Edgar Filing: FIRST BANCORP /PR/

FIRST BANCORP.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER 0-17224

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 number)

1519 Ponce de León Avenue, Stop 23 Santurce, Puerto Rico		00908 (Zip Code)
(Address of principal executive offices)

(787) 729-8200

(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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 o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in rule 12b-2 of the Exchange Act).

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).


		Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock: 83,254,056 outstanding as of June 30, 2007.

FIRST BANCORP.
INDEX PAGE


	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2006, December 31, 2005, March 31, 2005 (As Restated) and March 31, 2004 (As Restated)		5
Consolidated Statements of Income (Unaudited) – Quarters ended March 31, 2006, March 31, 2005 (As Restated) and March 31, 2004 (As Restated)		6
Consolidated Statements of Cash Flows (Unaudited) – Quarters ended March 31, 2006, March 31, 2005 (As Restated) and March 31, 2004 (As Restated)		7
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Quarters ended March 31, 2006, March 31, 2005 (As Restated) and March 31, 2004 (As Restated)		8
Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Quarters ended March 31, 2006, March 31, 2005 (As Restated) and March 31, 2004 (As Restated)		9
Notes to Consolidated Financial Statements (Unaudited)		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		52
Item 3. Quantitative and Qualitative Disclosures About Market Risk		87
Item 4. Controls and Procedures		87

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		89
Item 1A. Risk Factors		89
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		90
Item 3. Defaults Upon Senior Securities		90
Item 4. Submission of Matters to a Vote of Security Holders		90
Item 5. Other Information		90
Item 6. Exhibits		90

SIGNATURES
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO
EX-32.1 SECTION 906, CERTIFICATION OF THE CEO
EX-32.2 SECTION 906, CERTIFICATION OF THE CFO

EXPLANATORY NOTE

First BanCorp ( the “Corporation” or “First BanCorp”) was unable to timely file with the Securities and Exchange Commission (“SEC”) this Quarterly Report on Form 10-Q for the interim period ended March 31, 2006 and the Quarterly Reports on Form 10-Q for the interim periods ended September 30, 2005 and June 30, 2005 as a result of the delay in completing the restatement of the Corporation’s audited financial statements for the years ended December 31, 2004, 2003 and 2002, and the unaudited selected quarterly financial information for each of the four quarters of 2004, 2003 and 2002, which resulted in delays in the filing of an amendment of First BanCorp’s Annual Report on Form 10-K for the year ended December 31, 2004 and consequent delays in the filing of the Corporation’s subsequent reports. For information regarding the restatement of First BanCorp’s previously issued financial statements, see the Corporation’s Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2004, which was filed with the SEC on September 26, 2006, and Note 1 – “Restatement of Previously Issued Financial Statements” — to the accompanying unaudited Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006.

FORWARD LOOKING STATEMENTS

This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q or future filings by First BanCorp with the SEC, in the Corporation’s press releases or in other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the word or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “should,” “anticipate” and similar expressions are meant to identify “forward-looking statements.”

First BanCorp wishes to caution readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and represent First BanCorp’s expectations of future conditions or results and are not guarantees of future performance. First BanCorp advises readers that various factors could cause actual results to differ materially from those contained in any “forward-looking statement.” Such factors include, but are not limited to, the following:

	•		risks associated with the Corporation’s inability to prepare and timely submit SEC and other regulatory filings;

	•		a reduction in the Corporation’s ability to attract new clients and retain existing ones;

	•		general economic conditions, including prevailing interest rates and the performance of the financial markets, which may affect demand for the Corporation’s products and services and the value of the Corporation’s assets, including the value of the interest rate swaps that hedge the interest rate risk mainly relating to brokered certificates of deposit and medium-term notes;

	•		risks arising from worsening economic conditions in Puerto Rico;

	•		risks arising from credit and other risks of the Corporation’s lending and investment activities, including the condo conversion loans in its Miami Agency;

	•		increases in the Corporation’s expenses associated with acquisitions and dispositions;

	•		developments in technology;

	•		risks associated with changes to the Corporation’s business strategy to no longer acquire mortgage loans in bulk;

	•		risks associated with the failure to obtain a final order from the District Court of Puerto Rico approving the settlement of the class-action lawsuit brought against the Corporation;

	•		the impact of Doral Financial Corporation’s financial condition on its repayment of its outstanding secured loan to the Corporation;

	•		risks associated with being subject to the cease and desist order;

	•		potential further downgrades in the credit ratings of the Corporation’s securities;

	•		general competitive factors and industry consolidation; and

	•		risks associated with regulatory and legislative changes for financial services companies in Puerto Rico, the United States, and the U.S. and British Virgin Islands.

The Corporation does not undertake, and specifically disclaims any obligation, to update any of the “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by the federal securities laws.

Investors should carefully consider these factors and the risk factors outlined under Item 1A, Risk Factors, in First BanCorp’s 2005 Annual Report on Form 10-K and under Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q.

FIRST BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)


							March 31, 2005			March 31, 2004
	March 31, 2006			December 31, 2005			(As Restated)			(As Restated)
Assets
Cash and due from banks	$	134,396,167		$	155,848,810		$	125,778,620		$	100,528,488

Money market instruments, including $422,773,829 pledged that can be repledged (December 31, 2005 - $381,848,364; March 31, 2005 - $0; March 31, 2004 - $370,731,426)		806,203,368			666,856,432			354,858,845			607,439,344
Federal funds sold and securities purchased under agreements to resell		706,424,916			508,967,369			31,013,328			13,000,000
Time deposits with other financial institutions		32,818,084			48,967,475			3,300,000			600,000

Total money market investments		1,545,446,368			1,224,791,276			389,172,173			621,039,344

Investment securities available for sale, at fair value:
Securities pledged that can be repledged		1,663,051,384			1,744,846,054			1,092,221,084			820,876,597
Other investment securities		196,993,611			203,331,449			438,656,355			362,611,139

Total investment securities available for sale		1,860,044,995			1,948,177,503			1,530,877,439			1,183,487,736

Investment securities held to maturity, at amortized cost:
Securities pledged that can be repledged		3,115,116,225			3,115,260,660			3,255,841,156			2,926,486,390
Other investment securities		274,109,119			323,327,297			612,258,022			800,450,813

Total investment securities held to maturity		3,389,225,344			3,438,587,957			3,868,099,178			3,726,937,203

Other equity securities		30,271,400			42,367,500			67,808,100			52,525,000


Loans, net of allowance for loan and lease losses of $152,596,040 (December 31, 2005 - $147,998,733; March 31, 2005 - $144,201,333; March 31, 2004 - $130,356,997)		12,917,576,250			12,436,257,993			11,046,645,854			7,360,248,440
Loans held for sale, at lower of cost or market		73,326,531			101,672,531			26,360,027			1,345,072

Total loans, net		12,990,902,781			12,537,930,524			11,073,005,881			7,361,593,512

Premises and equipment, net		119,783,339			116,947,772			105,152,437			85,080,961
Other real estate owned		4,825,266			5,019,106			8,257,308			5,839,179
Accrued interest receivable on loans and investments		103,738,717			103,692,478			70,269,595			41,532,080
Due from customers on acceptances		895,191			353,864			1,177,538			300,417
Other assets		380,215,631			343,933,937			277,135,766			160,604,521

Total assets	$	20,559,745,199		$	19,917,650,727		$	17,516,734,035		$	13,339,468,441

Liabilities & Stockholders’ Equity
Liabilities:
Non-interest-bearing deposits	$	806,468,654		$	811,006,126		$	744,764,930		$	620,844,019
Interest-bearing deposits		12,543,307,152			11,652,746,080			8,653,011,527			5,949,207,697
Federal funds purchased and securities sold under agreements to repurchase		4,801,665,500			4,833,882,000			4,046,419,313			3,872,593,694
Advances from the Federal Home Loan Bank (FHLB)		228,000,000			506,000,000			1,313,000,000			1,043,000,000
Notes payable		179,026,710			178,693,249			178,181,751			—
Other borrowings		231,646,033			231,622,020			473,765,384			45,000,000
Subordinated notes		—			—			82,405,446			81,879,787
Bank acceptance outstanding		895,191			353,864			1,177,538			300,417
Payable for unsettled investment trade		—			—			537,534,792			427,800,917
Accounts payable and other liabilities		589,074,731			505,506,453			303,095,159			166,074,647

Total liabilities		19,380,083,971			18,719,809,792			16,333,355,840			12,206,701,178


Commitments and contingencies (Note 17)

Stockholders’ equity:
Preferred stock, authorized 50,000,000 shares: issued and outstanding 22,004,000 shares at $25 liquidation value per share		550,100,000			550,100,000			550,100,000			550,100,000

Common stock, $1 par value, authorized 250,000,000 shares; issued 93,151,856 shares (December 31, 2005- 90,772,856 shares ; March 31, 2005 - 45,320,780 shares; March 31, 2004 - 45,132,655 shares)		93,151,856			90,772,856			45,320,780			45,132,655
Less: Treasury Stock (at par value)		(9,897,800	)		(9,897,800	)		(4,920,900	)		(4,920,900	)

Common stock outstanding		83,254,056			80,875,056			40,399,880			40,211,755

Additional paid-in capital		22,269,844			—			5,034,294			2,244,720
Capital reserve		—			—			82,825,000			80,000,000
Legal surplus		265,844,192			265,844,192			183,019,192			165,709,122
Retained earnings		304,684,433			316,696,971			308,991,915			252,447,421
Accumulated other comprehensive (loss) income, net of tax benefit (expense) of $286,763 (December 31, 2005 - $16,259; March 31, 2005 - ($553,072) ; March 31, 2004 ($1,380,496))		(46,491,297	)		(15,675,284	)		13,007,914			42,054,245

Total stockholders’ equity		1,179,661,228			1,197,840,935			1,183,378,195			1,132,767,263

Total liabilities and stockholders’ equity	$	20,559,745,199		$	19,917,650,727		$	17,516,734,035		$	13,339,468,441

The accompanying notes are an integral part of these statements.

FIRST BANCORP

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


	Quarter Ended
				March 31,		March 31,
	March 31,			2005		2004
	2006			(As Restated)		(As Restated)
Interest income:
Loans	$	246,089,307		$	153,724,886	$	103,995,379
Investment securities		71,640,717			56,784,795		46,104,242
Money market investments		9,974,864			1,867,116		717,145

Total interest income		327,704,888			212,376,797		150,816,766


Interest expense:
Deposits (Note 11)		186,838,073			93,981,959		(13,380,428	)
Federal funds purchased and repurchase agreements		53,565,529			34,374,299		28,331,688
Advances from FHLB		4,177,732			11,425,002		5,300,021
Notes payable and other borrowings		10,304,945			7,319,184		1,779,213

Total interest expense		254,886,279			147,100,444		22,030,494

Net interest income		72,818,609			65,276,353		128,786,272


Provision for loan and lease losses		19,375,887			10,954,409		13,200,000


Net interest income after provision for loan and lease losses		53,442,722			54,321,944		115,586,272


Non-interest income:
Other service charges on loans		1,486,270			1,121,227		1,155,299
Service charges on deposit accounts		3,277,029			2,689,552		2,783,414
Mortgage banking activities (loss) gain		(574,847	)		509,706		1,545,454
Net (loss) gain on investments and impairments		(708,768	)		9,513,564		3,964,646
Rental income		773,290			865,898		616,674
Gain on sale of credit card portfolio		—			—		5,235,543
Other operating income		6,335,216			5,551,312		5,662,511

Total non-interest income		10,588,190			20,251,259		20,963,541


Non-interest expenses:
Employees’ compensation and benefits		34,124,921			23,315,132		19,735,549
Occupancy and equipment		12,706,090			10,639,473		9,377,798
Business promotion		3,774,060			4,547,523		3,469,054
Professional fees		7,392,966			1,895,551		734,046
Taxes, other than income taxes		2,555,269			2,269,017		1,948,023
Insurance and supervisory fees		1,701,012			1,063,541		1,076,098
Other operating expenses		9,483,337			9,276,895		6,389,579

Total non-interest expenses		71,737,655			53,007,132		42,730,147


(Loss) Income before income tax		(7,706,743	)		21,566,071		93,819,666
Income tax benefit (provision)		11,569,985			3,648,870		(28,390,014	)


Net income	$	3,863,242		$	25,214,941	$	65,429,652

Net (loss) income attributable to common stockholders	$	(6,205,757	)	$	15,145,942	$	55,360,653

Net (loss) income per common share:
Basic	$	(0.08	)	$	0.19	$	0.69

Diluted	$	(0.08	)	$	0.18	$	0.67

Dividends declared per common share	$	0.07		$	0.07	$	0.06

The accompanying notes are an integral part of these statements.

FIRST BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Quarter Ended
				March 31,			March 31,
	March 31,			2005			2004
	2006			(As Restated)			(As Restated)
Cash flows from operating activities:
Net income	$	3,863,242		$	25,214,941		$	65,429,652

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,112,001			3,544,846			3,384,168
Amortization of core deposit intangible		932,041			599,155			599,155
Provision for loan and lease losses		19,375,887			10,954,409			13,200,000
Deferred income tax (benefit ) provision		(28,644,913	)		(17,654,943	)		13,023,113
Stock-based compensation recognized		4,892,360			—			—
Gain on sale of investments, net		(1,424,484	)		(9,513,564	)		(3,964,646	)
Other-than-temporary impairments on available-for-sale securities		2,133,252			—			—
Unrealized loss (gain) on derivative instruments		64,737,546			42,236,667			(46,036,174	)
Net loss (gain) on sale of loans and impairments		677,005			(528,072	)		(1,496,515	)
Net amortization of premiums and discounts and deferred loan fees and costs		(1,014,516	)		277,270			373,385
Amortization of broker placement fees		3,956,091			3,657,340			4,793,527
Net (accretion) amortization of discount and premiums on investment securities		(9,528,614	)		(7,957,812	)		946,843
Amortization of discount on subordinated notes		—			125,028			114,399
Gain on sale of credit card portfolio		—			—			(5,235,543	)
Increase in accrued income tax payable		14,299,995			42,681,184			11,334,443
(Increase) decrease in accrued interest receivable		(46,239	)		(10,573,143	)		4,365
Increase (decrease) in accrued interest payable		4,500,098			4,458,981			(2,585,944	)
(Increase) decrease in other assets		(5,088,301	)		(3,290,737	)		8,691,571
(Decrease) increase in other liabilities		(3,331,116	)		(17,665,290	)		1,266,096

Total adjustments		70,538,093			41,351,319			(1,587,757	)

Net cash provided by operating activities		74,401,335			66,566,260			63,841,895


Cash flows from investing activities:
Principal collected on loans		892,646,456			742,149,279			521,193,844
Loans originated		(1,336,279,411	)		(1,694,615,596	)		(1,058,516,779	)
Purchase of loans		(58,803,859	)		(142,582,255	)		(35,204,000	)
Proceeds from sale of loans		17,502,647			29,006,204			57,142,731
Proceeds from sale of repossessed assets		10,136,316			9,027,134			8,597,035
Purchase of servicing assets		(147,754	)		—			—
Proceeds from sale of available for sale securities		12,670,690			213,065,038			14,965,411
Purchase of securities held to maturity		(144,226,030	)		(794,757,906	)		(483,924,843	)
Purchase of securities available for sale		(11,975,700	)		(302,908,003	)		(1,543,433	)
Principal repayments and maturities of securities held to maturity		203,391,488			685,203,825			320,663,891
Principal repayments of securities available for sale		55,367,989			56,603,556			82,657,286
Additions to premises and equipment		(6,947,568	)		(5,303,319	)		(3,195,727	)
Decrease (increase) in other equity securities		12,096,100			16,250,000			(6,500,000	)
Cash paid for net assets acquired in acquisition of business		—			(71,996,013	)		—

Net cash used in investing activities		(354,568,636	)		(1,260,858,056	)		(583,664,584	)


Cash flows from financing activities:
Net increase (decrease) in deposits		885,705,546			1,044,702,228			(206,112,778	)
Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements		(32,216,500	)		(118,941,600	)		233,121,351
Net FHLB advances (paid) taken		(278,000,000	)		(325,000,000	)		130,000,000
Net proceeds from issuance of notes payable and other borrowings		—			197,049,120			45,000,000
Dividends paid		(15,875,780	)		(15,724,042	)		(14,886,224	)
Exercise of stock options		19,756,484			181,720			2,160,335

Net cash provided by financing activities		579,369,750			782,267,426			189,282,684

Net increase (decrease) in cash and cash equivalents		299,202,449			(412,024,370	)		(330,540,005	)
Cash and cash equivalents at beginning of period		1,380,640,086			926,975,163			1,052,107,837

Cash and cash equivalents at end of period	$	1,679,842,535		$	514,950,793		$	721,567,832

Cash and cash equivalents include:
Cash and due from banks	$	134,396,167		$	125,778,620		$	100,528,488
Money market instruments		1,545,446,368			389,172,173			621,039,344

	$	1,679,842,535		$	514,950,793		$	721,567,832

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on borrowings	$	181,142,699		$	118,870,021		$	94,850,477
Income taxes		5,624,000			293,944			19,002

Non-cash investing and financing activities:
Additions to other real estate owned	$	1,107,755		$	609,963		$	1,890,818
Additions to auto repossessions		24,954,864			13,896,138			10,628,778
Capitalization of servicing assets		36,491			304,600			820,600
Mortgage loans securitized and transferred to securities available-for-sale		—			—			51,107,154

The accompanying notes are an integral part of these statements.

FIRST BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)


	Quarter Ended
				March 31, 2005			March 31, 2004
	March 31, 2006			(As Restated)			(As Restated)
Preferred Stock	$	550,100,000		$	550,100,000		$	550,100,000


Common Stock outstanding:
Balance at beginning of period		80,875,056			40,389,155			40,027,285
Common stock issued under stock option plan		2,379,000			10,725			184,470

Balance at end of period		83,254,056			40,399,880			40,211,755


Additional Paid-In-Capital:
Balance at beginning of period		—			4,863,299			268,855
Shares issued under stock option plan		17,377,484			170,995			1,975,865
Stock-based compensation recognized		4,892,360			—			—

Balance at end of period		22,269,844			5,034,294			2,244,720


Capital Reserve		—			82,825,000			80,000,000


Legal Surplus		265,844,192			183,019,192			165,709,122


Retained Earnings:
Balance at beginning of period		316,696,971			299,501,016			201,903,993
Net income		3,863,242			25,214,941			65,429,652
Cash dividends declared on common stock		(5,806,781	)		(5,655,043	)		(4,817,225	)
Cash dividends declared on preferred stock		(10,068,999	)		(10,068,999	)		(10,068,999	)

Balance at end of period		304,684,433			308,991,915			252,447,421


Accumulated Other Comprehensive (Loss) Income, net of tax:
Balance at beginning of period		(15,675,284	)		43,635,624			35,812,500
Other comprehensive (loss) income, net of tax		(30,816,013	)		(30,627,710	)		6,241,745

Balance at end of period		(46,491,297	)		13,007,914			42,054,245


Total stockholders’ equity	$	1,179,661,228		$	1,183,378,195		$	1,132,767,263

The accompanying notes are an integral part of these statements.

FIRST BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)


	Quarter Ended
				March 31,			March 31,
	March 31,			2005			2004
	2006			(As Restated)			(As Restated)
Net income	$	3,863,242		$	25,214,941		$	65,429,652


Other comprehensive (loss) income:
Unrealized (loss) gain on securities:
Unrealized holding (loss) gain arising during the period		(31,795,285	)		(21,455,470	)		10,973,806
Less: Reclassification adjustments for net loss (gain) and other than temporary impairments included in net income		708,768			(9,513,564	)		(3,964,646	)
Income tax benefit (expense) related to items of other comprehensive income		270,504			341,324			(767,415	)


Other comprehensive (loss) income for the period, net of tax		(30,816,013	)		(30,627,710	)		6,241,745


Total comprehensive (loss) income	$	(26,952,771	)	$	(5,412,769	)	$	71,671,397

The accompanying notes are an integral part of these statements.

FIRST BANCORP

PART I — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

As previously reported, on December 13, 2005 the Corporation concluded that its financial statements for the interim and annual periods from January 1, 2000 through March 31, 2005 should no longer be relied upon and that its consolidated financial statements for some or all of the periods included therein should be restated (the “2004 restatement”). On September 26, 2006, the Corporation filed with the SEC an Amended Annual Report on Form 10-K/A restating its audited financial statements for the years ended December 31, 2004, 2003 and 2002. The following provides a brief description of the principal accounting adjustments included in the 2004 restatement of the Corporation’s consolidated financial statements and the effect of the adjustments on the Corporation’s Consolidated Statements of Financial Condition as of March 31, 2005 and as of March 31, 2004, its Consolidated Statements of Income for the quarters ended March 31, 2005 and 2004 and its Consolidated Statements of Cash Flows for the quarters ended March 31, 2005 and 2004. In addition, with the filing of its 2006 Annual Report on Form 10-K, First BanCorp restated its 2005 and 2004 Statements of Cash Flows due to some incorrect classifications. The classification errors related to three main items: 1) the treatment of discounts and the related accretion activity on certain investment securities (mostly “zero coupon securities”), 2) the classification of cash flows from the disposition of repossessed assets, and 3) purchases of zero coupon bonds and agency discount notes amounts presented as part of investing activities (the “2006 restatement”). All financial information for the quarters ended March 31, 2005 and 2004 included in any subsequent notes is presented on a restated basis. A more detailed description of the accounting adjustments made in connection with the 2004 restatement, as well as a background discussion of the 2004 restatement, is included in Note 1 “—Restatement of Previously Issued Financial Statements —” to First BanCorp audited Consolidated Financial Statements, included in the Corporation’s amended 2004 Annual Report on Form 10-K. A more detailed description of the accounting adjustments made in connection with the 2006 restatement, is included in Note 1 “— Restatement of 2005 and 2004 Consolidated Statements of Cash Flows—” to First BanCorp audited Consolidated Financial Statements, included in the Corporation’s 2006 Annual Report on Form 10-K.

As discussed in more detail below, First BanCorp has separately quantified the impact of various accounting adjustments on its interim unaudited Consolidated Financial Statements.

RECONCILIATION OF PREVIOUSLY REPORTED TO RESTATED FIGURES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	As of			As of
	March 31,			March 31,
(In thousands)	2005			2004
Cash and due from banks, as previously reported	$	22,877		$	100,528
Impact of accounting errors and corrections:
Reclassifications		102,902			—


Cash and due from banks, as restated	$	125,779		$	100,528


Money market investments, as previously reported	$	228,443		$	595,739
Impact of accounting errors and corrections:
Reclassifications		160,729			25,300


Money market investments, as restated	$	389,172		$	621,039


Investment securities including FHLB Stock, as previously reported	$	5,892,081		$	5,038,087
Impact of accounting errors and corrections:
Accounting for investment securities		2,195			163
Recharacterization of pass-through certificates as secured loans		(266,609	)		(50,000	)
Reclassifications		(160,882	)		(25,300	)


Investment securities including FHLB stock, as restated	$	5,466,785		$	4,962,950


Total loans, net of allowance for loan and lease losses, as previously reported	$	10,823,960		$	7,315,916
Impact of accounting errors and corrections:
Accounting for derivative instruments and broker placement fees		131			(508	)
Accounting for origination fees and costs and premiums and discounts on loans		(2,651	)		(1,825	)
Recharacterization of pass-through certificates as secured loans		263,269			50,000
Reclassifications		(9,436	)		298
Other accounting adjustments		(2,267	)		(2,287	)


Total loans, net of allowance for loan and lease losses, as restated	$	11,073,006		$	7,361,594


Total other assets, as previously reported	$	416,545		$	297,192
Impact of accounting errors and corrections:
Accounting for derivative instruments and broker placement fees		2,929			(1,285	)
Tax impact of accounting adjustments		29,081			(3,270	)
Reclassifications		11,809			(1,093	)
Valuation of financial instruments		1,200			1,200
Other accounting adjustments		428			613


Total other assets, as restated	$	461,992		$	293,357


Total assets, as restated	$	17,516,734		$	13,339,468


Total liabilities, as previously reported	$	16,150,021		$	12,223,690
Impact of accounting errors and corrections:
Accounting for derivative instruments and broker placement fees		73,363			(15,457	)
Tax impact of accounting adjustments		4,863			519
Reclassifications		105,122			(795	)
Other accounting adjustments		(13	)		(1,256	)


Total liabilities, as restated	$	16,333,356		$	12,206,701


Stockholders’ equity, as previously reported	$	1,233,885		$	1,123,772
Impact of accounting errors and corrections:
Accounting for derivative instruments and broker placement fees		(70,694	)		12,564
Accounting for investment securities		4,451			1,963
Accounting for origination fees and costs and premiums and discounts on loans		(2,651	)		(1,825	)
Valuation of financial instruments		1,200			1,200
Tax impact of accounting adjustments		24,218			(3,789	)
Impact of accounting adjustments in other comprehensive income		(5,205	)		(700	)
Other accounting adjustments		(1,826	)		(418	)


Stockholders’ equity, as restated	$	1,183,378		$	1,132,767

RECONCILIATION OF PREVIOUSLY REPORTED TO RESTATED FIGURES
CONSOLIDATED STATEMENTS OF INCOME


	Quarter Ended			Quarter Ended
(In thousands, except per share amounts)	March 31, 2005			March 31, 2004
Net interest income, as previously reported	$	109,602		$	88,183
Impact of accounting errors and corrections:
Accounting for derivative instruments and broker placement fees		(45,424	)		39,735
Accounting for investment securities		968			573
Accounting for origination fees and costs and premiums and discounts on loans		(121	)		139
Reclassification of late charges, penalty fees on loans and other		40			36
Other accounting adjustments		211			120


Net interest income, as restated	$	65,276		$	128,786


Provision for loan and lease losses (no adjustment required)	$	10,954		$	13,200


Non-interest income, as previously reported	$	19,618		$	20,018
Impact of accounting errors and corrections:
Accounting for derivative instruments and broker placement fees		1,063			424
Accounting for origination fees and costs and premiums and discounts on loans		(390	)		(628	)
Reclassification of late charges, penalty fees on loans and other		(40	)		(36	)
Valuation of financial instruments		—			1,200
Other accounting adjustments		—			(14	)


Non-interest income, as restated	$	20,251		$	20,964


Non-interest expenses, as previously reported	$	52,651		$	43,158
Impact of accounting errors and corrections:
Accounting for origination fees and costs and premiums and discounts on loans		(290	)		(251	)
Other accounting adjustments		646			(177	)


Non-interest expenses, as restated	$	53,007		$	42,730


Income tax expense, as previously reported	$	(12,182	)	$	(11,639	)
Impact of accounting errors and corrections		15,831			(16,751	)


Income tax benefit (expense), as restated	$	3,649		$	(28,390	)


Net income, as restated	$	25,215		$	65,430


Basic earnings per common share, as previously reported	$	0.54		$	0.38
Effect of adjustments		(0.35	)		0.31

Basic earnings per common share, as restated	$	0.19		$	0.69


Diluted earnings per common share, as previously reported	$	0.52		$	0.36
Effect of adjustments		(0.34	)		0.31

Diluted earnings per common share, as restated	$	0.18		$	0.67

The Corporation classified the accounting practices and related adjustments that were affected by the restatement into the categories described below.

Accounting for Derivative Instruments and Broker Placement Fees. As part of the restatement, the Corporation reviewed its accounting for derivative instruments and concluded that its use of the “short-cut” method of hedge accounting under Statement of Financial Accounting Standard No. (“SFAS”) 133, “Accounting for Derivative Instruments and Hedging Activities,” for interest rate swaps that economically hedge mainly brokered certificates of deposit (“CDs”) was not consistent with generally accepted accounting principles in the United States of America (“GAAP”) because the fee received from the swap counterparty at the inception of the relationship caused

the swap not to have a fair value of zero at inception (which is required under SFAS 133 to qualify for the short-cut method). In connection with the evaluation of hedge accounting transactions, the Corporation concluded that the short-cut method was also incorrectly used for certain interest rate swaps hedging medium-term notes, certain corporate bonds and certain commercial loan receivables.

Prior to the restatement, the Corporation recorded, under the short-cut method, the effective portion of the change in fair value of the hedged item as an adjustment to income that offsets the fair value adjustment on the related interest rate swap. Furthermore, prior to the restatement, the broker placement fees were offset with the upfront fees received from the swap counterparties at inception with no separate accounting recognition.

The adjustments related to the correction of the accounting for derivative instruments and broker placement fees primarily consisted of: (1) eliminating the fair value adjustments previously made to the brokered CDs, medium-term notes and other hedged items; (2) recognizing the fair value of the interest rate swaps at inception, which is the equivalent of the upfront fees received from swap counterparties; (3) recognizing the placement fees paid to the brokers that placed the brokered CDs and medium-term notes as deferred costs required to be amortized over the expected maturities of the related economically hedged items; and (4) correcting the fair value of derivative instruments as of the end of each reporting period.

The net cumulative effect on the Corporation’s pre-tax income through March 31, 2005 related to the correction of the accounting for derivative instruments and broker placement fees was a decrease of $70.7 million. The following table details the components of the pre-tax income effect from the correction in the accounting for derivative instruments and broker placement fees for the quarters ended March 31, 2005 and 2004:


	Quarter Ended			Quarter Ended
	March 31, 2005			March 31, 2004
Elimination of fair value adjustments previously made to hedged items	$	(53,096	)	$	39,616
Recognition of interest rate swap up-front fees		5,886			5,220
Broker placement fees amortization		(2,978	)		(4,295	)
Corrections to derivative instruments valuations		5,827			(382	)

Total	$	(44,361	)	$	40,159

Recharacterization of purchases of mortgage loans and pass-through trust certificates as commercial loans secured by mortgage loans. Prior to the restatement, the Corporation had inaccurately recorded as purchases of residential mortgages, commercial mortgage loans and pass-through trust certificates certain mortgage-related transactions with local financial institutions. Certain of these transactions included or likely included recourse provisions, which had not been analyzed as part of the Corporation’s financial reporting process. The Corporation determined that such transactions did not satisfy the “reasonable assurance” standard of SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, regarding the isolation of assets in bankruptcy, with the result that they did not qualify as a “true sale” for accounting purposes. The restatement reflects these mortgage-related transactions as commercial loans secured by mortgage loans and pass-through trust certificates. This conclusion resulted in the revised classification of approximately $4.4 billion and $2.4 billion in mortgage-related loans to secured loans to local financial institutions as of March 31, 2005 and 2004, respectively, and $263.3 million and $50.0 million pass-through trust certificates to secured loans to local financial institutions as of March 31, 2005 and 2004, respectively. The recharacterization of the mortgage-related transactions did not impact the Corporation’s retained earnings as of March 31, 2005.

Accounting for Investment Securities. The Corporation historically amortized premiums and discounts related to most of its investment securities into interest income over the life of the related securities using a straight-line method adjusted for prepayment of securities. As part of the restatement, the Corporation concluded that it needed to correct its methodology and adjust its financial statements to reflect the amortization of premiums and discounts into interest income over the terms of the securities using the effective interest method instead of the straight-line

method. The cumulative effect of this correction on the Corporation’s pre-tax income through March 31, 2005 was an increase of $4.5 million, of which approximately $1.0 million and $0.6 million relate to the quarters ended March 31, 2005 and 2004, respectively.

In addition, the Corporation identified other types of investment instruments that had not been recognized in the Consolidated Statement of Financial Condition in accordance with the provisions of SFAS 115 “Accounting for Certain Investments in Debt and Equity Securities.”

Accounting for deferral and recognition of origination fees and costs on loans. As part of the restatement process, the Corporation reviewed the methodology used to measure origination fees and costs associated with its loans origination, in accordance with SFAS 91, “Accounting for Nonrefundable Fees and Costs Associated with Origination or Acquiring Loans and Initial Direct Costs of Leases,” which establishes the accounting treatment for nonrefundable fees and costs associated with lending, committing to lend or purchasing loans. The Corporation concluded that throughout the restatement period, it did not apply SFAS 91 requirements to one of its consumer loans portfolios. Accordingly, the Corporation concluded that, in order to comply with SFAS 91, it needed to defer and amortize loan origination fees and costs on this portfolio using the interest method. The cumulative effect of this correction on the Corporation’s pre-tax income through March 31, 2005 was a decrease of approximately $2.7 million, of which $0.2 million was recorded as a reduction in pre-tax income for each of the quarters ended March 31, 2005 and 2004.

Valuation of financial instruments. In connection with a loan restructuring, First BanCorp became the holder of warrants. The warrant certificate gives the Corporation the right to purchase common stock from a privately held company at a fixed price. This transaction was not formally evaluated or documented as part of the Corporation’s financial reporting process. As part of the restatement process, the Corporation concluded that this transaction meets the definition of a derivative instrument as stated in SFAS 133. Accordingly, the warrant was marked to market and the valuation recognized in earnings as part of “Other operating income.” The cumulative effect of this correction on the Corporation’s pre-tax income through March 31, 2005 was an increase of $1.2 million, all of which related to the quarter ended March 31, 2004.

Other Accounting Adjustments and Reclassifications. As part of the restatement, the Corporation also made corrections to various other aspects of its Consolidated Financial Statements, including adjustments to the gain on sale of credit card portfolios, accrual of rental expense on lease contracts and income from a loan origination subsidiary. The cumulative effect of all these other adjustments on the Corporation’s pre-tax income through March 31, 2005 was a decrease of $1.8 million, of which approximately $0.4 million was recorded as a reduction of pre-tax income for the quarter ended March 31, 2005 and $0.3 million was recorded as an increase to pre-tax income for the quarter ended March 31, 2004.

The reclassifications made to conform to GAAP included, among other things, reclassifying late charges and prepayment fees on loans from non-interest income to interest income on loans, and reclassifying dividends on equity securities from non-interest income to interest income on investments. Other reclassifications included reclassifying loans receivable balances within loan categories, reclassifying certain amounts previously reported as repurchase agreements to other borrowings, adjustments to the estimated fair value of assets and liabilities acquired in a business combination, reclassifying cash balances previously reported as a reduction to non-interest-bearing deposits and reclassifying certain short-term investments previously reported as part of the available for sale and held to maturity investment portfolio to money market investments.

Income Taxes. As a result of the corrections reflected in the restatement, the Corporation’s cumulative income tax expense through March 31, 2005 was reduced by approximately $24.2 million, of which $15.8 million was recorded as a reduction to income tax expense for the quarter ended March 31, 2005 and $16.8 million was recorded as an increase to income tax expense for the quarter ended March 31, 2004. The cumulative reduction through March 31, 2005 resulted principally from changes in deferred taxes. See Note 15 for additional details regarding the Corporation’s income taxes.

The following tables show the impact of all restated adjustments on the previously reported unaudited Consolidated Statements of Financial Condition as of March 31, 2005 and 2004.

FIRST BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)


	March 31, 2005						March 31, 2005
(Dollars in thousands)	(As Previously Reported)			Adjustments			(As Restated)
Assets

Cash and due from banks	$	22,877		$	102,902		$	125,779


Money market instruments		215,143			139,716			354,859
Federal funds sold and securities purchased under agreements to resell		10,000			21,013			31,013
Time deposits with other financial institutions		3,300			—			3,300

Total money market investments		228,443			160,729			389,172

Investment securities available for sale, at fair value:
Securities pledged that can be repledged		1,358,831			(266,610	)		1,092,221
Other investment securities		439,774			(1,117	)		438,657

Total investment securities available for sale		1,798,605			(267,727	)		1,530,878

Investment securities held to maturity, at amortized cost:
Securities pledged that can be repledged		3,254,133			1,708			3,255,841
Other investment securities		772,910			(160,652	)		612,258

Total investment securities held to maturity		4,027,043			(158,944	)		3,868,099

Other equity securities		66,433			1,375			67,808

Loans, net of allowance for loan and lease losses		10,797,600			249,046			11,046,646
Loans held for sale, at lower of cost or market		26,360			—			26,360

Total loans, net		10,823,960			249,046			11,073,006

Premises and equipment, net		105,166			(14	)		105,152
Other real estate owned		8,299			(42	)		8,257
Accrued interest receivable		70,391			(121	)		70,270
Due from customers on acceptances		1,178			—			1,178
Other assets		231,511			45,624			277,135

Total assets	$	17,383,906		$	132,828		$	17,516,734


Liabilities & Stockholders’ Equity
Liabilities:
Non-interest-bearing deposits	$	641,851		$	102,914		$	744,765
Interest-bearing deposits		8,605,237			47,775			8,653,012
Federal funds purchased and securities sold under agreements to repurchase		4,299,840			(253,421	)		4,046,419
Advances from the Federal Home Loan Bank (FHLB)		1,313,000			—			1,313,000
Notes payable		175,484			2,698			178,182
Other borrowings		231,548			242,217			473,765
Subordinated notes		82,823			(418	)		82,405
Bank acceptance outstanding		1,178			—			1,178
Payable for unsettled investment trade		537,535			—			537,535
Accounts payable and other liabilities		261,525			41,570			303,095

Total liabilities		16,150,021			183,335			16,333,356


Stockholders’ equity:
Preferred stock, authorized 50,000,000 shares: issued and outstanding 22,004,000 shares at $25 liquidation value per share		550,100			—			550,100
Common stock, $1 par value, authorized 250,000,000 shares; issued 45,320,780 shares		45,321			—			45,321
Less: Treasury Stock (at par value)		(4,921	)		—			(4,921	)

Common stock outstanding		40,400			—			40,400

Additional paid-in capital		5,034			—			5,034
Capital reserve		82,825			—			82,825
Legal surplus		180,572			2,447			183,019
Retained earnings		356,741			(47,749	)		308,992
Accumulated other comprehensive income, net of tax		18,213			(5,205	)		13,008

Total stockholders’ equity		1,233,885			(50,507	)		1,183,378

Total liabilities and stockholders’ equity	$	17,383,906		$	132,828		$	17,516,734

FIRST BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


	March 31, 2004						March 31, 2004
(Dollars in thousands)	(As Previously Reported)			Adjustments			(As Restated)
Assets

Cash and due from banks	$	100,528		$	—		$	100,528


Money market instruments		582,139			25,300			607,439
Federal funds sold and securities purchased under agreements to resell		13,000			—			13,000
Time deposits with other financial institutions		600			—			600

Total money market investments		595,739			25,300			621,039

Investment securities available for sale, at fair value:
Securities pledged that can be repledged		870,877			(50,000	)		820,877
Other investment securities		362,634			(23	)		362,611

Total investment securities available for sale		1,233,511			(50,023	)		1,183,488

Investment securities held to maturity, at amortized cost:
Securities pledged that can be repledged		2,926,597			(111	)		2,926,486
Other investment securities		825,829			(25,378	)		800,451

Total investment securities held to maturity		3,752,426			(25,489	)		3,726,937

Other equity securities		52,150			375			52,525

Loans, net of allowance for loan and lease losses		7,314,571			45,678			7,360,249
Loans held for sale, at lower of cost or market		1,345			—			1,345

Total loans, net		7,315,916			45,678			7,361,594

Premises and equipment, net		85,081			—			85,081
Other real estate owned		5,839			—			5,839
Accrued interest receivable		41,595			(63	)		41,532
Due from customers on acceptances		300			—			300
Other assets		164,377			(3,772	)		160,605

Total assets	$	13,347,462		$	(7,994	)	$	13,339,468


Liabilities & Stockholders’ Equity
Liabilities:
Non-interest-bearing deposits	$	619,816		$	1,028		$	620,844
Interest-bearing deposits		5,981,530			(32,322	)		5,949,208
Federal funds purchased and securities sold under agreements to repurchase		3,926,672			(54,078	)		3,872,594
Advances from the Federal Home Loan Bank (FHLB)		1,043,000			—			1,043,000
Other borrowings		—			45,000			45,000
Subordinated notes		82,819			(939	)		81,880
Bank acceptance outstanding		300			—			300
Payable for unsettled investment trade		427,801			—			427,801
Accounts payable and other liabilities		141,752			24,322			166,074

Total liabilities		12,223,690			(16,989	)		12,206,701


Stockholders’ equity:
Preferred stock, authorized 50,000,000 shares: issued and outstanding 22,004,000 shares at $25 liquidation value per share		550,100			—			550,100
Common stock, $1 par value, authorized 250,000,000 shares; issued 45,132,655 shares		45,133			—			45,133
Less: Treasury Stock (at par value)		(4,921	)		—			(4,921	)

Common stock outstanding		40,212			—			40,212

Additional paid-in capital		2,245			—			2,245
Capital reserve		80,000			—			80,000
Legal surplus		163,106			2,603			165,709
Retained earnings		245,355			7,092			252,447
Accumulated other comprehensive income, net of tax		42,754			(700	)		42,054

Total stockholders’ equity		1,123,772			8,995			1,132,767

Total liabilities and stockholders’ equity	$	13,347,462		$	(7,994	)	$	13,339,468

The following tables show the impact of all restatement adjustments on the previously reported unaudited Consolidated Statements of Income and basic and diluted earnings per share for the quarters ended March 31, 2005 and 2004.

FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


(In thousands, except per share data)	Quarter Ended
	March 31,						March 31,
	2005						2005
	(As Previously Reported)			Adjustments			(As Restated)
Interest income:
Loans	$	148,910		$	4,815		$	153,725
Investment securities		58,070			(1,285	)		56,785
Money market investments		1,867			—			1,867

Total interest income		208,847			3,530			212,377


Interest expense:
Deposits		47,280			46,702			93,982
Federal funds purchased and repurchase agreements		34,559			(184	)		34,375
Advances from FHLB		11,425			—			11,425
Notes payable and other borrowings		5,981			1,338			7,319

Total interest expense		99,245			47,856			147,101

Net interest income		109,602			(44,326	)		65,276


Provision for loan and lease losses		10,954			—			10,954


Net interest income after provision for loan and lease losses		98,648			(44,326	)		54,322


Non-interest income:
Other service charges on loans		2,033			(912	)		1,121
Service charges on deposit accounts		2,690			—			2,690
Mortgage banking activities		510			—			510
Net gain on investments and impairments		9,513			—			9,513
Rental income		866			—			866
Other operating income		4,006			1,545			5,551

Total non-interest income		19,618			633			20,251


Non-interest expenses:
Employees’ compensation and benefits		23,605			(290	)		23,315
Occupancy and equipment		10,342			297			10,639
Business promotion		4,548			—			4,548
Professional fees		1,647			249			1,896
Taxes, other than income taxes		2,269			—			2,269
Insurance and supervisory fees		1,063			—			1,063
Other operating expenses		9,177			100			9,277

Total non-interest expenses		52,651			356			53,007


Income before income tax		65,615			(44,049	)		21,566
Income tax (provision) benefit		(12,182	)		15,831			3,649


Net income	$	53,433		$	(28,218	)	$	25,215

Net income attributable to common stockholders	$	43,364		$	(28,218	)	$	15,146

Net income per common share:
Basic	$	0.54		$	(0.35	)	$	0.19

Diluted	$	0.52		$	(0.34	)	$	0.18

FIRST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


(In thousands, except per share data)	Quarter Ended
	March 31,						March 31,
	2004						2004
	(As Previously Reported)			Adjustments			(As Restated)
Interest income:
Loans	$	103,877		$	119		$	103,996
Investment securities		45,933			171			46,104
Money market investments		717			—			717

Total interest income		150,527			290			150,817


Interest expense:
Deposits		27,047			(40,427	)		(13,380	)
Federal funds purchased and repurchase agreements		28,333			(1	)		28,332
Advances from FHLB		5,300			—			5,300
Notes payable and other borrowings		1,664			115			1,779

Total interest expense		62,344			(40,313	)		22,031

Net interest income		88,183			40,603			128,786


Provision for loan and lease losses		13,200			—			13,200


Net interest income after provision for loan and lease losses		74,983			40,603			115,586


Non-interest income:
Other service charges on loans		2,116			(961	)		1,155
Service charges on deposit accounts		2,783			—			2,783
Mortgage banking activities		1,545			—			1,545
Net gain on investments and impairments		3,965			—			3,965
Rental income		617			—			617
Gain on sale of credit card portfolio		5,236			—			5,236
Other operating income		3,756			1,907			5,663

Total non-interest income		20,018			946			20,964


Non-interest expenses:
Employees’ compensation and benefits		19,987			(251	)		19,736
Occupancy and equipment		9,383			(5	)		9,378
Business promotion		3,469			—			3,469
Professional fees		733			1			734
Taxes, other than income taxes		1,948			—			1,948
Insurance and supervisory fees		1,076			—			1,076
Other operating expenses		6,562			(173	)		6,389

Total non-interest expenses		43,158			(428	)		42,730


Income before income tax		51,843			41,977			93,820
Income tax provision		(11,639	)		(16,751	)		(28,390	)


Net income	$	40,204		$	25,226		$	65,430

Net income attributable to common stockholders	$	30,135		$	25,226		$	55,361

Net income per common share:
Basic	$	0.38		$	0.31		$	0.69

Diluted	$	0.36		$	0.31		$	0.67

Restatement of 2005 and 2004 Consolidated Statements of Cash Flows

During the preparation of the 2006 consolidated financial statements, management became aware of some incorrect classifications in the Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004. The classification errors related to three main items: 1) the treatment of discounts and the related accretion activity on certain investment securities (mostly “zero coupon securities”) purchased by the Corporation which were incorrectly presented as cash flows related to investing activities (“principal repayments and maturities of securities held-to-maturity”), instead of operating activities (“net amortization or accretion of discounts and premiums on investment securities”), 2) the classification of cash flows from the disposition of repossessed assets which was included as part of operating activities (“decrease or increase in other assets”), instead of investing activities (“proceeds from sale of repossessed assets”), and 3) purchases of zero coupon bonds and agency discount notes amounts presented as part of investing activities (“purchases of securities held-to-maturity”) were reported at par amount rather than the actual cash paid for the securities and the discounts on such securities were being presented as investing activities (“principal repayments and maturities of securities held-to-maturity”) rather than being excluded from the Cash Flow Statements.

The cash flows related to the accretion of discount on certain investment securities have been properly classified as “cash flows from operating activities” and the cash flows from the disposition of repossessed assets have been properly classified as “cash flows from investing activities” in the restated Consolidated Statements of Cash Flows for the quarters ended March 31, 2005 and 2004. The amounts presented as purchases, principal repayments and maturities of securities under “cash flows from investing activities” have also been corrected to reflect actual cash outflows and inflows related to zero coupon bonds and discounts notes. In addition, the Corporation has corrected the classification of other items, including items related to the 2004 restatement (see footnotes in table below), and the classification of short-term held-to-maturity investments (less than 90 days) from investments to cash and cash equivalents.

Also, the Corporation has corrected the classification of cash receipts from sales and repayments as well as cash disbursements in originations of loans classified as held-for-sale on the consolidated statements of cash flows. The Corporation previously reported the cash receipts from sales and repayments as well as cash disbursements in originations of loans classified as held-for-sale that were originally acquired for investment as cash flows of operating activities in the consolidated statements of cash flows. Since these loans were originally acquired by the Corporation for investment purposes, cash receipts from sales and repayments as well as cash disbursements in originations of these loans should be classified as cash flows of investing activities in the consolidated statements of cash flows.

The following comparative table presents the effects of the aforementioned classification corrections as well as the impact of all restatement adjustments related with the 2004 restatement on the Consolidated Statement of Cash Flows for the quarters ended March 31, 2005 and 2004:


Quarter Ended March 31, (in thousands)	2005									2004
	As Previously						(As			As Previously						(As
	Reported			Adjustments			Restated)			Reported			Adjustments			Restated)
Cash flows from operating activities:
Net income	$	53,433		$	(28,218	)	$	25,215		$	40,204		$	25,226		$	65,430

Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax (benefit) provision (1)		(290	)		(17,365	)		(17,655	)		(2,791	)		15,814			13,023
Unrealized derivatives loss (gain)(2)		854			41,383			42,237			(381	)		(45,655	)		(46,036	)
Amortization of brokers’ placement fees (2)		—			3,657			3,657			—			4,794			4,794
(Accretion) amortization of premiums and discounts on investment securities (3)		—			(7,958	)		(7,958	)		—			947			947
Decrease (increase) in other assets (3)		6,284			(9,575	)		(3,291	)		16,117			(7,425	)		8,692
Other adjustments to cash flows from operating activities (4)(5)		(9,540	)		33,902			24,362			12,999			3,993			16,992

Total adjustments to reconcile net income to net cash provided by operating activities		(2,692	)		44,044			41,352			25,944			(27,532	)		(1,588	)

Net cash provided by operating activities		50,741			15,826			66,567			66,148			(2,306	)		63,842


Cash flows from investing activities:
Proceeds from sale of repossessed assets (3)		—			9,027			9,027			—			8,597			8,597
Purchase of securities held to maturity (3)		(2,393,777	)		1,599,019			(794,758	)		(1,728,741	)		1,244,816			(483,925	)
Principal repayments and maturities of securities held to maturity (3)		2,115,712			(1,430,508	)		685,204			1,534,593			(1,213,929	)		320,664
Other adjustments to cash flows from investing activities (4)(5)		(1,134,695	)		(25,636	)		(1,160,331	)		(427,599	)		(1,402	)		(429,001	)

Net cash used in investing activities		(1,412,760	)		151,902			(1,260,858	)		(621,747	)		38,082			(583,665	)


Cash flows from financing activities:
Net increase (decrease) in deposits (2)(6)		956,995			87,707			1,044,702			(203,773	)		(2,340	)		(206,113	)
Other adjustments to cash flows from financing activities (5)		(262,435	)		—			(262,435	)		395,395			—			395,395


Net cash provided by financing activities		694,560			87,707			782,267			191,622			(2,340	)		189,282

Net decrease in cash and cash equivalents		(667,459	)		255,435			(412,024	)		(363,977	)		33,436			(330,541	)
Cash and cash equivalents at beginning of period		918,779			8,196			926,975			1,060,244			(8,136	)		1,052,108

Cash and cash equivalents at end of period (7)	$	251,320		$	263,631		$	514,951		$	696,267		$	25,300		$	721,567


(1)		Deferred tax effect of items related to the 2004 restatement; refer to explanation of change in Note 1 – Restatement of previously issued financial statements – Income Taxes above.

(2)		Refer to explanation of change in Note 1 – Restatement of previously issued financial statements — Accounting for Derivative Instruments and Broker Placement Fees above.

(3)		Refer to explanation of change in the first paragraph of Restatement of 2005 and 2004 Consolidated Statements of Cash Flows above.

(4)		Refer to explanation of change in the third paragraph of Restatement of 2005 and 2004 Consolidated Statements of Cash Flows above.

(5)		Change resulting from certain not significant 2004 restatement adjustments (refer to Note 1 – Restatement of previously issued financial statements) and the correction of immaterial classification errors.

(6)		Refer to explanation of change in Note 1 – Restatement of previously issued financial statements — Other Accounting Adjustments and Reclassifications above.

(7)		Mostly related with the correction of the classification of short-term held-to-maturity investments (less than 90 days) from investments to cash and cash equivalents.

2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The Consolidated Financial Statements (unaudited) have been prepared in conformity with the accounting policies stated in the Corporation’s Annual Audited Financial Statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2005, included in the Corporation’s 2005 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the statement of financial position, results of operations and cash flows for the interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation.

The results of operations for the quarter ended on March 31, 2006, are not necessarily indicative of the results to be expected for the entire year.

On May 24, 2005, the Corporation’s Board of Directors declared a two-for-one split in the Corporation’s common stock. The record date of the stock split was June 15, 2005, and the distribution date was June 30, 2005. The per share data contained in the Consolidated Financial Statements prior to the quarter ended June 30, 2005 has been adjusted to reflect the two-for-one stock split.

Recently issued accounting pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115”. This Statement allows entities to choose to measure certain financial assets and liabilities at fair value with changes in fair value reflected in earnings. The fair value option may be applied on an instrument-by-instrument basis. This Statement is effective for periods after November 15, 2007, however, early adoption is permitted provided that the entity also elects to apply the provisions of SFAS 157, “Fair Value Measurements”. The Corporation adopted SFAS 159 effective January 1, 2007. The Corporation decided to early adopt SFAS 159 for the callable brokered CDs and a portion of the callable fixed medium-term notes that were economically hedged with interest rate swaps. First BanCorp had been following the long-haul method of accounting, which was adopted on April 3, 2006, under SFAS 133 for the portfolio of callable interest rate swaps, callable brokered CDs and callable notes. One of the main considerations in determining to early adopt SFAS 159 for these instruments was to eliminate the operational procedures required by the long-haul method of accounting in terms of documentation, effectiveness assessment, and manual procedures followed by the Corporation to fulfill the requirements specified by SFAS 133.

Upon adoption of SFAS 159, the Corporation selected the fair value measurement for approximately 63%, of the brokered CDs portfolio and certain of the medium-term notes portfolio (“designated liabilities”). Interest rate risk on the brokered CDs and medium term notes chosen for the fair value measurement option will continue to be economically hedged through callable interest rate swaps with the same terms and conditions. The cumulative after-tax effect on the opening balance of retained earnings from adopting these standards is an approximate increase of $92.2 million. Under SFAS 159, this one-time credit was not recognized in current earnings. Regulatory capital increased by the positive adjustment to retained earnings, exceeding by higher margins the capital levels required to be classified as well-capitalized and strengthened the Corporation’s regulatory capital ratios.

With the Corporation’s elimination of the use of the long-haul method in connection with the adoption of SFAS 159 as of January 1, 2007, the Corporation will no longer amortize the basis adjustment. The basis adjustment amortization is the reversal of the change in value of the brokered CDs and medium term notes recognized since the implementation of the long-haul method. Since the time the Corporation implemented the

long-haul method, it has recognized the basis adjustment and the changes in the value of the brokered CDs and medium term notes based on the expected call date of the instruments. The adoption of SFAS 159 also requires the recognition, as part of the adoption adjustment to retained earnings, of all of the unamortized placement fees that were paid to broker counterparties upon the issuance of the brokered CDs and medium term notes. The Corporation previously amortized those fees through earnings based on the expected call date of the instruments. The impact of the de-recognition of the basis adjustment and the unamortized placement fees as of January 1, 2007 results in a cumulative after-tax reduction to retained earnings of approximately $23.8 million. This negative charge is included in the total cumulative after-tax increase to retained earnings of $92.2 million that results with the adoption of SFAS 157 and SFAS 159.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). This interpretation expresses the SEC staff’s views regarding the process of quantifying financial statement misstatements that could result in improper amounts of assets or liabilities. While a misstatement may not be considered material for the period in which it occurred, it may be considered material in a subsequent year if the corporation were to correct the misstatement through current period earnings. SAB 108 requires a materiality evaluation based on all relevant quantitative and qualitative factors and the quantification of the misstatement using both a balance sheet and income statement approach to determine materiality. SAB 108 is effective for periods ending after November 15, 2006. The adoption of this Statement did not have a material effect on the Corporation’s financial condition and results of operations.

In September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)”. This Statement requires corporations to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement is effective for periods ending after December 15, 2006. This Statement is not applicable to the Corporation and therefore has no impact to the Corporation’s financial condition or results of operations.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. This Statement is effective for periods beginning after November 15, 2007. Effective January 1, 2007, the Corporation elected to early adopt this Statement. For further details and for the effect on the Corporation’s financial condition and results of operations upon adoption of SFAS 157 and SFAS 159, refer to the discussion on SFAS 159 above.

In June 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109. This interpretation provides a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for periods beginning after December 15, 2006. The Corporation adopted FIN 48 effective January 1, 2007. The cumulative effect of adoption of FIN 48 resulted in an increase of $2.6 million to tax reserves with offsetting adjustments to retained earnings. Additionally, in connection with the adoption of FIN 48, the Corporation elected to classify interest and penalties related to unrecognized tax portions as components of income tax expense.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets,” an amendment of SFAS No. 140. This Statement requires that servicing assets and servicing liabilities be initially measured at fair value along with any derivative instruments used to mitigate inherent risks. This Statement is

effective for periods beginning after September 15, 2006. The adoption of this Statement in 2007 did not have a material effect on the Corporation’s financial condition and results of operations.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140”. This Statement allows fair value measurement for any hybrid financial instrument that contains an embedded derivative requiring bifurcation. It also establishes a requirement to evaluate interests in securitized financial assets to establish whether the interests are freestanding derivatives or hybrid financial instruments that contain an embedded derivative requiring bifurcation. This Statement is effective for all financial instruments acquired or issued after September 15, 2006. The adoption of this Statement did not have a material effect on the Corporation’s financial condition and results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”. This Statement changes the requirements for the accounting for and reporting of a voluntary change in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of a change in accounting principle unless it is impracticable to do so; in which case the earliest period for which retrospective application is practicable should be applied. If it is impracticable to calculate the cumulative effect of a change in accounting principle, the Statement requires prospective application as of the earliest date practicable. This Statement does not change the guidance in APB Opinion No. 20 with regard to the reporting of the correction of an error, or a change in accounting estimate. The Statement’s purpose is to improve the comparability of financial information among periods. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. The adoption of this statement did not have a material effect on the Corporation’s financial condition and results of operations.

In December 2004, the Financial Accounting Standard Board (“FASB”) issued SFAS 123R, “Share-Based Payment”. This statement is a revision of SFAS 123, “Accounting for Stock- Based Compensation” and it also supersedes APB No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”), and its related implementation guidance.

This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). The cost will be recognized over the period during which an employee is required to provide service in exchange for the award-the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

SFAS 123R eliminates the alternative to use APB 25’s intrinsic value method of accounting that was provided in SFAS 123 as originally issued. Under APB 25, issuing stock options to employees generally resulted in recognition of no compensation cost.

The Corporation prospectively applied SFAS123R to its financial statements as of January 1, 2006. Refer to Note 4 to these consolidated financial statements for required disclosures and further information on the impact of the adoption of this accounting pronouncement.

3 — EARNINGS PER COMMON SHARE

The calculations of (loss) earnings per common share for the quarters ended on March 31, 2006, 2005 and 2004 are as follows:


	Quarter Ended
	March 31,
				2005			2004
	2006			(As Restated)			(As Restated)
	(In thousands, except per share data)
Net Income:
Net income	$	3,863		$	25,215		$	65,430
Less : Preferred stock dividend		(10,069	)		(10,069	)		(10,069	)

Net (loss) income available to common stockholders	$	(6,206	)	$	15,146		$	55,361


Weighted-Average Shares:
Basic weighted average common shares outstanding		81,556			80,784			80,128
Average potential common shares		—			2,742			2,632

Diluted weighted-average number of common shares outstanding		81,556			83,526			82,760


(Loss) Earnings per common share:
Basic	$	(0.08	)	$	0.19		$	0.69

Diluted	$	(0.08	)	$	0.18		$	0.67

Potential common shares consist of common stock issuable under the assumed exercise of stock options using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from exercise are used to purchase common stock at the exercise date. The difference between the number of potential shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Stock options that result in lower potential shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect in earnings per share. As of March 31, 2006, there were 3,043,410 outstanding stock options that were excluded from the computation of diluted earnings per common share because the Corporation reported a net loss available to common stockholders for such period. All options were included in the computation of outstanding shares for the quarter ended March 31, 2005. For the quarter ended on March 31, 2004, a total of 931,800 stock options were not included in the computation of outstanding shares because they were antidilutive.

4 – STOCK OPTION PLAN

Since 1997, the Corporation has had a stock option plan covering certain employees. This plan allowed for the granting of up to 8,696,112 purchase options on shares of the Corporation’s common stock to certain employees. According to the plan, the options granted 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 issuances and distributions such as stock appreciation rights.

Under the Corporation’s stock option plan, the Compensation Committee may grant stock appreciation rights at any time subsequent to the grant of an option. Pursuant to the stock appreciation rights, the Optionee surrenders the right to exercise an option granted under the plan in consideration for payment by the Corporation of an amount equal to the excess of the fair market value of the shares of common stock subject to such option surrendered over the total option price of such shares. Any option surrendered shall be cancelled by the Corporation and the shares subject to the option shall not be eligible for further grants under the option plan.

Prior to the adoption of SFAS 123R on January 1, 2006, the Corporation accounted for stock options under the recognition and measurement principles of APB 25 and related Interpretations. No stock-based employee

compensation cost was reflected in net income for the quarters ended March 31, 2005 and 2004, 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 common share if the Corporation had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation granted during the first quarter of 2005 and 2004.

Pro-forma information:


	Quarter ended
	March 31,
	2005		2004
	(As Restated)		(As Restated)
	(In thousands, except per share data)
Net income
As reported	$	25,215	$	65,430
Deduct: Stock-based employee compensation expense determined under fair value method		6,118		4,963

Pro forma	$	19,097	$	60,467


Earnings per common share-basic:
As reported	$	0.19	$	0.69
Pro forma	$	0.11	$	0.63

Earnings per common share-diluted:
As reported	$	0.18	$	0.67
Pro forma	$	0.11	$	0.61

On January 1, 2006, the Corporation adopted SFAS 123R using the “modified prospective” method. Under this method, and since all previously issued stock options were fully vested at the time of the adoption, the Corporation expenses the fair value of all employee stock options granted after January 1, 2006 (same as the prospective method). The compensation expense associated with expensing stock options for the quarter ended March 31, 2006 was approximately $4.9 million. All employee stock options granted during 2006 were fully vested at the time of grant.

The activity of stock options during the first quarter of 2006 is set forth below:


	Quarter Ended
	March 31, 2006
						Weighted-Average		Aggregate
	Number of			Weighted-Average		Remaining Contractual		Intrinsic Value
	Options			Exercise Price		Term (Years)		(In thousands)
Beginning of period		5,316,410		$	13.28
Options granted		1,070,000			12.68
Options exercised		(2,379,000	)		8.30
Options expired unexercised		(964,000	)		21.95

End of period outstanding and exercisable		3,043,410		$	14.21		7.6	$	3,329

The fair value of options granted in 2006, 2005 and 2004, that was estimated using the Black-Scholes option pricing, and the assumptions used follow:


	2006			2005			2004
Weighted Average Stock Price at grant date and exercise price	$	12.68		$	23.92		$	21.45
Stock option estimated fair value	$	4.56-$4.60		$	6.40-$6.41		$	5.30-$5.45
Weighted-average estimated fair value	$	4.57		$	6.40		$	5.33
Expected stock option term (years)		4.22-4.31			4.25 - 4.27			4.08-4.33
Expected volatility		46	%		28	%		28	%
Expected dividend yield		2.2	%		1.0	%		1.0	%
Risk-free interest rate		4.7% - 5.0	%		4.2	%		3.1	%

The Corporation uses empirical research data to estimate options exercises and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. For 2006, the expected volatility is based on the historical implied volatility of the Corporation’s common stock at each grant date. For periods prior to 2006, the expected volatility is based on the historical volatility of the Corporation’s common stock over a 260-working days period. The dividend yield is based on the historical 12-month dividend yield observable at each grant date. The risk-free rate for periods is based on historical zero coupon curves obtained from Bloomberg at the time of grant based on the option expected term.

The total intrinsic value of options exercised during the first quarter of 2006, 2005 and 2004 was approximately $10.0 million, $0.3 million and $6.4 million, respectively. Cash proceeds from options exercised during the first quarter of 2006, 2005 and 2004 amounted to approximately $19.8 million, $0.2 million and $2.6 million, respectively.

5 – INVESTMENT SECURITIES

Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, approximate fair value, weighted-average yield and contractual maturities of investment securities available for sale at March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004 were as follows:


	March 31, 2006										December 31, 2005
			Gross						Weighted				Gross						Weighted
	Amortized		Unrealized				Fair		average		Amortized		Unrealized				Fair		average
	cost		gains		losses		value		yield%		cost		gains		losses		value		yield%
	(Dollars in thousands)
Obligations of U.S. Government Sponsored Agencies:
Within 1 year	$	—	$	—	$	—	$	—		—	$	1,000	$	—	$	—	$	1,000		6.00
After 5 to 10 years		398,079		—		17,530		380,549		4.29		392,939		—		4,289		388,650		4.27
After 10 years		7,993		—		131		7,862		6.10		—		—		—		—		—
Puerto Rico Government Obligations:
After 1 to 5 years		4,604		189		—		4,793		6.17		4,594		223		—		4,817		6.17
After 5 to 10 years		15,335		273		778		14,830		4.84		15,271		196		678		14,789		4.84
After 10 years		5,327		113		100		5,340		5.88		5,311		131		42		5,400		5.88

United States and Puerto Rico Government Obligations		431,338		575		18,539		413,374		4.38		419,115		550		5,009		414,656		4.34

Mortgage-backed Securities:
FHLMC certificates:
Within 1 year		3		—		—		3		5.24		2		—		—		2		4.26
After 1 to 5 years		1,568		16		—		1,584		6.40		1,762		30		—		1,792		6.43
After 5 to 10 years		1,179		54		—		1,233		7.82		1,336		82		—		1,418		7.98
After 10 years		6,422		61		222		6,261		5.49		6,839		77		166		6,750		5.55

		9,172		131		222		9,081		5.95		9,939		189		166		9,962		6.03

GNMA certificates:
After 1 to 5 years		857		8		—		865		6.37		939		14		—		953		6.39
After 5 to 10 years		1,068		11		1		1,078		5.10		291		10		—		301		6.64
After 10 years		424,511		619		8,800		416,330		5.23		438,565		1,021		1,959		437,627		5.19

		426,436		638		8,801		418,273		5.24		439,795		1,045		1,959		438,881		5.20

FNMA certificates:
After 1 to 5 years		156		1		—		157		7.41		187		3		—		190		7.55
After 5 to 10 years		157		11		—		168		11.14		124		11		—		135		11.40
After 10 years		996,375		697		22,514		974,558		5.17		1,038,126		1,054		10,031		1,029,149		5.14

		996,688		709		22,514		974,883		5.17		1,038,437		1,068		10,031		1,029,474		5.14

Mortgage pass-through certificates:
After 10 years		391		3		—		394		7.29		400		3		—		403		7.29

Mortgage-backed Securities		1,432,687		1,481		31,537		1,402,631		5.20		1,488,571		2,305		12,156		1,478,720		5.16

Corporate Bonds:
After 1 to 5 years		988		25		—		1,013		7.30		2,483		84		1		2,566		7.75
After 5 to 10 years		—		—		—		—		—		1,912		12		42		1,882		8.09
After 10 years		14,012		335		1,460		12,887		7.56		21,857		909		1,833		20,933		7.44

Corporate bonds		15,000		360		1,460		13,900		7.54		26,252		1,005		1,876		25,381		7.52


Equity securities (without contractual maturity)		27,798		2,770		428		30,140		2.31		29,931		1,131		1,641		29,421		3.70


Total Investment Securities
Available for Sale	$	1,906,823	$	5,186	$	51,964	$	1,860,045		4.99	$	1,963,869	$	4,991	$	20,682	$	1,948,178		5.00


	March 31, 2005										March 31, 2004
	(As Restated)										(As Restated)
			Gross						Weighted				Gross						Weighted
	Amortized		Unrealized				Fair		average		Amortized		Unrealized				Fair		average
	cost		gains		losses		value		yield%		cost		gains		losses		value		yield%
	(Dollars in thousands)
Obligations of U.S. Government Sponsored Agencies:
After 5 to 10 years	$	292,297	$	—	$	3,967	$	288,330		4.32	$	—	$	—	$	—	$	—		—
Puerto Rico Government Obligations:
After 1 to 5 years		4,530		213		—		4,743		6.17		294		38		—		332		6.62
After 5 to 10 years		12,716		236		767		12,185		4.58		7,003		336		—		7,339		5.79
After 10 years		7,668		435		90		8,013		5.94		8,127		466		—		8,593		5.98

United States and Puerto Rico Government Obligations		317,211		884		4,824		313,271		4.40		15,424		840		—		16,264		5.91

Mortgage-backed Securities:
FHLMC certificates:
After 1 to 5 years		2,305		66		—		2,371		6.39		2,563		158		—		2,721		6.40
After 5 to 10 years		1,968		91		—		2,059		8.08		3,718		284		—		4,002		7.84
After 10 years		2,619		119		—		2,738		6.95		3,473		218		—		3,691		6.87

		6,892		276		—		7,168		7.09		9,754		660		—		10,414		7.12

GNMA certificates:
After 1 to 5 years		1,209		65		—		1,274		6.35		—		—		—		—		—
After 5 to 10 years		424		21		—		445		6.65		2,277		132		—		2,409		6.39
After 10 years		90,212		1,344		—		91,556		5.10		147,925		3,545		—		151,470		4.42

		91,845		1,430		—		93,275		5.12		150,202		3,677		—		153,879		4.45

FNMA certificates:
After 1 to 5 years		135		8		—		143		7.48		58		4		—		62		8.26
After 5 to 10 years		197		16		—		213		8.81		442		41		—		483		8.26
After 10 years		1,019,706		4,283		898		1,023,091		5.10		876,528		21,602		—		898,130		4.87

		1,020,038		4,307		898		1,023,447		5.10		877,028		21,647		—		898,675		4.87

Mortgage pass-through certificates:
After 10 years		453		4		—		457		7.29		676		6		—		682		7.28

Mortgage-backed Securities		1,119,228		6,017		898		1,124,347		5.12		1,037,660		25,990		—		1,063,650		4.83

Corporate Bonds:
Within 1 year		40,000		98		200		39,898		5.16		—		—		—		—		—
After 1 to 5 years		875		1,966		—		2,841		6.30		40,000		900		—		40,900		4.24
After 5 to 10 years		375		911		—		1,286		7.73		3,750		3,400		—		7,150		7.67

Corporate bonds		41,250		2,975		200		44,025		5.21		43,750		4,300		—		48,050		4.53


Equity securities (without contractual maturity)		39,627		11,223		1,615		49,235		1.49		43,218		13,407		1,101		55,524		1.24


Total Investment Securities Available for Sale	$	1,517,316	$	21,099	$	7,537	$	1,530,878		4.88	$	1,140,052	$	44,537	$	1,101	$	1,183,488		4.70

Maturities of mortgage-backed securities are based on contractual terms assuming no prepayments. Expected maturities of investments might differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted average yield on investment securities held for sale is based on amortized cost and, therefore, does not give effect to changes in fair value. The net unrealized gains or losses on available for sale securities are presented as part of accumulated other comprehensive income.

The following tables show the Corporation’s available-for-sale investments’ fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004:


	As of March 31, 2006
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Debt Securities
Obligations of U.S. Government Sponsored Agencies	$	388,411	$	17,661	$	—	$	—	$	388,411	$	17,661
Puerto Rico Government Obligations		—		—		13,282		878		13,282		878
Mortgage-Backed Securities
FHLMC		—		—		4,244		222		4,244		222
GNMA		394,326		8,801		—		—		394,326		8,801
FNMA		925,747		21,921		18,197		593		943,944		22,514
Corporate Bonds		—		—		4,360		1,460		4,360		1,460
Equity Securities		2,160		428		—		—		2,160		428

	$	1,710,644	$	48,811	$	40,083	$	3,153	$	1,750,727	$	51,964


	As of December 31, 2005
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Debt Securities
Obligations of U.S. Government Sponsored Agencies	$	388,650	$	4,289	$	—	$	—	$	388,650	$	4,289
Puerto Rico Government Obligations		—		—		13,440		720		13,440		720
Mortgage-Backed Securities
FHLMC		4,440		166		—		—		4,440		166
GNMA		369,231		1,959		—		—		369,231		1,959
FNMA		939,197		10,031		—		—		939,197		10,031
Corporate Bonds		8,711		1,876		—		—		8,711		1,876
Equity Securities		16,229		1,641		—		—		16,229		1,641

	$	1,726,458	$	19,962	$	13,440	$	720	$	1,739,898	$	20,682


	As of March 31, 2005
	(As Restated)
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Debt Securities
Obligations of U.S. Government Sponsored Agencies	$	288,330	$	3,967	$	—	$	—	$	288,330	$	3,967
Puerto Rico Government Obligations		8,459		701		4,844		156		13,303		857
Mortgage-Backed Securities
FNMA		231,436		898		—		—		231,436		898
Corporate Bonds		19,800		200		—		—		19,800		200
Equity Securities		11,755		1,288		489		327		12,244		1,615

	$	559,780	$	7,054	$	5,333	$	483	$	565,113	$	7,537


	As of March 31, 2004
	(As Restated)
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Equity Securities	$	10,800	$	1,054	$	79	$	47	$	10,879	$	1,101

The Corporation’s investment securities portfolio is comprised principally of (i) mortgage-backed securities issued or guaranteed by FNMA, GNMA or FHLMC and (ii) U.S. Treasury and agencies securities. Thus, payment of a substantial portion of these instruments is either guaranteed or secured by mortgages together with a U.S. government sponsored entity or is backed by the full faith and credit of the U.S. government. Principal and interest on these securities are therefore deemed recoverable. The Corporation’s policy is to review its investment portfolio for possible other-than temporary impairment, at least quarterly. At March 31, 2006, management has the intent and ability to hold these investments for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments; as a result, the impairments are considered temporary. The increase in the net unrealized loss position during the first quarter of 2006 was principally due to increases in interest rates and the corresponding decrease in prices.

During the first quarter of 2006, the Corporation recorded other-than-temporary impairments of approximately $2.1 million on certain equity securities held in its investment portfolio. Management concluded that the declines in value of the securities were other-than-temporary; as such, the cost basis of these securities was written down to the market value at the date of the analyses.

Total proceeds from the sale of securities available for sale during the three-month period ended March 31, 2006 amounted to approximately $12.7 million ( 2005 — $213.1 million ; 2004-$15.0 million). The Corporation realized gross gains of approximately $1.6 million and gross losses of approximately $0.2 million for the first quarter of 2006 (2005 — $9.5 million in gross realized gains; 2004-$4.0 million in gross realized gains and approximately $15,000 in gross realized losses).

Investment Securities Held to Maturity

The amortized cost, gross unrealized gains and losses, approximate fair value, weighted-average yield and contractual maturities of investment securities held-to-maturity at March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004 were as follows:


	March 31, 2006										December 31, 2005
			Gross						Weighted				Gross						Weighted
	Amortized		Unrealized				Fair		average		Amortized		Unrealized				Fair		average
	cost		gains		losses		value		yield%		cost		gains		losses		value		yield%
	(Dollars in thousands)
U.S. Treasury Securities:
Due within 1 year	$	145,211	$	26	$	—	$	145,237		4.41	$	149,156	$	48	$	—	$	149,204		3.97

Obligations of other U.S. Government Sponsored Agencies:
After 10 years		2,049,727		—		106,462		1,943,265		5.83		2,041,558		—		65,799		1,975,759		5.83
Puerto Rico Government Obligations:
After 1 to 5 years		5,000		7		—		5,007		5.00		5,000		20		—		5,020		5.00
After 5 to 10 years		9,298		497		141		9,654		5.94		—		—		—		—		—
After 10 years		—		—		—		—		—		9,163		502		143		9,522		5.94

United States and Puerto Rico Government obligations		2,209,236		530		106,603		2,103,163		5.74		2,204,877		570		65,942		2,139,505		5.70


Mortgage-backed securities:
FHLMC certificates:
After 5 to 10 years		19,156		—		1,017		18,139		3.68		20,211		—		778		19,433		3.63

FNMA certificates:
After 5 to 10 years		17,287		—		874		16,413		3.79		18,418		—		602		17,816		3.79
After 10 years		1,143,546		—		49,884		1,093,662		4.38		1,195,082		—		35,277		1,159,805		4.32

Mortgage-backed securities		1,179,989		—		51,775		1,128,214		4.36		1,233,711		—		36,657		1,197,054		4.30


Total Investment Securities Held to Maturity	$	3,389,225	$	530	$	158,378	$	3,231,377		5.25	$	3,438,588	$	570	$	102,599	$	3,336,559		5.20


	March 31, 2005										March 31, 2004
	(As Restated)										(As Restated)
			Gross						Weighted				Gross						Weighted
	Amortized		Unrealized				Fair		average		Amortized		Unrealized				Fair		average
	cost		gains		losses		value		yield%		cost		gains		losses		value		yield%
	(Dollars in thousands)
U.S. Treasury Securities:
Due within 1 year	$	—	$	—	$	—	$	—		—	$	69,816	$	9	$	—	$	69,825		0.98

Obligations of other U.S. Government Sponsored Agencies:
Due within 1 year		14,913		—		15		14,898		2.83		—		—		—		—		—
After 10 years		2,340,777		121		26,641		2,314,257		5.89		1,740,676		586		9,929		1,731,333		4.90
Puerto Rico Government Obligations:
After 1 to 5 years		5,000		43		—		5,043		5.00		5,000		163		—		5,163		5.00
After 10 years		8,770		791		—		9,561		5.94		4,716		706		—		5,422		6.50

United States and Puerto Rico Government obligations		2,369,460		955		26,656		2,343,759		5.87		1,820,208		1,464		9,929		1,811,743		4.75


Mortgage-backed securities:
FHLMC certificates:
After 5 to 10 years		24,461		—		797		23,664		3.52		33,370		—		316		33,054		3.75
After 10 years		5,003		—		169		4,834		4.88		—		—		—		—		—

GNMA certificates:
After 10 years		1,443		102		—		1,545		7.56		—		—		—		—		—

FNMA certificates:
After 5 to 10 years		22,243		—		560		21,683		3.81		28,228		191		—		28,419		3.86
After 10 years		1,416,584		—		30,933		1,385,651		4.31		1,825,206		13,974		—		1,839,180		4.29

Mortgage-backed securities		1,469,734		102		32,459		1,437,377		4.29		1,886,804		14,165		316		1,900,653		4.27


Corporate Bonds:
Within 1 year		500		—		—		500		5.05		19,925		35		—		19,960		2.64
After 1 to 5 years		2,484		133		—		2,617		7.75		—		—		—		—		—
After 5 to 10 years		3,018		29		—		3,047		7.70		—		—		—		—		—
After 10 years		22,903		80		—		22,983		7.43		—		—		—		—		—

Corporate bonds		28,905		242		—		29,147		7.44		19,925		35		—		19,960		2.64


Total Investment Securities Held to Maturity	$	3,868,099	$	1,299	$	59,115	$	3,810,283		5.28	$	3,726,937	$	15,664	$	10,245	$	3,732,356		4.50

Held to maturity investments as of March 31, 2005 includes a portfolio of approximately $28.9 million in corporate bonds and $6.4 million in mortgage-backed securities which were acquired as part of the purchase of Ponce General Corporation. These portfolios were reclassified to the available for sale category shortly after the acquisition.

The following tables show the Corporation’s held-to-maturity investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004.


	As of March 31, 2006
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Debt Securities
Other U.S. Government Sponsored Agencies	$	1,449,824	$	62,815	$	493,441	$	43,647	$	1,943,265	$	106,462
Puerto Rico Government Obligations		—		—		3,798		141		3,798		141
Mortgage-Backed Securities
FHLMC		2,499		132		15,640		885		18,139		1,017
FNMA		—		—		1,110,075		50,758		1,110,075		50,758

	$	1,452,323	$	62,947	$	1,622,954	$	95,431	$	3,075,277	$	158,378


	As of December 31, 2005
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Debt Securities
Other U.S. Government Sponsored Agencies	$	1,585,810	$	40,379	$	389,949	$	25,420	$	1,975,759	$	65,799
Puerto Rico Government Obligations		3,746		143		—		—		3,746		143
Mortgage-Backed Securities
FHLMC		—		—		19,433		778		19,433		778
FNMA		11,771		339		1,165,849		35,540		1,177,620		35,879

	$	1,601,327	$	40,861	$	1,575,231	$	61,738	$	3,176,558	$	102,599


	As of March 31, 2005
	(As restated)
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
Debt Securities
Other U.S. Government Sponsored Agencies	$	874,198	$	18,729	$	861,380	$	7,927	$	1,735,578	$	26,656
Mortgage-Backed Securities
FHLMC		5,415		185		23,083		781		28,498		966
FNMA		825,181		17,738		582,153		13,755		1,407,334		31,493

	$	1,704,794	$	36,652	$	1,466,616	$	22,463	$	3,171,410	$	59,115


	As of March 31, 2004
	(As restated)
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
					(Dollars in thousands)
Debt Securities
Other U.S. Government Sponsored Agencies	$	891,223	$	8,371	$	86,279	$	1,558	$	977,502	$	9,929
Mortgage- Backed Securities
FHLMC		33,054		316		—		—		33,054		316

	$	924,277	$	8,687	$	86,279	$	1,558	$	1,010,556	$	10,245

Held-to-maturity securities in an unrealized loss position at March 31, 2006 are primarily mortgage-backed securities and U.S. agency securities. The vast majority of them are rated the equivalent of AAA by the major rating agencies. Management believes that the unrealized losses in the held-to-maturity portfolio at March 31, 2006 are substantially related to market interest rate fluctuations and not deterioration in the creditworthiness of the issuers; as a result, the impairment is considered temporary.

6 – OTHER EQUITY SECURITIES

Institutions that are members of the FHLB system are required to maintain a minimum investment in FHLB stock. Such minimum is calculated as a percentage of aggregate outstanding mortgages and an additional investment is required that is calculated as a percentage of total FHLB advances, letters of credit, and the collateralized portion of interest-rate swaps outstanding. The stock is capital stock issued at $100 par value. Both stock and cash dividends may be received on FHLB stock.

At March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004, there were investments in FHLB stock with book value of $28.9 million, $40.9 million, $66.4 million and $52.2 million respectively. The estimated market value of such investments is its redemption value determined by the ultimate recoverability of its par value.

The Corporation has other equity securities that do not have a readily available fair value. The carrying value of such securities at March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004 was $1.4 million, $1.4 million, $1.4 million and $0.3 million, respectively.

7 — LOAN PORTFOLIO

The following is a detail of the loan portfolio:


							March 31,			March 31,
	March 31,			December 31,			2005			2004
	2006			2005			(As Restated)			(As Restated)
	(Dollars in thousands)
Residential real estate loans, mainly secured by first mortgages	$	2,445,504		$	2,245,272		$	1,687,769		$	1,005,487

Commercial loans:
Construction loans		1,432,255			1,137,118			478,429			358,070
Commercial mortgage loans		1,143,414			1,090,193			944,057			659,874
Commercial loans		2,443,455			2,421,219			2,000,741			1,713,532
Loans to local financial institutions collateralized by real estate mortgages and pass-through trust certificates		3,518,540			3,676,314			4,386,696			2,400,267

Commercial loans		8,537,664			8,324,844			7,809,923			5,131,743


Finance leases		306,633			280,571			226,923			172,073


Consumer loans		1,780,371			1,733,569			1,466,232			1,181,303


Loans receivable		13,070,172			12,584,256			11,190,847			7,490,606
Allowance for loan and lease losses		(152,596	)		(147,999	)		(144,201	)		(130,357	)

Loans receivable, net		12,917,576			12,436,257			11,046,646			7,360,249
Loans held for sale		73,327			101,673			26,360			1,345

Total loans	$	12,990,903		$	12,537,930		$	11,073,006		$	7,361,594

The Corporation’s primary lending area is Puerto Rico. The Corporation’s Bank subsidiary also lends in the U.S. and British Virgin Islands markets and in the state of Florida (USA). The Corporation has a significant lending concentration of $2.9 billion in one mortgage originator in Puerto Rico at March 31, 2006. The Corporation has outstanding $568.7 million with another mortgage originator in Puerto Rico for total loans granted to mortgage originators amounting to $3.5 billion at March 31, 2006. These commercial loans were secured by individual residential and commercial mortgage loans. The mortgage originators have always paid the loans in accordance with the terms and conditions of the loan agreement.

Of the total gross loans receivable of $13.1 billion as of March 31, 2006, approximately 82% have credit risk concentration in Puerto Rico, 12% in the state of Florida and 6% in the Virgin Islands.

8 – ALLOWANCE FOR LOAN AND LEASE LOSSES

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


	Quarter Ended
	March 31,
				2005
	2006			(As Restated)			2004
	(Dollars in thousands)
Balance at beginning of period	$	147,999		$	141,036		$	126,378
Provision for loan and lease losses		19,376			10,954			13,200
Charge-offs		(16,449	)		(10,599	)		(10,696	)
Recoveries		1,670			1,447			1,475
Other adjustments (1)		—			1,363			—

Balance at end of year	$	152,596		$	144,201		$	130,357


(1)		Represents allowance for loan and lease losses from the acquisition of Ponce General Corporation.

The allowance for impaired loans is part of the allowance for loan and lease losses. These loans represent loans for which management has determined that it is probable that the debtor will be unable to pay all the amounts due, according to the contractual terms of the loan agreement, and do not necessarily represent loans for which the Corporation will incur a substantial loss. At March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004, impaired loans had a related allowance as follows:


	As of		As of		March 31,		March 31,
	March 31,		December 31,		2005		2004
	2006		2005		(As Restated)		(As Restated)
	(Dollars in thousands)
Impaired loans	$	40,684	$	59,801	$	62,451	$	68,946

Allowance for impaired loans	$	6,059	$	9,219	$	17,573	$	15,273

Interest income in the amount of approximately $1.2 million, $0.7 million and $0.6 million was recognized on impaired loans for the quarters ended March 31, 2006, 2005 and 2004, respectively.

9 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Corporation designates a derivative as either a fair value hedge, cash flow hedge or a derivative instrument not designated as a hedge when it enters into the derivative contract. Derivatives utilized by the Corporation include, among others, interest rate swaps, index options, and interest rate cap agreements.

The Corporation uses derivative instruments in the normal course of business to reduce its exposure to fluctuations in interest rates. The following table summarizes the notional amount of all derivative instruments as of March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004.


	Notional amounts
					As of		As of
	As of		As of		March 31,		March 31,
	March 31,		December 31,		2005		2004
	2006		2005		(As Restated)		(As Restated)
	(Dollars in thousands)
Interest rate swap agreements:
Pay fixed versus receive floating	$	99,320	$	109,320	$	91,320	$	113,165
Received fixed versus pay floating		5,540,529		5,751,128		4,481,858		2,970,078
Embedded written options		13,515		13,515		13,515		—
Purchased options		13,515		13,515		13,515		—
Written interest rate cap agreements		125,200		150,200		25,000		25,000
Purchased interest rate caps		357,841		386,750		471,541		25,000

	$	6,149,920	$	6,424,428	$	5,096,749	$	3,133,243

At March 31, 2006, derivatives not designated or not qualifying for hedge accounting with a positive fair value of $20.2 million (December 31, 2005 — $15.8 million, March 31, 2005 — $19.7 million and March 31, 2004 — $7.7 million) and a negative fair value of $227.2 million (December 31, 2005 — $158.1 million, March 31, 2005 — $121.3 million and March 31, 2004 — $27.0 million) were recorded as part of “Other Assets” and “Accounts payable and other liabilities”, respectively, in the Consolidated Statements of Financial Condition.

Interest rate swaps generally involve the exchange of fixed- and variable-rate interest payments between two parties, based on a common notional amount and maturity date. The Corporation uses interest rate swaps primarily to economically hedge brokered CDs and medium term notes. At March 31, 2006, these swaps were not qualified by the Corporation for hedge accounting treatment. The majority of the swaps used as economic hedges convert the long-term fixed interest rate payments to a floating rate. The Corporation receives a fixed payment and pays a floating payment based on LIBOR. Also, the Corporation receives a fixed-rate on certain assets (i.e., loans and corporate bonds) and converts the cash flows into a floating rate. Changes in the fair value of these derivatives and the interest payments exchanged are recognized in earnings as interest income or interest expense depending upon whether an asset or liability is being economically hedged.

A summary of the types of swaps used at March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004 follows:


							As of			As of
	As of			As of			March 31,			March 31,
	March 31,			December 31,			2005			2004
	2006			2005			(As Restated)			(As Restated)
	(Dollars in thousands)
Pay fixed/receive floating:
Notional amount	$	99,320		$	109,320		$	91,320		$	113,165
Weighted average receive rate at period end		6.76	%		6.41	%		4.52	%		3.17	%
Weighted average pay rate at period end		6.50	%		6.60	%		6.72	%		6.97	%
Floating rates range from 187 to 251.5 basis points over 3-month LIBOR

Receive fixed/pay floating:
Notional amount	$	5,540,529		$	5,751,128		$	4,481,858		$	2,970,078
Weighted average receive rate at period end		4.96	%		4.90	%		5.01	%		5.20	%
Weighted average pay rate at period end		4.79	%		4.37	%		2.85	%		1.15	%
Floating rates range from 3.5 under to 19.5 basis points over 3-month LIBOR

Indexed options are generally over-the-counter (OTC) contracts that the Corporation enters into in order to receive the appreciation of a specified Stock Index (i.e., Dow Jones Industrial Composite Stock Index) over a specified period in exchange for a premium paid at the contract’s inception. The option period is determined by the contractual maturity of the notes payable tied to the performance of the Stock Index. The credit risk inherent in these options is the risk that the exchange party may not fulfill its obligation.

Interest rate caps are option-like contracts that require the writer, i.e. the seller, to pay the purchaser at specified future dates the amount, if any, by which a specified market interest rate exceeds the fixed cap rate, applied to a notional principal amount.

To satisfy the needs of its customers, the Corporation may enter into non-hedging transactions. These transactions are structured with the same terms and conditions and the Corporation participates as a buyer in one of the agreements and as the seller in the other agreements.

In addition, the Corporation enters into certain contracts with embedded derivatives that do not require separate accounting as these are clearly and closely related to the host contract. When the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated, carried at fair value, and designated as a trading or non-hedging derivative instrument.

10 – GOODWILL AND OTHER INTANGIBLES

Goodwill at March 31, 2006 amounted to $28.7 million (December 31, 2005 — $28.7 million, March 31, 2005 — $27.3 million and March 31, 2004 — $0) and resulted primarily from the acquisition of Ponce General Corporation in 2005. No goodwill was written down during 2006, 2005 and 2004.

At March 31, 2006, the gross carrying amount and accumulated amortization of core deposit intangibles was $41.2 million and $12.5 million, respectively, recognized as part of Other Assets in the Consolidated Statements of Financial Condition (December 31, 2005 — $41.2 million and $11.6 million, respectively ; March 31, 2005 — $41.2 million and $8.5 million, respectively ; March 31, 2004 — $23.9 million and $6.1 million, respectively). During the quarters ended March 31, 2006, 2005 and 2004, the amortization expense of core deposits amounted to $0.9 million, $0.6 million, and $0.6 million, respectively.

11 — DEPOSITS

The following table summarizes deposit balances:


					As of		As of
	As of		As of		March 31,		March 31,
	March 31,		December 31,		2005		2004
	2006		2005		(As Restated)		(As Restated)
	(Dollars in thousands)
Non-interest-bearing checking account deposits	$	806,469	$	811,006	$	744,765	$	620,844
Saving accounts		1,028,722		1,034,047		1,147,249		782,028
Interest-bearing checking accounts		371,290		375,305		386,827		310,128
Certificates of deposit		1,759,755		1,664,379		1,734,991		1,343,050
Brokered certificates of deposit		9,383,540		8,579,015		5,383,945		3,514,002

	$	13,349,776	$	12,463,752	$	9,397,777	$	6,570,052

The interest expense on deposits includes the valuation to market of interest rate swaps that economically hedge brokered certificates of deposit, the related interest exchanged and the amortization of broker placement fees.

The following are the components of interest expense on deposits:


	Quarter ended
			March 31,		March 31,
	March 31,		2005		2004
	2006		(As Restated)		(As Restated)
	(Dollars in thousands)
Interest expense on deposits	$	117,252	$	46,601	$	26,549
Amortization of broker placement fees		3,949		3,651		4,794

Interest expense on deposits excluding unrealized loss (gain) on derivatives		121,201		50,252		31,343
Unrealized loss (gain) on derivatives		65,637		43,730		(44,723	)

Total interest expense on deposits	$	186,838	$	93,982	$	(13,380	)

Total interest expense on deposits includes interest exchanged on interest rate swaps that economically hedge brokered certificates of deposit that for the quarter ended March 31, 2006 amounted to net interest

realized of $3.5 million (2005 – net interest realized of $24.6 million; 2004 – net interest realized of $30.3 million).

12 – NOTES PAYABLE

Notes payable consists of:


					March 31,
	March 31,		December 31,		2005		March 31,
	2006		2005		(As Restated)		2004
	(Dollars in Thousands)
Callable fixed rate notes, bearing interest at 6.00%, maturing on October 1, 2024	$	149,460	$	149,456	$	149,445	$	—

Callable step-rate notes, bearing step increasing interest from 5.00% to 7.00% maturing on October 18, 2019		15,248		15,245		15,235		—

Dow Jones Industrial Average (DJIA) linked principal protected notes:

Series A maturing on February 28, 2012		6,876		6,752		6,531		—

Series B maturing on May 27, 2011		7,443		7,240		6,971		—

	$	179,027	$	178,693	$	178,182	$	—

13 – OTHER BORROWINGS

Other borrowings consist of:


					March 31,		March 31,
	March 31,		December 31,		2005		2004
	2006		2005		(As Restated)		(As Restated)
			(Dollars in Thousands)
Junior subordinated floating rate debentures due in 2034, interest bearing at a floating rate of 2.75% over 3-month LIBOR (7.67% at March 31, 2006, 7.25% at December 31, 2005 and 5.97% at March 31, 2005)	$	102,780	$	102,756	$	102,683	$	—

Junior subordinated floating rate debentures due in 2034, interest bearing at a floating rate of 2.50% over 3-month LIBOR (7.43% at March 31, 2006, 7.00% at December 31, 2005 and 5.62% at March 31, 2005)		128,866		128,866		128,866		—

Loan payable to local financial institution due on April 7, 2005 (2004 -April 30, 2004), interest bearing at 3.10% (2004 -1.34%)		—		—		45,696		45,000

Loan payable to local financial institution due on April 4, 2005, interest bearing at 3.095%		—		—		196,520		—

	$	231,646	$	231,622	$	473,765	$	45,000

14 – SUBORDINATED NOTES

On December 20, 1995, the Corporation issued 7.63% subordinated capital notes in the amount of $100 million maturing on December 20, 2005. The notes were issued at a discount. At March 31, 2006, there was no outstanding balance as the notes payable were paid at their maturity date of December 20, 2005 (carrying value of $82.4 million as of March 31, 2005 and $81.9 million as of March 31, 2004). Interest on the notes was paid semiannually and at maturity. The notes represented 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 could not be redeemed prior to their maturity.

15 — INCOME TAXES

Income tax expense include Puerto Rico and Virgin Islands income taxes as well as applicable federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income from all sources. As a Puerto Rico corporation, First BanCorp is treated as a foreign corporation for U.S. income tax purposes and 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 such tax paid is creditable, within certain conditions and limitations, against the Corporation’s Puerto Rico tax liability. The Corporation is also subject to U.S. Virgin Islands taxes on its income from sources within this jurisdiction. However, any tax paid, subject to certain conditions and limitations, is creditable against the Corporation’s Puerto Rico tax liability.

Under the Puerto Rico Internal Revenue Code of 1994, as amended (“PR Code”), First BanCorp is subject to a maximum statutory tax rate of 39%, except that in years 2005 and 2006, an additional transitory tax rate of 2.5% was signed into law by the Governor of Puerto Rico. In August 2005, the Government of Puerto Rico approved a transitory tax rate of 2.5% that increased the maximum statutory tax rate from 39.0% to 41.5% for a two-year period. The additional tax related to the income earned from January 1 to the date of enactment of the law was

fully recorded in the third quarter of 2005. On May 13, 2006, with an effective date of January 1, 2006, the Governor of Puerto Rico approved an additional transitory tax rate of 2.0% applicable only to companies covered by the Puerto Rico Banking Act as amended, such as First Bank Puerto Rico (“First Bank” or the “Bank”), which raised the maximum statutory tax rate to 43.5% for taxable years that commenced during calendar year 2006. For taxable years beginning after December 31, 2006, the maximum statutory tax rate will be 39%. The PR Code also includes an alternative minimum tax of 22% that applies if the Corporation’s regular income tax liability is less than the alternative minimum tax requirements.

The Corporation has maintained an effective tax rate lower than the maximum statutory rate mainly by investing in government obligations and mortgage-backed securities exempt from U.S. and Puerto Rico income taxes and doing business through international banking units (“IBEs”) of the Corporation and the Bank and by the Bank’s subsidiary, FirstBank Overseas Corporation. The IBEs and FirstBank Overseas Corporation were created under the International Banking Entity Act of Puerto Rico, which provides for total Puerto Rico tax exemption on net income derived by IBEs operating in Puerto Rico. Since 2004, IBEs that operate as a unit of a bank pay income taxes at normal rates to the extent that the IBEs’ net income exceeds predetermined percentages of the bank’s total net taxable income; such limitations were 30% of total net taxable income for a taxable year commencing between July 1, 2004 and July 1, 2005, and 20% of total net taxable income for taxable years commencing thereafter.

For the quarter ended March 31, 2006, the Corporation recognized an income tax benefit of $11.6 million compared to a tax benefit of $3.7 million and a tax expense of $28.4 million for the same period in 2005 and 2004, respectively. The higher income tax benefit for the first quarter of 2006 as compared to the first quarter of 2005 and 2004 was mainly due to an increase in deferred tax benefits resulting principally from higher unrealized losses on derivative instruments, net of increases in the current tax provision. For the first quarter of 2006, the Corporation recognized a deferred tax benefit of $28.6 million compared to $17.7 million for the same period in 2005 and a deferred tax expense of $13.0 million for the first quarter of 2004.

The Corporation evaluated its ability to realize the deferred tax asset and concluded, based on the evidence available, that it is more likely than not that some of the deferred tax assets will not be realized and thus, established a valuation allowance of $2.9 million as of March 31, 2006. At March 31, 2006, the deferred tax asset, net of the valuation allowance, amounted to approximately $164.3 million compared to $93.1 million at March 31, 2005 and $55.1 million at March 31, 2004. At March 31, 2005 and 2004, based on the Corporation’s analysis and available evidence, the Corporation did not establish a valuation allowance.

16 — SEGMENT INFORMATION

Based upon the Corporation’s organizational structure and the information provided to the Chief Operating Decision Maker and to a lesser extent to the Board of Directors, the operating segments are driven primarily by the Corporation’s legal entities. At March 31, 2006, the Corporation had four reportable segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking; and Treasury and Investments, as well as an Other category reflecting other legal entities reported separately on an aggregate basis. Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as the Corporation’s organizational chart, nature of the products, distribution channels and the economic characteristics of the products were also considered in the determination of the reportable segments.

The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers represented by the public sector and specialized and middle-market clients. The Commercial and Corporate Banking segment offers commercial loans, including commercial real estate and construction loans, and other products such as cash management and business management services. The Mortgage Banking segment’s operations consist of the origination, sale and servicing of a variety of residential mortgage loans. The Mortgage

Banking segment also acquires and sells mortgages in the secondary markets. Certain mortgage loans are purchased from other local banks or mortgage brokers. The Consumer (Retail) segment consists of the Corporation’s consumer lending and deposit-taking activities conducted mainly through its branch network and loan centers. The Treasury and Investment segment is responsible for the Corporation’s investment portfolio and treasury functions executed to manage and enhance liquidity. This segment loans funds to the Commercial and Corporate Banking; Mortgage Banking; and Consumer segments to finance their lending activities and borrows from those segments.

The Consumer segment also loans funds to other segments. The interest rates charged or credited by Treasury and Investments and the Consumer segment are allocated based on market rates. The difference between the allocated interest income or expense and the Corporation’s actual net interest income from centralized management of funding costs is reported in the Treasury and Investments segment. The Other category is mainly composed of insurance, finance leases and other products.

The accounting policies of the business segments are the same as those described in Note 1 of the Corporation’s financial statements for the year ended December 31, 2005 contained in the annual report of the Corporation on Form 10-K.

The Corporation evaluates the performance of the segments based on net interest income after the estimated provision for loan and lease losses, non-interest income and direct non-interest expenses. The segments are also evaluated based on the average volume of their interest-earning assets less the allowance for loan and lease losses.

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


	Mortgage						Commercial and			Treasury and
	Banking			Consumer			Corporate			Investments			Other			Total
For the quarter ended March 31, 2006:
Interest income	$	35,324		$	49,973		$	134,448		$	80,956		$	27,004		$	327,705
Net (charge) credit for transfer of funds		(23,537	)		25,071			(89,131	)		92,026			(4,429	)		—
Interest expense		—			(16,031	)		—			(233,517	)		(5,338	)		(254,886	)

Net interest income (loss)		11,787			59,013			45,317			(60,535	)		17,237			72,819

Provision for loan and lease losses		(326	)		(13,285	)		(832	)		—			(4,933	)		(19,376	)
Other (loss) income		(554	)		5,836			918			(910	)		5,298			10,588
Direct operating expenses		(3,585	)		(21,413	)		(5,239	)		(1,856	)		(10,481	)		(42,574	)

Segment income (loss)	$	7,322		$	30,151		$	40,164		$	(63,301	)	$	7,121		$	21,457


Average earnings assets	$	2,136,483		$	1,936,044		$	7,662,139		$	6,391,152		$	1,078,831		$	19,204,649


For the quarter ended March 31, 2005 (As Restated):
Interest income	$	22,728		$	38,938		$	79,516		$	58,652		$	12,543		$	212,377
Net (charge) credit for transfer of funds		(14,195	)		16,856			(46,274	)		46,205			(2,592	)		—
Interest expense		—			(11,004	)		—			(136,097	)		—			(147,101	)

Net interest income		8,533			44,790			33,242			(31,240	)		9,951			65,276

Provision for loan and lease losses		(461	)		(3,816	)		(5,595	)		—			(1,082	)		(10,954	)
Other income		512			4,758			1,283			9,602			4,096			20,251
Direct operating expenses		(3,522	)		(17,613	)		(3,113	)		(1,231	)		(5,387	)		(30,866	)

Segment income (loss)	$	5,062		$	28,119		$	25,817		$	(22,869	)	$	7,578		$	43,707


Average earnings assets	$	1,342,273		$	1,541,563		$	6,675,751		$	4,878,107		$	334,023		$	14,771,717


For the quarter ended March 31, 2004 (As Restated):
Interest income	$	18,490		$	33,011		$	41,396		$	46,822		$	11,098		$	150,817
Net (charge) credit for transfer of funds		(11,618	)		11,304			(14,173	)		16,273			(1,786	)		—
Interest expense		—			(9,967	)		—			(12,064	)		—			(22,031	)

Net interest income		6,872			34,348			27,223			51,031			9,312			128,786

Provision for loan and lease losses		(265	)		(5,290	)		(6,572	)		—			(1,073	)		(13,200	)
Other income		1,576			10,049			1,329			5,214			2,796			20,964
Direct operating expenses		(2,351	)		(15,091	)		(2,068	)		(650	)		(4,252	)		(24,412	)

Segment income	$	5,832		$	24,016		$	19,912		$	55,595		$	6,783		$	112,138


Average earnings assets	$	1,016,577		$	1,243,618		$	4,528,610		$	4,667,888		$	263,300		$	11,719,993

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


	Quarter Ended
	March 31,
				2005			2004
	2006			(As Restated)			(As Restated)
Net income:
Total income for segments and other	$	21,457		$	43,707		$	112,138
Other operating expenses		(29,164	)		(22,141	)		(18,318	)

(Loss) Income before income taxes		(7,707	)		21,566			93,820
Income tax benefit (expense)		11,570			3,649			(28,390	)

Total consolidated net income	$	3,863		$	25,215		$	65,430


Average assets:
Total average earning assets for segments	$	19,204,649		$	14,771,717		$	11,719,993
Average non- earning assets		673,872			478,487			369,997

Total consolidated average assets	$	19,878,521		$	15,250,204		$	12,089,990

17. COMMITMENTS AND CONTINGENCIES

The Corporation enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments may include commitments to extend credit and commitments to sell and purchase mortgage loans at fair value. As of March 31, 2006, commitments to extend credit amounted to approximately $1.8 billion and stand by letters of credit amounted to approximately $118.7 million. Commitments to extend credit are agreements to lend to a customer as long as the conditions established in the contract are met. Commitments generally have fixed expiration dates or other termination clauses. Generally, the Corporation’s mortgage banking activities do not enter into interest rate lock agreements with its prospective borrowers.

As of March 31, 2006, First BanCorp and its subsidiaries were defendants in various legal proceedings arising in the ordinary 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, except as described below.

On August 1, 2005, the Audit Committee of the Corporation determined that it should review the background and accounting for certain mortgage-related transactions that the Corporation had entered into with Doral Financial Corporation (“Doral”) and R&G Financial Corporation (“R&G”) between 1999 and 2005 that did not qualify as “true sales” for accounting purposes. The Committee retained the law firms of Clifford Chance U.S. LLP and Martínez Odell & Calabria and forensic accountants FTI Consulting Inc. to assist the Audit Committee in its review. On August 25, 2005, the Corporation announced the receipt of a letter from the SEC in which the SEC indicated that it was conducting an informal inquiry into the Corporation. On October 21, 2005, the Corporation announced that the SEC had issued a formal order of investigation into the accounting for the mortgage–related transactions with Doral and R&G. The Corporation announced on December 13, 2005 that management, with the concurrence of the Board of Directors, determined to restate its previously reported financial statements to correct its accounting for the mortgage-related transactions. The Corporation has fully cooperated with the SEC’s investigation. In August 2006, the Audit Committee completed its review and the Corporation filed the Amended 2004 Form 10-K with the SEC on September 26, 2006, the 2005 Form 10-K on February 9, 2007 and the 2006 Form 10-K on July 9, 2007.

On August 7, 2007, First BanCorp announced that the SEC approved a final settlement with the Corporation, which resolves the previously disclosed SEC investigation of the Corporation. Under the settlement, the Corporation agreed, without admitting or denying any wrongdoing, to be enjoined from future violations of certain provisions of the securities laws. The Corporation also agreed to pay an $8.5 million civil penalty and the disgorgement of $1 to the SEC. The SEC may request that the civil penalty be subject to distribution pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. The monetary payment will have no impact on the Corporation’s earnings or capital in 2007. As reflected in First BanCorp’s previously filed audited Consolidated Financial Statements for 2005, the Corporation accrued $8.5 million in 2005 for the potential settlement with the SEC. In connection with the settlement, the Corporation consented to the entry of a final judgment to implement the terms of the agreement. The United States District Court for the Southern District of New York must consent to the entry of the final judgment in order to consummate the settlement.

Following the announcement of the Audit Committee’s review, the Corporation and certain of its current and former officers and directors were named as defendants in five separate securities class actions filed between October 31, 2005 and December 5, 2005, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. At present, all securities class actions have been consolidated into one case named “In Re: First BanCorp Securities Litigations”. Subsequently, in 2007, the Corporation reached an agreement in principle and signed a memorandum of understanding with the lead plaintiff. The agreement specified a payment of $74.25 million by the Corporation subject to the approval by the United States District Court for the District of Puerto Rico.

On August 1, 2007, the United States District Court for the District of Puerto Rico issued a “Preliminary Order” approving the stipulation of settlement filed in connection with the proposed settlement of the class action lawsuit brought on behalf of First BanCorp’s shareholders against the Corporation in the amount of $74.25 million.

The effectiveness of a final order to be issued by the Court is subject to:

	•		The payment of $61 million to be deposited by First BanCorp in a settlement fund within fifteen calendar days of the date of issuance of the “Preliminary Order;” and

	•		The mailing of a notice to shareholders that describes the general terms of the settlement.

The court hearing for the final order of approval of the settlement has been set for October 15, 2007. First BanCorp intends to comply with the $61 million payment requirement within the timeframe set forth in the terms of the settlement. The remaining amount of $13,250,000 will be paid before December 31, 2007. The monetary payment will have no impact on the Corporation’s earnings or capital in 2007. As reflected in First BanCorp’s audited Consolidated Financial Statements, included in the Corporation’s 2005 Annual Report on Form 10-K, the Corporation accrued $74.25 million in 2005 for a possible settlement of the class action.

The Corporation expects to seek recovery of a total of approximately $14.75 million from its insurance companies and from former executives of the Corporation. Since agreements with the insurance carriers have not been executed, the Corporation cannot provide assurances that the monies from the insurance carriers will be received and consequently, the Corporation has not made accruals for any potential payment from its insurance carriers.

Between November 8, 2005 and March 7, 2006, several shareholders of the Corporation commenced five separate derivative actions against certain current and former executive officers and directors of the Corporation. In these actions, the Corporation was included as a nominal defendant. These actions were filed pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 and alleged, among other things, a breach of fiduciary duty on behalf of the defendants. All shareholder derivative actions were consolidated into one case

named “In Re: First BanCorp Derivative Litigation” which was dismissed on November 30, 2006 before the U.S. District Court for the District of Puerto Rico.

18 – FIRST BANCORP (Holding Company Only) Financial Information

The following condensed financial information presents the financial position of the Holding Company only at March 31, 2006, December 31, 2005, March 31, 2005 and March 31, 2004 and the results of its operations for the quarters ended on March 31, 2006, 2005 and 2004.


					As of		As of
	As of		As of		March 31,		March 31,
	March 31,		December 31,		2005		2004
	2006		2005		(As Restated)		(As Restated)
			(Dollars in thousands)
Assets

Cash and due from banks	$	29,367	$	2,772	$	22,746	$	18,482
Money market instruments		300		300		91,600		56,052
Investment securities available for sale, at market:
Equity investments		30,140		29,421		45,626		55,524
Other equity securities		1,425		1,425		1,375		375
Loans receivable, net		71,767		74,914		90,421		55,370
Investment in FirstBank Puerto Rico, at equity		1,276,837		1,316,380		1,132,837		987,551
Investment in FirstBank Insurance Agency, at equit		2,808		5,953		3,386		3,735
Investment in Ponce General Corporation, at equity		107,271		105,907		101,936		—
Investment in PR Finance, at equity		3,026		3,005		—		—
Accrued interest receivable		328		363		332		25
Investment in FBP Statutory Trust I		3,093		3,093		3,093		—
Investment in FBP Statutory Trust II		3,866		3,866		3,866		—
Other assets		30,744		29,758		1,453		979

Total assets	$	1,560,972	$	1,577,157	$	1,498,671	$	1,178,093


Liabilities & Stockholders’ Equity

Liabilities:
Other borrowings	$	231,646	$	295,446	$	308,740	$	45,000
Accounts payable and other liabilities		149,665		83,870		6,553		326

Total liabilities		381,311		379,316		315,293		45,326

Stockholders’ equity		1,179,661		1,197,841		1,183,378		1,132,767

Total liabilities and stockholders’ equity	$	1,560,972	$	1,577,157	$	1,498,671	$	1,178,093


				Quarter Ended			Quarter Ended
	Quarter Ended			March 31,			March 31,
	March 31,			2005			2004
	2006			(As Restated)			(As Restated)
				(Dollars in thousands)
Income:
Interest income on investment securities	$	178		$	80		$	151
Interest income on other investments		3			1,119			122
Interest income on loans		1,053			984			65
Dividend from FirstBank Puerto Rico		17,127			16,745			14,910
Dividend from other subsidiaries		4,000			—			—
Other income		124			203			49

		22,485			19,131			15,297


Expense:
Notes payable and other borrowings		4,146			3,536			1
Interest on funding to subsidiaries		742			—			—
(Recovery) provision for loan losses		(71	)		—			—
Other operating expenses		1,256			258			194

		6,073			3,794			195


(Loss) gain on investments, net		(1,033	)		2,961			3,363


Income before income tax provision and equity in undistributed (loss) earnings of subsidiaries		15,379			18,298			18,465

Income tax benefit (provision)		1,088			(8	)		(45	)

Equity in undistributed (loss) earnings of subsidiaries		(12,604	)		6,925			47,010


Net income	$	3,863		$	25,215		$	65,430

19. SUBSEQUENT EVENTS

Following the close of the first quarter of 2006, a number of events have occurred including:

	•		Effective April 1, 2006, the majority of the Corporation’s derivative instruments, which are mainly interest rate swaps, were designated as hedging relationships under SFAS 133. Most of the interest rate swaps were designated under the long-haul method to hedge the changes in fair value of brokered certificates of deposit and medium-term notes. Prospectively, the effective portion of the changes in value of the brokered certificates of deposit and medium-term notes (the “hedge” items) are recorded as an adjustment to income that offsets or partially offsets the fair value adjustment of the related interest rate swaps. Effective January 1, 2007, the Corporation elected to early adopt SFAS 159 for the callable brokered CDs and a portion of the callable medium-term notes that were previously on a hedge accounting relationship with certain interest rate swaps under SFAS 133. Refer to Note 2 for additional information on the adoption of SFAS 159.

	•		In May 2006, FirstBank Puerto Rico received a cash payment from Doral of approximately $2.4 billion, substantially reducing the balance of the secured commercial loan to that institution. A loss of approximately $10.6 million was recognized during 2006 as a result of this transaction. As part of the Cease and Desist Order imposed on the Corporation by its regulators the Corporation has continued working on the reduction of the Corporation’s exposure to Doral.

	•		In February 2007, the Corporation entered into various agreements with R&G relating to prior transactions originally treated as purchases of mortgages and pass-through trust certificates from R&G subsidiaries. First, through a mortgage payment agreement, R&G paid the Corporation approximately $50 million to reduce the commercial loan that R&G Premier has outstanding with the Corporation. In addition, the remaining balance of approximately $271 million was re-documented as a secured loan from the Corporation to R&G. Second, R&G and the Corporation amended various agreements involving approximately $218 million of securities collateralized by loans that were originally sold through five grantor trusts. The modifications to the original agreements allow the Corporation to treat these transactions as “true sales” for accounting and legal purposes. The agreements enable First BanCorp to fulfill the remaining requirement of the Consent Order signed with banking regulators relating to the mortgage-related transactions with R&G that First BanCorp recharacterized for accounting and legal purposes as commercial loans secured by the mortgage loans and pass-through trust certificates.

	•		During the first quarter of 2007, the Corporation announced that it had entered into a definitive agreement to issue approximately 9.250 million shares of its common stock to The Bank of Nova Scotia (“Scotiabank”), through a private placement offering, valuing the stock at $10.25 per share for a total purchase price of approximately $94.8 million. The valuation reflects a premium of approximately 5% over the volume weighted- average closing share price over the 30 trading day period ending January 30, 2007. After the investment, Scotiabank will hold approximately 10% of First BanCorp’s currently outstanding common shares. The original agreement provided that the agreement may be terminated at any time prior to the closing by either the Corporation or Scotiabank if the closing did not occur by July 31, 2007 (the “Termination Date”). The agreement was subsequently amended to change the Termination Date to August 31, 2007. On August 9, 2007, First BanCorp announced the approval by the Federal Reserve Board of the private placement offering with Scotiabank.

	•		On August 1, 2007, the United States District Court for the District of Puerto Rico issued a “Preliminary Order” approving the stipulation of settlement filed in connection with the proposed settlement of the class action lawsuit brought on behalf of First BanCorp’s shareholders against the Corporation in the amount of $74.25 million.

			The effectiveness of a final order to be issued by the Court is subject to:

– The payment of $61 million to be deposited by First BanCorp in a settlement fund within fifteen calendar days of the date of issuance of the “Preliminary Order;” and

– The mailing of a notice to shareholders that describes the general terms of the settlement.

			The court hearing for the final order of approval of the settlement has been set for October 15, 2007. First BanCorp intends to comply with the $61 million payment requirement within the timeframe set forth in the terms of the settlement. The remaining amount of $13,250,000 will be paid before December 31, 2007. The monetary payment will have no impact on the Corporation’s earnings or capital in 2007. As reflected in First BanCorp’s audited Consolidated Financial Statements, included in the Corporation’s 2005 Annual Report on Form 10-K, the Corporation accrued $74.25 million in 2005 for a possible settlement of the class action.

	•		On August 7, 2007, First BanCorp announced that the SEC approved a final settlement with the Corporation, which resolves the previously disclosed SEC investigation of the Corporation. Under the settlement, the Corporation agreed, without admitting or denying any wrongdoing, to be enjoined from future violations of certain provisions of the securities laws. The Corporation also agreed to pay an $8.5 million civil penalty and the disgorgement of $1 to the SEC. The SEC may request that the civil penalty be subject to distribution pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. The monetary payment will have no impact on the Corporation’s earnings or capital in 2007. As reflected in First BanCorp’s previously filed audited Consolidated Financial Statements for 2005, the Corporation accrued $8.5 million in 2005 for the potential settlement with the SEC. In connection with the settlement, the Corporation consented to the entry of a final judgment to implement the terms of the agreement. The United States District Court for the Southern District of New York must consent to the entry of the final judgment in order to consummate the settlement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

Restatement of Previously Issued Financial Statements

On September 26, 2006, First BanCorp filed with the SEC its amended 2004 Annual Report on Form 10-K/A, which included a restatement of the Corporation’s audited financial statements for the years ended December 31, 2004, 2003 and 2002 and unaudited selected quarterly financial information for each of the four quarters of 2004, 2003 and 2002 (the “2004 restatement”). This Quarterly Report on Form 10-Q includes financial information for the quarters ended March 31, 2005 and 2004, as restated. The restatement reflects adjustments necessary to correct accounting errors relating to the following:

	•		Accounting for derivative instruments and broker placement fees;

	•		Recharacterization of purchases of mortgage loans and pass-through trust certificates as commercial loans secured by mortgage loans;

	•		Accounting for investment securities;

	•		Accounting for deferral and recognition of origination fees and costs on loans; and

	•		Other accounting adjustments and reclassifications, including adjustments to the gain on sale of credit card portfolios, accrual for rental expense on lease contracts, valuation of financial instruments and income from a loan origination subsidiary.

In addition, with the filing of its 2006 Annual Report on Form 10-K, First BanCorp restated its 2005 and 2004 Statements of Cash Flows due to some incorrect classifications. The classification errors related to three main items: 1) the treatment of discounts and the related accretion activity on certain investment securities, 2) the classification of cash flows from the disposition of repossessed assets, and 3) purchases of zero coupon bonds and agency discount notes amounts presented as part of investing activities (the “2006 restatement”).

The filing of this Quarterly Report on Form 10-Q was delayed because of the time required to complete the 2004 restatement. For more information on the Corporation’s 2004 restatement, refer to Item 8, Financial Statements and Supplementary Data, Note 1 “—Restatement of Previously Issued Financial Statements—” in the Corporation’s amended 2004 Annual Report on Form 10-K. For more information on the Corporation’s 2006 restatement, refer to Item 8, Financial Statements and Supplementary Data, Note 1 “— Restatement of 2005 and 2004 Consolidated Statements of Cash Flows—” to First BanCorp audited Consolidated Financial Statements, included in the Corporation’s 2006 Annual Report on Form 10-K. For more information on the impact of the 2004 and 2006 restatements on the Corporation’s financial statements for the quarters ended March 31, 2005 and 2004, refer to Note 1 to the accompanying unaudited interim consolidated financial statements contained in this Quarterly Report on Form 10-Q.

SELECTED FINANCIAL DATA
(In thousands except for per share and financial ratios results)


	Quarter ended
	March 31,
	2006			2005		2004
				(As Restated)		(As Restated)
Condensed Income Statements:
Total interest income	$	327,705		$	212,377	$	150,817
Total interest expense		254,886			147,101		22,031
Net interest income		72,819			65,276		128,786
Provision for loan and lease losses		19,376			10,954		13,200
Non-interest income		10,588			20,251		20,964
Non-interest expenses		71,738			53,007		42,730
(Loss) Income before income tax		(7,707	)		21,566		93,820
Income tax benefit (provision)		11,570			3,649		(28,390	)
Net income		3,863			25,215		65,430
Net (loss) income attributable to common stockholders		(6,206	)		15,146		55,361

Per Common Share Results (1):
Net (loss) income per share basic	$	(0.08	)	$	0.19	$	0.69
Net (loss) income per share diluted	$	(0.08	)	$	0.18	$	0.67
Cash dividends declared	$	0.07		$	0.07	$	0.06
Average shares outstanding		81,556			80,784		80,128
Average shares outstanding diluted		81,556			83,526		82,760
Book value per common share		7.56			7.84		7.24

Selected Financial Ratios (In Percent):
Profitability:
Return on Average Assets		0.08			0.66		2.16
Interest Rate Spread		2.66			2.99		2.94
Net Interest Margin		3.11			3.32		3.27
Return on Average Total Equity		1.28			8.42		23.77
Return on Average Common Equity		(3.76	)		9.36		40.19
Average Total Equity to Average Total Assets		6.09			7.85		9.11
Dividend payout ratio		(93.57	)		37.34		8.70
Efficiency ratio (2)		86.01			61.98		28.53
Asset Quality:
Allowance for loan and lease losses to loans receivable		1.17			1.29		1.74
Net charge-offs annualized to average loans		0.46			0.36		0.51
Provision for loan and lease losses to net charge-offs		1.31			1.20		1.43
Other Information:
Common Stock Price: End of period	$	12.36		$	21.13	$	20.80


					As of		As of
	As of		As of		March 31,		March 31,
	March 31,		December 31,		2005		2004
	2006		2005		(As Restated)		(As Restated)
Balance Sheet Data:
Loans and loans held for sale	$	13,143,499	$	12,685,929	$	11,217,207	$	7,491,951
Allowance for loan and lease losses		152,596		147,999		144,201		130,357
Money market and investment securities		6,824,988		6,653,925		5,855,957		5,583,989
Total assets		20,559,745		19,917,651		17,516,734		13,339,468
Deposits		13,349,776		12,463,752		9,397,777		6,570,052
Borrowings		5,440,338		5,750,197		6,093,771		5,042,474
Total common equity		629,561		647,741		633,278		582,667
Total equity		1,179,661		1,197,841		1,183,378		1,132,767


1-		Adjusted to reflect two-for-one stock split effective June 30, 2005.

2-		Non-interest expense to the sum of net interest income and non-interest income. The denominator includes non-recurring items and changes in the fair value of derivative instruments.

OVERVIEW OF RESULTS OF OPERATIONS

This discussion and analysis relates to the accompanying consolidated interim unaudited financial statements of First BanCorp (“the Corporation” or “First BanCorp”) and should be read in conjunction with the interim unaudited financial statements and the notes thereto.

First BanCorp’s results of operations depend primarily upon its net interest income, which is the difference between the interest income earned on its interest-earning assets, including investment securities and loans, and the interest expense on its interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by various factors including the interest rate scenario, the volumes, mix and composition of interest-earning assets and interest-bearing liabilities; and the re-pricing characteristics of these assets and liabilities. The Corporation’s results of operations also depend on the provision for loan and lease losses, non-interest expenses (such as personnel, occupancy and other costs), non-interest income (mainly insurance income and service charges and fees on loans and deposits), the result of its hedging activities, gains (losses) on investments, gains (losses) on sale of loans, and income taxes.

As previously reported, on March 31, 2005, the Corporation completed the acquisition of 100% of the outstanding common shares of Ponce General Corporation, the holding company of FirstBank Florida (formerly known as Unibank), a thrift subsidiary, and Ponce Realty. This acquisition will allow First BanCorp to build a larger platform in Florida from which to initiate further expansion into the United States. As of March 31, 2005, excluding the effects of purchase accounting entries, Ponce General had approximately $546.2 million in assets and $439.1 million in deposits. Ponce General assets were mainly comprised of $476.0 million in loans ($425.8 million – commercial and residential mortgage loans; $28.2 million – commercial and construction loans; and $22.1 million – consumer loans). In connection with the purchase, the Corporation paid a cash premium of approximately $36 million that was mainly allocated to core deposit intangibles and goodwill.

For the quarter ended March 31, 2006, the Corporation’s net income was $3.9 million, compared to $25.2 million and $65.4 million for the quarters ended March 31, 2005 and 2004, respectively. For the quarter ended March 31, 2006, loss per common share amounted to $0.08, compared to diluted earnings per common share of $0.18 and $0.67 for the quarters ended March 31, 2005 and 2004, respectively. Return on average assets and return on average common equity were 0.08% and (3.76)% respectively, for the first quarter of 2006 as compared to 0.66% and 9.36% and 2.16% and 40.19%, for the same quarter of 2005 and 2004, respectively. The Corporation’s financial performance for the first quarter of 2006, as compared to the first quarter of 2005, was principally impacted by: (1) higher unrealized losses in the valuation of derivative instruments, mainly interest rate swaps that economically hedge brokered certificates of deposits (“CDs”), (2) higher other-than-temporary impairment charges related to certain equity securities held in the Corporation’s available for sale portfolio and lower gains on sales of investments, (3) higher non-interest expenses, primarily professional expenses associated with the Audit Committee’s review and the restatement process coupled with share-based compensation expenses recognized according to the provisions of SFAS 123R adopted in 2006, and (4) a higher provision for loan and lease losses.

The highlights and key drivers of the Corporation’s financial results for the quarter ended March 31, 2006 included the following:

•

For the quarter ended March 31, 2006, the Corporation’s operations resulted in a net income of $3.9 million, compared to $25.2 million and $65.4 million for the quarters ended March 31, 2005 and 2004, respectively. After payment of preferred stock dividends, the Corporation had a net loss attributable to common stockholders of $6.2 million for the first quarter of 2006 compared to a net income attributable to

			common stockholders of $15.1 million and $55.4 million for the quarters ended March 31, 2005, and 2004, respectively.

	•		Loss per common share for the quarter ended March 31, 2006 amounted to $0.08 compared to diluted earnings per common share of $0.18 and $0.67 for the quarters ended March 31, 2005 and 2004, respectively.

	•		Net interest income for the quarters ended March 31, 2006, 2005, and 2004 was $72.8 million, $65.3 million, and $128.8 million, respectively. Net interest income was significantly impacted by changes in the valuation of derivatives instruments. For the quarter ended March 31, 2006, the Corporation recorded net unrealized losses of $64.7 million in the valuation of derivative instruments, compared to net unrealized losses of $42.2 million and net unrealized gains of $44.6 million for the same periods in 2005 and 2004, respectively. Refer to the “Net Interest Income” discussion for further details. The figures for the first quarter of 2006 also include the results of Ponce General, acquired in March 31, 2005, which contributed approximately $6.1 million to the consolidated net interest income.

			On a tax equivalent basis (for definition and reconciliation of this non-GAAP measure, refer to the “Net Interest Income” discussion below), net interest income for the quarters ended March 31, 2006, 2005, and 2004 was $148.4 million, $121.8 million, and $96.5 million, respectively. The increase in net interest income for 2006 was mainly driven by the increase in the average volume of interest-earnings assets of $4.5 billion, or 30%, as compared to the same period a year ago, attributable primarily to the growth in the Corporation’s loan and investment portfolios, in particular the commercial, construction and residential real estate loan portfolios as well as government agency securities, partially offset by a reduction in the net interest margin, which on a tax equivalent basis decreased by 21 basis points due to the flattening of the yield curve and fluctuations in net interest settlements on interest rate swaps. The decrease in the Corporation’s net interest margin on a tax equivalent basis has been particularly significant with respect to the Corporation’s portfolio of investment securities. The interest rate spread on the Corporation’s portfolio of investment securities, (allocating a funding cost equal to the weighted-average cost of the Corporation’s other borrowed funds), was approximately 1.32% for the quarter ended March 31, 2006 compared to 2.34% for the quarter ended March 31, 2005. Increases in short-term rates resulted in a change in net interest settlements on interest rate swaps included as part of interest expense. For the quarter ended March 31, 2006, the net interest settlements on such interest rate swaps resulted in a benefit of $3.5 million recognized as a reduction to interest expense, compared to a benefit of $24.6 million for the same period in 2005, as the rates paid by the Corporation under the variable portion of the swaps significantly increase during 2006.

			The increase in tax equivalent net interest income for 2005 when compared with 2004 was mainly driven by higher average balance of loans receivable, particularly the residential and commercial loan portfolios, coupled with a slight increase in net interest rate margin.

	•		For the quarter ended on March 31, 2006, the Corporation provided $19.4 million for loan and lease losses, as compared to $11.0 million and $13.2 million for the quarters ended March 31, 2005 and 2004, respectively. The increase in the provision during 2006 principally reflects growth in the Corporation’s commercial, construction and consumer loan portfolios coupled with increasing trends in delinquencies and changes to the Corporation’s estimate of probable losses for residential real estate loans. The decrease in the provision during 2005 compared to 2004 was due in part to the stability experienced in non-performing loans and net charge-offs.

	•		Non-interest income for the quarter ended March 31, 2006 amounted to approximately $10.6 million as compared to $20.3 million and $21.0 million for the quarters ended March 31, 2005 and 2004, respectively. The decrease in non-interest income during 2006 compared to 2005 was principally due to a reduced volume of sales of investment securities coupled with other-than-temporary impairment charges of

			approximately $2.1 million on certain equity securities as well as a $1.0 million lower-of-cost-or-market negative valuation adjustment to the Corporation’s loans held for sale portfolio. The decrease was partially offset by increases in insurance income and service charges on deposit accounts and loans. The decrease in non-interest income for 2005 compared to 2004 was principally due to reduced earnings in the Corporation’s mortgage banking activities due to a lower volume of loan sales and to a decrease in other operating income offset in part by an increase in insurance income.

	•		For the quarter ended March 31, 2006, non-interest expenses amounted to $71.7 million, compared to $53.0 million and $42.7 million, for the same periods in 2005 and 2004, respectively. The increase in non-interest expenses for 2006 was mainly due to increases in employees’ compensation and benefits (including share-based compensation expense of $4.9 million according to the provisions of SFAS 123R and $1.8 million associated with the operations of Ponce General Corporation), occupancy and equipment, and professional fees associated with the internal review conducted by the Corporation’s Audit Committee, the restatement process and other related legal and regulatory matters. The increase in non-interest expenses for 2005 mainly reflects increases in employees’ compensation and benefits, occupancy and equipment, professional fees, and other operating expenses.

	•		For the quarter ended March 31, 2006, the Corporation recognized an income tax benefit of $11.6 million compared to a tax benefit of $3.6 million and a tax expense of $28.4 million for quarters ended March 31, 2005 and 2004, respectively. The increase in income tax benefits for the first quarter of 2006 as compared to the first quarter of 2005 was mainly due to an increase in deferred tax benefits mainly as a result of higher unrealized losses on derivative instruments, partially offset by increases in the current tax provision coupled with an increase in non-qualifying IBE income that under current legislation was taxed at regular rates. The income tax benefit for 2005 compared to an income tax expense for 2004 was mainly due to a deferred tax benefit of $17.4 million recognized during the first quarter of 2005 mainly as a result of unrealized losses on derivative instruments.

	•		As of March 31, 2006, the Corporation’s total assets amounted to $20.6 billion compared to $19.9 billion as of December 31, 2005. The increase in total assets was principally attributable to increases in the Corporation’s construction and commercial loan portfolios. Total assets as of March 31, 2005 increased by $4.2 billion or 31% over the prior year mainly due to the growth in the Corporation’s loans portfolio coupled with the acquisition of Ponce General Corporation.

	•		Total liabilities at March 31, 2006 were $19.4 billion, an increase of $0.7 billion, $3.0 billion, and $7.2 billion as compared to balances as of December 31, 2005, March 31, 2005, and March 31, 2004, respectively. The increase in total liabilities was mainly due to increases in interest-bearing deposits, mainly brokered CDs partially offset by decreases in FHLB advances. During 2005, the Corporation experienced a significant increase in brokered CDs as short-term brokered CDs were issued to fund the Corporation’s growth and to replace advances from the Federal Home Loan Bank.

	•		Total loan production for the quarter ended March 31, 2006 was $1.4 billion compared to $1.8 billion and $1.1 billion for the quarters ended March 31, 2005 and 2004, respectively. The decrease in loan production for 2006 was mainly due to the a decrease in commercial loan production, as the Corporation did not extend loans to local financial institutions in 2006, coupled with a decrease in residential mortgage loan production. The decrease in residential mortgage loan production for 2006 compared to 2005 was mainly attributable, among other things, to higher mortgage interest rates, adverse economic conditions in Puerto Rico, and stricter underwriting guidelines.

Critical Accounting Policies and Practices

The accounting principles of the Corporation and the methods of applying these principles conform with generally accepted accounting principles in the United States and to general practices within the banking industry. The Corporation’s critical accounting policies relate to the 1) allowance for loan and lease losses; 2) other-than-temporary impairments; 3) income taxes; 4) classification and related values of investment securities; 5) valuation of financial instruments; and 6) derivative financial instruments. These critical accounting policies involve judgments, estimates and assumptions made by management that affect the recorded assets and liabilities and contingent assets and liabilities disclosed at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from estimates, if different assumptions or conditions prevail. Certain determinations inherently have greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

The Corporation’s critical accounting policies are described in the Management Discussion and Analysis of Financial Condition and Results of Operations section of First BanCorp’s 2005 Annual Report on Form 10-K.

For additional information and further details on the Corporation’s recently adopted accounting pronouncements, refer to Note 2 of the accompanying unaudited interim consolidated financial statements.

Net Interest Income

Net interest income is the excess of interest earned by First BanCorp on its interest-earning assets over the interest incurred on its interest-bearing liabilities. First BanCorp’s net interest income is subject to interest rate risk due to the re-pricing and maturity mismatch of the Corporation’s assets and liabilities. Net interest income for the quarters ended March 31, 2006, 2005, and 2004 was $72.8 million, $65.3 million, and $128.8 million, respectively. On a tax equivalent basis, excluding the changes in the fair values of derivative instruments, net interest income for the quarters ended March 31, 2006, 2005, and 2004 was $148.4 million, $121.8 million, and $96.5 million, respectively.

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

Part I

Quarter ended March 31,


	Average volume						Interest Income (1) / expense							Average rate (1)
	2006		2005		2004		2006		2005		2004			2006			2005			2004
			(As Restated)		(As Restated)				(As Restated)		(As Restated)						(As Restated)			(As Restated)
	(Dollars in thousands)						Dollars in thousands)
Earning assets:
Money market investments	$	959,644	$	314,865	$	323,849	$	9,975	$	1,867	$	717			4.22	%		2.40	%		0.89	%
Government obligations (2)		2,752,308		1,953,561		1,182,421		42,669		33,953		14,802			6.29	%		7.05	%		5.02	%
Mortgage-backed securities		2,648,290		2,424,750		2,951,294		36,432		35,367		42,590			5.58	%		5.92	%		5.79	%
Corporate bonds		26,417		41,250		77,256		434		251		(5	)		6.67	%		2.47	%		-0.03	%
FHLB stock		34,984		74,624		43,544		782		485		156			9.07	%		2.64	%		1.44	%
Equity securities		31,333		34,186		49,771		213		215		151			2.75	%		2.55	%		1.22	%

Total investments (3)		6,452,976		4,843,236		4,628,135		90,505		72,138		58,411			5.69	%		6.04	%		5.06	%

Residential real estate loans		2,427,139		1,353,090		1,020,995		40,301		23,123		18,831			6.73	%		6.93	%		7.40	%
Construction loans		1,299,154		424,099		343,228		26,809		6,484		4,071			8.37	%		6.20	%		4.76	%
Commercial loans		7,138,251		6,635,716		4,479,393		116,386		74,795		39,683			6.61	%		4.57	%		3.55	%
Finance leases		292,304		220,859		164,571		6,712		4,852		4,090			9.31	%		8.91	%		9.97	%
Consumer loans		1,765,586		1,403,896		1,176,516		52,849		42,711		38,120			12.14	%		12.34	%		13.00	%

Total loans (4) (5)		12,922,434		10,037,660		7,184,703		243,057		151,965		104,795			7.63	%		6.14	%		5.85	%

Total earning assets	$	19,375,410	$	14,880,896	$	11,812,838	$	333,562	$	224,103	$	163,206			6.98	%		6.11	%		5.54	%


Interest-bearing liabilities:
Interest-bearing deposits	$	11,782,530	$	7,643,437	$	6,070,035	$	121,201	$	50,252	$	31,343			4.18	%		2.67	%		2.07	%
Other borrowed funds		5,236,363		4,172,627		3,416,953		59,787		40,671		30,111			4.63	%		3.95	%		3.53	%
FHLB advances		373,389		1,468,844		797,885		4,178		11,425		5,300			4.54	%		3.15	%		2.66