.71 June 2008 261,000 $17.33 November 2008 3,000 $17.29 February 2009 5,250 $17.63 April 2009 270,750 $13.08 November 2009 465,000 $14.88 December 2010 521,250 $18.69 February 2012 20,000 $25.99 October 2012 --------- 1,999,250 ---------

62 2002 First BanCorp NOTE 6 - EARNINGS PER COMMON SHARE The calculations of earnings per common share for the years ended December 31, 2002, 2001 and 2000 follow:

Year ended December 31, 2002 2001 2000 --------- -------- -------- (In thousands, except per share data) Net income $ 107,956 $ 86,001 $ 67,276 Less: Preferred stock dividend (26,406) (16,508) (7,408) --------- -------- -------- Net income-attributable to common stockholders $ 81,550 $ 69,493 $ 59,868 --------- -------- -------- EARNINGS PER COMMON SHARE-BASIC: Net income - available to common stockholders $ 81,550 $ 69,493 $ 59,868 --------- -------- -------- Weighted average common shares outstanding 39,901 39,851 40,415 --------- -------- -------- Earnings per common share-basic $ 2.04 $ 1.74 $ 1.48 --------- -------- -------- EARNINGS PER COMMON SHARE-DILUTED: Net income - available to common stockholders $ 81,550 $ 69,493 $ 59,868 --------- -------- -------- Weighted average common shares and share equivalents: Average common shares outstanding 39,901 39,851 40,415 Common stock equivalents - Options 652 293 303 --------- -------- -------- Total 40,553 40,144 40,718 --------- -------- -------- EARNINGS PER COMMON SHARE-DILUTED: $ 2.01 $ 1.73 $ 1.47 --------- -------- --------

The earnings per share for prior years have been restated to reflect the effect of the stock split in the third quarter of 2002. The 2001 earnings per common share basic and diluted are net of cumulative effect of change in accounting principle. 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. In 2002, 20,000 stock options (2001-10,500, 2000-858,750) were not included in the computation of outstanding shares because they were antidilutive. These amounts have been adjusted for 2002 stock split. NOTE 7 - CASH AND DUE FROM BANKS The Corporation is required by law to maintain minimum average reserve balances. The amount of those average reserve balances was approximately $93,263,632 at December 31, 2002 (2001 - $46,078,200). NOTE 8 - INVESTMENT SECURITIES HELD FOR TRADING At December 31, 2002 and 2001, there were no securities held for trading purposes or options on such securities. All trading instruments are subject to market risk, the risk that future changes in market conditions, such as fluctuations in market prices or interest rates, may make an instrument less valuable or more onerous. The instruments are accounted for at market value, and their changes are reported directly in earnings. The Corporation may write options on trading securities as part of its trading activities. Also the Corporation may enter in transactions of securities sold not yet purchased for trading purposes. These transactions are carried at market value. Net gains and losses resulting from these transactions are recorded in the trading income or loss account. The net gain from the sale of trading securities amounted to $419,367 for the year ended December 31, 2000, and was included in earnings as trading income. No trading activities were recorded during 2002 and 2001. 63 2002 First BanCorp NOTE 9 - INVESTMENT SECURITIES HELD TO MATURITY The amortized cost, gross unrealized gains and losses, approximate market value, weighted average yield and final maturities of investment securities held to maturity at December 31, 2002 and 2001 were as follows:

December 31, 2002 December 31, 2001 Gross Gross Unrealized Weighted Unrealized Weighted Amortized --------------- Market average Amortized ---------------- Market average cost gains losses value yield% cost gains losses value yield% --------- ------ ------ -------- -------- --------- ----- ------- -------- -------- (Dollars in thousands) Obligations of other U.S. Government Agencies: After 10 years $628,820 $3,307 $ 59 $632,068 7.85 $211,194 $ 3 $6,466 $204,731 7.39 Puerto Rico Government Obligations: After 1 to 5 years 5,000 113 5,113 5.00 5,000 5,000 5.00 After 10 years 4,354 586 4,940 6.50 4,084 228 4,312 6.50 -------- ------ ---- -------- -------- ---- ------ -------- United States and Puerto Rico Government obligations $638,174 $4,006 $ 59 $642,121 7.82 $220,278 $231 $6,466 $214,043 7.32 -------- ------ ---- -------- -------- ---- ------ -------- Corporate bonds: Due within 1 year $ 25,000 $ 25,000 3.05 After 1 to 5 years 39,432 $609 38,823 2.95 $ 64,018 $ 277 63,741 3.49 -------- ------ ---- -------- -------- ---- ------ -------- Corporate bonds $ 64,432 $609 $ 63,823 2.98 $ 64,018 $ 277 $ 63,741 3.49 -------- ------ ---- -------- -------- ---- ------ -------- Total Investment Securities Held to Maturity $702,606 $4,006 $668 $705,944 7.38 $284,296 $231 $6,743 $277,784 6.46 -------- ------ ---- -------- -------- ---- ------ --------

Expected maturities of investments might differ from contractual maturities because they may be subject to prepayments and / or call options. At January 1, 2001, in connection with the adoption of SFAS No. 133, the Corporation transferred a portfolio of $207 million of GNMA certificates 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. 64 2002 First BanCorp Note 10 - Investment Securities Available For Sale The amortized cost, gross unrealized gains and losses, approximate market value, weighted average yield and final maturities of investment securities available for sale at December 31, 2002 and 2001 were as follows:

December 31, 2002 December 31, 2001 ----------------------------------------- -------------------------------------- Gross Weighted Gross 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 $ 7,726 $ 30 $ 7,756 3.18 Obligations of other U.S. Government Agencies: Within 1 year 407,324 $ 32 407,292 1.72 After 1 to 5 years $ 500 $ 3 $ 503 3.87 After 5 to 10 years 750 17 767 5.60 500 1 501 5.59 After 10 years 15,568 480 16,048 7.69 87,519 469 1,805 86,183 7.55 Puerto Rico Government Obligations: After 5 to 10 years 4,999 375 5,374 6.27 4,458 128 4,586 6.19 After 10 years 5,679 401 6,080 6.30 5,932 151 6,083 6.34 ---------- ------- ---------- ---------- ------- ------- ---------- United States and Puerto Rico Government Obligations $ 27,496 $ 1,276 $ 28,772 7.02 $ 513,459 $ 779 $ 1,837 $ 512,401 2.83 ---------- ------- ---------- ---------- ------- ------- ---------- Mortgage Backed Securities: FHLMC certificates: Within 1 year $ 8 $ 8 5.85 After 1 to 5 years $ 1,458 $ 82 $ 1,540 6.47 112 $ 4 116 7.63 After 5 to 10 years 8,211 613 8,824 7.42 13,211 576 13,787 7.29 After 10 years 6,347 358 6,705 6.86 8,030 172 $ 6 8,196 6.95 ---------- ------- ---------- ---------- ------- ------- ---------- 16,016 1,053 17,069 7.11 21,361 752 6 22,107 7.16 ---------- ------- ---------- ---------- ------- ------- ---------- GNMA certificates: After 5 to 10 years 3,608 170 3,778 6.41 4,605 101 4,706 6.39 After 10 years 524,278 9,439 533,717 5.11 2,515,953 12,672 6,539 2,522,086 6.52 ---------- ------- ---------- ---------- ------- ------- ---------- 527,886 9,609 537,495 5.12 2,520,558 12,773 6,539 2,526,792 6.52 ---------- ------- ---------- ---------- ------- ------- ---------- FNMA certificates: Within 1 year 29 29 6.33 After 1 to 5 years 5 5 7.68 158 4 162 6.92 After 5 to 10 years 764 53 817 7.66 124 5 129 7.32 After 10 years 1,916,460 39,523 1,955,983 4.93 7,095 408 7,503 7.96 ---------- ------- ---------- ---------- ------- ---------- 1,917,258 39,576 1,956,834 4.93 7,377 417 7,794 7.93 ---------- ------- ---------- ---------- ------- ---------- Mortgage pass through certificates: After 10 years 1,175 32 1,207 7.23 1,958 38 1,996 8.70 ---------- ------- ---------- ---------- ------- ---------- Mortgage Backed Securities $2,462,335 $50,270 $2,512,605 4.99 $2,551,254 $13,980 $ 6,545 $2,558,689 6.53 ---------- ------- ---------- ---------- ------- ------- ---------- Corporate Bonds: Within 1 year $ 979 $ 36 $ 1,015 7.87 $ 19,246 $ 410 $ 19,656 7.70 After 1 to 5 years 85,711 1,244 $10,865 76,090 6.16 118,919 1,770 $ 2,899 117,790 6.68 After 5 to 10 years 57,276 445 1,084 56,637 6.94 114,855 77 1,906 113,026 7.34 After 10 years 18,531 328 18,859 7.35 ---------- ------- ---------- ---------- ------- ---------- Corporate bonds $ 143,966 $ 1,725 $11,949 $ 133,742 6.48 $ 271,551 $ 2,585 $ 4,805 $ 269,331 7.08 ---------- ------- ---------- ---------- ------- ------- ---------- Equity securities (without contractual maturity) $ 36,951 $10,006 $ 5,302 $ 41,655 1.72 $ 45,115 $ 4,901 $16,189 $ 33,827 1.43 ---------- ------- ---------- ---------- ------- ------- ---------- Total Investments Securities Available for Sale $2,670,748 $63,277 $17,251 $2,716,774 5.04 $3,381,379 $22,245 $29,376 $3,374,248 5.95 ========== ======= ======= ========== ========== ======= ======= ==========

65 First BanCorp 2002 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. During 2002, the Corporation's bank subsidiary restructured its portfolio of mortgage backed securities available for sale in order to shorten its duration and reduce its prepayment risk. As a result, in late June and early July of 2002, approximately $1 billion of 30-year mortgage backed securities were sold. The sales derived a gain of $14 million. The securities sold were substantially substituted with $900 million of 15-year mortgage backed securities, which have a lower average life and yield, and which value is less sensitive to increases in interest rates. In addition, in September and October, the Corporation sold its 7% GNMA portfolio of approximately $964 million to substitute with lower coupons. The sales derived a gain of $26.1 million. These securities were substituted in November with $1 billion FNMA's 15 years. It is the Corporation's policy to invest in corporate bonds, which at the time of the purchase, are of an investment grade quality. The total carrying amount of the corporate bonds portfolio is $198 million, or approximately 5% of total investments of the Corporation as of December 31, 2002. In 2002, two of the bonds in FirstBank's portfolio were downgraded, to non-investment grade quality by two credit rating agencies. These were, WorldCom Corporation, $15.5 million outstanding at the time of the downgrade and Nortel Networks Corporation, $23.5 million outstanding at the time of the downgrade. Management's impairment analysis on these securities concluded that an other-than-temporary impairment of approximately $11.7 million had occurred in the case of the WorldCom Corporation bonds. The estimated impairment amount of this security was recognized as a loss in the statement of income. In addition, Management reclassified to non-accruing status the remaining carrying amount of $3.8 million. Management's impairment analysis concluded that no other-than-temporary impairment existed on Nortel's bonds. The unrealized loss of the Nortel's bonds at December 31, 2002 approximated $8.5 million. At December 31, 2002, the Corporation's equity securities portfolio carrying amount is $41.7 million, and its adjusted cost is $37 million. The Corporation's current policy guidelines limit investments in equity securities to $60 million, which is 1.6% of the Corporation's total investments as of December 31, 2002. The Corporation invests in equity securities that have long-term appreciation prospects. During the year ended on December 31, 2002, the Corporation recognized a loss of $25.2 million for other-than-temporary impairment on equity securities. At December 31, 2002, these securities have not been sold. Management determined that except for the impairments on the bonds and stocks mentioned above, there are no other-than-temporary impairments on the rest of the bonds and equity securities portfolio. Management will continue its ongoing monitoring of the Corporation's investment on individual corporate bonds and equity securities to identify any other-than-temporary impairment. At December 31, 2002, the net unrealized gain of $34,519,114 (2001 - net unrealized loss of $5,348,283) on securities available for sale, net of the deferred income tax of $11,506,371 (2001 - $1,782,761), was reported as part of accumulated other comprehensive income. For 2002, the change in the net unrealized holding gain on the available for sale securities amounted to $53,156,531 (2001 - a gain of $19,000,669) before deferred income taxes. For 2002, proceeds from the sale of securities amounted to $2,243 million (2001 - - $847.7 million, 2000 - $58.5 million) resulting in gross realized gains of $49.7 million (2001 - $13.6 million, 2000 -$7.9 million), and gross realized losses on sale of investments and impairments of $37.7 million (2001 - $4 million). No losses were realized during 2000. NOTE 11 - FEDERAL HOME LOAN BANK (FHLB) STOCK At December 31, 2002 and 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. 66 First BanCorp 2002 NOTE 12 - INTEREST AND DIVIDEND ON INVESTMENTS A detail of interest and dividend income on investments follows: Year ended December 31, 2002 2001 2000 -------- -------- -------- (In thousands) Mortgage Backed Securities: Taxable $ 3,765 $ 2,666 $ 3,325 Exempt 117,338 106,571 91,416 -------- -------- -------- $121,103 $109,237 $ 94,741 -------- -------- -------- Other Investment Securities: Taxable $ 3,079 $ 2,639 $ 1,577 Exempt 64,013 50,602 38,060 -------- -------- -------- $ 67,092 $ 53,241 $ 39,637 ======== ======== ======== NOTE 13 - LOANS RECEIVABLE The following is a detail of the loan portfolio: December 31, 2002 2001 ----------- ----------- (In thousands) Residential real estate loans: Secured by first mortgages: Conventional $ 1,778,046 $ 955,573 Insured by government agencies: Federal Housing Administration and Veterans Administration 41,805 25,211 Puerto Rico Housing Bank and Finance Agency 19,060 23,513 Secured by second mortgages 7,650 8,088 ----------- ----------- 1,846,561 1,012,385 Deferred net loan fees (3,247) (5,107) ----------- ----------- Residential real estate loans 1,843,314 1,007,278 ----------- ----------- Commercial loans: Construction loans 259,053 219,396 Commercial loans 1,418,792 1,238,173 Commercial mortgage 813,513 688,922 ----------- ----------- Commercial loans 2,491,358 2,146,491 ----------- ----------- Finance leases 143,412 127,935 ----------- ----------- Consumer and other loans: Personal 413,931 362,490 Personal lines of credit 10,401 11,216 Auto 565,478 502,902 Boat 53,017 39,570 Credit card 164,172 176,226 Home equity reserve loans 4,566 1,851 Unearned interest (62,553) (71,810) ----------- ----------- Consumer and other loans 1,149,012 1,022,445 ----------- ----------- Loans receivable 5,627,096 4,304,149 Allowance for loan losses (111,911) (91,060) ----------- ----------- Loans receivable, net 5,515,185 4,213,089 Loans held for sale 10,754 4,630 ----------- ----------- Total loans $ 5,525,939 $ 4,217,719 =========== =========== 67 First BanCorp 2002 The Corporation's primary lending area is Puerto Rico. At December 31, 2002 and 2001 there is no significant concentration of credit risk in any specific industry on the loan portfolio. At December 31, 2002, loans in which the accrual of interest income had been discontinued amounted to $91,765,000 (2001 - $72,998,000; 2000 - $67,716,000). If these loans had been accruing interest, the additional interest income realized would have been approximately $5,833,000 (2001 - $5,735,000; 2000 - $5,937,000). There are no material commitments to lend additional funds to borrowers whose loans were in non-accruing status at these dates. At December 31, 2002 mortgage loans held for sale amounted to $10.8 million (2001-$4.6 million). At December 31, 2002, the Corporation was servicing residential mortgage loans owned by others aggregating approximately $196,748,000 (2001 - $160,583,000; 2000 - $144,805,000). Various loans secured by first mortgages were assigned as collateral for term notes, certificates of deposit, advances from the Federal Home Loan Bank, and unused lines of credit. The mortgage loans pledged as collateral amounted to $778,829,294 and $195,267,091 at December 31, 2002 and 2001, respectively. NOTE 14 - ALLOWANCE FOR LOAN LOSSES The changes in the allowance for loan losses were as follows:

Year ended December 31, 2002 2001 2000 --------- --------- --------- (In thousands) Balance at beginning of period $ 91,060 $ 76,919 $ 71,784 Provision charged to income 62,302 61,030 45,719 Losses charged against the allowance (48,991) (54,380) (51,831) Recoveries credited to the allowance 7,540 7,391 9,807 Other adjustments 100 1,440 --------- --------- --------- Balance at end of period $ 111,911 $ 91,060 $ 76,919 ========= ========= =========

At December 31, 2002, $27 million ($10.7 million at December 31, 2001) in commercial and real estate loans over $1,000,000 were considered impaired with an allowance of $5.9 million ($3.7 million at December 31, 2001), which was established based on the fair value of the collateral. For 2001, $2 million of the allowance on impaired loans was established based on the fair value of the collateral and $1.7 million was established based on the present value of expected future cash flows. The average recorded investment in impaired loans amounted to $18.9 million for 2002 (2001 - $11.9 million). Interest income in the amount of approximately $803,000 was recognized on impaired loans in 2002 (2001 -$377,000; 2000 - $227,000). NOTE 15 - RELATED PARTY TRANSACTIONS The Corporation granted loans to its directors, executive officers and to certain related individuals or entities in the ordinary course of business. The movement and balance of these loans were as follows: Amount -------- (In thousands) Balance at December 31, 2000 $ 20,174 New loans 14,659 Payments (170) -------- Balance at December 31, 2001 $ 34,663 New loans 48,784 Payments (1,943) -------- Balance at December 31, 2002 $ 81,504 ======== 68 First BanCorp 2002 NOTE 16 - PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation as follows: Useful life December 31, December 31, in years 2002 2001 ----------- --------- --------- (In thousands) Land $ 8,203 $ 7,357 Buildings and improvements 10-40 41,918 39,809 Leasehold improvements 1-15 20,436 14,753 Furniture and equipment 3-10 94,675 62,466 --------- --------- 165,232 124,385 Accumulated depreciation (87,083) (55,001) --------- --------- 78,149 69,384 Projects in progress 9,447 6,772 --------- --------- Total premises and equipment, net $ 87,596 $ 76,156 ========= ========= NOTE 17 - INTANGIBLE ASSETS At December 31, 2002, the Corporation has a core deposit intangible with a carrying amount of $20,807,539 (2001-$7,199,439) included in the Other Assets category. Increase in this category represents the recognition of an intangible asset as part of the acquisition of the JP Morgan Chase's Eastern Caribbean Region business. The straight-line amortization expense for the year ended December 31, 2002 amounted to approximately $1,165,000. The estimated aggregate amortization expense for each of the five succeeding fiscal years will be approximately $2,400,000. Management has reviewed the core deposits intangible assets concluding that no impairment is necessary and that the useful life of ten years used to amortize them is the best estimate of the economic benefit period. NOTE 18 - DEPOSITS AND RELATED INTEREST Deposits and related interest consist of the following:

December 31, December 31, 2002 2001 ---------- ---------- (In thousands) Type of account and interest rate: Savings accounts - 1.25% to 2.25% (2001 - 2.25% to 3.50%) $ 921,103 $ 469,452 Interest bearing checking accounts - 1.15% to 2.00% (2001 - 2.25% to 3.05%) 230,743 205,760 Non-interest bearing checking accounts 447,076 239,851 Certificate accounts - 1.00% to 7.50% (2001 - 2.00% to 7.50%) 3,883,996 3,183,491 ---------- ---------- $5,482,918 $4,098,554 ========== ==========

The weighted average interest rate on total deposits at December 31, 2002 and 2001 was 2.58% and 3.82%, respectively. At December 31, 2002, the aggregate amount of overdraft in demand deposits that were reclassified as loans amounted to $7,281,895 (2001 - $7,807,724). The following table presents a summary of certificates of deposits with remaining term of more than one year at December 31, 2002: Total ---------- (In thousands) Over one year to two years $ 258,698 Over two years to three years 162,066 Over three years to four years 341,276 Over four years to five years 199,752 Over five years 1,814,983 ---------- Total $2,776,775 ========== 69 First BanCorp 2002 At December 31, 2002 certificates of deposit (CD's) in denominations of $100,000 or higher amounted to $3,379,748,775 (2001 - $2,669,536,603) including brokered certificates of deposit of $2,645,909,222 (2001 - $2,189,687,222) at a weighted average rate of 2.64%, after hedging (2001 - 4.0%). See Note 29 for a description of the program used to hedge the fair value of the brokered certificates of deposit. At December 31, 2002, deposit accounts issued to government agencies with a carrying value of $220,869,357 (2001 - $63,639,152) were collateralized by securities with a carrying value of $259,433,606 (2001 - $75,126,925) and estimated market value of $263,467,485 (2001 - $71,979,923), by specific mortgage loans with a carrying value of $2,416,677 (2001 - $2,895,723) and estimated market value of $3,010,938 (2001 - $3,370,043) and by municipal obligations with a carrying value and estimated market value of $27,810,000. A table showing interest expense on deposits follows: Year ended December 31, 2002 2001 2000 -------- -------- -------- (In thousands) Savings $ 15,096 $ 12,954 $ 12,792 Interest bearing checking accounts 4,763 5,296 5,546 Certificates of deposit 113,376 142,508 134,945 -------- -------- -------- Total $133,235 $160,758 $153,283 ======== ======== ======== NOTE 19 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Federal funds purchased and securities sold under agreements to repurchase (repurchase agreements) consist of the following: December 31, 2002 2001 ---------- ---------- (In thousands) Federal funds purchased, interest rate 1.80% $ 10,000 Repurchase agreements, interest ranging from 1% to 5.37% (2001 - 1.25% to 6.09%) $2,784,078 2,976,174 Accrued interest payable 9,462 11,000 ---------- ---------- Total $2,793,540 $2,997,174 ========== ========== The weighted average interest rates of federal funds purchased and repurchase agreements at December 31, 2002 and 2001 was 3.82% and 4.05%, respectively. Federal funds purchased and repurchase agreements mature as follows: December 31, 2002 2001 ---------- ---------- (In thousands) One to thirty days $ 708,924 $ 723,010 Over thirty to ninety days 194 14,062 Over ninety days to one year 274,142 Over one year 2,074,960 1,974,960 ---------- ---------- Total $2,784,078 $2,986,174 ========== ========== 70 First BanCorp 2002 The following securities were sold under agreements to repurchase:

December 31, 2002 Amortized Approximate Weighted cost of market value average underlying Balance of of underlying interest UNDERLYING SECURITIES securities borrowing securities rate ----------- ---------- ------------- -------- (In thousands) U.S. Treasury Securities and obligations of other U.S. Government Agencies $ 718,886 $ 646,095 $ 721,216 5.70% P.R. Government Securities 290 260 324 6.48% Mortgage backed securities 2,248,037 2,020,414 2,293,031 5.67% Corporate bonds 130,525 117,309 130,523 5.20% ---------- ---------- ---------- Total $3,097,738 $2,784,078 $3,145,094 ---------- ========== ========== Accrued interest receivable $ 12,257 ==========

December 31, 2001 Amortized Approximate Weighted cost of market value average underlying Balance of of underlying interest UNDERLYING SECURITIES securities borrowing securities rate ----------- ---------- ------------- -------- U.S. Treasury Securities and obligations of other U.S. Government Agencies $ 506,685 $ 392,081 $ 515,447 3.80% Mortgage backed securities 2,441,777 2,380,851 2,389,645 6.70% Corporate bonds 262,648 203,242 260,542 7.17% ---------- ---------- ---------- Total $3,211,110 $2,976,174 $3,165,634 ---------- ========== ========== Accrued interest receivable $ 15,715 ==========

The maximum aggregate balance outstanding at any month-end during 2002 was $3,342,284,753 (2001 - $2,986,174,065). The average balance during 2002 was approximately $2,784,701,323 (2001 - $1,997,705,000). At December 31, 2002 and 2001, the securities underlying such agreements were delivered to, and are being held by the dealers with which the repurchase agreements were transacted, except for transactions where the Corporation has agreed to repurchase similar but not identical securities. NOTE 20 - ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB) Following is a detail of the advances from the FHLB: December 31, Maturity Interest rate 2002 2001 - -------- ------------- ------------ -------- (In thousands) January 2, 2002 1.85% $ 20,700 January 13, 2003 1.44% $ 50,000 August 16, 2005 6.30% 50,000 50,000 October 9, 2008 5.10% 14,000 14,000 October 16, 2008 5.09% 15,000 15,000 February 28, 2011 4.50% 79,000 79,000 March 21, 2011 4.42% 165,000 165,000 -------- -------- $373,000 $343,700 ======== ======== 71 First BanCorp 2002 Advances are received from the FHLB under an Advances, Collateral Pledge and Security Agreement (the Collateral Agreement). Under the Collateral Agreement, the Corporation is required to maintain a minimum amount of qualifying mortgage collateral with a market value at least 110% of the outstanding advances. At December 31, 2002, specific mortgage loans with an estimated value of $553,144,554 (2001 - $197,506,039), as computed by Federal Home Loan Bank for collateral purposes, were pledged to the FHLB as part of the Collateral Agreement. The carrying value of such loans at December 31, 2002 amounted to $776,412,617 (2001 - $192,371,368). In addition, securities with an approximated market value of $26,587,830 (2001 - $145,140,574) and a carrying value of $29,149,623 (2001 - $158,117,351) were pledged to the FHLB. NOTE 21 - SUBORDINATED NOTES On December 20, 1995, the Corporation issued 7.63% subordinated capital notes in the amount of $100,000,000 maturing in 2005. The notes were issued at a discount. At December 31, 2002 the outstanding balance net of the unamortized discount and notes repurchased was $82,815,105 (2001 - $84,361,525). Interest on the notes is payable semiannually and at maturity. The notes represent unsecured obligations of the Corporation ranking subordinate in right of payment to all existing and future senior debt including the claims of depositors and other general creditors. The notes may not be redeemed prior to their maturity. At December 31, 2002, the Corporation has transferred to capital reserves from the retained earnings account $70,000,000 as a result of the requirement explained in Note 3 - "Stockholders' Equity." NOTE 22 - UNUSED LINES OF CREDIT The Corporation maintains unsecured standby lines of credit with other banks. At December 31, 2002 and 2001, the Corporation's total unused lines of credit with these banks amounted to approximately $180,000,000. At December 31, 2002, the Corporation has an available line of credit with the FHLB guaranteed with excess collateral, in the amount of $206,732,384. NOTE 23 - EMPLOYEES' BENEFIT PLAN FirstBank provides contributory retirement plans pursuant to Section 1165(e) of the Puerto Rico Internal Revenue Code for Puerto Rico employees and Section 401(K) of the U.S. Internal Revenue Code for U.S.V.I. employees. All employees are eligible to participate in the Plan after one year of service. Under the provisions of the Plan, the Bank contributes a quarter of the first 4% of each participant's compensation. Participants are permitted to contribute up to 10% of their annual compensation, limited to $8,000 per year ($11,000 for U.S.V.I. employees). Additional contributions to the Plan are voluntarily made by the Bank as determined by its Board of Directors. The Bank made a total contribution of $861,478, $845,227 and $699,060 during 2002, 2001 and 2000 respectively, to the Plan. NOTE 24 - OTHER EXPENSES A detail of other expenses follows: Year ended December 31, 2002 2001 2000 ------- ------- ------- (In thousands) Professional and service fees $ 7,685 $ 7,461 $ 8,406 Communications 5,865 5,395 5,573 Revenue earning equipment 1,588 1,578 1,525 Supplies and printing 1,963 1,282 1,214 Other 8,243 9,489 8,155 ------- ------- ------- Total $25,344 $25,205 $24,873 ======= ======= ======= 72 First BanCorp 2002 NOTE 25 - INCOME TAXES The Corporation is subject to Puerto Rico income tax on its income from all sources. For United States income tax purposes, the Corporation is treated as a foreign corporation. Accordingly, it is generally subject to United States income tax only on its income from sources within the United States or income effectively connected with the conduct of a trade or business within the United States. Any United States income tax paid by the Corporation is creditable, within certain conditions and limitations, as a foreign tax credit against its Puerto Rico tax liability. The provision for income taxes was as follows: Year ended December 31, 2002 2001 2000 -------- -------- -------- (In thousands) Current $ 30,938 $ 25,536 $ 19,117 Deferred (8,611) (5,402) (4,356) -------- -------- -------- Total $ 22,327 $ 20,134 $ 14,761 ======== ======== ======== Income tax expense applicable to income before provision for income tax differs from the amount computed by applying the Puerto Rico statutory rate of 39% as follows:

Year ended December 31, 2002 2001 2000 % of % of % of pre-tax pre-tax pre-tax Amount Income Amount Income Amount Income ------ ------ ------ ------ ------ ------ (Dollars in thousands) Computed income tax at statutory rate $ 50,811 39 $ 41,789 39 $ 31,994 39 Benefit of net exempt income (31,819) (24) (24,442) (23) (12,707) (15) Other-net 3,335 2 2,787 3 (4,526) (6) -------- -- -------- -- -------- -- Total income tax provision $ 22,327 17 $ 20,134 19 $ 14,761 18 ======== == ======== == ======== ==

The components of the deferred tax asset and liability were as follows: December 31, 2002 2001 -------- -------- (In thousands) Deferred tax asset: Allowance for loan losses $ 43,645 $ 34,732 Unrealized loss on available for sale securities 1,783 Unrealized loss on fair value hedges attributable to credit risk 379 315 Other 6,584 7,110 -------- -------- Deferred tax asset $ 50,608 $ 43,940 -------- -------- Deferred tax liability: Unrealized gain on available for sale securities $(11,506) Other (98) $ (322) -------- -------- Deferred tax liability $(11,604) $ (322) ======== ======== No valuation allowance was considered necessary for the deferred tax asset. The tax effect of the unrealized holding gain or loss for securities available for sale was computed based on a 25% capital gain tax rate, and is included in accumulated other comprehensive income as a part of stockholders' equity. 73 First BanCorp 2002 The Puerto Rico Treasury Department is conducting an investigation of the Bank's income tax returns for the years 1995, 1997, 1998 and 1999. Management has prepared these tax returns in accordance with the Puerto Rico Internal Revenue Code and its regulations. Therefore, Management believes that a deficiency, if any, resulting from this investigation, will not have a material effect on the Corporation's financial statements. NOTE 26 - COMMITMENTS At December 31, 2002 certain premises are leased with terms expiring through the year 2022. The Corporation has the option to renew or extend certain leases from two to ten years beyond the original term. Some of these leases require the payment of insurance, increases in property taxes and other incidental costs. At December 31, 2002, the obligation under various leases follows: Year Amount ----- ------- (In thousands) 2003 $ 4,894 2004 4,079 2005 2,826 2006 2,039 2007 1,726 2008 and later years 7,333 ----- ------- Total $22,897 ===== ======= Rental expense included in occupancy and equipment expense was $4,509,798 in 2002 (2001 - $4,240,437; 2000 - $4,042,069). NOTE 27 - FAIR VALUE OF FINANCIAL INSTRUMENTS The information about the estimated fair values of financial instruments as required by accounting principles generally accepted in the United States of America, is presented hereunder. The disclosure requirements exclude certain financial instruments and all non - financial instruments. Accordingly, the aggregate fair value amounts presented do not represent Management's estimate of the underlying value of the Corporation. A summary table of estimated fair values and carrying values of financial instruments at December 31, 2002 and 2001 follows:

December 31, 2002 2001 Estimated Carrying Estimated Carrying fair value value fair value value ---------- ---------- ---------- --------- (In thousands) Assets: Cash and due from banks and money market instruments $ 381,965 $ 381,965 $ 94,463 $ 94,463 Investment securities 3,422,718 3,419,380 3,652,031 3,658,544 FHLB stock 35,630 35,630 22,891 22,891 Loans receivable, including loans held for sale - net 5,527,122 5,525,939 4,226,033 4,217,719 Interest rate swaps 27,022 27,022 Liabilities: Deposits 5,499,998 5,482,918 4,121,145 4,098,554 Federal funds, securities sold under agreements to repurchase 2,966,580 2,793,540 3,005,466 2,997,174 Advances from FHLB 399,941 373,000 348,733 343,700 Subordinated notes 89,084 82,815 83,729 84,362 Interest rate swaps 9,739 9,739 15,053 15,053

74 First BanCorp 2002 The estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in the underlying assumptions used in calculating the fair values could significantly affect the results. In addition, the fair value estimates are based on outstanding balances without attempting to estimate the value of anticipated future business. Therefore, the estimated fair values may materially differ from the values that could actually be realized on a sale. The estimated fair values were calculated using certain facts and assumptions, which vary depending on the specific financial instrument, as follows: CASH AND DUE FROM BANKS AND MONEY MARKET INSTRUMENTS The carrying amounts of cash and due from banks and money market instruments are reasonable estimates of their fair values. INVESTMENT SECURITIES The fair values of investment securities are the market values based on quoted market prices and dealer quotes. FHLB STOCK Investments in FHLB stock are valued at their redemption values. LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE - NET The fair value of all loans was estimated by the discounted present values of loans with similar financial characteristics. Loans were classified by type such as commercial, residential mortgage, credit card and automobile. These asset categories were further segmented into fixed and adjustable rate categories and by accruing and non-accruing groups. Performing floating rate loans were valued at book if they reprice at least once every three months, as were performing credit lines. The fair value of fixed rate performing loans was calculated by discounting expected cash flows through the estimated maturity date. Recent prepayment experience was assumed to continue for mortgage loans, auto loans and personal loans. Other loans assumed little or no prepayment. Prepayment estimates were based on the Corporation's historical data for similar loans. Discount rates were based on the Treasury Yield Curve at the date of the analysis, with an adjustment, which reflects the risk and other costs inherent in the loan category. Non-accruing loans covered by a specific loan loss allowance were viewed as immediate losses and were valued at zero. Other non-accruing loans were arbitrarily assumed to be repaid after one year. Presumably this would occur either because loan is repaid, collateral has been sold to satisfy the loan or because general reserves are applied to it. The principal of non-accruing loans not covered by specific reserves was discounted for one year at the going rate for similar new loans. DEPOSITS The estimated fair values of demand deposits and savings accounts, which are the deposits with no defined maturities, equal the amount payable on demand at the reporting date. For deposits with stated maturities, but that reprice at least quarterly, the fair values are also estimated to be the amount payable at the reporting date. The fair values of fixed rate deposits with stated maturities, are based on the present value of the future cash flows expected to be paid on deposits. The cash flows are based on contractual maturities; no early repayments are assumed. Discount rates are based on the LIBOR yield curve. The estimated fair values of total deposits exclude the fair value of core deposits intangible, which represent the value of the customer relationship measured by the values of demand deposits and savings deposits that bear a low or zero rate of interest and do not fluctuate in response to changes in interest rates. Substantially all swaps currently held by the Corporation form part of structured broker CD's. In these instruments a fixed rate CD is matched with a swap of the same rate and maturity, thereby converting the fixed rate broker CD to a floating rate instrument which reprices quarterly based on a fixed differential to three month LIBOR. The swaps are recorded at fair value with a corresponding adjustment to CD's, therefore, for purposes of fair value analysis, these structured broker CD's are valued at book. 75 2002 First BancCorp FEDERAL FUNDS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Federal funds purchased and some repurchase agreements reprice at least quarterly, and their outstanding balances are estimated to be their fair values. Where longer commitments are involved, fair values are estimated in the same way as fixed term deposits. ADVANCES FROM FHLB AND SUBORDINATED NOTES The fair value of advances from FHLB with fixed maturities was determined using discounted cash flow analysis over the full term of the borrowings. The cash flows assumed no early repayment of the borrowings. Discount rates were based on the LIBOR yield curve. The fair value of subordinated notes was based on indications of market prices. INTEREST RATE SWAPS The fair values of the interest rate swaps were provided by the counter party. NOTE 28 - SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information follows: Supplemental cash flow information follows:

Year ended December 31, 2002 2001 2000 -------- -------- -------- (In thousands) Cash paid for: Interest $274,548 $275,360 $260,937 Income tax 15,799 12,535 30,477 Non-cash investing and financing activities: Additions to other real estate owned 3,338 1,797 3,121

NOTE 29 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT THE FOLLOWING TABLE PRESENTS A DETAIL OF COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The following table presents a detail of commitments to extend credit and standby letters of credit:

December 31, 2002 2001 -------- -------- Financial instruments whose contract (In thousands) amounts represent credit risk: Commitments to extend credit: To originate loans $208,925 $194,363 Unused credit card lines 307,492 291,120 Unused personal lines of credit 14,859 13,480 Commercial lines of credit 439,996 222,821 Commercial letters of credit 80,448 19,067 Standby letters of credit 30,313 24,172

The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Management uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. 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. These commitments generally expire within one year. 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 76 2002 First BancCorp and without cause, cancel the unused credit facility. The amount of collateral, obtained if deemed necessary by the Corporation upon extension of credit, is based on Management's credit evaluation of the borrower. Rates charged on the loans that are finally disbursed is the rate being offered at the time the loans are closed, therefore, no fee is charged on these commitments. The fee is the amount which is used as the estimate of the fair value of commitments. In general, commercial and standby letters of credit are issued to facilitate foreign and domestic trade transactions. Normally, commercial and standby letters of credit are short-term commitments used to finance commercial contracts for the shipment of goods. The collateral for these letters of credit include cash or available commercial lines of credit. The fair value of commercial and standby letters of credit is based on the fees currently charged for such agreements, which at December 31, 2002 is not significant. INTEREST RATE RISK MANAGEMENT The operations of the Corporation are subject to interest rate fluctuations to the extent that interest-earning assets and interest-bearing liabilities mature or reprice at different times or in different amounts. As part of the interest rate risk management, the Corporation has entered into a series of interest rate swap agreements. Under the interest rate swaps, the Corporation agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. Net interest settlements on interest rate swaps are recorded as an adjustment to interest expense on deposit accounts or interest income on investment accounts. The following table indicates the types of swaps used:

Notional amount --------------- (In thousands) Pay-fixed and receive-variable swaps: Balance at December 31, 2000 $ -- New Contracts 58,165 ----------- Balance at December 31, 2001 58,165 New contracts 20,000 ----------- Balance at December 31,2002 $ 78,165 ----------- Receive-fixed and pay variable swaps: Balance at December 31, 2000 $ 1,151,000 Expired contracts (1,116,000) New contracts 1,460,000 ----------- Balance at December 31, 2001 $ 1,495,000 Expired contracts (1,193,681) New contracts 1,656,590 ----------- Balance at December 31, 2002 $ 1,957,909 -----------

Interest rate swap agreements under which the Corporation agrees to pay variable-rates of interest are considered to be a hedge against changes in the fair value of the Corporation fixed-rate brokered certificates of deposit. The interest rate swap agreements are reflected at fair value in the Corporation's consolidated statement of financial condition and the related portion of fixed-rate debt being hedged is reflected at an amount equal to the sum of its carrying value plus an adjustment representing the change in fair value of the debt obligations attributable to the interest rate risk being hedged. The hedge relationship is estimated to be 100 percent effective; therefore, there is no impact on the statement of income nor on comprehensive income, because the gain or loss on the swap agreements will completely offset the loss or gain on the certificates of deposit. The Corporation, in order to achieve 100% effectiveness, incorporates in the hedge of fixed-rate brokered CD's the right to lower the notional amount for a stated period of time, in the case of cancellations prior to maturity. The net effect of this accounting is that the interest expense on the hedged certificates of deposit generally reflects variable interest rates. Interest rate swap agreements under which the Corporation agrees to pay fixed-rates of interest are considered to be a hedge against changes in the fair value attributable to market interest rates of fixed rate available for sale corporate bonds. Accordingly, the interest rate swap agreements and the securities being hedged are reflected at 77 2002 First BancCorp fair value in the Corporation's consolidated statement of financial condition. The adjustment of the hedged item's carrying amount attributable to the hedged risk is recorded in earnings in order to offset the gain or loss on the hedging instrument. The change in the fair value of the security attributable to credit risk is recorded in other comprehensive income. The hedge relationship is estimated to be 100 percent effective; therefore, there is no impact on the statement of income, because the gain or loss on the interest rate swap reflects the full amount of the gain or loss on the hedged item attributable to the hedged risk. The net effect of this accounting is that the interest of the fixed-rate securities being hedged generally reflects variable interest rates. During the year ended on December 31, 2002, the Corporation sold certain corporate bonds to which interest rate swap agreements with an aggregate notional principal balance of $53.2 million were attributable. Therefore, these swaps no longer qualify for hedge accounting, and an unrealized loss of $4.5 million was recorded to reflect changes in the fair value of these derivatives as part of derivative loss in the Other Income section of the statement of income. Interest rate swaps with an aggregate notional principal balance of $25 million had an unrealized loss of $1,517,268 (2001 - $1,260,094 unrealized loss), attributable to credit risk, which was recorded in accumulated comprehensive income net of income tax. Pay-fixed swaps at December 31, 2002 had a fixed weighted average rate payment of 6.53% (2001 - 7.14%) and a floating weighted average rate receiving of 3.53% (2001 -4.20%). Receive-fixed swaps at December 31, 2002, have a floating weighted average rate payment of 1.58% (2001 - 2.16%) and a fixed weighted average rate receiving of 5.60% (2001 -6.32%). Floating rates on pay fixed swaps range from 175 to 240 basis points over LIBOR and from minus 25 basis points to 7 over LIBOR rate on receive fixed swaps. For swap transactions, the amounts potentially subject to credit loss are the net streams of payments under the agreements and not the notional principal amounts used to express the volume of the swaps. At December 31, 2002, the Corporation had total net receivable of $12,147,354 (2001 - $12,755,949) related to the swap transactions. The Corporation controls the credit risk of its interest rate swap agreements through approvals, limits, and monitoring procedures. The Corporation does not anticipate non-performance by the counter parties. The Corporation has a policy of diversifying swap counter parties to reduce the risk that any counter party will fail. As part of the swap transactions, the Corporation is required to pledge collateral in the form of deposits in banks or securities. The book value and aggregate market value of securities pledged as collateral for interest rate swaps at December 31, 2002 was approximately $42.1 million and $42.9 million, respectively (2001 - $48.1 million and $47.9 million, respectively). The final maturity of the swaps at December 31, 2002 ranged from one month through nineteen years (2001 - from one year through twenty years). Interest rate swaps with an aggregate notional principal balance of $2,036,074,000 had a gross unrealized gain of approximately $27,021,907 and gross unrealized loss of $9,738,638 at December 31, 2002, which are included in the Other Assets category and Other Liabilities category, respectively. INTEREST RATE PROTECTION AGREEMENTS (CAPS) From time to time the Corporation also uses interest rate protection agreements (Caps) to limit its exposure to rising interest rates on its deposits. 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. There were no caps agreements outstanding at December 31,2002 On January 1, 2001 a loss of approximately $1.3 million was recognized in the statement of income as a cumulative effect of the adoption of SFAS No. 133, as a result of unamortized premium paid for caps of $1.5 million less an estimated fair market value of $200,000. Prior to the implementation of SFAS No. 133, the premium was amortized as an adjustment to interest expense on borrowings. NOTE 30 - 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. 78 2002 First BancCorp 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 Other Income segment is mainly composed of insurance and other commission's income. 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, other income and direct operating expenses. 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 by 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 is based on market rates. The following table presents information about the reportable segments:

Treasury and Commercial Retail Investments Corporate Other Total ----------- ----------- ----------- ---------- ----------- (In thousands) For the year ended December 31, 2002: Interest income $ 230,141 $ 188,194 $ 121,698 $ 540,033 Net (charge) credit for transfer of funds (46,552) 97,360 (50,808) Interest expense (58,835) (214,349) (273,184) Net interest income 124,754 71,205 70,890 266,850 Provision for loan losses (43,090) (19,212) (62,302) Other income 39,352 8,643 5,080 $ 5,417 58,492 Direct Operating Expenses (74,357) (2,227) (6,439) (697) (83,721) Segment income 46,659 77,621 50,319 4,720 179,319 Average earning assets $ 2,410,548 $ 3,746,245 $ 2,258,025 $ 8,414,818 For the year ended December 31, 2001: Interest income $ 217,021 $ 162,478 $ 136,757 $ 516,256 Net (charge) credit for transfer of funds (21,043) 102,123 (81,081) Interest expense (71,410) (208,791) (280,201) Net interest income 124,568 55,810 55,676 236,055 Provision for loan losses (44,541) (16,489) (61,030) Other income 35,384 10,211 4,440 $ 2,945 52,980 Direct Operating Expenses (69,198) (1,844) (5,664) (362) (77,069) Segment income 46,213 64,177 37,963 2,583 150,936 Average earning assets $ 1,970,768 $ 2,627,205 $ 1,781,314 $ 6,379,287 For the year ended December 31, 2000: Interest income $ 222,950 $ 134,328 $ 106,110 $ 463,388 Net (charge) credit for transfer of funds (12,582) 85,013 (72,431) Interest expense (74,093) (198,522) (272,615) Net interest income 136,275 20,819 33,679 190,773 Provision for loan losses (28,084) (17,635) (45,719) Other income 34,556 8,968 4,221 $ 2,287 50,032 Direct Operating Expenses (69,369) (1,922) (5,010) (318) (76,619) Segment income 73,378 27,865 15,255 1,969 118,467 Average earning assets $ 1,893,699 $ 1,985,580 $ 1,110,608 $ 4,989,887

79 2002 First BancCorp The following table presents a reconciliation of the reportable segment financial information to the consolidated totals:

Year ended December 31, 2001 2002 2001 2000 ----------- ----------- ----------- (In thousands) Net income: Total income for segments $ 179,319 150,936 $ 118,467 Other operating expenses (49,036) $ (43,786) (36,430) Income taxes (22,327) (20,134) (14,761) ----------- ----------- ----------- Income before cumulative effect of accounting change 107,956 87,016 67,276 Cumulative effect of accounting change (1,015) ----------- ----------- ----------- Total consolidated net income $ 107,956 $ 86,001 $ 67,276 ----------- ----------- ----------- Average assets: Total average earning assets for segments $ 8,414,818 $ 6,379,287 $ 4,989,887 Average assets not assigned to segments 333,404 322,115 249,489 ----------- ----------- ----------- Total consolidated average assets $ 8,748,222 $ 6,701,402 $ 5,239,376 ----------- ----------- -----------

NOTE 31 - LITIGATION The Corporation is a defendant in a number of legal proceedings arising in the normal course of business. Management believes, based on the opinion of legal counsel, that the final disposition of these matters will not have a material adverse effect on the Corporation's financial position or results of operations. NOTE 32 - FIRST BANCORP (HOLDING COMPANY ONLY) FINANCIAL INFORMATION The following condensed financial information presents the financial position of the Holding Company only at December 31, 2002 and 2001, and the results of its operations and its cash flows for the years ended on December 31,2002,2001 and 2000. STATEMENTS OF FINANCIAL CONDITION Insurance Agency, at equity Other assets Total assets Liabilities and Stockholders' Equity: Accounts payable and other liabilities Stockholders' equity Contingencies and commitments Total liabilities and stockholders' equity

December 31,2002 December 31, 2001 ---------------- ----------------- (In thousands) Assets: Cash and due from banks $ 26,276 $ 17,422 Money market instruments 300 300 -------- -------- Investment securities available for sale, at market value: United States Government obligations 24,802 Other investments 42,674 35.507 -------- -------- Total investment securities available for sale 42.674 60.309 -------- -------- Investment securities held to maturity, at cost: United States Government obligations 5,700 -------- -------- Total investment securities held to maturity 5,700 -------- -------- Loans receivable 6,000 5,682 Investment in FirstBank Puerto Rico, at equity 718,480 515,623 Investment in FirstBank 1,445 371 Other Assets 726 3,383 -------- -------- Total Assets $801,601 $603,090 -------- -------- Liabilities and Stockholders' Equity: Accounts payable and other liabilities $ 3,177 $ 171 Stockholders' equity 798,424 602,919 Contingencies and commitments -------- -------- Total liabilities and stockholders' equity $801,601 $603,090 -------- --------

80 2002 First BancCorp STATEMENTS OF INCOME

2002 2001 2000 --------- ------- -------- Income: Interest income on investment securities $ 351 $ 658 $ 776 Interest income on other investments 248 250 289 Interest income on loans 5,269 306 Dividend from FirstBank 28,000 24,000 24,000 Other income 705 668 1,117 --------- ------- -------- 34,573 25,882 26,182 --------- ------- -------- Expenses: 2 25 Interest expense 709 559 487 --------- ------- -------- Other operating expenses 711 559 512 --------- ------- -------- Gain (loss) on sale of investments, net (22,321) 1,093 7,134 --------- ------- -------- Income before income taxes and equity in undistributed earnings of subsidiaries 11,541 26,416 32,804 Income taxes 2,250 170 209 Equity in undistributed earnings of subsidiaries 98,665 59,755 34,681 --------- ------- -------- Net income 107,956 86,001 67,276 Other comprehensive income, net of tax 39,675 13,306 49,050 --------- ------- -------- Comprehensive income $ 147,631 $99,307 $116,326 --------- ------- --------

The principal source of income for the Holding Company consists of the earnings of FirstBank. 81 2002 First BancCorp STATEMENT OF CASH FLOWS

Year ended December 31, 2002 2001 2000 ----------- --------- -------- Cash flows from operating activities: Net income $ 107,956 $ 86,001 $ 67,276 ----------- --------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (98,662) (59,755) (34,681) Net loss (gain) on sale of investments securities 22,321 (1,093) (7,134) Net (increase) decrease in other assets (175) (75) 120 Net increase (decrease) in other liabilities 2,069 (186) (527) ----------- --------- -------- Total adjustments (74,447) (61,109) (42,222) ----------- --------- -------- Net cash provided by operating activities 33,509 24,892 25,054 ----------- --------- -------- Cash flows from investing activities: Capital contribution to subsidiaries (88,000) (80,305) (40,000) Loans originated (88,000) (5,682) Purchases of securities available for sale (1,235,145) (24,203) (50,119) Sales and maturity of securities held to maturity and available for sale 1,240,079 10,227 44,807 Other investing activities 98,537 6,316 278 ----------- --------- -------- Net cash used in investing activities (72,529) (93,647) (45,034) ----------- --------- -------- Cash flows from financing activities: Net decrease in other borrowings (865) Proceeds from issuance on preferred stock 88,906 100,069 72,438 Exercise of stock options 1,341 1,355 94 Cash dividends paid (42,373) (30,343) (19,212) Treasury stock acquired (1,930) (30,087) ----------- --------- -------- Net cash provided by financing activities 47,874 69,151 22,368 ----------- --------- -------- Net increase in cash 8,854 396 2,388 Cash and cash equivalents at the beginning of the year 17,722 17,326 14,938 ----------- --------- -------- Cash and cash equivalents at the end of the year $ 26,576 $ 17,722 $ 17,326 ----------- --------- -------- Cash and cash equivalents include: Cash and due from banks $ 26,276 $ 17,422 $ 17,026 Money market instruments 300 300 300 ----------- --------- -------- $ 26,576 $ 17,722 $ 17,326 ----------- --------- --------

82 2002 First BancCorp Stockholders' information INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS PricewaterhouseCoopers LLP ANNUAL MEETING: The annual meeting of stockholder will be held on April 29, 2003, at 2:00 p.m., at the main office of the Corporation located at 1519 Ponce de Leon Avenue, Santurce, Puerto Rico. Telephone (787) 729-8200 Internet http://www.firstbankpr.com ADDITIONAL INFORMATION AND FORM 10-K: Additional financial information about First BanCorp may be required to Mrs. Laura Villarino, Senior Vice President and Controller, PO Box 9146, Santurce, Puerto Rico 00908. First BanCorp's filings with the Securities and Exchange Commission (SEC) may be accessed in the web site maintained by the SEC at http://www.sec.gov and at out web site http://firstbankpr.com, First BanCorp section, Company Filings link. TRANSFER AGENT AND REGISTRAR: The Bank of New York 1-800-524-4458 ADDRESS SHAREHOLDER INQUIRIES TO: Shareholder Relations DepartmenT PO Box 11258 Church Street Station New York, NY 10286 E-MAIL ADDRESS shareowner-svcs@bankofny.com THE BANK OF NEW YORK'S STOCK TRANSFER WEB SITE: http://www.stockbny.com SEND CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO: Receive and Deliver Department PO Box 11002 Church Street Station New York, NY 10286 This Annual Report was prepared by ADWORKS [PHOTO] EX-21 4 g81589exv21.htm EX-21 LIST OF SUBSIDIARIES

EXHIBIT 21.0

List of Subsidiaries
(Direct and Indirect)

Direct

1.	FirstBank Puerto Rico
2.	FirstBank Insurance Agency, Inc.

Indirect

1.	First Leasing and Rental Corporation
2.	First Federal Finance Corp. D/B/A Money Express “La Financiera"
3.	First Trade Inc.
4.	FirstBank Insurance Agency VI, Inc.

EX-99.1 5 g81589exv99w1.htm EX-99.1 CERTIFICATION OF THE CEO

EXHIBIT 99.1

CERTIFICATION

Pursuant to 18 U.S.C. sec.1350, the undersigned officer of First BanCorp. (the “Company”) hereby certifies, to such officer’s knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: 03/25 /03
/s/ Angel Alvarez-Pérez
Angel Alvarez-Pérez, Esq.
Chairman, President and
Chief Executive Officer

EX-99.2 6 g81589exv99w2.htm EX-99.2 CERTIFICATION OF THE CFO

EXHIBIT 99.2

CERTIFICATION

Pursuant to 18 U.S.C. sec.1350, the undersigned officer of First BanCorp. (the “Company”) hereby certifies, to such officer’s knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: 03/25/03
/s/ Annie Astor-Carbonell
Annie Astor-Carbonell
Senior Executive Vice President and
Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

EX-13

                                                                    EXHIBIT 13.0


                                    [PHOTO]

                              [First BanCorp LOGO]

                               2002 ANNUAL REPORT





                                    [PHOTO]


                                   LEADERSHIP

                          Leadership is Power. Vision.
                     And setting standards. It provides us
                          with the opportunity to open
                            new markets, develop new
                        products and set the groundwork
                               toward the future.

                            Experience is knowledge.
                         Skill. And Wisdom. It gives us
                           the ability to influence,
                               achieve our goals
                            and face new challenges.

                       At First BanCorp we are, and have
                          been, a leading institution
                        in the banking industry for over
                        54 years. Experience is what has
                      taken us, and continues to guide us,
                      to higher levels of quality, growth
                                   and value.


                                   EXPERIENCE



TABLE OF CONTENTS


                                    
Financial Highlights                    3

Highlights of Growth                    5

Selected Financial Data                 8

Offices and Corporate Structure        10

Business Profile                       13

President's Letter                     15

Economy                                19

Board of Directors                     20

First BanCorp Officers                 22

Financial Review                       27

Financial Statements                   48

Stockholders' Information              83







                                     1998     1999     2000     2001     2002
                                     ----     ----     ----     ----     ----
                                                         
Market Price Per Common Share
(end of year)                       $20.13   $13.83   $15.75   $19.00   $22.60

Return on Assets
(percentage)                          1.48     1.49     1.28     1.28     1.23

Diluted Earnings
Per Common Share                    $ 1.16   $ 1.32   $ 1.47   $ 1.73   $ 2.01



2   2002   First BanCorp




FINANCIAL HIGHLIGHTS



In thousands
(except for per share results)                    2002               2001
                                              -----------         ----------
                                                            
Operating results:
Net interest income                           $   266,850         $  236,055
Provision for loan losses                          62,302             61,030
Other income                                       58,492             52,980
Other operating expenses                          132,756            120,855
Income tax provision                               22,327             20,134
Cumulative effect of accounting change                                (1,015)
Net income                                        107,956             86,001
                                              -----------         ----------
Per common share:
   Net income - basic                         $      2.04         $     1.74
   Net income - diluted                              2.01               1.73
                                              -----------         ----------
Weighted average common shares:
Basic                                              39,901             39,851
Diluted                                            40,553             40,144
                                              -----------         ----------
At year end:
Assets                                        $ 9,643,852         $8,197,518
Loans                                           5,637,851          4,308,780
Allowance for loan losses                         111,911             91,060
Investments                                     3,728,669          3,715,999
Deposits                                        5,482,918          4,098,554
Borrowings                                      3,249,355          3,425,235
Capital                                           798,424            602,919





                                     1998     1999     2000     2001     2002
                                     ----     ----     ----     ----     ----
                                                         
Return on common equity
(percentage)                         20.54    24.68    27.81    22.13    21.90

Net interest income
(In millions)                       $166.2   $185.7   $190.8   $236.1   $266.9

Common stockholders' equity
(In millions)                       $270.4   $204.9   $269.5   $334.4   $437.9




                                                        3   2002  First BanCorp





                                    [PHOTO]



4   2002   First BanCorp





HIGHLIGHTS OF GROWTH

         This history begins in 1991, shortly after a new Management team headed
         by Angel Alvarez Perez took over the operations of the oldest Savings
         and Loan institution in Puerto Rico. At that time the Bank had less
         than $2 billion in total assets and approximately 900 employees,
         compared with $9.6 billion in assets and 2,000 employees today.

         In the 1991 Annual Report, Mr. Alvarez stated:

"Net income for {1991} was $10.1 million or $1.77 per share {the equivalent of
$0.15 per share today after allowing for subsequent stock splits}. This . . . is
the most clear and tangible indication that First Federal {the Bank's name at
that time} is on the road to a healthy recovery."

         The accompanying table shows the course of this "healthy recovery" over
         the following eleven years. Over that period the Corporation has
         reported consistent growth in assets and earnings without earnings
         restatements. Asset size increased more than five times from $1.9
         billion to $9.6 billion. Net income grew more than ten times from $10.1
         million to $108 million and earnings per common share diluted increased
         more than 13 times from $0.15 to $2.01.

         A milestone along this road came in 1994, with the conversion to a
         Commercial Bank charter. In that year's Annual Report, Mr. Alvarez
         said:

"Our previous thrift charter contained significant limitations on lending which
could have sidelined management's strategy of emphasizing growth in non-mortgage
areas. With a commercial charter we are free to pursue our preferred business
strategy."

         During the next few years Management laid the groundwork for later
         growth of the consumer side of the Bank's business. Mr. Alvarez
         described two important advances in the 1995 Annual Report:

"In May we opened our small loan subsidiary, Money Express. Small loans are an
important source of consumer credit in Puerto Rico, where many creditworthy
families do not have the financial resources or the credit history required to
obtain loans through regular banking channels . . .Starting in January {of 1996}
we will be combining our auto leasing area with the car and truck rental
operations of our existing subsidiary . . . under the name of First Leasing and
Rental Corp."


                                                       5   2002   First BanCorp



         The accompanying table shows that FirstBank increased its branch
         network from 32 to 48 in the five years between 1994 and 1999. The new
         facilities included a modern "Superbranch" in Hato Rey with ample
         parking and drive through facilities. The consumer banking operations
         were centralized in this facility in 1996. In 1999 FirstBank acquired
         the Puerto Rico operations of the Royal Bank of Canada together with
         four Citibank branches in Puerto Rico and the U.S. Virgin Islands. Mr.
         Alvarez summarized the guiding philosophy of this consumer banking
         expansion as follows in the 1996 Annual Report:

"FirstBank's Management has long recognized the importance of new data
processing technologies that are revolutionizing the Banking industry. We
strongly believe that face-to-face communication is at the heart of our customer
relationships. Our goal is to find the appropriate balance between these two
approaches to meet the needs of our clients in a cost-effective manner. Locally
based management gives FirstBank a strong competitive advantage in doing this."

         Although the Bank grew rapidly, Management never lost sight of the need
         to maintain strict cost controls. The accompanying table shows the
         efficiency ratio improved dramatically from 63.69% to 40.81% over the
         period covered in the accompanying table. In the 1998 Annual Report Mr.
         Alvarez reiterated Management's commitment to cost control as follows:

"In 1998 Management began a comprehensive re-design plan to streamline all
corporate operations. The Corporation named the project `The Next Fifty' because
Management launched it in the Corporation's fiftieth anniversary year as a way
to initiate the second fifty years of growth. Management has invested most of
the savings from this project in new technology."

         In the late 1990's the Bank began moving to diversify operations and
         strengthen its management team as it expanded more into commercial and
         mortgage lending. In 1998 the Corporation converted to a bank holding
         company structure. In that year's Annual Report Mr. Alvarez reported:

". . .we have enhanced our management team by bringing in senior executives with
extensive experience in consumer, mortgage and commercial lending. We have also
initiated active lending programs in construction lending and auto leasing, led
by talented and experienced executives whom we have recently recruited. Over the
next few years we expect our strengthened management team to improve efficiency
and contribute new ideas that will help us to increase our market share."


6   2002   First BanCorp



         The Bank also began introducing more sophisticated products to grow in
         a highly competitive market with increasingly sophisticated clients.
         Besides adding state of the art business services such as cash
         management accounts, the Bank also added sophisticated deposit
         products. In 1999 it introduced the "Bonus Account", which rewards
         clients who have additional relationships with FirstBank. Deposits in
         this account have since grown to $173.7 million.

         The Bank was also expanding in other areas. In the Annual Report for
         2000 Mr. Alvarez summarized recent developments as follows:

"Management has been taking steps to diversify the Corporation's revenues by
moving toward fee based activities in some areas. In 2000 FirstBank began
offering brokerage services in selected branches through a new alliance {with a
major international brokerage firm}. . . . Early in 2000 Management entered an
agreement {with another large firm} to participate in bond issues by the
Government Development Bank of Puerto Rico. Finally, First BanCorp reorganized
as a financial holding company in 2000, opening the way for the Corporation to
enter new lines of business permitted by the Gramm Leach Bliley Act."

         In 2001 First BanCorp followed up on this change by organizing an
         insurance subsidiary, the FirstBank Insurance Agency, which sells
         insurance in FirstBank branches. Also in 2001 Management embarked on a
         three-year project to improve service quality and efficiency in all of
         the Corporation's operations.

         To summarize our story, the table shows the broad outlines of how our
         institution has transformed itself from First Federal Savings Bank, a
         small Savings and Loan Institution, into First BanCorp, a diversified
         financial services organization. This transformation has increased net
         income tenfold over the 1991-2002 period, and has benefited
         shareholders, employees and clients of the Corporation.


                                    [PHOTO]

                                                          7   2002 First BanCorp


SELECTED FINANCIAL DATA



(In thousands except for per share results)                  2002            2001           2000             1999            1998
                                                          ----------      ----------      ----------      ----------      ----------
                                                                                                           
CONDENSED INCOME STATEMENTS: YEAR ENDED
Total interest income                                     $ 540,033       $ 516,256       $ 463,388       $ 369,063       $ 321,298
Total interest expense                                      273,184         280,201         272,615         183,330         155,130
Net interest income                                         266,850         236,055         190,773         185,733         166,168
Provision for loan losses                                    62,302          61,030          45,719          47,961          76,000
Other income                                                 58,492          52,980          50,032          32,862          58,240
Other operating expenses                                    132,756         120,855         113,049         101,271          91,798
Unusual item - SAIF assessment
Income before income tax provision, extraordinary
  item and cumulative effect of accounting change           130,283         107,150          82,037          69,363          56,610
Provision for income tax                                     22,327          20,134          14,761           7,288           4,798
Income before extraordinary item and
  cumulative effect of accounting change                    107,956          87,016          67,276          62,075          51,812
Extraordinary item
Cumulative effect of accounting change                                       (1,015)
Net income                                                  107,956          86,001          67,276          62,075          51,812

PER COMMON SHARE RESULTS (1): YEAR ENDED
Income before extraordinary item and
  cumulative effect of accounting change diluted           $   2.01        $   1.76        $   1.47        $   1.32        $   1.16
Extraordinary item
Cumulative effect of accounting change                                        (0.03)
Net income per common share diluted                        $   2.01        $   1.73        $   1.47        $   1.32        $   1.16
Net income per common share basic                          $   2.04        $   1.74        $   1.48        $   1.33        $   1.17
Cash dividends declared                                    $   0.40        $   0.35        $   0.29        $   0.24        $   0.20
Average shares outstanding                                   39,901          39,851          40,415          43,412          44,379
Average shares outstanding diluted                           40,553          40,144          40,718          43,799          44,787

BALANCE SHEET DATA: END OF YEAR
Loans and loans held for sale                            $5,637,851      $4,308,780      $3,498,198      $2,745,368      $2,120,054
Allowance for possible loan losses                          111,911          91,060          76,919          71,784          67,854
Investments                                               3,728,669       3,715,999       2,233,216       1,811,164       1,800,489
Total assets                                              9,643,852       8,197,518       5,919,657       4,721,568       4,017,352
Deposits                                                  5,482,918       4,098,554       3,345,984       2,565,422       1,775,045
Borrowings                                                3,249,355       3,425,236       2,069,484       1,803,729       1,930,488
Total common equity                                         437,924         334,419         269,461         204,902         270,368
Total equity                                                798,424         602,919         434,461         294,902         270,368
Book value per common share (1)                               10.96            8.39            6.80            4.87            6.11

REGULATORY CAPITAL RATIOS (IN PERCENT): END OF YEAR
Total capital to risk weighted assets                         13.75           14.50           14.43           16.16           17.39
Tier 1 capital to risk weighted assets                        11.90           12.16           11.23           11.64           11.55
Tier 1 capital to average assets                               7.35            7.49            7.28            7.47            6.59

SELECTED FINANCIAL RATIOS (IN PERCENT): YEAR ENDED
Net income to average total assets                             1.23            1.28            1.28            1.49            1.48
Interest rate spread (2)                                       3.20            3.64            3.38            4.29            4.76
Net interest income to average earning assets (2)              3.56            4.08            3.91            4.85            5.27
Yield on average earning assets(2)                             6.77            8.42            9.21            9.29            9.83
Cost on average interest bearing liabilities                   3.57            4.78            5.83            5.00            5.07
Net income to average total equity                            14.90           16.20           21.21           21.06           20.54
Net income to average common equity                           21.90           22.13           27.81           24.68           20.54
Average total equity to average total assets                   8.28            7.92            6.05            7.07            7.22
Dividend payout ratio                                         19.58           19.91           19.72           17.96           17.12
Efficiency ratio (3)                                          40.81           41.81           46.95           46.33           40.91

OFFICES:
Number of full service branches                                  54              48              48              48              40
Loan origination offices                                         44              43              38              41              45



1- Amounts presented were recalculated, when applicable, to retroactively
consider the effect of common stock splits.

2- Ratios for 1993 and thereafter were computed on a taxable equivalent basis.

3- Other operating expenses to the sum of net interest income and other income.


8 2002 First BanCorp






   1997                 1996                1995                1994             1993              1992               1991
- -----------         -----------         -----------         ----------        ----------        ----------        ----------
                                                                                                

$   285,160         $   256,523         $   208,488         $  180,309        $  159,433        $  158,993        $  171,789
    130,429             113,027              96,838             76,674            72,413            85,986           109,942
    154,731             143,496             111,650            103,635            87,020            73,007            61,847
     55,676              31,582              30,894             17,674            18,669            13,596            16,444
     39,866              29,614              48,268             18,169            17,123            13,563            18,895
     83,268              82,498              65,628             60,760            56,994            54,745            51,423
                          9,115

     55,653              49,915              63,396             43,370            28,480            18,229            12,875
      8,125              12,281              14,295             12,385             6,525             2,879             1,420

     47,528              37,634              49,101             30,985            21,955            15,350            11,455
                                                                  (429)            6,840              (870)           (1,400)

     47,528              37,634              49,101             30,556            28,795            14,480            10,055



$      1.05         $      0.81         $      1.05         $     0.67        $     0.42        $     0.25        $     0.17
                                                                 (0.01)                              (0.02)            (0.03)
                                                                                    0.14
$      1.05         $      0.81         $      1.05         $     0.66        $     0.56        $     0.23        $     0.15
$      1.05         $      0.81         $      1.07         $     0.68        $     0.63        $     0.27        $     0.17
$      0.16         $      0.13         $      0.05                N/A               N/A               N/A               N/A
     45,054              46,191              45,888             44,966            43,983            42,876            42,876
     45,306              46,428              46,677             46,289            49,419            51,098            49,856


$ 1,959,301         $ 1,896,074         $ 1,556,606         $1,501,273        $1,237,928        $1,182,409        $1,264,380
     57,712              55,254              55,009             37,413            30,453            30,474            29,001
  1,276,900             830,980             785,747            595,555           603,373           636,781           564,431
  3,327,436           2,822,147           2,432,816          2,174,692         1,913,902         1,888,754         1,898,399
  1,594,635           1,703,926           1,518,367          1,493,445         1,398,247         1,359,448         1,396,066
  1,461,581             889,668             700,609            538,080           400,977           415,257           408,414
    236,379             191,142             171,202            120,015            92,785            50,194            38,410
    236,379             191,142             171,202            120,015            92,785            88,622            74,146
       5.29                4.21                3.67               2.66              2.09              1.17              0.90


      17.26               15.25               16.17               9.76              9.05              9.32              7.08
      11.07                9.32                9.93               8.50              7.79              8.06              5.75
       7.44                6.65                6.82               5.74              4.70              4.60              3.74


       1.63                1.48                2.22               1.53              1.53              0.78              0.53
       5.30                5.46                5.07               5.23              4.73              3.66              3.19
       5.83                6.03                5.59               5.65              5.10              4.04              3.39
      10.45               10.63               10.12               9.63              9.10              8.80              9.41
       5.15                5.17                5.05               4.40              4.37              5.14              6.22
      22.30               20.49               33.19              29.07             30.36             17.70             14.38
      22.30               20.49               33.19              29.07             39.68             26.37             20.20
       7.32                7.23                6.68               5.27              5.05              4.38              3.67
      15.14               16.32                5.06                N/A               N/A               N/A               N/A
      42.79               47.66               41.04              49.88             54.73             63.24             63.69


         36                  36                  36                 32                33                33                33
         44                  47                  43                 23                 9                 4                 1



                                                            9 2002 First BanCorp




Offices

PUERTO RICO

1.       Aguada
2.       Aguadilla
3.       Isabela
4.       San Sebastian
5.       Arecibo
6.       Manati
7.       Vega Baja
8.       Dorado
9.       Toa Baja
10.      Bayamon
11.      Guaynabo
12.      San Juan
13.      Carolina
14.      Rio Grande
15.      Fajardo
16.      Humacao
17.      Caguas
18.      Aguas Buenas
19.      Cidra
20.      Guayama
21.      Cayey
22.      Barranquitas
23.      Ponce
24.      Yauco
25.      Cabo Rojo
26.      Mayaguez

10 2002 First BanCorp



Offices

U.S., BRITISH VIRGIN ISLANDS & BARBADOS

St Croix
St Thomas
St John
Tortola
Barbados


                                                           11 2002 First BanCorp



[PHOTO]


12 2002 First BanCorp



Business Profile

First BanCorp ("the Corporation"), incorporated in Puerto Rico, is the financial
holding company for FirstBank ("the Bank"), the second largest commercial bank
in Puerto Rico. First BanCorp also owns an insurance subsidiary, FirstBank
Insurance Agency. First BanCorp had total assets of $9.6 billion as of December
31, 2002. The Corporation operates in the Puerto Rico and Virgin Islands banking
markets, offering a wide selection of financial services to a growing number of
consumer and commercial customers. Commercial, consumer and mortgage loans and
investment securities are the most important areas of its business.

The Corporation has a $2.5 billion portfolio of commercial loans, commercial
mortgages, construction loans and other related commercial products. Its
commercial clients include businesses of all sizes covering a wide range of
economic activities. First BanCorp has a $1.8 billion portfolio of residential
mortgages. The institution also has $1.3 billion in consumer loans concentrated
in auto loans and leases, personal loans and credit cards. Its $3.7 billion
investment portfolio consists mostly of U.S. Treasury and agency securities and
mortgage-backed securities. A strategic alliance with a major international firm
allows FirstBank to offer brokerage services in its largest branches.
Approximately 2,000 professionals and a sophisticated computer system support
the business activities of the Corporation.

First chartered in 1948, First BanCorp was the first savings bank established in
Puerto Rico, under the name of "First Federal Savings and Loan Association". It
has been a stockholder owned institution since 1987. In October, 1994 it became
a Puerto Rico chartered commercial bank and assumed the name of "FirstBank
Puerto Rico". Effective October 1, 1998 the Bank reorganized, making FirstBank
Puerto Rico a subsidiary of the holding company First BanCorp.

FirstBank, which is a well-capitalized institution under federal standards,
operates 54 full-service branches including 11 offices in the U.S. and British
Virgin Islands. In addition, the FirstBank Insurance Agency operates six sales
offices within FirstBank branches. A subsidiary of FirstBank, Money Express,
operates 27 small loan offices throughout Puerto Rico. FirstBank also operates
First Leasing and Rental Corp., a subsidiary which rents and leases motor
vehicles from six offices in Puerto Rico. Another FirstBank subsidiary,
FirstBank Insurance Agency V.I., Inc., operates one office which sells insurance
in the US Virgin Islands. Finally, FirstBank owns a trade financing subsidiary,
First Trade Inc., which operates two offices: one in the U.S. Virgin Islands and
one in Barbados.

First BanCorp has distinguished itself by providing innovative marketing
strategies and novel products to attract clients. Besides its branches and
specialized lending offices, the Corporation has offered a telephone information
service called "Telebanco" since 1983. This was the first telebanking service
offered in Puerto Rico. First BanCorp clients have access to an extensive ATM
network with access all over the world. The Corporation was also the first


                                                           13 2002 First BanCorp



in Puerto Rico to open on weekends and the first to offer in-store branches to
its clients. First BanCorp was also the first banking institution in Puerto Rico
with a presence on the internet. The Corporation now offers a wide menu of
internet banking services to its clients.

First BanCorp and its subsidiaries are subject to supervision, examination and
regulation by the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the Commissioner of Financial Institutions of Puerto Rico. The
FirstBank Insurance Agency is regulated by the Puerto Rico Insurance
Commissioner. The Virgin Islands operations of FirstBank are regulated by the
Virgin Islands Banking Board (for the USVI) and by the British Virgin Islands
Financial Services Commission (for the BVI).

First BanCorp is committed to providing the most efficient and cost effective
banking services possible. Management's goal is to make the Corporation the
premier financial institution in Puerto Rico and the Virgin Islands, recognized
for consistently exceeding the expectations of its clients, employees and
stockholders.

                                    [PHOTO]

14 2002 First BanCorp




President's Letter

TO OUR STOCKHOLDERS:

On behalf of the Board of Directors and Officers of First BanCorp I am pleased
to submit our annual report for 2002, another excellent year. In 2002 First
BanCorp earned $108 million, representing $2.04 per common share (basic) or
$2.01 per common share (diluted). Earnings increased 25.5% compared with 2001,
when the Corporation earned $86 million, equivalent to $1.74 per common share
(basic) or $1.73 per common share (diluted). Net interest income was a key
factor in this outstanding performance, expanding by 13% or $30.8 million to
$266.8 million during 2002. These results are outstanding when we consider the
difficult economic and financial environment which prevailed last year.

GROWTH IN 2002
First BanCorp grew substantially in spite of last year's economic slowdown,
which affected Puerto Rico as well as the rest of the U.S. Assets rose 17% from
$8.2 billion at year-end 2001 to $9.6 billion at the end of 2002. Net loans
increased 31% to $5.5 billion, mostly due to increases of $345 million in
commercial loans and $842 million in residential real estate loans. Consumer
loans and finance leases grew by $142 million. Deposits increased 34% to $5.5
billion. During 2002 First BanCorp consolidated its position as the second
largest commercial bank in Puerto Rico.

FirstBank also expanded outside Puerto Rico. In October 2002, the Bank completed
the acquisition of the operations of JP Morgan Chase Eastern Caribbean Region
business in the Virgin Islands with $590 million in total assets. The purchase
included several branch offices, a trade finance operation and an insurance
agency. FirstBank is now one of the largest commercial banks in the U.S. and
British Virgin Islands. Cassan Pancham, a seasoned executive with over 22 years
of experience in Chase's Caribbean operations, heads up these operations. Our
expanded presence in the Virgin Islands will increase geographic diversification
and allow us to better serve our clients in that part of the Caribbean.

KEY COMPETITIVE ADVANTAGES
Our branch network has been one important factor in our successful growth.
FirstBank has 43 branch offices in Puerto Rico, including 20 with drive up
services, 16 in shopping centers and 7 in supermarkets. We are working to
diversify our larger branches to give our clients superior service. A major
international brokerage firm maintains offices in 13 FirstBank branches, while
nine branches have specialized mortgage offices and six have offices of the
FirstBank Insurance Agency.

We are constantly improving the banking facilities. During 2002 we relocated the
branch in Rexville Plaza, Bayamon and upgraded facilities in three other
branches. Our purchase of the Chase operation in the Virgin Islands also
strengthened our branch network in that region. FirstBank now has 11 branches on
four islands in the U.S. and British Virgin Islands.


                                                           15 2002 First BanCorp



Another key to our success is careful, prudent control of costs. For several
years we have been investing in state of the art technology to improve service
to our clients and increase efficiency. Operating expenses rose relatively
little, from $120.9 million in 2001 to $132.8 million in 2002, in spite of the
expansion we experienced. During 2002 the Corporation's efficiency ratio
improved by one percent to 40.81%.

The quality of our loan portfolio was another factor which contributed
importantly to the Corporation's record profits last year. Starting in 1998 we
have been improving loan underwriting, introducing tighter approval procedures
and improving computer systems. These efforts have brought hard-won gains in
asset quality.

The year 2002 provided a severe test for these enhanced processes, and they have
been performing well. In spite of large increases in the loan portfolio and a
deteriorating economy, charge offs did not increase. During 2002 First BanCorp's
loans net charge offs amounted to $41.5 million of loans on a net basis,
compared with $46.9 million in 2001, $42.0 million in 2000, and $44.6 million in
1999.

We have also increased reserves in line with the loan portfolio, which more than
doubled from $2.7 billion at the end of 1999 to $5.6 billion at year-end 2002.
The Bank provided $62 million for losses in 2002, $61 million in 2001, $46
million in 2000, and $48 million in 1999. This has allowed loan loss reserves to
reach $111.9 million at the end of 2002 compared with $91.1 million for 2001,
$76.9 million for 2000, and $71.8 million for 1999.

As a result, asset quality has remained constant or improved. The reserve
coverage ratio (allowance for loan losses as a percentage of non-performing
loans) has remained above 100% for the last five years. At the end of 2002 the
ratio of non-performing loans to total loans had fallen to 1.63%, compared with
1.69% at the end of 2001, 1.94% at the end of 2000, 1.96% at the end of 1999 and
2.69% at year-end 1998. Maintaining good asset quality has been one of the most
important ingredients of our success during the recent economic slowdown.

Finally, we rely heavily on our employees and the quality of service they
provide to our clients. We are in the middle of a three-year effort to improve
service quality in all areas of our operations. Quality teams composed of bank
officers and employees are evaluating, redesigning and improving procedures
throughout the organization. The goal of this project is to satisfy fully the
banking needs of our consumer and corporate clients.

COMMUNITY SERVICE AND CORPORATE IMAGE
First BanCorp began operations in 1948 as "First Federal Savings Bank" and for
many years was the leading Savings and Loan institution on the Island. Even
after converting to a commercial bank in 1994 the Bank specialized in consumer
lending for many years and still maintains strong ties with the Puerto Rican
community, helping a number of charitable organizations.


16 2002 First BanCorp



In response to the recent economic slowdown on the Island, we have been running
a publicity campaign with the slogan "Puerto Rico stays ahead." The campaign
encourages Puerto Ricans to think positively and improve their quality of life.
Management is also encouraging employees to get involved in community
activities. In addition, FirstBank has begun providing special benefits for
senior citizens, including coupons in participating businesses and discounts on
some of our services.

FirstBank also made a $70 million loan for the construction of a medical office
building in the southern city of Ponce. This project will include 93 medical
offices, a 32,472 square foot shopping area and parking space for 600 cars.
Finally, we are participating in a massive urban renewal project in Santurce,
where our home offices are located. Bank officials have taken a leading role in
organizing this project, which involves five local banks supported by a $50
million credit line from the Puerto Rico Housing Finance Authority.

ENHANCING SHAREHOLDER VALUE
The efforts of Management and employees have paid off in strong earnings growth
in 2002. The Corporation experienced a return on common equity of 21.90%
compared with 22.13% in the previous year. The return on assets was 1.23%, not
very different from the 1.28% of 2001. Our stock price has reflected these
strong results, and our shareholders experienced a return of 21.05% on their
investment during 2002. Investors who held First BanCorp stock over the ten year
period from year-end 1992 to year-end 2002 received a cumulative total return of
1,549%, equivalent to an annualized return of 32.33%. On September 30, 2002 the
Bank also distributed a three for two stock split.

The Corporation has traditionally followed a conservative dividend policy, in
the belief that we can better serve our shareholders by reinvesting most of our
profits in our growing business. In 2002 the dividend payout ratio was 19.58%.
Officers and directors of First BanCorp own approximately eleven percent of its
shares. This shows their confidence in First BanCorp's future and their
commitment to keep its fundamentals sound.

As First BanCorp begins another year of growth and service to Puerto Rico and
the Virgin Islands, we are confident that our Corporation is stronger and better
positioned than ever. We have a truly outstanding group of employees, officers
and directors. I am confident that we can meet the challenges ahead, and that we
will provide better service than ever to our clients, while benefiting employees
and stockholders in the years to come.



/s/ Angel Alvarez-Perez
Chairman
President
Chief Executive Officer


                                                           17 2002 First BanCorp



[PHOTO]


18 2002 First BanCorp

ECONOMY

The island of Puerto Rico is a U.S. Commonwealth with a population of 3.8
million, located in the Caribbean approximately 1,600 miles southwest of New
York. Puerto Rico grew moderately over most of the 1990's but its growth has
paused recently due to the U.S. recission. Real BNP fell by 0.2% in the 2002
fiscal year according to the Puerto Rico Planning Board.

Puerto Rico's economic performance is a natural result of its increasing
integration into the U.S. economy. Puerto Ricans are U.S. citizens and serve in
the United States armed forces, and the island has several large U.S. military
bases.  The island uses U.S. currency and forms part of the U.S. financial
system.  Federal courts enforce U.S. laws here. Since Puerto Rico falls within
the U.S. for purposes of customs and migration, there is full mobility of funds
people and goods between Puerto Rico and the U.S. mainland. Puerto Rico banks
are subject to the same Federal laws, regulations and supervision as other
financial institutions in the rest of the U.S.  The Federal Deposit Insurance
Corporation insures the deposits of Puerto Rico chartered commercial banks,
including FirstBank, the banking subsidiary of First BanCorp.

Manufacturing is the backbone of Puerto Rico's economy, and many multinational
corporations have substantial operations here. The island's pharmaceutical
industry is especially strong. In recent years, however, a reduction of tax
incentives combined with intense wage competition from other areas and the U.S.
recession have been reducing island manufacturing employment. Still, Puerto Rico
is becoming somewhat less dependent on manufacturing than it was in the early
postwar period, as its economy has been diversifying with substantial
investments in tourism, retail trade, services banking and transportation.

During the recent slowdown construction, manufacturing and consumption have
weakened somewhat. Tourism has been affected along with the rest of the
Caribbean region, though new hotels and some economic recovery have mitigated
this effect, island economists project real GNP growth in the 1% to 2% range
during fiscal 2003, which is currently in progress.


                                                          19  2002 First BanCorp





BOARD OF DIRECTORS


Angel Alvarez-Perez          Annie Astor-Carbonell            Jose Teixidor
Chairman

    [PHOTO]                         [PHOTO]                      [PHOTO]


Jose Julian Alvarez-Bracero

        [PHOTO]



20  2002 First BanCorp




*Juan Acosta-Reboyras                        Jorge L. Diaz
   [PHOTO]                                      [PHOTO]


                             Rafael Bouet-Souffront
                                     [PHOTO]

Jose L. Ferrer-Canals                 Hector M. Nevares
   [PHOTO]                                 [PHOTO]


                                                          21  2002 First BanCorp




                                     [PHOTO]

First BanCorp Officers
Fernando L. Batlle, Luis M. Beauchamp, Aurelio Aleman, Annie Astor-Carbonell,
Angel Alvarez-Perez



                                     [PHOTO]


Randolfo Rivera, Josianne M. Rossello, Miquel Mejias, Carmen G. Szendrey-Ramos,
Cassan Pancham

22 2002 First BanCorp





                                     [PHOTO]

Aida M. Garcia, Luis M. Cabrera, Laura Villarino, Dacio A. Pasarell


                                                           23 2002 First BanCorp




PRESIDENT

ANGEL ALVAREZ-PEREZ
Chief Executive Officer

SENIOR EXECUTIVE VICE PRESIDENTS

ANNIE ASTOR-CARBONELL
Chief Financial Officer

LUIS M. BEAUCHAMP
Wholesale Banking Executive and
Chief Lending Officer

EXECUTIVE VICE PRESIDENTS

AURELIO ALEMAN
Consumer Banking Executive

FERNANDO L. BATLLE
Retail and Mortgage Banking Executive

DACIO A. PASARELL
Operations and Technology Executive

RANDOLFO RIVERA
Commercial Banking Executive

FIRST SENIOR VICE PRESIDENT

CASSAN PANCHAM
Eastern Caribbean Region Executive

SENIOR VICE PRESIDENTS

JOSE H. APONTE
Commercial Mortgage Lending

MIGUEL BABILONIA
Consumer Risk Management

LUIS M. CABRERA
Treasury and Investments

SALVADOR CALAF
Government and Institutional

JAMES E. CRITES
Regional Credit Officer Eastern
Caribbean Region

AIDA M. GARCIA
Human Resources

MICHAEL GARCIA
Consumer Collection

FERNANDO IGLESIAS
Special Loans

ROGER LAY
Internal Audit

EMILIO MARTINO
Credit Risk Management

MIGUEL MEJIAS
Information Systems

CARMEN NIGAGLIONI
Middle Market and Asset Based Financing

JOHN ORTIZ
Consumer Products and Credit Cards

JORGE RENDON
Facilities Management

HAYDEE RIVERA
Sales & Distribution Operations

JULIO RIVERA
Construction Lending

NAYDA RIVERA
General Auditor

CARMEN ROCAFORT
Corporate and Structured Finance

JOSIANNE M. ROSSELLO
Marketing and Public Relations

DEMETRIO SANTIAGO
Auto Wholesale

HECTOR SANTIAGO
Auto Business and Operations

DENISE SEGARRA
Branch Banking

LUIS SUEIRO
Commercial Wholesale Operations

CARMEN GABRIELA SZENDREY-RAMOS
General Counsel and Secretary
of the Board of Directors

LAURA VILLARINO
Controller


VICE PRESIDENTS

ALEXIS AGUIAR
Structured Finance

WILLIAM ALVAREZ
Indirect Business and Merchants

JOSE ALVELO
Information Systems

VIVIAN ARTEAGA
Commercial Department

MARGA AVILES
Consumer Loans Operations

BEVERLY BACHETTI
VIP Customer Group

MARIA BENABE
Consumer Collections

ANA COLON
Centralized Accounting

MARIA CONOR-FREEMAN
Lending and Client Group Eastern Caribbean Region

WANDA COOPER
FirstLine Customer Center

LENITZIA DELGADO
Corporate Services

DEIDRE ELIAS
Compliance Manager Eastern Caribbean Region

LAURA ESCALANTE
Compliance Officer

MAYRA GASCOT
Information Systems

JOSE GOMEZ
Mortgage Servicing and Operations

DAVID GONZALEZ
Corporate Business Development

NELSON GONZALEZ
Structured Finance

PAUL GOURIEUX
Consumer Credit Manager Eastern Caribbean Region

RAHAMET HOSEIN
Territory Manager British Virgin Islands

TESSA HUGH
Finance and Risk Manager Eastern Caribbean Region

CAROL JACKSON
Human Resources Manager Eastern Caribbean Region

ARIANE LEWIS
Branch Banking Manager Eastern Caribbean Region

JOHN E. LEWIS
System & Programming Manager Eastern Caribbean


24   2002 First BanCorp




GILBERTO LOPEZ
Middle Market

MARCELO LOPEZ
Regional Manager Sales & Distribution

JUANITA MARRERO
Mortgage Banking

JOHN MCDONALD
Commercial Department Eastern Caribbean Region

JOSE NEGRON
Auto Lot

RICARDO NEGRON
Mortgage Banking

JOSE NEVAREZ
Information Systems

LUIS ORENGO
Commercial Wholesale

EDUARDO ORTIZ
AUTO Wholesale

MARIA CRISTINA ORUNA
Customer Relationship Management & Service Quality

OSVALDO PADILLA
Corporate Services

REYNALDO PADILLA
Auto Finance

DIONISIO RAMIREZ
Construction Lending

MIGDALIA RIVERA
Middle Market

SANDRA RIVERA
Consumer Collections

BELINDA RODRIGUEZ
Remote Sales

JOSE L. RODRIGUEZ
Information Systems

PEDRO ROMERO
Assistant Controller

ELIZABETH SANCHEZ
Marine Finance

ROBERTO SANCHEZ
Consumer Loans Credit Risk

JOSE J. SANTIAGO
Commercial Wholesale

RAMON SANTIAGO
Asset Based Unit

MIGUEL SANTIN
Structured Finance

CARMEN TORRES
Branch Manager

RALPH TORRES
Regional Manager Sales & Distribution

FIRST FEDERAL FINANCE CORPORATION
DBA MONEY EXPRESS "LA FINANCIERA"

ANGEL ALVAREZ-PEREZ
Chief Executive Officer

AURELIO ALEMAN
President and Chief Operating Officer

CARLOS POWER
Senior Vice President and General Manager

FIRST LEASING AND RENTAL CORPORATION

ANGEL ALVAREZ-PEREZ
Chief Executive Officer

AURELIO ALEMAN
President and Chief Operating Officer

AGUSTIN DAVILA
General Manager

FIRSTBANK INSURANCE AGENCY, INC.

ANGEL ALVAREZ-PEREZ
Chief Executive Officer

AURELIO ALEMAN
President and Chief Operating Officer

VICTOR SANTIAGO
Vice President and General Manager

FIRSTBANK INSURANCE AGENCY V.I., INC.

ANGEL ALVAREZ-PEREZ
Chief Executive Officer

FERNANDO L. BATLLE
President and Chief Operating Officer

WALTER HAUCK
Vice President and General Manager

CASSAN A. PANCHAM
First Senior Vice President

FIRST TRADE INC.

ANGEL ALVAREZ-PEREZ
Chief Executive Officer

FERNANDO L. BATLLE
President and Chief Operating Officer

PAMELA CLARKE
Manager

CASSAN A. PANCHAM
First Senior Vice President



                                                           25 2002 First BanCorp



                                    [PHOTO]


26 2002 First BanCorp




FINANCIAL REVIEW


                                                           27 2002 First BanCorp




MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This discussion and analysis relates to the accompanying consolidated financial
statements of First BanCorp (the Corporation) and should be read in conjunction
with the financial statements and the notes thereto. Information in the notes
referred to in this discussion and analysis is hereby incorporated by reference
herein. The use of terms such as "see", "refer to", "included in" or "explained
in" shall be deemed to incorporate by reference into this discussion and
analysis the information to which reference is made.

FORWARD LOOKING STATEMENTS

When used in this report and in other filings by First BanCorp with the
Securities and Exchange Commission, in the Corporation's press releases or other
public or shareholder communication, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will be", "will determine", "will allow", "intends to", "will likely result",
"are expected to", "will continue", "is anticipated", "estimated", "project",
"believe", or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995.

The future results of the Corporation could be affected by subsequent events and
could differ materially from those expressed in forward-looking statements. If
future events and actual performance differ from the Corporation's assumptions,
the actual results could vary significantly from the performance projected in
the forward-looking statements.

The Corporation wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including regional and national conditions,
substantial changes in levels of market interest rates, credit and other risks
of lending and investment activities, competitive and regulatory factors and
legislative changes, could affect the Corporation's financial performance and
could cause the Corporation's actual results for future periods to differ
materially from those anticipated or projected. The Corporation does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.

OVERVIEW

The year 2002 was a challenging year for all business sectors. It followed a
year, 2001, where the Federal Reserve Bank cut interest rates by a total of 475
basis points in an effort to stimulate the economy. The Fed monetary policy
resulted in an additional cut of 50 basis points during 2002 to 1.25%, the
lowest level in more than 40 years. During the economic slowdown, construction,
manufacturing and consumption have weakened somewhat.

First BanCorp grew substantially and improved its financial performance last
year in spite of the economic slowdown. For the year 2002, First BanCorp
recorded earnings of $107,956,351 or $2.04 per common share basic and $2.01 per
common share diluted, compared to $86,001,444 or $1.74 per common share basic
and $1.73 per common share diluted for 2001, and $67,275,609 or $1.48 per common
share basic and $1.47 per common share diluted for 2000. For 2002 as compared to
2001, net income increased by $21,954,907 or $0.28 per common share diluted, and
for 2001 as compared to 2000, by $18,725,835 or $0.26 per common share diluted.

The increase in the Corporation's earnings is mainly attributed to the net
interest income earned on the growing portfolio of average earning assets and
other income, net of increases in operating expenses. Assets rose 17% from $8.2
billion at year-end 2001 to $9.6 billion at the end of 2002. Deposits increased
34% to $5.5 billion. Net loans increased 31 % to $5.5 billion, mostly due to
increases of $345 million in commercial loans and $842 million in residential
real estate loans. Consumer loans and finance leases grew by $142 million. In
spite of increases in the loan portfolio and a deteriorating economy, charge
offs have not been increasing, mainly attributed to prior years efforts that
improved loan underwriting and implemented tighter approval procedures. During
2002, the Corporation restructured its portfolio of mortgage backed securities
in order to shorten its duration and reduce its prepayment risk under current
economic environment; this restructuring resulted in gains of approximately
$40.1 million. Total gains on sales of $48.9 million were partially offset by
impairment losses of $36.9 million recognized during the year.


28 2002 First BanCorp




Another important factor in the Corporation's strategy is prudent control of
costs. For several years the Corporation has been investing in state of the art
technology to improve service to its clients and increase efficiency. Operating
expenses rose relatively little, from $120.9 million in 2001 to $132.8 million
in 2002. During 2002 the Corporation's efficiency ratio improved by one percent
to 40.81%.

Return on average assets was 1.23% for 2002, and 1.28% for 2001 and 2000. Return
on average equity was 14.90% for 2002, 16.20% for 2001 and 21.22% for 2000.
Return on average common equity was 21.90% for 2002, 22.13% for 2001 and 27.81 %
for 2000.

First BanCorp has also been expanding outside Puerto Rico. In October 2002 the
Corporation completed a $590 million acquisition of the operations of JP Morgan
Chase in the Virgin Islands. The expanded presence in the Virgin Islands will
give the Corporation the opportunity to better serve its clients in that part of
the 2002 Caribbean and provides with certain geographic diversification.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The accounting and reporting policies of the Corporation and its subsidiaries
conform with accounting principles generally accepted in the United States of
America. A summary of accounting policies and recently issued accounting
pronouncements is included in Note 2 of the Corporation's financial statements.
The reported amounts are based on judgments, estimates and assumptions made by
Management that affect the recorded 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, if different assumptions or conditions prevail.

INVESTMENTS

The Corporation classifies its investments in debt and equity securities into
trading, held to maturity and available for sale securities. The available for
sale securities are carried at fair value, with unrealized holding gains and
losses, net of deferred tax effects, reported in other comprehensive income as a
separate component of stockholders' equity. The fair values of these securities
were calculated based on quoted market prices and dealer quotes. Changes in the
assumptions used in calculating the fair values, could affect the reported
valuations.

EVALUATION FOR OTHER-THAN-TEMPORARY IMPAIRMENTS ON AVAILABLE FOR SALE AND HELD
TO MATURITY SECURITIES

The Corporation evaluates its investment's securities for impairment. An
impairment charge in the Consolidated Statements of Income is recognized when
the decline in the fair value of investments below their cost basis is judged to
be other-than-temporary. The Corporation considers various factors in
determining whether it should recognize an impairment charge, including, but no
limited to the length of time and extent to which the fair value has been less
than its cost basis, and the Corporation's intent and ability to hold the
investment for a period of time sufficient to allow for any anticipated recovery
in market value. For debt securities, the Corporation also considers, among
other factors, the investees repayment ability on its bond obligations and its
cash and capital generation's ability. At December 31, 2002 the Corporation did
not hold any investment securities with significant unrealized losses sustained
for more than one year. The Corporation's accounting policy for
other-than-temporary impairments is included in Note 2 of the Corporation's
financial statements. During 2002, the Corporation experienced significant
volatility in the market prices of its publicly traded equity investments and in
addition two bonds in the Corporation's portfolio were downgraded to non
investment grade quality by two credit rating agencies. See Note 10 of the
Corporation's financial statements, which gives details as to impairments
charges recognized during 2002.



                                                           29 2002 First BanCorp





ALLOWANCE FOR LOAN LOSSES

The Corporation maintains the allowance for loan losses at a level that
Management considers adequate to absorb losses inherent in the loan portfolio.
The adequacy of the allowance for loan losses is reviewed on a quarterly basis
as part of the continuing evaluation of the quality of the assets. Groups of
small balance, homogeneous loans are collectively evaluated for impairment. The
portfolios of consumer loans, auto loans and finance leases are considered
homogeneous and are evaluated collectively for impairment. In determining
probable losses for each category of homogeneous pools of loans. Management uses
historical information about loan losses over several periods of time that
reflect varying economic conditions and adjusts such historical data based on
the current conditions, considering information and trends on charge offs,
non-accrual loans and delinquencies. The Corporation measures impairment
individually for those commercial and real estate loans with a principal balance
exceeding $1 million. An allowance is established based on the present value of
expected future cash flows or the fair value of the collateral, if the loan is
collateral dependent. Accordingly, the measurement of impairment for loans
evaluated individually involves assumptions by Management as to the amount and
timing of cash flows to be recovered and of appropriate discount rates. Where
the loans are collateral dependent. Management generally obtains an independent
appraisal. Those appraisals also involve estimates of future cash flows and
appropriate discount rates or adjustments to comparable properties in
determining fair values.

The Corporation's primary lending area is Puerto Rico. At December 31, 2002,
there is no significant concentration of credit risk in any specific industry.

INCOME TAXES

The Corporation is routinely subject to examinations from governmental taxing
authorities. Such examinations may result in challenges to the tax return
treatment applied by the Corporation to specific transactions. Management
believes that the assumptions and judgment used to record tax-related assets or
liabilities have been appropriate. Should tax laws change or the tax authorities
determine that Management's assumptions were inappropriate, the result and
adjustments required could have a material effect on the Corporation's results
of operation. Information regarding income taxes is included in Note 25 of the
Corporation's financial statements.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

During 2002, the Financial Accounting Standards Board (FASB) issued several
accounting pronouncements, namely SFAS (Statement of Financial Accounting
Standard) No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
SFAS No. 13, and Technical Corrections, SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, SFAS No. 147, Acquisitions of
Certain Financial Institutions, SFAS No. 148, Accounting for Stock-Based
Compensation, and FASB Interpretation No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees. Management estimated that the adoption
of these pronouncements did not have or will not have, as applicable depending
on adoption date, a significant impact on the Corporation's financial
statements. Refer to Note 2 of the Corporation's financial statements for a
summary of the major provisions of these pronouncements.

RESULTS OF OPERATIONS

The Corporation's results of operations depend primarily on its net interest
income, which is the difference between the interest income earned on interest
earning assets, including investment securities and loans, and the interest
expense on interest bearing liabilities, including deposits and borrowings.
Also, the results of operations depend on the provision for loan losses,
operating expenses (such as personnel, occupancy and other costs), other income
(mainly service charges and fees on loans), gains on sale of investments and
income taxes.



                                                           30 2002 First BanCorp



NET INTEREST INCOME


Net interest income increased to $267 million for 2002 from $236 million in 2001
and $191 million in 2000. The increase in net interest income for the year 2002
is the result of volume increases of $2,052 million in the Corporation's average
loan and investment portfolios.

The following table includes a detailed analysis of net interest income. Part I
presents average volumes and rates on a tax equivalent basis and Part II
presents the extent to which changes in interest rates and changes in volume of
interest related assets and liabilities have affected the Corporation's net
interest income. For each category of earning assets and interest bearing
liabilities, information is provided on changes attributable to changes in
volume (changes in volume multiplied by old rates), and changes in rate (changes
in rate multiplied by old volumes). Rate-volume variances (changes in rate
multiplied by changes in volume) have been allocated to the changes in volume
and changes in rate based upon their respective percentage of the combined
totals.




                                                                             Interest income
Part I                                      Average volume                     (1) /expense         Average rate (1)
Year ended December 31,                2002        2001        2000       2002     2001     2000   2002   2001   2000
                                                                  (Dollars in thousands)
                                                                                      
Earning assets:
Money market  instruments          $   60,522  $   46,517  $    9,293  $    999 $  1,476 $    527  1.65%  3.17%  5.67%
Government obligations              1,236,281     588,932     528,903    56,130   35,955   36,043  4.54%  6.11%  6.81%
Mortgage backed securities          2,144,236   1,711,980   1,457,044   147,779  126,098  100,415  6.89%  7.37%  6.89%
Corporate bonds                       259,840     247,094      51,508    15,493   21,230    4,366  5.96%  8.59%  8.48%
FHLB stock                             32,586      21,841      18,008     1,635    1,289    1,249  5.02%  5.90%  6.94%
                                   ----------  ----------  ----------  -------- -------- --------
    Total investments               3,733,465   2,616,364   2,064,756   222,036  186,048  142,600  5.95%  7.11%  6.91%
                                   ----------  ----------  ----------  -------- -------- --------
Consumer loans                      1,048,283   1,036,637   1,026,044   142,612  140,050  140,635 13.60% 13.51% 13.71%
Residential real
   estate loans                     1,283,710     869,374     573,866    74,411   65,496   49,115  5.80%  7.53%  8.56%
Construction loans                    223,627     219,890     169,257    11,726   17,323   18,251  5.24%  7.88% 10.78%
Commercial loans                    2,080,892   1,584,910   1,210,783   110,315  119,867  110,808  5.30%  7.56%  9.15%
Finance leases                        136,851     127,872     103,114    14,659   14,661   12,499 10.71% 11.47% 12.12%
                                   ----------  ----------  ----------  -------- -------- --------
Total loans (2)                     4,773,363   3,838,683   3,083,064   353,723  357,397  331,308  7.41%  9.31% 10.75%
                                   ----------  ----------  ----------  -------- -------- --------
Total earning assets               $8,506,828  $6,455,047  $5,147,820  $575,759 $543,445 $473,908  6.77%  8.42%  9.21%
                                   ----------  ----------  ----------  -------- -------- --------
Interest bearing liabilities:
Interest bearing
   checking accounts               $  215,462  $  186,111  $  162,456  $  5,146 $  5,926 $  5,546  2.39%  3.18%  3.41%
Savings accounts                      609,324     436,595     433,937    14,603   12,954   12,792  2.40%  2.97%  2.94%
Certificate accounts                3,622,918   2,859,181   2,173,244   113,486  141,878  134,945  3.13%  4.96%  6.20%
                                   ----------  ----------  ----------  -------- -------- --------
Interest bearing deposits           4,447,704   3,481,887   2,769,637   133,235  160,758  153,283  3.00%  4.62%  5.53%
Other borrowed funds                2,868,212   2,125,022   1,851,524   123,925  106,858  116,130  4.32%  5.03%  6.27%
FHLB advances                         339,477     256,354      51,053    16,024   12,585    3,201  4.72%  4.91%  6.27%
                                   ----------  ----------  ----------  -------- -------- --------
Total interest bearing liabilities $7,655,393  $5,863,263  $4,672,214  $273,184 $280,201 $272,614  3.57%  4.78%  5.83%
                                   ----------  ----------  ----------  -------- -------- --------
Net interest income                                                    $302,575 $263,244 $201,294
                                   ----------  ----------  ----------  -------- -------- --------
Interest rate spread                                                                               3.20%  3.64%  3.38%
Net interest margin                                                                                3.56%  4.08%  3.91%




(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 of
       39%) 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.



                                                           31 2002 First BanCorp



Part II



                                       2002 compared to 2001               2001 compared to 2000
                                        Increase (decrease)                 Increase (decrease)
                                               Due to:                             Due to:
                                  Volume       Rate        Total        Volume       Rate        Total
                                 --------    --------     --------     --------    --------     --------
                                                             (In thousands)
                                                                              
Earning assets:
Money market instruments         $    338    $   (815)    $   (477)    $  1,646    $   (697)    $    949
Government obligations             34,457     (14,282)      20,175        3,878      (3,966)         (88)
Mortgage backed securities         30,815      (9,134)      21,681       18,437       7,246       25,683
Corporate bonds                       928      (6,665)      (5,737)      16,803          61       16,864
FHLB stock                            587        (241)         346          246        (206)          40
                                 --------    --------     --------     --------    --------     --------

  Total investments                67,125     (31,137)      35,988       41,010       2,438       43,448
                                 --------    --------     --------     --------    --------     --------
Consumer loans                      1,580         982        2,562        1,505      (2,090)        (585)
Residential real estate loans      27,616     (18,701)       8,915       23,778      (7,397)      16,381
Construction loans                    245      (5,842)      (5,597)       4,729      (5,657)        (928)
Commercial loans                   31,903     (41,455)      (9,552)      30,796     (21,737)       9,059
Finance leases                        993        (995)          (2)       2,920        (758)       2,162
                                 --------    --------     --------     --------    --------     --------
  Total loans                      62,337     (66,011)      (3,674)      63,728     (37,639)      26,089
                                 --------    --------     --------     --------    --------     --------
  Total interest income           129,462     (97,148)      32,314      104,738     (35,201)      69,537
                                 --------    --------     --------     --------    --------     --------
Interest bearing liabilities:

Deposits                           36,762     (64,285)     (27,523)      36,152     (28,677)       7,475
Other borrowed funds               34,742     (17,675)      17,067       15,454     (24,726)      (9,272)
FHLB advances                       4,002        (563)       3,439       11,476      (2,092)       9,384
                                 --------    --------     --------     --------    --------     --------
  Total interest expense           75,506     (82,523)      (7,017)      63,082     (55,495)       7,587
                                 --------    --------     --------     --------    --------     --------
Change in net interest income    $ 53,956    $(14,625)    $ 39,331     $ 41,656    $ 20,294     $ 61,950
                                 --------    --------     --------     --------    --------     --------


Total interest income includes tax equivalent adjustments of $36 million, $27
million and $11 million for 2002, 2001, and 2000, respectively. On a tax
equivalent basis, net interest income increased to $303 million for 2002 from
$263 million for 2001, and $201 million for 2000. The interest rate spread and
net interest margin amounted to 3.20% and 3.56%, respectively, for 2002, as
compared to 3.64% and 4.08%, respectively, for 2001 and to 3.38% and 3.91 %,
respectively, for 2000.

2002 COMPARED TO 2001

On a tax equivalent basis interest income increased by $32 million for 2002 as
compared to 2001. On a tax equivalent basis the yield on earning assets was
6.77% for 2002 as compared to 8.42% for 2001. The increase in interest income
resulted from the growth in the average volume of interest earning assets of
$2,052 million in 2002, partially offset by lower yields due to lower market
rates. The current economic slowdown has led the Federal Reserve Bank to cut the
federal funds rate several times during the last two years to 1.25%, which has
resulted in a lower average cost of fund (3.57% for the year ended 2002 versus
4.78% for the year ended 2001). On a rate/volume basis, the increase of $39
million in net interest income (on a tax equivalent basis) is the result of a
positive volume variance of $54 million, net of a negative rate variance of $15
million. The negative rate variance was mainly due to the high level of variable
rate assets, and the acceleration of prepayments on the Corporation's mortgage
backed securities.

As shown in Part I, the Corporation continued to experience growth in its loan
portfolio during 2002. Total loans average volume increased by $935 million as
compared to 2001. Residential real estate loans and commercial loans, accounted
for the largest growth in the portfolio, with average volumes rising $414
million and $496 million, respectively. The growth in the commercial and
residential real estate portfolios resulted mainly from the Corporation's
ongoing strategy of maintaining a diversified asset base. For the loan
portfolio, the growth in average volume represented an increase of $62 million
in interest income due to volume. The $66 million decrease in interest income
due to rate is mainly attributed to the floating rate characteristics of a
portion of the Corporation's portfolio and to the origination of new loans in a
lower rate environment. At December 31, 2002, approximately 75% of the
commercial, 49% of the residential mortgage and 88% of the construction
portfolios have floating rates.


                                                           32 2002 First BanCorp




Average investment securities increased by $1,117 million. The average yield on
investment securities was 5.95% in 2002 and 7.11 % in 2001, on a tax equivalent
basis. The portfolio of investment securities contributed $67 million on the
interest income increase due to volume partially offset by a decrease of $31
million in interest income due to rate. The yield on government obligations had
a negative variance of 157 basis points declining from 6.11% in 2001 to 4.54% in
2002. The yield on mortgage backed securities also had a negative variance as it
decreased 48 basis points from 7.37% in 2001 to 6.89% in 2002.

Interest expense decreased by $7 million for 2002 as compared to 2001. This was
the result of the decrease in the average rates of interest bearing liabilities
which generated a positive rate variance of $83 million, that was partially
offset by increases in the average volume of liabilities to support the
Corporation's growth.

2001 COMPARED TO 2000

On a tax equivalent basis interest income increased by $70 million for 2001 as
compared to 2000. On a tax equivalent basis the yield on earning assets was
8.42% for 2001 as compared to 9.21 % for 2000. The increase in interest income
results from the growth in the average volume of interest earning assets of
$1,307 million in 2001, partially offset by a lower yield due to lower market
rates. On a rate/volume basis, the increase of $62 million in net interest
income (on a tax equivalent basis) is the result of a positive volume variance
of $42 million, plus a positive rate variance of $20 million. During the year
2001, the Federal Reserve Bank cut short term rates by a total of 475 basis
points to 1.75%. Long term rates fell by less than 50 basis points, increasing
the spread between short and long yields and increasing the Corporation's
interest rate spread and net interest margin.

For the loan portfolio, the growth in 2001 of $374 million in the average volume
of commercial loans (including commercial real estate loans) represented an
increase of $31 million in interest income due to volume, and a decrease of $22
million in interest income due to rate. The average portfolio of construction
loans increased by $51 million for 2001, representing a positive volume variance
of $5 million and a negative rate variance of $6 million. Management has been
pursuing a consistent strategy of shifting the lending portfolio towards
commercial lending without sacrificing the consumer area. The average portfolio
of residential mortgage loans increased by $296 million for 2001, representing a
positive volume variance of $24 million and a negative rate variance of $7
million. The average finance lease portfolio (mostly composed of consumer loans)
increased by $25 million in 2001, representing a positive volume variance of $3
million. The increase of $11 million in the average volume of consumer loans in
2001, represented a positive variance in interest income due to volume of $2
million and a negative rate variance of $2 million.

For the investment portfolio, the average volume of mortgage backed securities
increased by $255 million in 2001. The tax equivalent yield on mortgage backed
securities was 7.37% in 2001 and 6.89% in 2000. The portfolio of mortgage backed
securities contributed $18 million in interest income due to volume and $7
million in interest income due to rate. The average volume of corporate bonds
increased by $196 million for 2001 as compared to 2000, causing an increase in
interest income of $17 million totally due to volume.

Interest expense increased by $8 million for 2001 as compared to 2000. This was
the result of the increase in the average volume of interest bearing liabilities
of $1,191 million for 2001 as compared to 2000 which generated a negative volume
variance of $63 million, partially offset by the decrease in the cost of
interest bearing liabilities due to lower market rates, causing a positive rate
variance of $55 million. The cost of interest bearing liabilities decreased from
5.83% for 2000 to 4.78% for 2001.

PROVISION FOR LOAN LOSSES

During 2002, the Corporation provided $62 million for loan losses, as compared
to $61 million in 2001 and $46 million in 2000. Charge offs were stable despite
weakened economic conditions. Net charge offs for 2002 amounted to $41.5
million, as compared to net charge offs for 2001 of $46.9 million, and of $42.0
million for 2000. Net charge offs to average loans outstanding has improved to
0.87% as compared to 1.22% and 1.36% for 2001 and 2000, respectively.


                                                           33 2002 First BanCorp


The allowance activity for 2002, and previous four years was as follows:




Year ended December 31,                            2002            2001           2000            1999            1998
                                                ----------      ----------      ----------      ----------      ----------
                                                                         (Dollars in thousands)

                                                                                                 
Allowance for loan losses, beginning of year    $   91,060      $   76,919      $   71,784      $   67,854      $   57,712
Provision for loan losses                           62,302          61,030          45,719          47,960          76,000
                                                ----------      ----------      ----------      ----------      ----------
Loans charged off:

Residential real state                                (555)           (192)
Commercial                                          (4,643)         (9,523)         (3,463)           (825)           (880)
Finance leases                                      (2,532)         (2,316)         (2,145)           (793)         (3,438)
Consumer                                           (41,261)        (42,349)        (46,223)        (52,047)        (67,906)
Recoveries                                           7,540           7,391           9,807           9,048           6,034
                                                ----------      ----------      ----------      ----------      ----------
Net charge offs                                    (41,451)        (46,989)        (42,024)        (44,617)        (66,190)
                                                ----------      ----------      ----------      ----------      ----------
Other adjustments (1)                                                  100           1,440             587             332
                                                ----------      ----------      ----------      ----------      ----------
Allowance for loan losses, end of year          $  111,911      $   91,060      $   76,919      $   71,784      $   67,854
                                                ----------      ----------      ----------      ----------      ----------
Allowance for loan losses to year end
total loans and loans held for sale                   1.99%           2.11%           2.20%           2.61%           3.20%
Net charge offs to average loans
outstanding during the period                         0.87%           1.22%           1.36%           1.90%           3.31%



(1)    Other adjustments mainly consist of the carrying allowance of the loan
       portfolios acquired each year.

The Corporation maintains the allowance for loan losses at a level that
Management considers adequate to absorb losses inherent in the loan portfolio.
The adequacy of the allowance for loan losses is reviewed on a quarterly basis
as part of the continuing evaluation of the quality of the assets. This
evaluation is based upon a number of factors, including the following:
historical loan loss experience, projected loan losses, loan portfolio
composition, 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.

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 presents the composition of other income: Year ended
December 31,



Year ended December 31,                              2002         2001        2000
                                                   --------     --------    --------
                                                             (In thousands)
                                                                   
Other fees on loans                                $ 21,441     $ 19,632    $ 19,913
Service charges on deposit accounts                   9,200        9,213       8,898
Mortgage banking activities                           3,540        1,562         409
Rental income                                         2,285        2,293       2,434
Other commissions                                     1,081        1,511       1,340
Insurance income                                      2,269          700
Dividend on equity securities                           705          669         698
Other operating income                               10,032        7,794       8,071
                                                   --------     --------    --------
Other income before net gain on
  sale of investments, derivatives loss
  and trading income                                 50,553       43,374      41,763
                                                   --------     --------    --------
Net gain on sale of investments                      48,873        9,606       7,850
Impairment on investments                           (36,872)
                                                   --------     --------    --------
Net gain on sale of investments, and impairment      12,001        9,606       7,850
Derivatives loss                                     (4,062)
Trading income                                                                   419
                                                   --------     --------    --------
Total                                              $ 58,492     $ 52,980    $ 50,032
                                                   --------     --------    --------




34 2002 First BanCorp




Other income primarily consists of fees on loans, service charges on deposit
accounts, commissions derived from various banking activities, securities and
insurance activities, and the net gain of investments, net of derivatives
losses. Other fees on loans consist mainly of credit card fees and late charges
collected on loans.

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

Mortgage banking activities income includes gain on sale of loans and the
servicing fees on residential mortgage loans originated by the Corporation and
subsequently securitized or sold. Gains on sale of loans amounted to
approximately $3.4 million in 2002 (2001-$1.2 million). No sales were made in
2000.

The Corporation's subsidiary. First Leasing and Rental Corporation, generates
income on the rental of various types of motor vehicles. This source of income
has averaged approximately $2 million in the past three years.

Insurance income consists of commissions earned by the new subsidiary FirstBank
Insurance Agency, Inc., which started operations in May 2001.

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 gain on sale of investment securities reflects gains that resulted from
sales that are in consonance to the Corporation's investment policies. A
substantial portion earned in 2002 represents gains of $40.1 million on the sale
of mortgage backed securities, realized as part of the restructuring of the
investment portfolio, as explained in the Corporation's financial statements,
see Note 10. In addition, during the year ended on December 31, 2002 losses of
$37 million on other-than-temporary impairment of certain securities were
recognized, as explained in the Corporation's financial statements, refer to
Notes 2 and 10.

As explained in Note 29 of the Corporation's financial statements, the
derivatives loss consists mainly of an unrealized loss of $4.5 million due to
the valuation to fair value of a portfolio of swaps that does not qualify for
hedge accounting.

OTHER OPERATING EXPENSE

Other operating expenses amounted to $133 million for 2002 as compared to $121
million for 2001 and $113 million for 2000. The following table presents the
components of other operating expenses:





Year ended December 31,            2002        2001         2000
                                 --------    --------    --------
                                         (In thousands)

                                                
Salaries and benefits            $ 59,432    $ 54,703    $ 50,014
Occupancy and equipment            29,015      24,992      22,792
Deposit insurance premium             746         645         547
Other taxes and insurance           8,915       7,804       6,355
Professional and service fees       7,685       7,931       8,740
Business promotion                  9,304       7,506       8,468
Communications                      5,865       5,395       5,573
Expense of rental equipment         1,588       1,578       1,525
Other                              10,206      10,300       9,036
                                 --------    --------    --------
  Total                          $132,756    $120,854    $113,050
                                 --------    --------    --------



                                                           35 2002 First BanCorp


Management's goal is to limit expenditures to those that directly contribute to
increase the efficiency, service quality and profitability of the Corporation.
This control over other operating expenses has been an important factor
contributing to the increase 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, improved to 40.81% for 2002 as compared to
41.81% and 46.95% for 2001 and 2000, respectively. The Corporation has
maintained a better than average efficiency ratio, while it has provided the
latest in delivery channels for its commercial and consumer financial products
and services.

The increase in operating expenses for 2002 is mainly the result of the
Corporation's continuous investment in technology to provide the latest in
delivery channels to its commercial and consumer lending business and to the
general growth in the subsidiary Bank's operations. Operating expenses have also
increased due to higher expenditures on advertising campaigns, which support the
Corporation's growth and image.

The salary and benefits category was affected by annual increases in salary and
fringe benefits and an increase in the number of employees to support the
Corporation's growth.

INCOME TAX EXPENSE

The provision for income tax amounted to $22 million (or 17% of pre-tax
earnings) for 2002 as compared to $20 million (or 19% of pre-tax earnings) in
2001, and $15 million (or 18% of pre-tax earnings) in 2000. The Corporation has
maintained an effective tax rate lower than the statutory rate of 39% mainly by
investing in government obligations and mortgage backed securities exempt from
U.S. and Puerto Rico income tax combined with gains on sale of investments held
by the international banking division of the Corporation and the Bank. These
divisions were created under the International Banking Entity Act of P. R.,
which provides for total P. R. tax exemption on its interest income, other
income and gain on sale of investments. The decrease in the effective tax rate
is mainly due to an increase in the portfolio of exempt investments and
investments held in the Corporation's international banking divisions. For
additional information relating to income taxes, see Note 25 of the
Corporation's financial statements.


36 2002 First BanCorp


FINANCIAL CONDITION

The following table presents an average balance sheet for the following years:



                                                                   December 31,
                                                     2002              2001              2000
                                                  ----------        ----------        ----------
                                                                  (In thousands)
                                                                             
Interest earning assets:
Money market instruments                          $   60,522        $   46,517        $    9,293
Government obligations                             1,236,281           588,932           528,903
Mortgage backed securities                         2,144,236         1,711,980         1,457,044
Corporate bonds                                      259,840           247,094            51,508
FHLB stock                                            32,586            21,841            18,008
                                                  ----------        ----------        ----------
 Total investments                                 3,733,465         2,616,364         2,064,756
                                                  ----------        ----------        ----------
Commercial loans                                   2,080,892         1,584,910         1,210,783
Consumer loans                                     1,048,283         1,036,637         1,026,044
Residential real estate loans                      1,283,710           869,374           573,866
Construction loans                                   223,627           219,890           169,257
Finance leases                                       136,851           127,872           103,114
                                                  ----------        ----------        ----------
  Total loans                                      4,773,363         3,838,683         3,083,064
                                                  ----------        ----------        ----------
  Total interest earning assets                    8,506,828         6,455,047         5,147,820
Equity securities                                     52,703            48,122            29,254
Total non-earning assets (1)                         188,691           198,233            62,302
                                                  ----------        ----------        ----------
Total assets                                      $8,748,222        $6,701,402        $5,239,376
                                                  ----------        ----------        ----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing checking accounts                $  215,462        $  186,111        $  162,456
Savings accounts                                     609,324           436,595           433,937
Certificate accounts                               3,622,918         2,859,181         2,173,244
                                                  ----------        ----------        ----------
Interest bearing deposits                          4,447,704         3,481,887         2,769,637
Other borrowed funds                               2,868,212         2,125,022         1,851,524
FHLB advances                                        339,477           256,354            51,053
                                                  ----------        ----------        ----------
Total interest bearing liabilities                 7,655,393         5,863,263         4,672,214
Total non-interest bearing liabilities               368,315           307,237           250,135
                                                  ----------        ----------        ----------
Total liabilities                                  8,023,708         6,170,500         4,922,349
Stockholders' equity                                 724,514           530,902           317,027
                                                  ----------        ----------        ----------
Total liabilities and stockholders' equity        $8,748,222        $6,701,402        $5,239,376
                                                  ----------        ----------        ----------


(1) Net of the allowance for loan losses and the valuation on investments
securities available for sale.


                                                         37   2002 First BanCorp



ASSETS

The Corporation's total assets at December 31, 2002 amounted to $9,644 million,
$1,446 million over the $8,198 million at December 31, 2001, mainly due to the
growth in the loan portfolio.

The following table presents the composition of the loan portfolio at year-end
for each of the last five years:



                                                                        December 31,
                                    % of                   % of                   % of                   % of                  % of
                         2002       Total      2001        Total       2000       Total       1999       Total       1998     Total
                         ----       -----      ----        -----       ----       -----       ----       -----       ----     -----
                                                                           (Dollars in thousands)
                                                                                                
Residential real
  estate loans        $1,854,068      33     $1,011,908      23     $  746,792      21     $  473,563      17     $  303,011    14
                      ----------     ---     ----------     ---     ----------     ---     ----------     ---     ----------   ---
Commercial real
  estate loans           813,513      14        688,922      16        438,321      13        371,643      14        332,219    16
Construction loans       259,053       5        219,396       5        203,955       6        132,068       5         62,963     3
Commercial loans       1,418,792      25      1,238,173      29        947,709      27        655,417      24        368,549    17
                      ----------     ---     ----------     ---     ----------     ---     ----------     ---     ----------   ---
Total commercial       2,491,358      44      2,146,491      50      1,589,985      46      1,159,128      43        763,731    36
Finance leases           143,412       3        127,935       3        122,883       3         85,692       3         52,214     3
Consumer loans         1,149,012      20      1,022,445      24      1,038,538      30      1,026,985      37      1,001,098    47
                      ----------     ---     ----------     ---     ----------     ---     ----------     ---     ----------   ---
Total                 $5,637,850     100     $4,308,779     100     $3,498,198     100     $2,745,368     100     $2,120,054   100
                      ----------     ---     ----------     ---     ----------     ---     ----------     ---     ----------   ---


         Total loans receivable increased by $1,329 million in 2002 when
         compared with 2001. During 2002 the Corporation continued its strategy
         of diversifying its loan portfolio composition through the origination
         and purchase of commercial loans and residential real estate loans,
         while maintaining its investment in consumer loans. In addition, the
         Corporation acquired a banking operation in the U.S. and British Virgin
         Islands with $291 million in residential real estate loans, $40 million
         in commercial loans and $105 million in consumer loans. This
         acquisition provides the Corporation with a geographic diversification.
         The Corporation's strategy and the acquisition resulted in a
         significant increase of $345 million in the commercial loan portfolio
         and of $842 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 $15 million, and consumer loans
         increased by $127 million in 2002.

         The Corporation's investment portfolio at December 31, 2002 amounted to
         $3,729 million, an increase of $13 million when compared with the
         investment portfolio of $3,716 million at December 31, 2001. Mortgage
         backed securities represent a substantial balance of the Corporation's
         portfolio. These securities are subject to prepayment risk. As
         described in Note 10 of the Corporation's financial statements, during
         2002, the Corporation restructured its portfolio to shorten maturities
         and reduce the existing prepayment risk under current interest rate
         scenario. Government obligations included approximately $644 million
         and $1.3 million in zero coupon bonds and government agency securities,
         respectively, that are callable. At December 31, 2002 money market
         instruments included approximately $237 million of FHLB discount notes
         maturing in less than ninety days, which collateralized repurchase
         agreements. Management of the Corporation will determine during 2003
         how prepayments on the mortgage backed securities and repayments on the
         callable securities will be reinvested, considering, among other
         factors, the interest rate outlook.


38  2002 First BanCorp



The composition and estimated tax equivalent weighted average interest and
dividend yields of the Corporation's earning assets at December 31, 2002 were as
follows:



                                                                     Tax Equivalent
                                                       Amount            Weighted
                                                   (In thousands)     Average Rate
                                                   --------------    --------------
                                                               
Money market instruments                             $  273,660           1.66%
Government obligations                                  666,946          10.84%
Mortgage backed securities                            2,512,606           6.26%
FHLB stock                                               35,629           5.58%
Corporate bonds                                         198,174           6.93%
Equity securities                                        41,654           1.72%
                                                     ----------
Total investments                                     3,728,669           6.72%
                                                     ----------
Consumer loans                                        1,149,012          13.13%
Residential real estate loans                         1,854,068           5.43%
Construction loans                                      259,053           5.13%
Commercial and commercial real estate loans           2,232,305           5.03%
Finance leases                                          143,412          10.14%
                                                     ----------
Total loans (1)                                       5,637,850           6.95%
                                                     ----------
Total earning assets                                 $9,366,519           6.86%
                                                     ----------


(1) Excludes the reserve for loan losses.

NON-PERFORMING ASSETS

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

At December 31, 2002, total non-performing assets amounted to $105 million
(1.09% 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.
Approximately $9.1 million of the increase in non-performing assets when
compared to the amount at December 31, 2001 is attributed to a construction loan
fully secured with finished homes, where the Corporation stopped accruing
interest due to a slow down in the selling process of the homes. More than half
of the project houses have been either sold or optioned and are in the process
of closing. The remaining increase in non performing assets is attributed to a
corporate bond of approximately $3.8 million, which was reclassified to
non-accruing status during 2002, to non-performing assets acquired in the Virgin
Islands and to the general growth in the Corporation's commercial loan
portfolio. The Corporation's allowance for loan losses to non-performing loans
was 121.95% at December 31, 2002 as compared to 124.74% and 113.59% at December
31, 2001 and 2000, respectively.



                                                         39   2002 First BanCorp


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



                                                                             December 31,
                                                 2002            2001            2000            1999             1998
                                               --------         -------         -------         -------         -------
                                                                         (Dollars in thousands)
                                                                                                 
Non-accruing loans:
Residential real estate                        $ 23,018         $18,540         $15,977         $ 8,633         $ 9,151
Commercial and commercial real estate            47,705          29,378          31,913          17,975          19,355
Finance leases                                    2,049           2,469           2,032           2,482           1,716
Consumer                                         18,993          22,611          17,794          24,726          26,736
                                               --------         -------         -------         -------         -------
                                                 91,765          72,998          67,716          53,816          56,958
                                               --------         -------         -------         -------         -------
Other real estate owned                           2,938           1,456           2,981             517           3,642
Other repossessed property                        6,222           4,596           3,374           3,112           2,277
Investment securities                             3,750
                                               --------         -------         -------         -------         -------
Total non-performing assets                    $104,675         $79,050         $74,071         $57,445         $62,877
                                               --------         -------         -------         -------         -------
Past due loans                                 $ 24,435         $27,497         $16,358         $13,781         $15,110
Non-performing assets to total assets              1.09%           0.96%           1.25%           1.22%           1.57%
Non-performing loans to total loans                1.63%           1.69%           1.94%           1.96%           2.69%
Allowance for loan losses                      $111,911         $91,060         $76,919         $71,784         $67,854
Allowance to total non-performing loans          121.95%         124.74%         113.59%         133.39%         119.13%


NON-ACCRUING LOANS

RESIDENTIAL REAL ESTATE LOANS - The Corporation classifies all 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, the loan to value ratios and historical experience, that
no material losses will be incurred in this portfolio. Non-accruing real estate
loans amounted to $23 million (1.24% of total residential real estate loans) at
December 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. The increase as compared to 2001 is
mainly attributed to non performing loans of approximately $4 million acquired
in the Virgin Islands.

COMMERCIAL LOANS - The Corporation places 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 $48 million (1.91% of
total commercial loans) at December 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 December 31, 2002 there were five
non-accruing commercial loans of over $1 million, for a total of $17.7 million
including the afore mentioned non-accruing construction loan of $9.1 million.

FINANCE LEASES - Finance leases are classified as non-accruing when they are
delinquent 90 days or more. Non-accruing finance leases amounted to
approximately $2 million at December 31, 2002, 2001 and 2000, representing
1.43%, 1.93% and 1.65%, respectively, of total finance leases.

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 (1.65% of the total consumer
loan portfolio) at December 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.



40   2002 First BanCorp



OTHER REAL ESTATE OWNED

Other real estate owned 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
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.

INVESTMENT SECURITIES

This category presents the carrying amount of $3.8 million of the Corporation's
investment in WorldCom Corporation bonds, which was reclassified to non-accruing
status during the year, as more fully explained in Note 10 of the Corporation's
financial statements. Management's impairment analysis on the investment in
WorldCom Corporation bonds concluded that an other-than-temporary impairment of
approximately $11.7 million had occurred. As aforementioned, the remaining $3.8
million were reclassified to non-accruing status.

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

The Corporation's principal funding sources are branch-based deposits, retail
brokered deposits, institutional deposit, federal funds purchased, securities
sold under agreements to repurchase, and FHLB advances.

DEPOSITS

Total deposits amounted to $5,483 million at December 31, 2002, as compared to
$4,099 million and $3,346 million at December 31, 2001 and 2000, respectively.

The following table presents the composition of total deposits:



                                                               December 31,
                                               2002                2001              2000
                                            ----------         ----------         ----------
                                                          (Dollars in thousands)
                                                                         
Savings accounts                            $  921,103         $  469,452         $  430,298
Interest bearing checking accounts             230,743            205,760            170,631
Certificates of deposit                      3,883,996          3,183,491          2,512,891
                                            ----------         ----------         ----------
Interest bearing deposits                    5,035,842          3,858,703          3,113,820
Non-interest bearing deposits                  447,076            239,851            232,164
                                            ----------         ----------         ----------
  Total                                     $5,482,918         $4,098,554         $3,345,984
                                            ----------         ----------         ----------
Weighted average rate during the
 period on interest bearing deposits              3.00%              4.62%              5.53%
Interest bearing deposits:
 Average balance outstanding                $4,447,704         $3,481,887         $2,769,637
Non-interest bearing deposits:
 Average balance outstanding                $  257,454         $  233,254         $  213,728


Total deposits are composed of branch-based deposits, brokered deposits and to a
lesser extent of institutional deposits. Institutional deposits include
certificates issued to agencies of the Government of Puerto Rico and to
Governments in the Virgin Islands.



                                                         41   2002 First BanCorp


Total deposits increased by approximately $1,384 million at December 31, 2002
when compared to December 31, 2001. This fluctuation was mainly due to: (1) an
increase in branch-based deposits of $813 million and to (2) an increase of
$456 million in brokered certificates of deposit. The increase in branch-based
deposits reflects the acquisition of approximately $557 million in deposits in
the Virgin Islands.

Retail brokered certificates of deposits, which are certificates sold through
brokers, represent a large portion of the Corporation's deposits. The total U.S.
market for this source of funding approximates $280,000 million.

At December 31, 2002, approximately 73% of retail brokered certificates of
deposit held by the Corporation are callable, but only at Corporation's option.
At December 31, 2002, the average life of callable and fixed term brokered
certificates approximated 12 years and 2.54 years, respectively.

As more fully explained in Note 29 to the Corporation's financial statements,
the Corporation enters into interest rate swap agreements where it agrees to pay
variable-rates of interest as a hedge against changes in the fair value of
fixed-rate brokered certificates of deposit. The effect of this agreements is
that interest expense of retail brokered certificates of deposits is generally
variable interest rate. The interest rate swap agreements are not callable.

BORROWINGS

At December 31, 2002 total borrowings amounted to $3,249 million as compared to
$3,425 million and $2,069 million at December 31, 2001 and 2000, respectively.



                                                                 December 31,
                                                  2002               2001              2000
                                               ----------         ----------         ----------
                                                            (Dollars in thousands)
                                                                            
Federal funds purchased and securities
 sold under agreements to repurchase           $2,793,540         $2,997,174         $1,856,436
Advances from FHLB                                373,000            343,700             67,000
Subordinated notes                                 82,815             84,362             90,548
Notes payable                                                                            55,500
                                               ----------         ----------         ----------
Total                                          $3,249,355         $3,425,236         $2,069,484
                                               ----------         ----------         ----------

Weighted average rate during the period              4.36%              5.02%              6.27%


The Corporation uses federal funds purchased, repurchase agreements, advances
from FHLB and notes payable as additional funding sources. The borrowings of the
Corporation consist primarily of federal funds purchased and securities sold
under agreements to repurchase (repurchase agreements) which at December 31,
2002 amounted to $2,794 million or 86% of total borrowings. Repurchase
agreements had a total weighted average cost of 3.82% during the year ended
December 31, 2002. For more information on borrowings please refer to Notes 18
through 21 of the Corporation's financial statements.

The composition and estimated weighted average interest rates of interest
bearing liabilities at December 31, 2001, were as follows:



                                   Amount             Weighted
                               (In thousands)       Average Rate
                               --------------       ------------
                                              
Interest bearing deposits        $5,035,842            2.58%
Borrowed funds                    3,249,355            3.98%
                                 ----------
                                 $8,285,197            3.13%
                                 ----------



42   2002 First BanCorp



CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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




                                             Payments Due/Commitments Expiration by Period
                                                             (In thousands)
                                            Total        Less than 1 year    1-3 years       4-5 years       After 5 years
                                            -----        ----------------    ---------       ---------       -------------
                                                                                              
Contractual Obligations:
Federal funds purchased and
securities sold under agreements
to repurchase                             $2,793,540        $  718,580        $156,500        $100,000        $1,818,460
Advances from FHLB                           373,000            50,000          50,000                           273,000
Subordinated Notes                            82,815                            82,815
                                          ----------        ----------        --------        --------        ----------
Total Contractual Cash Obligations        $3,249,355        $  768,580        $289,315        $100,000        $2,091,460
                                          ----------        ----------        --------        --------        ----------
Other Commitments:
  Lines of Credit                         $  322,351        $  322,351
  Standby Letters of Credit                   30,313            30,313
  Other Commercial Commitments               729,369           729,369
  Operating Leases                            22,897             4,894        $  6,905        $  3,765        $    7,333
                                          ----------        ----------        --------        --------        ----------
Total Commercial Commitments              $1,104,930        $1,086,927        $  6,905        $  3,765        $    7,333
                                          ----------        ----------        --------        --------        ----------


The Corporation has obligations and commitments to make future payments under
contracts, such as debt and lease agreements, 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.

CAPITAL

During 2002, the Corporation increased its total capital from $603 million at
December 31, 2001 to $798 million at December 31, 2002. Total capital increased
by $195 million mainly due to earnings of $108 million, the issuance of
3,680,000 shares of preferred stock with a net proceed of $89 million, the
issuance of 96,750 (as adjusted for 2002 stock split) shares of common stock
through the exercise of stock options with proceeds of $1.3 million, a positive
fluctuation in the valuation of securities available for sale, net of a negative
valuation of fair value hedges of $40 million, and cash dividends of $42
million.

The Corporation's objective is to maintain a solid capital position above the
"well capitalized" classification under the federal banking regulations. The
Corporation continues to exceed the well capitalized guidelines. To be in a
"well capitalized" position, an institution should have: (i) a leverage ratio of
5% or greater; (ii) a total risk based capital ratio of 10% or greater; and
(iii) a Tier 1 risk-based capital ratio of 6% or greater. At December 31, 2002
the Corporation had a leverage ratio of 7.35%; a total risk based capital ratio
of 13.75%; and a Tier 1 risk-based capital ratio of 11.90%.

DIVIDENDS

In 2002, 2001 and 2000 the Corporation declared four quarterly cash dividends of
$0.10, $0.09 and $0.07 per common share, respectively, for an annual dividend of
$0.40, $0.35 and $0.29, respectively. Total cash dividends paid on common shares
amounted to $16 million for 2002 (or a 19.58% dividend payout ratio), $14
million for 2001 (or a 19.91% dividend payout ratio) and $12 million for 2000
(or a 19.72% dividend payout ratio). Dividends declared on preferred stock
amounted to $26 million in 2002, $17 million in 2001, and $7 million in 2000.
Increase in dividends on preferred stocks resulted from the issuance of
preferred stock of $92 million in 2002, $103.5 million in 2001 and $75 million
in 2000.



                                                         43   2002 First BanCorp


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

First BanCorp manages its asset/liability position in order to limit the effects
of changes in interest rates on net interest income, subject to other goals of
Management and within guidelines set forth by the Board of Directors.

The day-to-day management of interest rate risk, as well as liquidity management
and other related matters, is assigned to the Asset Liability Management and
Investment Committee of FirstBank (ALCO). The ALCO is composed of the following
officers: President and CEO, the Senior Executive Vice President and Chief
Financial Officer, the Executive Vice President for Retail and Mortgage Banking,
the Senior Vice President of Treasury and Investments and the Economist. The
ALCO meets on a weekly basis. The Economist also acts as secretary, keeping
minutes of all meetings. An Investment Committee for First BanCorp also monitors
the investment portfolio of the Holding Company, including a stock portfolio
which amounted to $42 million at December 31, 2002. This Committee meets weekly
and has the same membership as the ALCO Committee described previously.

Committee meetings focus on, among other things, current and expected conditions
in world financial markets, competition and prevailing rates in the local
deposit market, reviews of liquidity, unrealized gains and losses in securities,
recent or proposed changes to the investment portfolio, alternative funding
sources and their costs, hedging and the possible purchase of derivatives such
as swaps and caps, and any tax or regulatory issues which may be pertinent to
these areas. The ALCO approves funding decisions in light of the Corporation's
overall growth strategies and objectives. On a quarterly basis the ALCO performs
a comprehensive asset/liability review, examining the measures of interest rate
risk described below together with other matters such as liquidity and capital.

The Corporation uses simulations to measure the effects of changing interest
rates on net interest income. These measures are carried out over a one year
time horizon, assuming gradual upward and downward interest rate movements of
200 basis points. Simulations are carried out in two ways:

(1) using a balance sheet which is assumed to be at the same levels existing on
the simulation date, and (2) using a balance sheet which has growth patterns and
strategies similar to those which have occurred in the recent past.

These simulations assume gradual upward or downward movements of interest rates
over the year of projection, with the change totaling 200 basis points at the
end of the twelve month period. The balance sheet is divided into groups of
similar assets and liabilities in order to simplify the process of carrying out
these projections. As interest rates rise or fall, these simulations incorporate
expected future lending rates, current and expected future funding sources and
cost, the possible exercise of options, changes in prepayment rates, and other
factors which may be important in determining the future growth of net interest
income. All computations are done on a tax equivalent basis, including the
effects of the changing cost of funds on the tax-exempt spreads of certain
investments. The projections are carried out for First BanCorp on a fully
consolidated basis.

These simulations are highly complex, and they use many simplifying assumptions
that are intended to reflect the general behavior of the Corporation over the
period in question, but there can be no assurance that actual events will
parallel these assumptions in all cases. For this reason, the results of these
simulations are only approximations of the true sensitivity of net interest
income to changes in market interest rates.

Assuming a no growth balance sheet as of December 31, 2002, tax equivalent net
interest income projected for 2003, would rise by $27.8 million (8.23%) under a
rising rate scenario and would decrease by $1.5 million (0.5%) under falling
rates.

The same simulations were also carried out assuming that the Corporation would
grow. As of December 31, 2002 the growing balance sheet simulations indicate
that tax equivalent net interest income projected for 2003, would rise by $27.0
million (7.70%) under a rising rate scenario and would decrease by $0.8 million
(0.2%) with falling rates.


44   2002 First BanCorp



The simulation for the year 2002 assuming a no growth balance sheet as of
December 31, 2001, concluded that under a rising rate scenario net interest
income would have declined by $6.2 million (1.7%) and that under a falling rate
scenario would have increased by $1.9 million (0.5%).

The same simulations were also carried assuming that Corporation was going to
grow. As of December 31, 2001, the growing balance sheet simulation indicated
that the tax equivalent net interest income for 2002 would have fallen by $8.8
million (2.4%) under a rising interest rate scenario and increased by $3.8
million (1.0%) with falling rates.

The Corporation compared 2002 projections with actual results. In the growth
scenario, which is more realistic, the Bank projected taxable equivalent net
interest income of $369.7 million under flat rates and $373.5 million under
falling rates for 2002. In reality, taxable equivalent net interest income was
$302.6 million. The most important reason for this difference was that FirstBank
restructured its investment portfolio to reduce the Bank's exposure to rising
rates. Some corporate bonds were sold and most 30 year MBS were replaced with 15
year securities at lower tax equivalent spreads. While these changes were going
on, the Bank also had substantial investments in discount notes for short
periods of time. These changes all led to smaller spreads than anticipated in
the initial projection. Partially offsetting the effect of smaller spreads was a
more rapid growth of the balance sheet. The consolidated balance sheet actually
reached $9.64 billion at the end of 2002, compared with a projected figure of
$8.68 billion in the baseline scenario. Part of this growth was due to the
unanticipated purchase of a $590 million banking operation in the Virgin
Islands, which closed in October, 2002. Substantial unanticipated growth also
occurred in average commercial loans, which reached $2.30 billion by the end of
2002, compared with a projected figure of $2.00 billion in the baseline
scenario.

LIQUIDITY

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

The 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 supplementary sources 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 the repayment of maturing deposit accounts and
borrowings.

A large portion of the Corporation's funding represent retail brokered
certificates of deposit. In the event that the Corporation falls under the
ratios of a well-capitalized institution, it faces the risk of not being able to
replace this source of funding. It is Management's believe that this possibility
is remote. In addition, the average life of the retail brokered certificates of
deposit was 9.54 years at December 31, 2002. Approximately 73% of these
certificates are callable, but only at the Corporation's option.

The Corporation's liquidity plan contemplates alternative sources of funding
that could provide significant amounts of funding at reasonable cost. The
alternative sources of funding include, among others, FHLB advances, lines of
credits from other banks, sale of commercial loans participations,
securitization of auto loans and commercial paper.

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related data presented herein have been prepared in
conformity with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.


                                                         45   2002 First BanCorp


Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a greater impact on a financial institution's performance
than the effects of general levels of inflation. Interest rate movements are not
necessarily correlated with changes in the prices of goods and services.

CONCENTRATION RISK

The Corporation conducts its operations in a geographically concentrated area,
as its main market is Puerto Rico. However, the Corporation continues
diversifying its geographical risk as evidenced by recent acquisitions in the
Virgin Islands. Puerto Rico's economy is generally similar to U.S. economy and
its economic performance is a natural result of its increasing integration into
the U.S. economy. At December 31, 2002, there is no significant concentration of
credit risk in any specific industry.

SELECTED QUARTERLY FINANCIAL DATA

Financial data showing results of the 2002 and 2001 quarters is presented below.
In the opinion of Management, all adjustments necessary for a fair presentation
have been included:



                                                                  2002
                                         March 31        June 30         Sept. 30         Dec. 31
                                         --------        --------        --------        --------
                                               (In thousands, except for per share results)
                                                                             
Interest income                          $136,716        $136,348        $129,606        $137,364
Net interest income                        69,271          68,523          60,338          68,717
Provision for loan losses                  19,801          14,501          14,000          14,001
Net income                                 25,650          26,979          27,357          27,971
Earnings per common share-basic          $   0.49        $   0.51        $   0.52        $   0.53
Earnings per common share-diluted        $   0.49        $   0.50        $   0.51        $   0.52






                                                                  2001
                                         March 31        June 30         Sept. 30         Dec. 31
                                         --------        --------        --------        --------
                                               (In thousands, except for per share results)
                                                                             
Interest income                          $128,750        $126,178        $127,527        $133,801
Net interest income                        52,474          58,101          61,989          63,491
Provision for loan losses                  15,000          17,800          12,790          15,440
Net income                                 18,786          20,172          23,019          24,024
Earnings per common share-basic          $   0.39        $   0.43        $   0.45        $   0.47
Earnings per common share-diluted        $   0.39        $   0.43        $   0.45        $   0.47




46   2002 First BanCorp



MARKET PRICES AND STOCK DATA

The Corporation's common stock is traded in the New York Stock Exchange (NYSE)
under the symbol FBP. On December 31, 2002, there were 640 holders of record of
the Corporation's common stock.

The following table sets forth the high and low prices of the Corporation's
common stock for the periods indicated as reported by the NYSE.




Quarter ended      High           Low             Last
                   ----           ---             ----
                                      
2002:
December         $ 26.38        $ 22.08        $ 22.60
September          27.61          22.82          25.41
June               25.13          19.13          25.13
March              19.80          18.43          19.27

2001:
December         $ 20.00        $ 17.07        $ 19.00
September          20.00          16.00          17.24
June               17.99          15.32          17.99
March              17.42          13.00          17.27

2000:
December         $ 16.46        $ 13.67        $ 15.75
September          16.33          12.00          16.29
June               12.50          11.13          12.37
March              14.00          10.83          11.75



                                                         47   2002 First BanCorp




                              FINANCIAL STATEMENTS

                                    [PHOTO]

[PRICEWATERHOUSECOOPERS LOGO]


                          REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of First BanCorp.

In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income, comprehensive income, changes
in stockholders' equity, and cash flows present fairly, in all material
respects, the financial position of First BanCorp. and its subsidiaries at
December 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Notes 2, 9 and 29 to the accompanying consolidated financial
statements, in 2001 the Company adopted the Statement of Financial Accounting
Standards No. 133, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," as amended, which effect was accounted for as a cumulative
effect of a change in accounting principle.


/S/ PRICEWATERHOUSECOOPERS

March 7, 2003

CERTIFIED PUBLIC ACCOUNTANTS
(OF PUERTO RICO)
License No. 216 Expires Dec. 1, 2004
Stamp 1838396 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report






   CONSOLIDATED STATEMENTS
   OF FINANCIAL CONDITION



                                                                               December 31,
                                                                       2002                    2001
                                                                  ---------------         ---------------
                                                                                    
ASSETS
Cash and due from banks                                           $   108,305,943         $    59,898,550
                                                                  ---------------         ---------------
Money market instruments                                              273,659,553              34,564,568
                                                                  ---------------         ---------------
Investment securities available for sale, at market:
Securities pledged that can be repledged                            2,379,786,252           2,988,828,088
Other investment securities                                           336,987,292             385,419,989
                                                                  ---------------         ---------------
Total investment securities available for sale                      2,716,773,544           3,374,248,077
                                                                  ---------------         ---------------
Investment securities held to maturity, at cost:
Securities pledged that can be repledged                              541,047,654             171,152,930
Other investment securities                                           161,558,730             113,142,662
                                                                  ---------------         ---------------
Total investment securities held to maturity                          702,606,384             284,295,592
                                                                  ---------------         ---------------
Federal Home Loan Bank (FHLB) stock                                    35,629,500              22,890,600
                                                                  ---------------         ---------------
Loans, net of allowance for loan losses of $111,911,470
(2001 - $91,060,307)                                                5,515,185,610           4,213,089,836
Loans held for sale, at lower of cost or market                        10,753,585               4,629,562
                                                                  ---------------         ---------------
Total loans                                                         5,525,939,195           4,217,719,398
Other real estate owned                                                 2,938,249               1,455,577
Premises and equipment, net                                            87,595,569              76,155,620
Accrued interest receivable                                            39,282,010              37,630,883
Due from customers on acceptances                                         304,346                 262,153
Other assets                                                          150,818,003              88,396,770
                                                                  ---------------         ---------------
Total assets                                                      $ 9,643,852,296         $ 8,197,517,788
                                                                  ---------------         ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing deposits                                     $   447,076,347         $   239,850,816
Interest bearing deposits                                           5,035,841,381           3,858,703,322
Federal funds purchased and securities
   sold under agreements to repurchase                              2,793,539,832           2,997,173,944
Advances from FHLB                                                    373,000,000             343,700,000
Bank acceptances outstanding                                              304,346                 262,153
                                                                  ---------------         ---------------
Accounts payable and other liabilities                                112,851,285              70,547,126
                                                                  ---------------         ---------------
                                                                    8,762,613,191           7,510,237,361
                                                                  ---------------         ---------------
Subordinated notes                                                     82,815,105              84,361,525
                                                                  ---------------         ---------------
Stockholders' equity:
Preferred stock, authorized 50,000,000 shares; issued
   and outstanding 14,420,000 shares at $25 liquidation
   value per share (2001 - 10,740,000)                                360,500,000             268,500,000
                                                                  ---------------         ---------------
Common stock, $1 par value, authorized 250,000,000 shares;
   issued 44,875,435 shares, including 14,958,383 shares
   issued on September 30, 2002 from a stock split
   (2001-29,852,552)                                                   44,875,435              29,852,552
Less: Treasury stock, including 1,640,300 shares issued on
   September 30, 2002 from a stock split (at par value)                (4,920,900)             (3,280,600)
                                                                  ---------------         ---------------
Common stock outstanding                                               39,954,535              26,571,952
                                                                  ---------------         ---------------
Additional paid-in capital                                                                     14,214,877
Capital reserve                                                        70,000,000              60,000,000
Legal surplus                                                         149,345,178             136,792,514
Retained earnings                                                     145,243,124             103,132,913
Accumulated other comprehensive income (loss),
   net of tax of $11,127,054 (2001-$2,097,785)                         33,381,163              (6,293,354)
                                                                  ---------------         ---------------
                                                                      798,424,000             602,918,902
                                                                  ---------------         ---------------
Contingencies and commitments
Total liabilities and stockholders' equity                        $ 9,643,852,296         $ 8,197,517,788
                                                                  ---------------         ---------------


The accompanying notes are an integral part of these statements.



50   2002 First BanCorp



   CONSOLIDATED STATEMENTS
   OF INCOME



                                                                            Year ended December 31,
                                                                2002                  2001                2000
                                                            -------------         ------------        ------------
                                                                                             
INTEREST INCOME:
Loans                                                       $ 351,838,718         $353,777,585        $329,007,974
Investment securities                                         185,561,056          159,713,664         132,603,596
Short-term investments                                            998,710            1,475,521             527,155
Dividends on FHLB stock                                         1,634,899            1,289,125           1,248,755
                                                            -------------         ------------        ------------
Total interest income                                         540,033,383          516,255,895         463,387,480
                                                            -------------         ------------        ------------
INTEREST EXPENSE:
Deposits                                                      133,234,567          160,758,451         153,283,358
Short-term borrowings                                         117,127,270           97,952,979         105,326,693
Notes payable                                                   6,797,889            8,904,611          10,803,634
Advances from FHLB                                             16,023,967           12,585,108           3,200,940
                                                            -------------         ------------        ------------
Total interest expense                                        273,183,693          280,201,149         272,614,625
                                                            -------------         ------------        ------------
Net interest income                                           266,849,690          236,054,746         190,772,855

PROVISION FOR LOAN LOSSES                                      62,301,996           61,030,000          45,718,500
                                                            -------------         ------------        ------------
Net interest income after provision
   for loan losses                                            204,547,694          175,024,746         145,054,355
                                                            -------------         ------------        ------------
OTHER INCOME:
Other fees on loans                                            21,440,852           19,631,741          19,913,340
Service charges on deposit accounts                             9,200,327            9,213,436           8,898,170
Mortgage banking activities                                     3,540,034            1,562,158             409,011
Trading income                                                                                             419,367
Gain on sale of investments, net                               12,000,487            9,606,314           7,850,472
Rental income                                                   2,285,021            2,292,541           2,433,664
Derivatives loss, net                                          (4,061,988)
Other operating income                                         14,087,218           10,673,633          10,108,036
                                                            -------------         ------------        ------------
Total other income                                             58,491,951           52,979,823          50,032,060
                                                            -------------         ------------        ------------
OTHER OPERATING EXPENSES:
Employees' compensation and benefits                           59,432,111           54,702,977          50,014,110
Occupancy and equipment                                        29,015,200           24,991,540          22,791,863
Business promotion                                              9,304,277            7,506,040           8,468,916
Other taxes                                                     6,857,010            5,973,897           5,054,748
Insurance                                                       2,803,905            2,475,411           1,846,984
Other                                                          25,343,669           25,204,513          24,872,883
                                                            -------------         ------------        ------------
Total other operating expenses                                132,756,172          120,854,378         113,049,504
                                                            -------------         ------------        ------------
Income before income tax provision and
   cumulative effect of accounting change                     130,283,473          107,150,191          82,036,911
INCOME TAX PROVISION                                           22,327,122           20,133,858          14,761,302
                                                            -------------         ------------        ------------
Income before cumulative effect
   of accounting change                                       107,956,351           87,016,333          67,275,609
Cumulative effect of accounting change,
   net of tax                                                                       (1,014,889)
                                                            -------------         ------------        ------------
   NET INCOME                                               $ 107,956,351         $ 86,001,444        $ 67,275,609
                                                            -------------         ------------        ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS                 $  81,550,077         $ 69,493,246        $ 59,868,067
                                                            -------------         ------------        ------------
NET INCOME PER COMMON SHARE BASIC:
Income before cumulative effect of accounting change        $        2.04         $       1.77        $       1.48
Cumulative effect of accounting change                                                   (0.03)
                                                            -------------         ------------        ------------
Earnings per common share basic                             $        2.04         $       1.74        $       1.48
                                                            -------------         ------------        ------------
NET INCOME PER COMMON SHARE DILUTED:
Income before cumulative effect of accounting change        $        2.01         $       1.76        $       1.47
Cumulative effect of accounting change                                                   (0.03)
                                                            -------------         ------------        ------------
Earnings per common share diluted                           $        2.01         $       1.73        $       1.47
                                                            -------------         ------------        ------------
DIVIDENDS DECLARED PER COMMON SHARE                         $        0.40         $       0.35        $       0.29
                                                            -------------         ------------        ------------



The accompanying notes are an integral part of these statements



                                                         51   2002 First BanCorp



   CONSOLIDATED STATEMENTS
   OF CASH FLOWS




                                                                                 Year ended December 31,
                                                                   2002                     2001                     2000
                                                             ----------------         ----------------         ---------------
                                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                   $    107,956,351         $     86,001,444         $    67,275,609
                                                             ----------------         ----------------         ---------------
Adjustments to reconcile net income to net cash
   provided by operating activities:
Depreciation                                                       11,710,016                9,844,282               9,014,068
Core deposit intangible amortization                                1,165,488                  919,261                 866,330
Provision for loan losses                                          62,301,996               61,030,000              45,718,500
Deferred income tax benefit                                        (8,610,812)              (5,402,000)             (4,356,000)
Gain on sale of investments, net                                  (12,000,487)              (9,606,314)             (7,850,472)
Derivative loss                                                     4,522,925
Net gain on sale of loans                                          (3,416,222)              (1,282,845)
Increase (decrease) in accrued income tax payable                   3,434,149               11,306,695             (19,474,679)
Increase in accrued interest receivable                              (141,451)              (9,661,332)            (10,052,025)
(Decrease) increase in accrued interest payable                    (1,364,672)               4,841,187              11,677,924
Amortization of deferred loan (fees) costs                         (1,544,375)                 522,685                (144,768)
Net origination of loans held for sale                            (40,264,215)              (4,629,562)
Decrease in other assets                                           39,671,318               22,893,906               4,657,136
Increase (decrease) in other liabilities                           27,974,273               (9,395,151)             20,740,407
                                                             ----------------         ----------------         ---------------
Total adjustments                                                  83,437,931               71,380,812              50,796,421
                                                             ----------------         ----------------         ---------------
   Net cash provided by operating activities                      191,394,282              157,382,256             118,072,030
                                                             ----------------         ----------------         ---------------
CASH FLOWS FOR INVESTING ACTIVITIES:
Principal collected on loans                                      635,765,469              897,831,839             646,581,300
Loans originated                                                 (903,166,444)          (1,334,581,873)         (1,222,590,263)
Purchase of loans                                                (734,531,121)            (481,200,701)           (238,055,000)
Proceeds from sales of loans                                       83,862,533               42,343,060
Proceeds from sales of investment securities                    2,242,654,071              847,716,293              58,452,236
Purchase of securities held to maturity                       (17,031,372,741)            (254,818,754)             (6,949,462)
Purchase of securities available for sale                     (10,336,516,102)         (12,462,323,482)         (5,125,184,351)
Principal repayments and maturities
  of securities held to maturity                               16,613,061,948               74,529,997
Principal repayments of securities available for sale           8,816,493,581           10,377,705,993           4,692,427,578
Additions to premises and equipment                               (14,412,317)             (13,912,556)            (19,153,597)
Net liabilities assumed on acquisition of business                 73,357,625
Purchase of FHLB stock                                            (12,738,900)              (4,354,100)               (710,000)
                                                             ----------------         ----------------         ---------------
   Net cash used in investing activities                         (567,542,398)          (2,311,064,284)         (1,215,181,559)
                                                             ----------------         ----------------         ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits                                          790,122,398              764,012,251             780,840,486
Net (decrease) increase in federal funds purchased
   and securities sold under agreements to repurchase            (202,096,134)           1,134,888,478             403,553,556
Decrease in other short-term borrowings                                                                           (152,484,084)
FHLB advances taken                                                29,300,000              276,700,000              17,000,000
Payments of notes payable                                          (1,550,000)             (62,000,000)             (3,125,000)
Dividends                                                         (42,372,613)             (30,343,298)            (19,212,141)
Issuance of preferred stock                                        88,906,000              100,069,250              72,437,500
Treasury stock acquired                                                                     (1,929,685)            (30,086,592)
Exercise of stock options                                           1,340,843                1,355,211                  93,750
                                                             ----------------         ----------------         ---------------
   Net cash provided  by financing activities                     663,650,494            2,182,752,207           1,069,017,475
                                                             ----------------         ----------------         ---------------
Net increase (decrease) in cash and cash equivalents              287,502,378               29,070,179             (28,092,054)
Cash and cash equivalents at beginning of year                     94,463,118               65,392,939              93,484,993
                                                             ----------------         ----------------         ---------------
Cash and cash equivalents at end of year                     $    381,965,496         $     94,463,118         $    65,392,939
                                                             ----------------         ----------------         ---------------
Cash and cash equivalents include:
Cash and due from banks                                      $    108,305,943         $     59,898,550         $    63,372,591
Money market instruments                                          273,659,553               34,564,568               2,020,348
                                                             ----------------         ----------------         ---------------
                                                             $    381,965,496         $     94,463,118         $    65,392,939
                                                             ----------------         ----------------         ---------------


The accompanying notes are integral part of these statements.



52   2002 First BanCorp




        CONSOLIDATED STATEMENTS OF CHANGES
        IN STOCKHOLDERS' EQUITY



                                                                                                                   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                                                                                            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                                                                                           107,956,351
Other comprehensive income                                                                                           39,674,517
Issuance of preferred stock    92,000,000                  (3,094,000)
Addition to legal surplus                                                               12,552,664   (12,552,664)
Addition to capital reserve                                              10,000,000                  (10,000,000)
Stock options exercised                          64,500     1,276,343
Common stock split on
 September 30, 2002                          13,318,083   (12,397,220)                                  (920,863)
Cash dividends:
Common stock                                                                                         (15,966,339)
Preferred stock                                                                                      (26,406,274)
                             ------------   -----------   -----------   -----------   ------------   -----------   ------------
DECEMBER 31, 2002            $360,500,000   $39,954,535   $             $70,000,000   $149,345,178  $145,243,124   $ 33,381,163
                             ------------   -----------   -----------   -----------   ------------   -----------   ------------



The accompanying notes are an integral part of these statements.


                                                         53   2002 First BanCorp



   CONSOLIDATED STATEMENTS
   OF COMPREHENSIVE INCOME



                                                                Year ended December 31,
                                                    2002                  2001                  2000
                                                -------------         ------------         -------------
                                                                                  
NET INCOME                                      $ 107,956,351         $ 86,001,444         $  67,275,609
                                                -------------         ------------         -------------

Other comprehensive income, net of tax:

Unrealized gains on securities:
Unrealized holding gains
arising during the period, net of tax of
$16,289,254 (2001-$6,820,246;
2000-$18,312,676)                                  48,867,763           20,460,738            54,938,028
Less: Reclassification adjustment
for gains included in net income,
net of tax of $3,000,122
(2001-$2,401,578; 2000-$1,962,618)                 (9,000,365)          (7,204,736)           (5,887,854)

Cumulative effect of accounting change,
net of tax benefit of $331,500                                             994,500
                                                -------------         ------------         -------------
  Unrealized gains on securities                   39,867,398           14,250,502            49,050,174

Unrealized loss on fair value hedge
attributable to credit risk, net of tax
of  $64,294 (2001-$315,024)                          (192,881)            (945,071)
                                                -------------         ------------         -------------
Total other comprehensive income                   39,674,517           13,305,431            49,050,174
                                                -------------         ------------         -------------

COMPREHENSIVE INCOME                            $ 147,630,868         $ 99,306,875         $ 116,325,783
                                                -------------         ------------         -------------


The accompanying notes are an integral part of these statements.



54   2002 First BanCorp



    NOTES TO CONSOLIDATED
    FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS

First BanCorp (the Corporation) is a financial holding company offering a full
range of financial services. First BanCorp also offers insurance services
through its wholly-owned insurance subsidiary, the FirstBank Insurance Agency.
First BanCorp is subject to the Federal Bank Holding Company Act and its
insurance subsidiary is subject to the supervision, examination and regulation
of the Commissioner of Insurance of Puerto Rico.

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 43 full-service banking branches in Puerto Rico and 11 in the
U.S. and British Virgin Islands. It has 11 loan origination offices in Puerto
Rico focusing on consumer loans and residential mortgage loans. The Bank,
through wholly-owned subsidiaries, operates 33 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).

In October 2002, the Corporation acquired JPMorgan Chase's Eastern Caribbean
Region business in the U.S. Virgin Islands, British Virgin Islands and Barbados.
In addition to branches acquired, this transaction included the acquisition of
the assets of the former Chase Trade, Inc., now First Trade, Inc., and of all
outstanding shares of the former Chase Agency Services, Inc., now FirstBank
Insurance Agency V.I., Inc. Total assets acquired in this transaction amounted
to approximately $590 million, including approximately $435 million in loans
receivable, and total deposits amounted to approximately $557 million.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of the Corporation and its subsidiaries
conform with accounting principles generally accepted in the United States of
America, 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.

Following is a description of the more significant accounting policies followed
by the Corporation:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Corporation
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.

STATEMENTS OF CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and short-term money market instruments with
original maturities of 90 days or less.

INVESTMENT SECURITIES

The Corporation classifies its investments in debt and equity securities into
one of three categories:

Held to maturity - Securities which the entity has the positive intent and
ability to hold to maturity. These securities are carried at amortized cost.

Trading - Securities that are bought and held principally for the purpose of
selling them in the near term. These securities are carried at fair value, with
unrealized gains and losses reported in earnings.

Available for sale - Securities not classified as trading or as held to
maturity. These securities are carried at fair value, with unrealized holding
gains and losses, net of deferred tax effects, reported in other comprehensive
income as a separate component of stockholders' equity.

Premiums and discounts are amortized as an adjustment to interest income over
the life of the related securities using a method that approximates the interest
method. Realized gains or losses on securities are reported in earnings. When
computing realized gains or losses, the cost of securities is determined on the
specific identification method.


                                                         55   2002 First BanCorp



OTHER-THAN-TEMPORARY IMPAIRMENTS

The Corporation evaluates for impairment its debt and equity securities when
their market value has remained below cost for six months or more or earlier if
other factors indicative of potential impairment exist. Investments are
considered to be impaired when a decline in fair value is judged to be
other-than-temporary. The Corporation employs a systematic methodology that
considers available evidence in evaluating potential impairment of its
investments.

The impairment analysis on the fixed income investments is done placing special
emphasis on the analysis of the cash position of the company, its cash and
capital generation capacity, which could increase or diminish the company's
ability to repay its bond obligations. The Corporation also considers its intent
and ability to hold the fixed income securities. If Management believes, based
on the analysis, that the company will not be able to service its debt and pay
its obligations on a timely manner, the security is written down to Management's
estimate of net realizable value.

The equity securities impairment analyses are performed and reviewed quarterly
based on the latest financial information and any supporting research report
made by a major brokerage house. These analyses are very subjective and based,
among other things, on relevant financial data such as capitalization, cash
flow, liquidity, systematic risk, and debt outstanding. Management also
considers the industry trends, the historical performance of the stock, as well
as the Corporation's intent to hold the security for an extended period. If
Management believes there is a low probability of achieving book value in a
reasonable time frame, then an impairment will be recorded by writing the
security down to market value.

LOANS HELD FOR SALE

Loans held for sale are stated at the lower of cost or market. The amount by
which cost exceeds market value in the aggregate portfolio of loans held for
sale, if any, is accounted for as a valuation allowance with changes included in
the determination of net income.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their outstanding balance less unearned interest and net
deferred loan origination fees and costs. Unearned interest on installment loans
(i.e., personal and auto) is recognized as income under a method, which
approximates the interest method.

Loans on which the recognition of interest income has been discontinued are
designated as non-accruing. When loans are placed on non-accruing status, any
accrued but uncollected interest income is reversed and charged against interest
income. Consumer loans are classified as non-accruing when they are delinquent:
90 days or more for auto, boat and home equity reserve loans; 120 days or more
for personal loans; and 180 days or more for credit cards and personal lines of
credit. Commercial and mortgage loans are classified as non-accruing when they
are delinquent 90 days or more. This policy is also applied to all impaired
loans based upon an evaluation of the risk characteristics of said loans, loss
experience, economic conditions and other pertinent factors. Loan losses are
charged and recoveries are credited to the allowance for loan losses.

The Corporation has defined impaired loans as loans with interest and/or
principal past due 90 days or more and other specific loans for which, based on
current information and events, it is probable that the debtor will be unable to
pay all amounts due according to the contractual terms of the loan agreement.
The Corporation measures impairment individually for those commercial and real
estate loans with a principal balance exceeding $1 million. Groups of small
balance, homogeneous loans are collectively evaluated for impairment. The
portfolios of residential mortgage loans, consumer loans, auto loans and finance
leases are considered homogeneous and are evaluated collectively for impairment.
An allowance is established based on the present value of expected future cash
flows or the fair value of the collateral, if the loan is collateral dependent.


56   2002 First BanCorp



LOAN FEES AND COSTS

Loan fees and costs incurred in the origination of loans are deferred and
amortized using the interest method or under a method that approximates the
interest method over the life of the loans as an adjustment to interest income.
When a loan is paid off or sold, any unamortized net deferred fee (cost) is
credited (charged) to income.

SERVICING ASSETS

The Corporation recognizes as separate assets the rights to service loans for
others, whether those servicing assets are originated or purchased. The total
cost of the loans to be sold with servicing assets retained is allocated to the
servicing assets and the loans (without the servicing asset), based on their
relative fair values. Servicing assets are amortized in proportion to and over
the period of estimated net servicing income. Loan servicing fees, which are
based on a percentage of the principal balances of the loans serviced, are
credited to income as loan payments are collected.

To estimate the fair value of servicing assets the Corporation considers the
present value of expected future cash flows associated with the servicing
assets. For purposes of measuring impairment of servicing assets, the
Corporation stratifies such assets based on predominant risk characteristics of
underlying loans. The amount of impairment recognized, if any, is the amount by
which the servicing asset exceeds its estimated fair value. Impairment, if any,
is charged against servicing income.

OTHER REAL ESTATE OWNED

Other real estate owned, acquired in settlement of loans, is recorded at the
lower of cost (carrying value of the loan) or fair value minus estimated cost to
sell the real estate. Gains or losses resulting from the sale of these
properties and losses recognized on the periodic reevaluations of these
properties are credited or charged to net cost (gain) of operations and
disposition of other real estate owned. The cost of maintaining and operating
these properties is expensed as incurred.

PREMISES AND EQUIPMENT

Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the individual assets. Depreciation of leasehold improvements is
computed on the straight-line method over the terms of the leases or estimated
useful lives of the improvements, whichever is shorter. Costs of maintenance and
repairs, which do not improve or extend the life of the respective assets are
expensed as incurred. Costs of renewals and betterments are capitalized. When
assets are sold or disposed of, their cost and related accumulated depreciation
are removed from the accounts and any gain or loss is reflected in earnings.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Corporation sells securities under agreements to repurchase the same or
similar securities. Generally, similar securities are securities from the same
issuer, with identical form and type, similar maturity, identical contractual
interest rates, similar assets as collateral and the same aggregate unpaid
principal amount. The Corporation retains control over the securities sold under
these agreements, accordingly, these agreements are considered financing
transactions and the securities underlying the agreements remain in the asset
accounts. The counter party to certain agreements may have the right to repledge
the collateral by contract or custom. Such assets are presented separately in
the statements of financial condition as securities pledged to creditors that
can be repledged.

ACCOUNTING FOR INCOME TAXES

Deferred taxes arise because certain transactions affect the determination of
income for financial reporting purposes in periods different from the period in
which the transactions affect taxable income. Deferred taxes have been recorded
based upon the Puerto Rico enacted tax rates. Current tax expense has been
provided based upon the estimated tax liability incurred for tax return
purposes. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.


                                                         57   2002 First BanCorp



TREASURY STOCK

The Corporation accounts for treasury stock at par value. Under this method, the
treasury stock account is increased by the par value of each share of common
stock reacquired. Any excess paid per share over the par value is debited to
additional paid-in capital for the amount per share that it was originally
credited. Any remaining excess is charged to retained earnings.

STOCK OPTION PLAN

The Corporation has a stock-based employee compensation plan, which is described
more fully in Note 5. The Corporation accounts for the plan under the
recognition and measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
No stock based employee compensation cost is reflected in net income, as all
options granted under the plan had an exercise price equal to the market value
of the underlying common stock on the date of the grant. The table below
illustrates the effect on net income and earnings per share if the Corporation
had applied the fair value recognition provisions of Financial Accounting
Standards Board (FASB) Statement No. 123, Accounting for Stock Based
Compensation, to stock-based employee compensation granted in year 2002 and 2000
(no options were granted during 2001).



                                                              Year ended December 31,
Pro forma information                                     2002                      2000
                                                        ---------                ---------
                                                       (In thousands, except per share data)
                                                                           
Employees' compensation and benefits                    $  61,647                $  51,763
Net income-available to common stockholders             $  79,335                $  58,119
Earnings per common share-basic                         $    1.99                $    1.44
Earnings per common share-diluted                       $    1.96                $    1.43


EARNINGS PER COMMON SHARE

Earnings per share-basic is calculated by dividing income available to common
stockholders by the weighted average number of outstanding common shares. The
computation of earnings per share-diluted is similar to the computation of
earnings per share-basic except that the weighted average common shares are
increased to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. Stock
options outstanding under the Corporation's stock option plan are considered in
the earnings per share-diluted by application of the treasury stock method,
which assumes that proceeds for the exercise of options are used to repurchase
common stock in the open market. Any stock splits or stock dividends are
retroactively recognized in all periods presented in financial statements.

COMPREHENSIVE INCOME

Comprehensive income includes net income and several other items that current
accounting standards require to be recognized outside of net income, primarily
the unrealized gain (loss) on securities available for sale and the change in
fair value attributable to credit risk on securities hedged with interest rate
swaps, net of estimated tax effect.

DERIVATIVE INSTRUMENTS

On January 1, 2001, the Corporation adopted the Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended. All derivatives are recognized in the statement
of financial position at fair value. Changes in the fair value of derivative
instruments are accounted for as current income or other comprehensive income,
depending on their intended use and designation. 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 or liability, that are
attributable to the hedged risk (fair value hedges) or (b) the effect of the
exposure to the variability of cash flows from the hedged asset or liability
(cash flows hedges). Note 29 describes in more detail the hedging transactions
entered into by the Corporation.


58   2002 First BanCorp



ACQUISITION OF BUSINESS

Business combinations are accounted using the purchase method of accounting, as
required by SFAS No. 141, Business Combinations. Assets acquired and liabilities
assumed are recorded at estimated fair values at the date of acquisition. After
initial recognition, any resulting intangible assets are accounted under the
provisions of SFAS No. 142, Goodwill and Other Intangible Assets.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS
No. 13, and Technical Corrections - In April 2002, the FASB issued SFAS No. 145,
which rescinds SFAS No. 4 and amends SFAS No. 13. This amendment became
effective for transactions occurring after May 15, 2002. The adoption of this
statement did not have a significant impact on the Corporation's financial
statements.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities -
In June 2002, the FASB issued SFAS No. 146, which requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. The provisions of this statement are effective for exit
or disposal activities that are initiated after December 31, 2002. Management
expects that the adoption of this statement will not have a significant impact
on the Corporation's financial statements.

SFAS No. 147, Acquisitions of Certain Financial Institutions - In October 2002,
effective immediately, the FASB issued SFAS No. 147, which requires financial
acquisitions of financial institutions to be accounted for in accordance with
FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. In addition, SFAS No. 147 amends FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, to include in
its scope long-term customer-relationship intangible assets of financial
institutions such as depositor and borrower relationship intangible assets and
credit cardholder intangible assets. The adoption of SFAS No. 147 did not have
an impact on the Corporation's financial statements.

SFAS No. 148, Accounting for Stock-Based Compensation- Transition and Disclosure
an amendment of FASB Statement No. 123- In December 2002, the FASB issued SFAS
No. 148, which provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. All required disclosures under SFAS No. 123, as amended by SFAS
No. 148, are included in these financial statements. The Corporation has not
adopted the fair value method for recognition of stock based compensation.

FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees - In November 2002, the FASB issued this interpretation, which
requires a guarantor of certain types of guarantees to recognize, at the
inception of guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. These provisions for initial recognition
are effective for guarantees that are issued or modified after December 31,
2002. In the case of the Corporation, these provisions apply for the standby
letters of credit. See Note 29 for details of the letters of credit outstanding
as of December 31, 2002. The adoption of this interpretation will not have a
significant effect in the Corporation's financial statements.

NOTE 3 - STOCKHOLDERS' EQUITY

COMMON STOCK

On August 27, 2002, the Corporation declared a three for two (or 50%) stock
split on its 26,636,452 outstanding shares of common stock at September 13,
2002. As a result, a total of 14,958,383 additional shares of common stock were
issued on September 30, 2002, of which 1,640,300 shares were recorded as
treasury stock. All per share amounts have been adjusted for the effect of the
stock split in the third quarter of 2002.

STOCK REPURCHASE PLAN AND TREASURY STOCK

The Corporation has a stock repurchase program under which from time to time it
repurchases shares of common stock in the open market and hold them as treasury
stock. Under this program, the Corporation repurchased a total of 86,200 shares
of common stock at a cost of $1,929,685 during 2001, and 1,642,400 shares of
common stock at a cost of $30,086,592 during 2000. No shares of common stock
were repurchased during 2002. From the total amount of common stock repurchased,
4,920,900 shares, as adjusted for September 30, 2002 stock split, were held as
treasury stock at December 31, 2002 (2001 - 3,280,600 shares) and were available
for general corporate purposes.


                                                         59   2002 First BanCorp



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 2002, the Corporation issued 3,680,000 shares of
preferred stock (2001-4,140,000 shares; 2000-3,000,000 shares; 1999-3,600,000
shares). The liquidation value per share is $25. Annual dividends of $1.8125 per
share (issuance of 2002), $1.85 per share (issuance of 2001), $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. During the year, dividends
declared on preferred stock amounted to $26,406,274 (2001 - $16,508,198; 2000 -
$7,407,542).

CAPITAL RESERVE

The capital reserve account was established to comply with certain regulatory
requirements of the Office of the Commissioner of Financial Institutions of
Puerto Rico related to the issuance of subordinated notes by FirstBank in 1995.
An amount equal to 10% of the principal of the notes is set aside each year from
retained earnings until the reserve equals the total principal amount. At the
notes repayment date the balance in capital reserve is to be transferred to the
legal surplus account or retained earnings after the approval of the
Commissioner of Financial Institutions of Puerto Rico.

LEGAL SURPLUS

The Banking Act of the Commonwealth of Puerto Rico requires that a minimum of
10% of FirstBank's net income for the year be transferred to legal surplus,
until such surplus equals the total of paid in capital on common and preferred
stock. Amounts transferred to the legal surplus account from the retained
earnings account are not available for distribution to the stockholders.

NOTE 4 - REGULATORY CAPITAL REQUIREMENTS

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 and certain
off-balance sheet items, which vary from 0% to 100% depending on the nature of
the asset.

At December 31, 2002 and 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.


60   2002 First BanCorp



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



                                                               Regulatory Requirements
                                                                     For capital               To be well
                                           Actual                 adequacy purposes            capitalized
                                   Amount            Ratio       Amount       Ratio        Amount        Ratio
                                  --------           -----      --------      -----       --------       -----
                                                                                       
                                                             (Dollars in thousands)

At December 31, 2002
Total Capital
(to Risk-Weighted
Assets):
First BanCorp                     $816,946           13.75%     $475,155        8%        $593,944        10%
FirstBank                          739,996           12.50%      473,617        8%         592,022        10%

Tier I Capital
(to Risk-Weighted Assets):
First BanCorp                     $707,083           11.90%     $237,578        4%        $356,366         6%
FirstBank                          632,487           10.68%      236,809        4%         355,213         6%

Tier I Capital
(to Average Assets):
First BanCorp                     $707,083            7.35%     $288,628        3%        $481,046         5%
FirstBank                          632,487            6.62%      286,801        3%         478,002         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%



NOTE 5 - STOCK OPTION PLAN

The Corporation has a stock option plan covering certain employees. The options
granted under the plan cannot exceed 20% of the number of common shares
outstanding. Each option provides for the purchase of one share of common stock
at a price not less than the fair market value of the stock on the date the
option is granted. Stock options are fully vested upon issuance. The maximum
term to exercise the options is ten years. The stock option plan provides for a
proportionate adjustment in the exercise price and the number of shares that can
be purchased in the event of a stock dividend, stock split, reclassification of
stock, merger or reorganization and certain other issuance and distributions.

Management uses the Black-Scholes option pricing model for the computation of
the estimated fair value of each option granted to buy shares of the
Corporation's common stock (refer to Note 2 for accounting policy). The fair
value of each option granted during 2002 and 2000 (no options were granted
during 2001) was estimated using the following assumptions: weighted dividend
growth of 20% (2002) and 0% (2000); expected life of 3.29 years (2002) and 3.11
years (2000); weighted expected volatility of 31.76% (2002) and 31.74% (2000);
and weighted risk-free interest rate of 3.66% (2002) and 5.36% (2000). The
weighted estimated fair value of the options granted was $4.08 (2002) and $3.67
(2000) per option, as adjusted for the September 2002 stock split.


                                                         61   2002 First BanCorp


Following is a summary of the activity related to stock options, adjusted to
reflect the stock split of September 30, 2002:



                                    Number           Weighted Average
                                  of Options     Exercise Price per Option
                                           
At December 31, 1999              1,449,750              $   11.38
Granted                             477,000              $   14.87
Exercised                            (9,000)             $   10.42
Canceled                            (10,500)             $   17.33
                                  ---------
At December 31, 2000              1,907,250              $   12.24
Exercised                          (351,000)             $    3.86
Canceled                             (3,000)             $   18.92
                                  ---------
At December 31, 2001              1,553,250              $   14.12
Granted                             542,750              $   18.96
Exercised                           (96,750)             $   13.86
                                  ---------
At December 31, 2002              1,999,250              $   15.44
                                  ---------


The exercise price of the options outstanding at December 31, 2002, as adjusted
for September 2002 stock split, ranges from $10.42 to $25.99 and the weighted
average remaining contractual life is approximately seven years.

Following is additional information concerning the stock options outstanding at
December 31, 2002.



           Number of       Exercise Price        Contractual
            Options          per Option          Maturity
           ---------       --------------        -----------
                                           
            300,000            $10.42            November    2007
             75,000            $12.79            February    2008
             60,000            $18.06            May         2008
             18,000            $17.71            June        2008
            261,000            $17.33            November    2008
              3,000            $17.29            February    2009
              5,250            $17.63            April       2009
            270,750            $13.08            November    2009
            465,000            $14.88            December    2010
            521,250            $18.69            February    2012
             20,000            $25.99            October     2012
          ---------
          1,999,250
          ---------



62   2002 First BanCorp



NOTE 6 - EARNINGS PER COMMON SHARE

The calculations of earnings per common share for the years ended December 31,
2002, 2001 and 2000 follow:



                                                                 Year ended December 31,
                                                         2002             2001             2000
                                                      ---------         --------         --------
                                                          (In thousands, except per share data)
                                                                                
Net income                                            $ 107,956         $ 86,001         $ 67,276
Less: Preferred stock dividend                          (26,406)         (16,508)          (7,408)
                                                      ---------         --------         --------
Net income-attributable to common stockholders        $  81,550         $ 69,493         $ 59,868
                                                      ---------         --------         --------
EARNINGS PER COMMON SHARE-BASIC:

Net income - available to common stockholders         $  81,550         $ 69,493         $ 59,868
                                                      ---------         --------         --------
Weighted average common shares outstanding               39,901           39,851           40,415
                                                      ---------         --------         --------
Earnings per common share-basic                       $    2.04         $   1.74         $   1.48
                                                      ---------         --------         --------
EARNINGS PER COMMON SHARE-DILUTED:

Net income - available to common stockholders         $  81,550         $ 69,493         $ 59,868
                                                      ---------         --------         --------
Weighted average common shares
and share equivalents:
Average common shares outstanding                        39,901           39,851           40,415
Common stock equivalents - Options                          652              293              303
                                                      ---------         --------         --------
Total                                                    40,553           40,144           40,718
                                                      ---------         --------         --------
EARNINGS PER COMMON SHARE-DILUTED:                    $    2.01         $   1.73         $   1.47
                                                      ---------         --------         --------


The earnings per share for prior years have been restated to reflect the effect
of the stock split in the third quarter of 2002. The 2001 earnings per common
share basic and diluted are net of cumulative effect of change in accounting
principle.

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. In 2002, 20,000 stock options
(2001-10,500, 2000-858,750) were not included in the computation of outstanding
shares because they were antidilutive. These amounts have been adjusted for 2002
stock split.

NOTE 7 - CASH AND DUE FROM BANKS

The Corporation is required by law to maintain minimum average reserve balances.
The amount of those average reserve balances was approximately $93,263,632 at
December 31, 2002 (2001 - $46,078,200).

NOTE 8 - INVESTMENT SECURITIES HELD FOR TRADING

At December 31, 2002 and 2001, there were no securities held for trading
purposes or options on such securities.

All trading instruments are subject to market risk, the risk that future changes
in market conditions, such as fluctuations in market prices or interest rates,
may make an instrument less valuable or more onerous. The instruments are
accounted for at market value, and their changes are reported directly in
earnings. The Corporation may write options on trading securities as part of its
trading activities. Also the Corporation may enter in transactions of securities
sold not yet purchased for trading purposes. These transactions are carried at
market value. Net gains and losses resulting from these transactions are
recorded in the trading income or loss account. The net gain from the sale of
trading securities amounted to $419,367 for the year ended December 31, 2000,
and was included in earnings as trading income. No trading activities were
recorded during 2002 and 2001.



                                                         63   2002 First BanCorp



NOTE 9 - INVESTMENT SECURITIES HELD TO MATURITY

The amortized cost, gross unrealized gains and losses, approximate market value,
weighted average yield and final maturities of investment securities held to
maturity at December 31, 2002 and 2001 were as follows:



                                          December 31, 2002                                December 31, 2001
                                            Gross                                               Gross
                                          Unrealized                Weighted                  Unrealized                   Weighted
                        Amortized     ---------------      Market    average    Amortized   ----------------      Market   average
                           cost       gains    losses      value     yield%       cost      gains    losses       value     yield%
                        ---------     ------   ------     --------  --------    ---------   -----    -------     --------  --------
                                                                 (Dollars in thousands)
                                                                                             
Obligations of
  other U.S.
  Government
  Agencies:
After 10 years           $628,820     $3,307     $ 59     $632,068     7.85     $211,194     $  3     $6,466     $204,731     7.39
Puerto Rico
  Government
  Obligations:
After 1 to 5 years          5,000        113                 5,113     5.00        5,000                            5,000     5.00
After 10 years              4,354        586                 4,940     6.50        4,084      228                   4,312     6.50
                         --------     ------     ----     --------              --------     ----     ------     --------
United States and
 Puerto Rico
 Government
 obligations             $638,174     $4,006     $ 59     $642,121     7.82     $220,278     $231     $6,466     $214,043     7.32
                         --------     ------     ----     --------              --------     ----     ------     --------
Corporate bonds:
Due within 1 year        $ 25,000                         $ 25,000     3.05
After 1 to 5 years         39,432                $609       38,823     2.95     $ 64,018              $  277       63,741     3.49
                         --------     ------     ----     --------              --------     ----     ------     --------
Corporate bonds          $ 64,432                $609     $ 63,823     2.98     $ 64,018              $  277     $ 63,741     3.49
                         --------     ------     ----     --------              --------     ----     ------     --------
Total Investment
 Securities Held
 to Maturity             $702,606     $4,006     $668     $705,944     7.38     $284,296     $231     $6,743     $277,784     6.46
                         --------     ------     ----     --------              --------     ----     ------     --------


Expected maturities of investments might differ from contractual maturities
because they may be subject to prepayments and / or call options. At January 1,
2001, in connection with the adoption of SFAS No. 133, the Corporation
transferred a portfolio of $207 million of GNMA certificates 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.



64  2002 First BanCorp


Note 10 - Investment Securities Available For Sale

The amortized cost, gross unrealized gains and losses, approximate market value,
weighted average yield and final maturities of investment securities available
for sale at December 31, 2002 and 2001 were as follows:



                                         December 31, 2002                                    December 31, 2001
                             -----------------------------------------             --------------------------------------
                                                 Gross                   Weighted                   Gross                   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                                                                    $    7,726   $    30             $    7,756   3.18
Obligations of other
 U.S. Government
 Agencies:
Within 1 year                                                                       407,324             $    32      407,292   1.72
After 1 to 5 years          $      500   $     3             $      503   3.87
After 5 to 10 years                750        17                    767   5.60          500         1                    501   5.59
After 10 years                  15,568       480                 16,048   7.69       87,519       469     1,805       86,183   7.55
Puerto Rico Government
Obligations:
After 5 to 10 years              4,999       375                  5,374   6.27        4,458       128                  4,586   6.19
After 10 years                   5,679       401                  6,080   6.30        5,932       151                  6,083   6.34
                            ----------   -------             ----------          ----------   -------   -------   ----------
United States and
Puerto Rico Government
Obligations                 $   27,496   $ 1,276             $   28,772   7.02   $  513,459   $   779   $ 1,837   $  512,401   2.83
                            ----------   -------             ----------          ----------   -------   -------   ----------

Mortgage Backed
 Securities:
FHLMC certificates:
Within 1  year                                                                      $     8                       $        8   5.85
After 1 to 5 years          $    1,458   $    82             $    1,540   6.47          112   $     4                    116   7.63
After 5 to 10 years              8,211       613                  8,824   7.42       13,211       576                 13,787   7.29
After 10 years                   6,347       358                  6,705   6.86        8,030       172   $     6        8,196   6.95
                            ----------   -------             ----------          ----------   -------   -------   ----------
                                16,016     1,053                 17,069   7.11       21,361       752         6       22,107   7.16
                            ----------   -------             ----------          ----------   -------   -------   ----------
GNMA certificates:
After 5 to 10 years              3,608       170                  3,778   6.41        4,605       101                  4,706   6.39
After 10 years                 524,278     9,439                533,717   5.11    2,515,953    12,672     6,539    2,522,086   6.52
                            ----------   -------             ----------          ----------   -------   -------   ----------
                               527,886     9,609                537,495   5.12    2,520,558    12,773     6,539    2,526,792   6.52
                            ----------   -------             ----------          ----------   -------   -------   ----------
FNMA certificates:
Within 1 year                       29                               29   6.33
 After 1 to 5 years                  5                                5   7.68          158         4                    162   6.92
 After 5 to 10 years               764        53                    817   7.66          124         5                    129   7.32
 After 10 years              1,916,460    39,523              1,955,983   4.93        7,095       408                  7,503   7.96
                            ----------   -------             ----------          ----------   -------             ----------
                             1,917,258    39,576              1,956,834   4.93        7,377       417                  7,794   7.93
                            ----------   -------             ----------          ----------   -------             ----------
Mortgage pass through
 certificates:
After 10 years                   1,175        32                  1,207   7.23        1,958        38                  1,996   8.70
                            ----------   -------             ----------          ----------   -------             ----------
Mortgage Backed
 Securities                 $2,462,335   $50,270             $2,512,605   4.99   $2,551,254   $13,980   $ 6,545   $2,558,689   6.53
                            ----------   -------             ----------          ----------   -------   -------   ----------
Corporate Bonds:
Within 1 year               $      979   $    36             $    1,015   7.87   $   19,246   $   410             $   19,656   7.70
After 1 to 5 years              85,711     1,244   $10,865       76,090   6.16      118,919     1,770   $ 2,899      117,790   6.68
After 5 to 10 years             57,276       445     1,084       56,637   6.94      114,855        77     1,906      113,026   7.34
After 10 years                                                                       18,531       328                 18,859   7.35
                            ----------   -------             ----------          ----------   -------             ----------
Corporate bonds             $  143,966   $ 1,725   $11,949   $  133,742   6.48   $  271,551   $ 2,585   $ 4,805   $  269,331   7.08
                            ----------   -------             ----------          ----------   -------   -------   ----------
Equity securities
 (without contractual
 maturity)                  $   36,951   $10,006   $ 5,302   $   41,655   1.72   $   45,115   $ 4,901   $16,189   $   33,827   1.43
                            ----------   -------             ----------          ----------   -------   -------   ----------
Total Investments
Securities Available
 for Sale                   $2,670,748   $63,277   $17,251   $2,716,774   5.04   $3,381,379   $22,245   $29,376   $3,374,248   5.95
                            ==========   =======   =======   ==========          ==========   =======   =======   ==========



                                                           65 First BanCorp 2002







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.

During 2002, the Corporation's bank subsidiary restructured its portfolio of
mortgage backed securities available for sale in order to shorten its duration
and reduce its prepayment risk. As a result, in late June and early July of
2002, approximately $1 billion of 30-year mortgage backed securities were sold.
The sales derived a gain of $14 million. The securities sold were substantially
substituted with $900 million of 15-year mortgage backed securities, which have
a lower average life and yield, and which value is less sensitive to increases
in interest rates. In addition, in September and October, the Corporation sold
its 7% GNMA portfolio of approximately $964 million to substitute with lower
coupons. The sales derived a gain of $26.1 million. These securities were
substituted in November with $1 billion FNMA's 15 years.

It is the Corporation's policy to invest in corporate bonds, which at the time
of the purchase, are of an investment grade quality. The total carrying amount
of the corporate bonds portfolio is $198 million, or approximately 5% of total
investments of the Corporation as of December 31, 2002. In 2002, two of the
bonds in FirstBank's portfolio were downgraded, to non-investment grade quality
by two credit rating agencies. These were, WorldCom Corporation, $15.5 million
outstanding at the time of the downgrade and Nortel Networks Corporation, $23.5
million outstanding at the time of the downgrade. Management's impairment
analysis on these securities concluded that an other-than-temporary impairment
of approximately $11.7 million had occurred in the case of the WorldCom
Corporation bonds. The estimated impairment amount of this security was
recognized as a loss in the statement of income. In addition, Management
reclassified to non-accruing status the remaining carrying amount of $3.8
million. Management's impairment analysis concluded that no other-than-temporary
impairment existed on Nortel's bonds. The unrealized loss of the Nortel's bonds
at December 31, 2002 approximated $8.5 million.

At December 31, 2002, the Corporation's equity securities portfolio carrying
amount is $41.7 million, and its adjusted cost is $37 million. The Corporation's
current policy guidelines limit investments in equity securities to $60 million,
which is 1.6% of the Corporation's total investments as of December 31, 2002.
The Corporation invests in equity securities that have long-term appreciation
prospects. During the year ended on December 31, 2002, the Corporation
recognized a loss of $25.2 million for other-than-temporary impairment on equity
securities. At December 31, 2002, these securities have not been sold.

Management determined that except for the impairments on the bonds and stocks
mentioned above, there are no other-than-temporary impairments on the rest of
the bonds and equity securities portfolio. Management will continue its ongoing
monitoring of the Corporation's investment on individual corporate bonds and
equity securities to identify any other-than-temporary impairment.

At December 31, 2002, the net unrealized gain of $34,519,114 (2001 - net
unrealized loss of $5,348,283) on securities available for sale, net of the
deferred income tax of $11,506,371 (2001 - $1,782,761), was reported as part of
accumulated other comprehensive income. For 2002, the change in the net
unrealized holding gain on the available for sale securities amounted to
$53,156,531 (2001 - a gain of $19,000,669) before deferred income taxes.

For 2002, proceeds from the sale of securities amounted to $2,243 million (2001
- - $847.7 million, 2000 - $58.5 million) resulting in gross realized gains of
$49.7 million (2001 - $13.6 million, 2000 -$7.9 million), and gross realized
losses on sale of investments and impairments of $37.7 million (2001 - $4
million). No losses were realized during 2000.

NOTE 11 - FEDERAL HOME LOAN BANK (FHLB) STOCK

At December 31, 2002 and 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.



66 First BanCorp 2002



NOTE 12 - INTEREST AND DIVIDEND ON INVESTMENTS

A detail of interest and dividend income on investments follows:

                                         Year ended December 31,
                                    2002          2001          2000
                                  --------      --------      --------
                                            (In thousands)
Mortgage Backed Securities:
Taxable                           $  3,765      $  2,666      $  3,325
Exempt                             117,338       106,571        91,416
                                  --------      --------      --------
                                  $121,103      $109,237      $ 94,741
                                  --------      --------      --------
Other Investment Securities:
Taxable                           $  3,079      $  2,639      $  1,577
Exempt                              64,013        50,602        38,060
                                  --------      --------      --------
                                  $ 67,092      $ 53,241      $ 39,637
                                  ========      ========      ========

NOTE 13 - LOANS RECEIVABLE

The following is a detail of the loan portfolio:
                                                         December 31,
                                                    2002              2001
                                                 -----------       -----------
                                                        (In thousands)
Residential real estate loans:
Secured by first mortgages:
Conventional                                     $ 1,778,046       $   955,573
Insured by government agencies:
Federal Housing Administration and Veterans
Administration                                        41,805            25,211
Puerto Rico Housing Bank and Finance Agency           19,060            23,513
Secured by second mortgages                            7,650             8,088
                                                 -----------       -----------
                                                   1,846,561         1,012,385
Deferred net loan fees                                (3,247)           (5,107)
                                                 -----------       -----------
Residential real estate loans                      1,843,314         1,007,278
                                                 -----------       -----------

Commercial loans:
Construction loans                                   259,053           219,396
Commercial loans                                   1,418,792         1,238,173
Commercial mortgage                                  813,513           688,922
                                                 -----------       -----------
Commercial loans                                   2,491,358         2,146,491
                                                 -----------       -----------
Finance leases                                       143,412           127,935
                                                 -----------       -----------
Consumer and other loans:
Personal                                             413,931           362,490
Personal lines of credit                              10,401            11,216
Auto                                                 565,478           502,902
Boat                                                  53,017            39,570
Credit card                                          164,172           176,226
Home equity reserve loans                              4,566             1,851
Unearned interest                                    (62,553)          (71,810)
                                                 -----------       -----------
Consumer and other loans                           1,149,012         1,022,445
                                                 -----------       -----------
Loans receivable                                   5,627,096         4,304,149
Allowance for loan losses                           (111,911)          (91,060)
                                                 -----------       -----------
Loans receivable, net                              5,515,185         4,213,089
Loans held for sale                                   10,754             4,630
                                                 -----------       -----------
Total loans                                      $ 5,525,939       $ 4,217,719
                                                 ===========       ===========



                                                           67 First BanCorp 2002




The Corporation's primary lending area is Puerto Rico. At December 31, 2002 and
2001 there is no significant concentration of credit risk in any specific
industry on the loan portfolio.

At December 31, 2002, loans in which the accrual of interest income had been
discontinued amounted to $91,765,000 (2001 - $72,998,000; 2000 - $67,716,000).
If these loans had been accruing interest, the additional interest income
realized would have been approximately $5,833,000 (2001 - $5,735,000; 2000 -
$5,937,000). There are no material commitments to lend additional funds to
borrowers whose loans were in non-accruing status at these dates.

At December 31, 2002 mortgage loans held for sale amounted to $10.8 million
(2001-$4.6 million).

At December 31, 2002, the Corporation was servicing residential mortgage loans
owned by others aggregating approximately $196,748,000 (2001 - $160,583,000;
2000 - $144,805,000).

Various loans secured by first mortgages were assigned as collateral for term
notes, certificates of deposit, advances from the Federal Home Loan Bank, and
unused lines of credit. The mortgage loans pledged as collateral amounted to
$778,829,294 and $195,267,091 at December 31, 2002 and 2001, respectively.

NOTE 14 - ALLOWANCE FOR LOAN LOSSES

The changes in the allowance for loan losses were as follows:



                                                    Year ended December 31,
                                             2002            2001            2000
                                          ---------       ---------       ---------
                                                        (In thousands)
                                                                 
Balance at beginning of period            $  91,060       $  76,919       $  71,784
Provision charged to income                  62,302          61,030          45,719
Losses charged against the allowance        (48,991)        (54,380)        (51,831)
Recoveries credited to the allowance          7,540           7,391           9,807
Other adjustments                                               100           1,440
                                          ---------       ---------       ---------
Balance at end of period                  $ 111,911       $  91,060       $  76,919
                                          =========       =========       =========


At December 31, 2002, $27 million ($10.7 million at December 31, 2001) in
commercial and real estate loans over $1,000,000 were considered impaired with
an allowance of $5.9 million ($3.7 million at December 31, 2001), which was
established based on the fair value of the collateral. For 2001, $2 million of
the allowance on impaired loans was established based on the fair value of the
collateral and $1.7 million was established based on the present value of
expected future cash flows. The average recorded investment in impaired loans
amounted to $18.9 million for 2002 (2001 - $11.9 million). Interest income in
the amount of approximately $803,000 was recognized on impaired loans in 2002
(2001 -$377,000; 2000 - $227,000).

NOTE 15 - RELATED PARTY TRANSACTIONS

The Corporation granted loans to its directors, executive officers and to
certain related individuals or entities in the ordinary course of business. The
movement and balance of these loans were as follows:

                                                                  Amount
                                                                 --------
                                                              (In thousands)

Balance at December 31, 2000                                     $ 20,174
New loans                                                          14,659
Payments                                                             (170)
                                                                 --------
Balance at December 31, 2001                                     $ 34,663
New loans                                                          48,784
Payments                                                           (1,943)
                                                                 --------
Balance at December 31, 2002                                     $ 81,504
                                                                 ========




68 First BanCorp 2002





NOTE 16 - PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation as
follows:

                                    Useful life    December 31,   December 31,
                                     in years         2002            2001
                                    -----------    ---------       ---------
                                                  (In thousands)
Land                                               $   8,203       $   7,357
Buildings and improvements             10-40          41,918          39,809
Leasehold improvements                  1-15          20,436          14,753
Furniture and equipment                 3-10          94,675          62,466
                                                   ---------       ---------
                                                     165,232         124,385
Accumulated depreciation                             (87,083)        (55,001)
                                                   ---------       ---------
                                                      78,149          69,384
Projects in progress                                   9,447           6,772
                                                   ---------       ---------
Total premises and equipment, net                  $  87,596       $  76,156
                                                   =========       =========

NOTE 17 - INTANGIBLE ASSETS

At December 31, 2002, the Corporation has a core deposit intangible with a
carrying amount of $20,807,539 (2001-$7,199,439) included in the Other Assets
category. Increase in this category represents the recognition of an intangible
asset as part of the acquisition of the JP Morgan Chase's Eastern Caribbean
Region business. The straight-line amortization expense for the year ended
December 31, 2002 amounted to approximately $1,165,000. The estimated aggregate
amortization expense for each of the five succeeding fiscal years will be
approximately $2,400,000. Management has reviewed the core deposits intangible
assets concluding that no impairment is necessary and that the useful life of
ten years used to amortize them is the best estimate of the economic benefit
period.

NOTE 18 - DEPOSITS AND RELATED INTEREST

Deposits and related interest consist of the following:



                                                       December 31,    December 31,
                                                           2002            2001
                                                        ----------      ----------
                                                             (In thousands)
                                                                 
Type of account and interest rate:
Savings accounts - 1.25% to 2.25%
   (2001 - 2.25% to 3.50%)                              $  921,103      $  469,452
Interest bearing checking accounts - 1.15% to 2.00%
   (2001 - 2.25% to 3.05%)                                 230,743         205,760
Non-interest bearing checking accounts                     447,076         239,851
Certificate accounts - 1.00% to 7.50%
   (2001 - 2.00% to 7.50%)                               3,883,996       3,183,491
                                                        ----------      ----------
                                                        $5,482,918      $4,098,554
                                                        ==========      ==========


The weighted average interest rate on total deposits at December 31, 2002 and
2001 was 2.58% and 3.82%, respectively.

At December 31, 2002, the aggregate amount of overdraft in demand deposits that
were reclassified as loans amounted to $7,281,895 (2001 - $7,807,724).

The following table presents a summary of certificates of deposits with
remaining term of more than one year at December 31, 2002:

                                                                    Total
                                                                  ----------
                                                                (In thousands)

Over one year to two years                                        $  258,698
Over two years to three years                                        162,066
Over three years to four years                                       341,276
Over four years to five years                                        199,752
Over five years                                                    1,814,983
                                                                  ----------
Total                                                             $2,776,775
                                                                  ==========



                                                           69 First BanCorp 2002



At December 31, 2002 certificates of deposit (CD's) in denominations of $100,000
or higher amounted to $3,379,748,775 (2001 - $2,669,536,603) including brokered
certificates of deposit of $2,645,909,222 (2001 - $2,189,687,222) at a weighted
average rate of 2.64%, after hedging (2001 - 4.0%). See Note 29 for a
description of the program used to hedge the fair value of the brokered
certificates of deposit.

At December 31, 2002, deposit accounts issued to government agencies with a
carrying value of $220,869,357 (2001 - $63,639,152) were collateralized by
securities with a carrying value of $259,433,606 (2001 - $75,126,925) and
estimated market value of $263,467,485 (2001 - $71,979,923), by specific
mortgage loans with a carrying value of $2,416,677 (2001 - $2,895,723) and
estimated market value of $3,010,938 (2001 - $3,370,043) and by municipal
obligations with a carrying value and estimated market value of $27,810,000.

A table showing interest expense on deposits follows:

                                               Year ended December 31,
                                          2002          2001          2000
                                        --------      --------      --------
                                                    (In thousands)
Savings                                 $ 15,096      $ 12,954      $ 12,792
Interest bearing checking accounts         4,763         5,296         5,546
Certificates of deposit                  113,376       142,508       134,945
                                        --------      --------      --------
Total                                   $133,235      $160,758      $153,283
                                        ========      ========      ========

NOTE 19 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
          REPURCHASE

Federal funds purchased and securities sold under agreements to repurchase
(repurchase agreements) consist of the following:

                                            December 31,
                                        2002            2001
                                     ----------      ----------
                                           (In thousands)
Federal funds purchased,
interest rate 1.80%                                  $   10,000
Repurchase agreements, interest
ranging from 1% to 5.37%
(2001 - 1.25% to 6.09%)              $2,784,078       2,976,174
Accrued interest payable                  9,462          11,000
                                     ----------      ----------
Total                                $2,793,540      $2,997,174
                                     ==========      ==========

The weighted average interest rates of federal funds purchased and repurchase
agreements at December 31, 2002 and 2001 was 3.82% and 4.05%, respectively.

Federal funds purchased and repurchase agreements mature as follows:

                                                     December 31,
                                                 2002            2001
                                              ----------      ----------
                                                    (In thousands)
One to thirty days                            $  708,924      $  723,010
Over thirty to ninety days                           194          14,062
Over ninety days to one year                                     274,142
Over one year                                  2,074,960       1,974,960
                                              ----------      ----------
Total                                         $2,784,078      $2,986,174
                                              ==========      ==========



70 First BanCorp 2002




The following securities were sold under agreements to repurchase:



                                                        December 31, 2002
                                  Amortized                      Approximate      Weighted
                                    cost of                      market value     average
                                  underlying     Balance of     of underlying     interest
UNDERLYING SECURITIES             securities     borrowing        securities       rate
                                 -----------     ----------     -------------     --------
                                                       (In thousands)
                                                                      
U.S. Treasury Securities and
obligations of other U.S.
Government Agencies              $  718,886      $  646,095      $  721,216         5.70%
P.R. Government Securities              290             260             324         6.48%
Mortgage backed securities        2,248,037       2,020,414       2,293,031         5.67%
Corporate bonds                     130,525         117,309         130,523         5.20%
                                 ----------      ----------      ----------
Total                            $3,097,738      $2,784,078      $3,145,094
                                 ----------      ==========      ==========
Accrued interest receivable      $   12,257
                                 ==========


                                                        December 31, 2001
                                  Amortized                      Approximate      Weighted
                                    cost of                      market value     average
                                  underlying     Balance of     of underlying     interest
UNDERLYING SECURITIES             securities     borrowing        securities       rate
                                 -----------     ----------     -------------     --------
                                                                      
U.S. Treasury Securities and
obligations of other U.S.
Government Agencies              $  506,685      $  392,081      $  515,447         3.80%
Mortgage backed securities        2,441,777       2,380,851       2,389,645         6.70%
Corporate bonds                     262,648         203,242         260,542         7.17%
                                 ----------      ----------      ----------
Total                            $3,211,110      $2,976,174      $3,165,634
                                 ----------      ==========      ==========
Accrued interest receivable      $   15,715
                                 ==========



The maximum aggregate balance outstanding at any month-end during 2002 was
$3,342,284,753 (2001 - $2,986,174,065). The average balance during 2002 was
approximately $2,784,701,323 (2001 - $1,997,705,000).

At December 31, 2002 and 2001, the securities underlying such agreements were
delivered to, and are being held by the dealers with which the repurchase
agreements were transacted, except for transactions where the Corporation has
agreed to repurchase similar but not identical securities.

NOTE 20 - ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)

Following is a detail of the advances from the FHLB:

                                          December 31,
Maturity                  Interest rate      2002            2001
- --------                  -------------   ------------     --------
                                         (In thousands)
January 2, 2002               1.85%                        $ 20,700
January 13, 2003              1.44%        $ 50,000
August 16, 2005               6.30%          50,000          50,000
October 9, 2008               5.10%          14,000          14,000
October 16, 2008              5.09%          15,000          15,000
February 28, 2011             4.50%          79,000          79,000
March 21, 2011                4.42%         165,000         165,000
                                           --------        --------
                                           $373,000        $343,700
                                           ========        ========

                                                           71 First BanCorp 2002



Advances are received from the FHLB under an Advances, Collateral Pledge and
Security Agreement (the Collateral Agreement). Under the Collateral Agreement,
the Corporation is required to maintain a minimum amount of qualifying mortgage
collateral with a market value at least 110% of the outstanding advances. At
December 31, 2002, specific mortgage loans with an estimated value of
$553,144,554 (2001 - $197,506,039), as computed by Federal Home Loan Bank for
collateral purposes, were pledged to the FHLB as part of the Collateral
Agreement. The carrying value of such loans at December 31, 2002 amounted to
$776,412,617 (2001 - $192,371,368). In addition, securities with an approximated
market value of $26,587,830 (2001 - $145,140,574) and a carrying value of
$29,149,623 (2001 - $158,117,351) were pledged to the FHLB.

NOTE 21 - SUBORDINATED NOTES

On December 20, 1995, the Corporation issued 7.63% subordinated capital notes in
the amount of $100,000,000 maturing in 2005. The notes were issued at a
discount. At December 31, 2002 the outstanding balance net of the unamortized
discount and notes repurchased was $82,815,105 (2001 - $84,361,525). Interest on
the notes is payable semiannually and at maturity. The notes represent unsecured
obligations of the Corporation ranking subordinate in right of payment to all
existing and future senior debt including the claims of depositors and other
general creditors. The notes may not be redeemed prior to their maturity. At
December 31, 2002, the Corporation has transferred to capital reserves from the
retained earnings account $70,000,000 as a result of the requirement explained
in Note 3 - "Stockholders' Equity."

NOTE 22 - UNUSED LINES OF CREDIT

The Corporation maintains unsecured standby lines of credit with other banks. At
December 31, 2002 and 2001, the Corporation's total unused lines of credit with
these banks amounted to approximately $180,000,000. At December 31, 2002, the
Corporation has an available line of credit with the FHLB guaranteed with excess
collateral, in the amount of $206,732,384.

NOTE 23 - EMPLOYEES' BENEFIT PLAN

FirstBank provides contributory retirement plans pursuant to Section 1165(e) of
the Puerto Rico Internal Revenue Code for Puerto Rico employees and Section
401(K) of the U.S. Internal Revenue Code for U.S.V.I. employees. All employees
are eligible to participate in the Plan after one year of service. Under the
provisions of the Plan, the Bank contributes a quarter of the first 4% of each
participant's compensation. Participants are permitted to contribute up to 10%
of their annual compensation, limited to $8,000 per year ($11,000 for U.S.V.I.
employees). Additional contributions to the Plan are voluntarily made by the
Bank as determined by its Board of Directors. The Bank made a total contribution
of $861,478, $845,227 and $699,060 during 2002, 2001 and 2000 respectively, to
the Plan.

NOTE 24 - OTHER EXPENSES

A detail of other expenses follows:

                                        Year ended December 31,
                                    2002         2001         2000
                                   -------      -------      -------
                                             (In thousands)
Professional and service fees      $ 7,685      $ 7,461      $ 8,406
Communications                       5,865        5,395        5,573
Revenue earning equipment            1,588        1,578        1,525
Supplies and printing                1,963        1,282        1,214
Other                                8,243        9,489        8,155
                                   -------      -------      -------
Total                              $25,344      $25,205      $24,873
                                   =======      =======      =======



72 First BanCorp 2002




NOTE 25 - INCOME TAXES

The Corporation is subject to Puerto Rico income tax on its income from all
sources. For United States income tax purposes, the Corporation is treated as a
foreign corporation. Accordingly, it is generally subject to United States
income tax only on its income from sources within the United States or income
effectively connected with the conduct of a trade or business within the United
States. Any United States income tax paid by the Corporation is creditable,
within certain conditions and limitations, as a foreign tax credit against its
Puerto Rico tax liability.

The provision for income taxes was as follows:

                      Year ended December 31,
                2002           2001           2000
              --------       --------       --------
                           (In thousands)
Current       $ 30,938       $ 25,536       $ 19,117
Deferred        (8,611)        (5,402)        (4,356)
              --------       --------       --------
Total         $ 22,327       $ 20,134       $ 14,761
              ========       ========       ========

Income tax expense applicable to income before provision for income tax differs
from the amount computed by applying the Puerto Rico statutory rate of 39% as
follows:



                                                       Year ended December 31,
                                         2002                  2001                  2000
                                         % of                  % of                  % of
                                        pre-tax               pre-tax                pre-tax
                                  Amount     Income     Amount      Income     Amount      Income
                                  ------     ------     ------      ------     ------      ------
                                                         (Dollars in thousands)
                                                                         
Computed income tax
at statutory rate                $ 50,811      39      $ 41,789       39      $ 31,994       39
Benefit of net exempt income      (31,819)    (24)      (24,442)     (23)      (12,707)     (15)
Other-net                           3,335       2         2,787        3        (4,526)      (6)
                                 --------      --      --------       --      --------       --
Total income tax provision       $ 22,327      17      $ 20,134       19      $ 14,761       18
                                 ========      ==      ========       ==      ========       ==


The components of the deferred tax asset and liability were as follows:

                                                            December 31,
                                                        2002          2001
                                                      --------      --------
                                                           (In thousands)
Deferred tax asset:
Allowance for loan losses                             $ 43,645      $ 34,732
Unrealized loss on available for sale securities                       1,783
Unrealized loss on fair value hedges attributable
to credit risk                                             379           315
Other                                                    6,584         7,110
                                                      --------      --------
Deferred tax asset                                    $ 50,608      $ 43,940
                                                      --------      --------

Deferred tax liability:
Unrealized gain on available for sale securities      $(11,506)
Other                                                      (98)     $   (322)
                                                      --------      --------
Deferred tax liability                                $(11,604)     $   (322)
                                                      ========      ========

No valuation allowance was considered necessary for the deferred tax asset.

The tax effect of the unrealized holding gain or loss for securities available
for sale was computed based on a 25% capital gain tax rate, and is included in
accumulated other comprehensive income as a part of stockholders' equity.



                                                           73 First BanCorp 2002




The Puerto Rico Treasury Department is conducting an investigation of the Bank's
income tax returns for the years 1995, 1997, 1998 and 1999. Management has
prepared these tax returns in accordance with the Puerto Rico Internal Revenue
Code and its regulations. Therefore, Management believes that a deficiency, if
any, resulting from this investigation, will not have a material effect on the
Corporation's financial statements.

NOTE 26 - COMMITMENTS

At December 31, 2002 certain premises are leased with terms expiring through the
year 2022. The Corporation has the option to renew or extend certain leases from
two to ten years beyond the original term. Some of these leases require the
payment of insurance, increases in property taxes and other incidental costs. At
December 31, 2002, the obligation under various leases follows:

                               Year                        Amount
                               -----                       -------
                                          (In thousands)
                               2003                       $  4,894
                               2004                          4,079
                               2005                          2,826
                               2006                          2,039
                               2007                          1,726
                               2008 and later years          7,333
                               -----                       -------
                               Total                       $22,897
                               =====                       =======

Rental expense included in occupancy and equipment expense was $4,509,798 in
2002 (2001 - $4,240,437; 2000 - $4,042,069).

NOTE 27 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The information about the estimated fair values of financial instruments as
required by accounting principles generally accepted in the United States of
America, is presented hereunder. The disclosure requirements exclude certain
financial instruments and all non - financial instruments. Accordingly, the
aggregate fair value amounts presented do not represent Management's estimate of
the underlying value of the Corporation. A summary table of estimated fair
values and carrying values of financial instruments at December 31, 2002 and
2001 follows:



                                                            December 31,
                                                2002                           2001
                                      Estimated       Carrying      Estimated       Carrying
                                     fair value        value        fair value       value
                                     ----------      ----------     ----------      ---------
                                                          (In thousands)
                                                                       
Assets:
Cash and due from banks and
money market instruments              $  381,965     $  381,965     $   94,463     $   94,463
Investment securities                  3,422,718      3,419,380      3,652,031      3,658,544
FHLB stock                                35,630         35,630         22,891         22,891
Loans receivable, including loans
held for sale - net                    5,527,122      5,525,939      4,226,033      4,217,719
Interest rate swaps                       27,022         27,022
Liabilities:
Deposits                               5,499,998      5,482,918      4,121,145      4,098,554
Federal funds, securities sold
under agreements to repurchase         2,966,580      2,793,540      3,005,466      2,997,174
Advances from FHLB                       399,941        373,000        348,733        343,700
Subordinated notes                        89,084         82,815         83,729         84,362
Interest rate swaps                        9,739          9,739         15,053         15,053





74 First BanCorp 2002

The estimated fair values are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in the underlying assumptions used in calculating the fair
values could significantly affect the results. In addition, the fair value
estimates are based on outstanding balances without attempting to estimate the
value of anticipated future business. Therefore, the estimated fair values may
materially differ from the values that could actually be realized on a sale.


The estimated fair values were calculated using certain facts and assumptions,
which vary depending on the specific financial instrument, as follows:

CASH AND DUE FROM BANKS AND MONEY MARKET INSTRUMENTS

The carrying amounts of cash and due from banks and money market instruments are
reasonable estimates of their fair values.

INVESTMENT SECURITIES

The fair values of investment securities are the market values based on quoted
market prices and dealer quotes.

FHLB STOCK

Investments in FHLB stock are valued at their redemption values.

LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE - NET

The fair value of all loans was estimated by the discounted present values of
loans with similar financial characteristics. Loans were classified by type such
as commercial, residential mortgage, credit card and automobile. These asset
categories were further segmented into fixed and adjustable rate categories and
by accruing and non-accruing groups. Performing floating rate loans were valued
at book if they reprice at least once every three months, as were performing
credit lines. The fair value of fixed rate performing loans was calculated by
discounting expected cash flows through the estimated maturity date. Recent
prepayment experience was assumed to continue for mortgage loans, auto loans and
personal loans. Other loans assumed little or no prepayment. Prepayment
estimates were based on the Corporation's historical data for similar loans.
Discount rates were based on the Treasury Yield Curve at the date of the
analysis, with an adjustment, which reflects the risk and other costs inherent
in the loan category.

Non-accruing loans covered by a specific loan loss allowance were viewed as
immediate losses and were valued at zero. Other non-accruing loans were
arbitrarily assumed to be repaid after one year. Presumably this would occur
either because loan is repaid, collateral has been sold to satisfy the loan or
because general reserves are applied to it. The principal of non-accruing loans
not covered by specific reserves was discounted for one year at the going rate
for similar new loans.

DEPOSITS

The estimated fair values of demand deposits and savings accounts, which are the
deposits with no defined maturities, equal the amount payable on demand at the
reporting date. For deposits with stated maturities, but that reprice at least
quarterly, the fair values are also estimated to be the amount payable at the
reporting date.

The fair values of fixed rate deposits with stated maturities, are based on the
present value of the future cash flows expected to be paid on deposits. The cash
flows are based on contractual maturities; no early repayments are assumed.
Discount rates are based on the LIBOR yield curve. The estimated fair values of
total deposits exclude the fair value of core deposits intangible, which
represent the value of the customer relationship measured by the values of
demand deposits and savings deposits that bear a low or zero rate of interest
and do not fluctuate in response to changes in interest rates.

Substantially all swaps currently held by the Corporation form part of
structured broker CD's. In these instruments a fixed rate CD is matched with a
swap of the same rate and maturity, thereby converting the fixed rate broker CD
to a floating rate instrument which reprices quarterly based on a fixed
differential to three month LIBOR. The swaps are recorded at fair value with a
corresponding adjustment to CD's, therefore, for purposes of fair value
analysis, these structured broker CD's are valued at book.


                                                          75 2002 First BancCorp



FEDERAL FUNDS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Federal funds purchased and some repurchase agreements reprice at least
quarterly, and their outstanding balances are estimated to be their fair values.
Where longer commitments are involved, fair values are estimated in the same way
as fixed term deposits.

ADVANCES FROM FHLB AND SUBORDINATED NOTES

The fair value of advances from FHLB with fixed maturities was determined using
discounted cash flow analysis over the full term of the borrowings. The cash
flows assumed no early repayment of the borrowings. Discount rates were based on
the LIBOR yield curve. The fair value of subordinated notes was based on
indications of market prices.

INTEREST RATE SWAPS

The fair values of the interest rate swaps were provided by the counter party.

NOTE 28 - SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information follows:

Supplemental cash flow information follows:




                                              Year ended December 31,
                                     2002               2001                   2000
                                   --------            --------            --------
                                                   (In thousands)
                                                                  
Cash paid for:
Interest                           $274,548            $275,360            $260,937
Income tax                           15,799              12,535              30,477
Non-cash investing and
financing activities:
Additions to other real
estate owned                          3,338               1,797               3,121



NOTE 29 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, COMMITMENTS TO
EXTEND CREDIT AND STANDBY LETTERS OF CREDIT

THE FOLLOWING TABLE PRESENTS A DETAIL OF COMMITMENTS TO EXTEND CREDIT AND
STANDBY LETTERS OF CREDIT:

The following table presents a detail of commitments to extend credit and
standby letters of credit:




                                                        December 31,
                                                   2002               2001
                                                 --------            --------
                                                               
Financial instruments whose contract                    (In thousands)
amounts represent credit risk:
Commitments to extend credit:
To originate loans                               $208,925            $194,363
Unused credit card lines                          307,492             291,120
Unused personal lines of credit                    14,859              13,480
Commercial lines of credit                        439,996             222,821
Commercial letters of credit                       80,448              19,067
Standby letters of credit                          30,313              24,172



The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument on commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. Management uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.

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. These
commitments generally expire within one year. 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


76  2002 First BancCorp



and without cause, cancel the unused credit facility. The amount of collateral,
obtained if deemed necessary by the Corporation upon extension of credit, is
based on Management's credit evaluation of the borrower. Rates charged on the
loans that are finally disbursed is the rate being offered at the time the loans
are closed, therefore, no fee is charged on these commitments. The fee is the
amount which is used as the estimate of the fair value of commitments.

In general, commercial and standby letters of credit are issued to facilitate
foreign and domestic trade transactions. Normally, commercial and standby
letters of credit are short-term commitments used to finance commercial
contracts for the shipment of goods. The collateral for these letters of credit
include cash or available commercial lines of credit. The fair value of
commercial and standby letters of credit is based on the fees currently charged
for such agreements, which at December 31, 2002 is not significant.

INTEREST RATE RISK MANAGEMENT

The operations of the Corporation are subject to interest rate fluctuations to
the extent that interest-earning assets and interest-bearing liabilities mature
or reprice at different times or in different amounts. As part of the interest
rate risk management, the Corporation has entered into a series of interest rate
swap agreements. Under the interest rate swaps, the Corporation agrees with
other parties to exchange, at specified intervals, the difference between
fixed-rate and floating-rate interest amounts calculated by reference to an
agreed notional principal amount. Net interest settlements on interest rate
swaps are recorded as an adjustment to interest expense on deposit accounts or
interest income on investment accounts.

 The following table indicates the types of swaps used:



                                              Notional amount
                                              ---------------
                                               (In thousands)
                                           
Pay-fixed and receive-variable swaps:

    Balance at December 31, 2000                 $        --
    New Contracts                                     58,165
                                                 -----------
    Balance at December 31, 2001                      58,165
    New contracts                                     20,000
                                                 -----------
    Balance at December 31,2002                  $    78,165
                                                 -----------

Receive-fixed and pay variable swaps:

    Balance at December 31, 2000                 $ 1,151,000
    Expired contracts                             (1,116,000)
    New contracts                                  1,460,000
                                                 -----------
    Balance at December 31, 2001                 $ 1,495,000
    Expired contracts                             (1,193,681)
    New contracts                                  1,656,590
                                                 -----------
    Balance at December 31, 2002                 $ 1,957,909
                                                 -----------


Interest rate swap agreements under which the Corporation agrees to pay
variable-rates of interest are considered to be a hedge against changes in the
fair value of the Corporation fixed-rate brokered certificates of deposit. The
interest rate swap agreements are reflected at fair value in the Corporation's
consolidated statement of financial condition and the related portion of
fixed-rate debt being hedged is reflected at an amount equal to the sum of its
carrying value plus an adjustment representing the change in fair value of the
debt obligations attributable to the interest rate risk being hedged. The hedge
relationship is estimated to be 100 percent effective; therefore, there is no
impact on the statement of income nor on comprehensive income, because the gain
or loss on the swap agreements will completely offset the loss or gain on the
certificates of deposit. The Corporation, in order to achieve 100%
effectiveness, incorporates in the hedge of fixed-rate brokered CD's the right
to lower the notional amount for a stated period of time, in the case of
cancellations prior to maturity. The net effect of this accounting is that the
interest expense on the hedged certificates of deposit generally reflects
variable interest rates.

Interest rate swap agreements under which the Corporation agrees to pay
fixed-rates of interest are considered to be a hedge against changes in the fair
value attributable to market interest rates of fixed rate available for sale
corporate bonds. Accordingly, the interest rate swap agreements and the
securities being hedged are reflected at


                                                          77 2002 First BancCorp

fair value in the Corporation's consolidated statement of financial condition.
The adjustment of the hedged item's carrying amount attributable to the hedged
risk is recorded in earnings in order to offset the gain or loss on the hedging
instrument. The change in the fair value of the security attributable to credit
risk is recorded in other comprehensive income. The hedge relationship is
estimated to be 100 percent effective; therefore, there is no impact on the
statement of income, because the gain or loss on the interest rate swap reflects
the full amount of the gain or loss on the hedged item attributable to the
hedged risk. The net effect of this accounting is that the interest of the
fixed-rate securities being hedged generally reflects variable interest rates.
During the year ended on December 31, 2002, the Corporation sold certain
corporate bonds to which interest rate swap agreements with an aggregate
notional principal balance of $53.2 million were attributable. Therefore, these
swaps no longer qualify for hedge accounting, and an unrealized loss of $4.5
million was recorded to reflect changes in the fair value of these derivatives
as part of derivative loss in the Other Income section of the statement of
income.

Interest rate swaps with an aggregate notional principal balance of $25 million
had an unrealized loss of $1,517,268 (2001 - $1,260,094 unrealized loss),
attributable to credit risk, which was recorded in accumulated comprehensive
income net of income tax.

Pay-fixed swaps at December 31, 2002 had a fixed weighted average rate payment
of 6.53% (2001 - 7.14%) and a floating weighted average rate receiving of 3.53%
(2001 -4.20%). Receive-fixed swaps at December 31, 2002, have a floating
weighted average rate payment of 1.58% (2001 - 2.16%) and a fixed weighted
average rate receiving of 5.60% (2001 -6.32%). Floating rates on pay fixed swaps
range from 175 to 240 basis points over LIBOR and from minus 25 basis points to
7 over LIBOR rate on receive fixed swaps.

For swap transactions, the amounts potentially subject to credit loss are the
net streams of payments under the agreements and not the notional principal
amounts used to express the volume of the swaps. At December 31, 2002, the
Corporation had total net receivable of $12,147,354 (2001 - $12,755,949) related
to the swap transactions. The Corporation controls the credit risk of its
interest rate swap agreements through approvals, limits, and monitoring
procedures. The Corporation does not anticipate non-performance by the counter
parties. The Corporation has a policy of diversifying swap counter parties to
reduce the risk that any counter party will fail. As part of the swap
transactions, the Corporation is required to pledge collateral in the form of
deposits in banks or securities. The book value and aggregate market value of
securities pledged as collateral for interest rate swaps at December 31, 2002
was approximately $42.1 million and $42.9 million, respectively (2001 - $48.1
million and $47.9 million, respectively). The final maturity of the swaps at
December 31, 2002 ranged from one month through nineteen years (2001 - from one
year through twenty years).

Interest rate swaps with an aggregate notional principal balance of
$2,036,074,000 had a gross unrealized gain of approximately $27,021,907 and
gross unrealized loss of $9,738,638 at December 31, 2002, which are included in
the Other Assets category and Other Liabilities category, respectively.

INTEREST RATE PROTECTION AGREEMENTS (CAPS)

From time to time the Corporation also uses interest rate protection agreements
(Caps) to limit its exposure to rising interest rates on its deposits. 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.
There were no caps agreements outstanding at December 31,2002

On January 1, 2001 a loss of approximately $1.3 million was recognized in the
statement of income as a cumulative effect of the adoption of SFAS No. 133, as a
result of unamortized premium paid for caps of $1.5 million less an estimated
fair market value of $200,000. Prior to the implementation of SFAS No. 133, the
premium was amortized as an adjustment to interest expense on borrowings.

NOTE 30 - 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.


78 2002 First BancCorp


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 Other Income segment is mainly composed of insurance and
other commission's income.

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, other income and direct
operating expenses. 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 by 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 is based on market rates.

The following table presents information about the reportable segments:



                                                Treasury and               Commercial
                                  Retail         Investments               Corporate            Other           Total
                               -----------      -----------                -----------        ----------     -----------
                                                                         (In thousands)
                                                                                                 

For the year ended
December 31, 2002:
Interest income                $   230,141       $   188,194                $   121,698                      $   540,033
Net (charge) credit
for transfer of funds              (46,552)           97,360                    (50,808)
Interest expense                   (58,835)         (214,349)                                                   (273,184)
Net interest income                124,754            71,205                     70,890                          266,850
Provision for loan losses          (43,090)                                     (19,212)                         (62,302)
Other income                        39,352             8,643                      5,080       $     5,417         58,492
Direct Operating Expenses          (74,357)           (2,227)                    (6,439)             (697)       (83,721)
Segment income                      46,659            77,621                     50,319             4,720        179,319
Average earning assets         $ 2,410,548       $ 3,746,245                $ 2,258,025                      $ 8,414,818

For the year ended
December 31, 2001:
Interest income                $   217,021       $   162,478                $   136,757                      $   516,256
Net (charge) credit
for transfer of funds              (21,043)          102,123                    (81,081)
Interest expense                   (71,410)         (208,791)                                                   (280,201)
Net interest income                124,568            55,810                     55,676                          236,055
Provision for loan losses          (44,541)                                     (16,489)                         (61,030)
Other income                        35,384            10,211                      4,440       $     2,945         52,980
Direct Operating Expenses          (69,198)           (1,844)                    (5,664)             (362)       (77,069)
Segment income                      46,213            64,177                     37,963             2,583        150,936
Average earning assets         $ 1,970,768       $ 2,627,205                $ 1,781,314                      $ 6,379,287

For the year ended
December 31, 2000:
Interest income                $   222,950       $   134,328                $   106,110                      $   463,388
Net (charge) credit
for transfer of funds              (12,582)           85,013                    (72,431)
Interest expense                   (74,093)         (198,522)                                                   (272,615)
Net interest income                136,275            20,819                     33,679                          190,773
Provision for loan losses          (28,084)                                     (17,635)                         (45,719)
Other income                        34,556             8,968                      4,221       $     2,287         50,032
Direct Operating Expenses          (69,369)           (1,922)                    (5,010)             (318)       (76,619)
Segment income                      73,378            27,865                     15,255             1,969        118,467
Average earning assets         $ 1,893,699       $ 1,985,580                $ 1,110,608                      $ 4,989,887



                                                          79 2002 First BancCorp

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




                                                                     Year ended December 31, 2001
                                                               2002              2001             2000
                                                           -----------       -----------       -----------
                                                                            (In thousands)
                                                                                      
Net income:
Total income for segments                                  $   179,319           150,936       $   118,467
Other operating expenses                                       (49,036)      $   (43,786)          (36,430)
Income taxes                                                   (22,327)          (20,134)          (14,761)
                                                           -----------       -----------       -----------
Income before cumulative effect of accounting change           107,956            87,016            67,276
Cumulative effect of accounting change                                            (1,015)
                                                           -----------       -----------       -----------
 Total consolidated net income                             $   107,956       $    86,001       $    67,276
                                                           -----------       -----------       -----------
Average assets:
Total average earning assets for segments                  $ 8,414,818       $ 6,379,287       $ 4,989,887
Average assets not assigned to segments                        333,404           322,115           249,489
                                                           -----------       -----------       -----------
 Total consolidated average assets                         $ 8,748,222       $ 6,701,402       $ 5,239,376
                                                           -----------       -----------       -----------




NOTE 31 - LITIGATION

The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Management believes, based on the opinion of legal
counsel, that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of operations.

NOTE 32 - FIRST BANCORP (HOLDING COMPANY ONLY) FINANCIAL INFORMATION

The following condensed financial information presents the financial position of
the Holding Company only at December 31, 2002 and 2001, and the results of its
operations and its cash flows for the years ended on December 31,2002,2001 and
2000.


                  STATEMENTS OF FINANCIAL CONDITION

Insurance Agency, at equity Other assets Total assets

Liabilities and Stockholders' Equity: Accounts payable and other liabilities
Stockholders' equity Contingencies and commitments Total liabilities and
stockholders' equity




                                                       December 31,2002      December 31, 2001
                                                        ----------------     -----------------
                                                                  (In thousands)
                                                                          
Assets:
Cash and due from banks                                     $ 26,276            $ 17,422
Money market instruments                                         300                 300
                                                            --------            --------
Investment securities available
for sale, at market value:
United States Government obligations                                              24,802
Other investments                                             42,674              35.507
                                                            --------            --------
  Total investment securities
      available for sale                                      42.674              60.309
                                                            --------            --------
Investment securities held to maturity, at cost:
United States Government obligations                           5,700
                                                            --------            --------
    Total investment securities held to maturity               5,700
                                                            --------            --------
Loans receivable                                               6,000               5,682
Investment in FirstBank Puerto Rico, at equity               718,480             515,623
Investment in FirstBank                                        1,445                 371
Other Assets                                                     726               3,383
                                                            --------            --------
Total Assets                                                $801,601            $603,090
                                                            --------            --------

Liabilities and Stockholders' Equity:
Accounts payable and other liabilities                      $  3,177            $    171
Stockholders' equity                                         798,424             602,919
Contingencies and commitments
                                                            --------            --------
Total liabilities and stockholders' equity                  $801,601            $603,090
                                                            --------            --------



80 2002 First BancCorp


STATEMENTS OF INCOME




                                                         2002             2001          2000
                                                       ---------        -------       --------
                                                                             
Income:
Interest income on investment securities               $     351        $   658       $    776
Interest income on other investments                         248            250            289
Interest income on loans                                   5,269            306
Dividend from FirstBank                                   28,000         24,000         24,000
Other income                                                 705            668          1,117
                                                       ---------        -------       --------
                                                          34,573         25,882         26,182
                                                       ---------        -------       --------

 Expenses:                                                     2                            25
 Interest expense                                            709            559            487
                                                       ---------        -------       --------
 Other operating expenses                                    711            559            512
                                                       ---------        -------       --------
 Gain (loss) on sale of investments, net                 (22,321)         1,093          7,134
                                                       ---------        -------       --------
Income before income taxes and equity
 in undistributed earnings of subsidiaries                11,541         26,416         32,804

Income taxes                                               2,250            170            209
Equity in undistributed earnings of subsidiaries          98,665         59,755         34,681
                                                       ---------        -------       --------
Net income                                               107,956         86,001         67,276
Other comprehensive income, net of tax                    39,675         13,306         49,050
                                                       ---------        -------       --------
 Comprehensive income                                  $ 147,631        $99,307       $116,326
                                                       ---------        -------       --------



The principal source of income for the Holding Company consists of the earnings
of FirstBank.


                                                          81 2002 First BancCorp


STATEMENT OF CASH FLOWS



                                                              Year ended December 31,
                                                      2002              2001              2000
                                                   -----------        ---------        --------
                                                                              

Cash flows from operating activities:
Net income                                         $   107,956        $  86,001        $ 67,276
                                                   -----------        ---------        --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings
of subsidiaries                                        (98,662)         (59,755)        (34,681)
Net loss (gain) on sale of
investments securities                                  22,321           (1,093)         (7,134)
Net (increase) decrease in other assets                   (175)             (75)            120
Net increase (decrease) in other liabilities             2,069             (186)           (527)
                                                   -----------        ---------        --------
Total adjustments                                      (74,447)         (61,109)        (42,222)
                                                   -----------        ---------        --------
Net cash provided by operating activities               33,509           24,892          25,054
                                                   -----------        ---------        --------

Cash flows from investing activities:
Capital contribution to subsidiaries                   (88,000)         (80,305)        (40,000)
Loans originated                                       (88,000)          (5,682)
Purchases of securities available for sale          (1,235,145)         (24,203)        (50,119)
Sales and maturity of securities held to
maturity and available for sale                      1,240,079           10,227          44,807
Other investing activities                              98,537            6,316             278
                                                   -----------        ---------        --------
Net cash used in investing
 activities                                            (72,529)         (93,647)        (45,034)
                                                   -----------        ---------        --------
Cash flows from financing activities:
Net decrease in other borrowings                                                           (865)
Proceeds from issuance on preferred stock               88,906          100,069          72,438
Exercise of stock options                                1,341            1,355              94
Cash dividends paid                                    (42,373)         (30,343)        (19,212)
Treasury stock acquired                                                  (1,930)         (30,087)
                                                   -----------        ---------        --------
Net cash provided by financing activities               47,874           69,151          22,368
                                                   -----------        ---------        --------

Net increase in cash                                     8,854              396           2,388
Cash and cash equivalents
at the beginning of the year                            17,722           17,326          14,938
                                                   -----------        ---------        --------
Cash and cash equivalents
at the end of the year                             $    26,576        $  17,722        $ 17,326
                                                   -----------        ---------        --------

Cash and cash equivalents include:
Cash and due from banks                            $    26,276        $  17,422        $ 17,026
Money market instruments                                   300              300             300
                                                   -----------        ---------        --------
                                                   $    26,576        $  17,722        $ 17,326
                                                   -----------        ---------        --------


82 2002 First BancCorp

Stockholders' information
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP

ANNUAL MEETING:
The annual meeting of stockholder will be held on April 29, 2003, at 2:00 p.m.,
at the main office of the Corporation located at 1519 Ponce de Leon Avenue,
Santurce, Puerto Rico.

Telephone   (787) 729-8200
Internet    http://www.firstbankpr.com

ADDITIONAL INFORMATION AND FORM 10-K: Additional financial information about
First BanCorp may be required to Mrs. Laura Villarino, Senior Vice President and
Controller, PO Box 9146, Santurce, Puerto Rico 00908. First BanCorp's filings
with the Securities and Exchange Commission (SEC) may be accessed in the web
site maintained by the SEC at http://www.sec.gov and at out web site
http://firstbankpr.com, First BanCorp section, Company Filings link.

TRANSFER AGENT AND REGISTRAR:
The Bank of New York
1-800-524-4458

ADDRESS SHAREHOLDER INQUIRIES TO:
Shareholder Relations DepartmenT
PO Box 11258
Church Street Station
New York, NY 10286

E-MAIL ADDRESS
shareowner-svcs@bankofny.com

THE BANK OF NEW YORK'S STOCK TRANSFER WEB SITE:
http://www.stockbny.com

SEND CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:
Receive and Deliver Department
PO Box 11002
Church Street Station
New York, NY 10286





This Annual Report was prepared by ADWORKS





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