Management’s Discussion and Analysis of Financial Condition and Results of Operations First BanCorp.> 2001 0 28 FINANCIAL REVIEW SUMMARY >. RESULTS OF OPERATIONS >. Net Interest Income >. The following table includes a detailed analysis of net interest income, excluding dividend income on equity securities. Part I presents average vol- umes and rates on a tax equivalent basis and Part II presents the extent to which changes in interest rates and changes in volume of interest related assets and liabilities have affected the Corporation’s net interest income. For each category of earning assets and interest bearing liabilities, informa- tion is provided on changes attributable to changes in volume (changes in volume multiplied by old rates), and changes in rate (changes in rate multi- plied by old volumes). Rate-volume variances (changes in rate multiplied by changes in volume) have been allocated to the changes in volume and changes in rate based upon their respective percentage of the combined totals. Net interest income increased to $236 million for 2001 from $191 million in 2000 and $186 million in 1999. The increase in net interest income for the year 2001 is the result of volume increases of $1,307 million in the Corporation’s average loan and investment portfolios, and the improve- ment in the net interest margin. The Corporation’s results of operations depend primarily on its net inter- est income, which is the difference between the interest income earned on interest earning assets, including investment securities and loans, and the interest expense paid on interest bearing liabilities, including deposits and borrowings. Also, the results of operations depend on the provision for loan losses, operating expenses (such as personnel, occupancy and other costs), other income (mainly service charges and fees on loans), gains on sale of investments and income taxes. Return on average assets was 1.28% for 2001 and 2000 and 1.49% for 1999. Return on average equity was 16.20% for 2001, 21.21% for 2000 and 21.06% for 1999. Return on average common equity was 22.13% for 2001, 27.81% for 2000 and 24.68% for 1999. The increase in the Corporation’s earnings is attributed to the net interest income earned on the growing portfolio of average earning assets, net of increases in operating expenses, a higher provision for loan losses and income taxes. For 2001 as compared to 2000, net income increased by $18,725,835 or $0.39 per common share diluted, and for 2000 as com- pared to 1999, by $5,200,660 or $0.23 per common share diluted. For the year 2001, First BanCorp (the Corporation) recorded earnings of $86,001,444 or $2.61 per common share basic and $2.60 per common share diluted, compared to $67,275,609 or $2.22 per common share basic and $2.21 per common share diluted for 2000, and $62,074,949 or $2.00 per common share basic and $1.98 per common share diluted for 1999.