<PAGE>   1
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   ---------
                                   FORM 10-Q
(Mark One)

[ X ]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended September 30, 1996.

[   ]            TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from                 to 
                                                ---------------    ------------

                         Commission file number 0-17224
                                                -------

                     First Financial Caribbean Corporation
                     -------------------------------------
           (Exact name of the registrant as specified in its charter)

            Puerto Rico                                       66-0312162
            -----------                                       ----------
  (State or other jurisdiction of                          (I.R.S. employer
   incorporation or organization)                           identification
                                                               number)
    1159 F.D. Roosevelt Avenue,                      
       San Juan, Puerto Rico                                  00920-2998
       ---------------------                                  ----------
       (Address of principal                                  (Zip Code)
         executive offices)                          
                                                     
   Registrant's telephone number,                           (787) 749-7100
          including area code                               --------------
                                                     
                                                     
  Former name, former address and                           Not Applicable
   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   X            No
                               -----             -----

Number of shares of Common Stock outstanding at September 30, 1996 - 9,111,092
===============================================================================
<PAGE>   2



                     FIRST FINANCIAL CARIBBEAN CORPORATION

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                                     PAGE
<S>              <C>                                                                                                  <C>
                                              PART I - FINANCIAL INFORMATION

Item 1   -       Financial Statements                 

                 Consolidated Balance Sheets as of September 30, 1996 (Unaudited) and
                 December 31, 1995  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

                 Consolidated Statements of Income and Retained Earnings  (Unaudited) - Quarters ended
                 September 30, 1996 and September 30, 1995 and nine months ended September 30, 1996 and
                 September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

                 Consolidated Statement of Cash Flows (Unaudited) - Nine-month period ended September
                 30, 1996 and September 30, 1995  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5

                 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6


Item 2   -       Management's Discussion and Analysis of Financial Condition and Results

                 of Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8




                                               PART II - OTHER INFORMATION

Item 1   -       Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


Item 2   -       Changes in Securities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


Item 3   -       Defaults Upon Senior Securities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


Item 4   -       Submission of Matters to a Vote of Security Holders  . . . . . . . . . . . . . . . . . . . . . . . . 15


Item 5   -       Other Information  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


Item 6   -       Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15



SIGNATURES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>





                                       2
<PAGE>   3



                     FIRST FINANCIAL CARIBBEAN CORPORATION
                           CONSOLIDATED BALANCE SHEET
             (IN THOUSANDS OF DOLLARS EXCEPT FOR SHARE INFORMATION)

<TABLE>
<CAPTION>
                                                                     September 30, 1996     December 31, 1995
                                                                        (unaudited)             (audited)
                                                                        -----------             ---------
  <S>                                                                  <C>                     <C>
  ASSETS
  ------
  Cash and cash equivalents                                            $     57,329            $    59,872
  Mortgage loans held for sale, net                                         279,139                245,484
  Mortgage-backed securities held for trading                               395,099                407,941
  Securities held to maturity                                               112,658                 77,945
  Securities available for sale                                              12,036                 14,579
  Loans receivable, net                                                     107,824                 51,355
  Accounts receivable and mortgage servicing advances, net                   12,681                  9,592
  Accrued interest receivable                                                 9,659                  8,155
  Mortgage servicing rights                                                  18,681                 11,164
  Excess servicing fees receivable                                           20,232                 10,407
  Property, leasehold improvements and equipment, net                         6,488                  6,505
  Cost in excess of fair value of net assets acquired                         6,553                  6,526
  Real estate held for sale, net                                              2,438                  2,085
  Prepaid and other assets                                                    9,776                  6,312
                                                                       ------------            -----------

  Total Assets                                                         $  1,050,593            $   917,922
                                                                       ============            ===========

  LIABILITIES AND STOCKHOLDERS' EQUITY
  ------------------------------------
  Loans payable                                                        $    223,354            $   234,707
  Securities sold under agreements to repurchase                            387,473                363,728
  Deposit accounts                                                          147,265                 95,740
  Notes payable                                                              91,231                 51,682
  Advances from Federal Home Loan Bank of N.Y.                               15,000                 10,407
  Convertible Subordinated Debentures                                        10,000                 10,000
  Accounts payable and other liabilities                                     23,523                 17,376
  Income tax payable                                                              5                    388
  Deferred tax liability                                                      7,004                  4,877
                                                                       ------------            -----------

     Total liabilities                                                      904,855                788,905
                                                                       ============            ===========

  Commitments and contingencies                                         - - - - - -            - - - - - -

  Stockholders' equity:
     Serial  Preferred Stock,  $1.00 par  value, 2,000,000 shares
     authorized; no shares outstanding (1995 - 108,397  shares of
     10.5%  Cumulative  Convertible  Preferred  Stock,  Series  A
     outstanding)                                                             - - -                    108

     Common   Stock,   $1.00   par   value,   20,000,000   shares
     authorized; 9,125,092  shares  issued  (1995  -  8,884,170);
     9,111,092 shares outstanding  (1995 - 8,870,170)                         9,125                  8,884
                                                                                    
     Paid-in capital                                                         38,673                 38,331
     Retained earnings                                                       98,244                 81,892
                                                                       ------------            -----------             
                                                                            146,042                129,215
     Unrealized (loss) gain on securities available for sale                   (161)                     9
     Treasury stock at par value, 14,000 shares                                 (14)                   (14)
     Unearned compensation under employment contracts                          (129)                  (193)
                                                                       ------------            -----------

     Total stockholders' equity                                             145,738                129,017
                                                                       ------------            -----------

  Total liabilities and stockholders' equity                           $  1,050,593            $   917,922
                                                                       ============            ===========
</TABLE>
        The accompanying notes are an integral part of this statement.





                                       3
<PAGE>   4



                     FIRST FINANCIAL CARIBBEAN CORPORATION
             CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
              (In thousands of dollars, except for per share data)
                                   Unaudited

<TABLE>
<CAPTION>
                                                             Quarter Ended             Nine-Month Period Ended
                                                             September 30,                  September 30,
                                                           1996         1995             1996          1995
                                                           ----         ----             ----          ----
  <S>                                                     <C>         <C>              <C>           <C>
  Revenues:
     Mortgage loans sales and fees                       $ 7,049     $ 4,899          $20,471       $ 8,604
     Servicing income                                      2,645       2,603            8,342         8,044
     Interest income                                      16,430      15,749           49,030        46,667
     Gain on sale of servicing rights                      1,813       - - -            1,813         3,623
     Rental and other income                                 211         114              511           413
                                                         -------     -------          -------       -------
                                                                             
                                                          28,148      23,365           80,167        67,351
                                                         -------     -------          -------       -------
  Expenses:                                                                  
     Interest                                             10,941      11,708           32,759        31,892
     Employee cost, net (See Note g)                       1,735       1,081            6,268         4,953
     Taxes, other than payroll and income taxes              303         279              785           802
     Maintenance                                             199         180              488           478
     Advertising                                             938         586            2,661         1,580
     Professional services                                   634         667            2,021         2,044
     Telephone                                               444         423            1,364         1,278
     Rent                                                    505         531            1,552         1,550
     Other, net (See Note g)                               3,523       2,542            8,768         6,303
                                                         -------     -------          -------       -------
                                                                             
                                                          19,221      17,997           56,566        50,880
                                                         -------     -------          -------       -------
                                                                             
  Income before income taxes                               8,927       5,368           23,601        16,471
  Income taxes:                                                              
     Current                                                  (5)         85              663           144
     Deferred                                              1,507         355            2,127         1,832
                                                         -------     -------          -------       -------
                                                                             
                                                           1,502         440            2,790         1,976
                                                         -------     -------          -------       -------
                                                                             
  Net Income                                               7,424       4,928           20,811        14,495
                                                                             
                                                                             
  Retained earnings at beginning of period                92,368      74,159           81,892        66,706
     Less cash dividends paid:                                               
       Convertible preferred stock                         - - -          47               14           144
       Common stock                                        1,548       1,088            4,445         3,105
                                                         -------     -------          -------       -------

  Retained earnings at the end of period                 $98,244     $77,952          $98,244       $77,952
                                                         =======     =======          =======       =======


  Net Income  per share:
  Primary                                                  $0.81       $0.68            $2.30         $1.99
  Fully Diluted                                            $0.78       $0.65            $2.19         $1.91
</TABLE>





         The accompanying notes are an integral part of this statement.





                                       4
<PAGE>   5



                     FIRST FINANCIAL CARIBBEAN CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                                              Nine-Month Period Ended
                                                                                                   September 30,
                                                                                              -----------------------
                                                                                              1996               1995
                                                                                                    (unaudited)
 <S>                                                                                         <C>          <C>
 Cash flows from operating activities:
 Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 20,811      $   14,495 
                                                                                             --------      ----------
    Adjustments to reconcile net income to net cash provided by operating activities:
      Amortization of excess servicing fee receivable  . . . . . . . . . . . . . . . . .          996             634
      Amortization of cost in excess of fair value of net assets acquired  . . . . . . .          282             282
      Amortization of mortgage servicing rights  . . . . . . . . . . . . . . . . . . . .          722             399
      Depreciation and amortization  . . . . . . . . . . . . . . . . . . . . . . . . . .        1,308           1,287
      Gain on sale of servicing rights . . . . . . . . . . . . . . . . . . . . . . . . .       (1,813)         (3,623)
      Allowances for losses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          609             229
      Origination and purchases of mortgage loans held for sale  . . . . . . . . . . . .     (542,745)       (386,061)
      Principal repayment and sales of loans held for sale   . . . . . . . . . . . . . .      325,795         208,754
      Purchases of mortgage-backed securities held for trading . . . . . . . . . . . . .      (67,840)        (68,528)
      Principal repayments and sales of mortgage-backed securities held for trading  . .      263,977         259,854
      (Increase) decrease in interest receivable . . . . . . . . . . . . . . . . . . . .       (1,504)            992
      Decrease in loans payable  . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (11,352)       (100,445)
      Increase in loans payable related to securities sold not yet purchased . . . . . .        - - -          22,090
      Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . .          397             339
      Increase in securities sold under agreements to repurchase . . . . . . . . . . . .       23,745          58,247
      Increase (decrease) in payables and accrued liabilities  . . . . . . . . . . . . .        5,750          (2,121)
      Decrease in income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . .         (383)         (2,267)
      Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        2,127           1,832
      Amortization of unearned compensation under employment contracts . . . . . . . . .           64              48 
                                                                                             --------      ----------

        Total adjustments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          135          (8,058)
                                                                                             --------      ----------
      Net cash provided by operating activities  . . . . . . . . . . . . . . . . . . . .       20,946           6,437 
                                                                                             --------      ----------
 Cash flows from investing activities:
    Purchases of securities held to maturity . . . . . . . . . . . . . . . . . . . . . .      (41,480)         (5,855)
    Principal repayments of investments held to maturity . . . . . . . . . . . . . . . .        6,767           1,768
    Origination of loans receivable  . . . . . . . . . . . . . . . . . . . . . . . . . .      (66,333)        (36,354)
    Principal repayments of loans receivable . . . . . . . . . . . . . . . . . . . . . .        9,864           7,992
    Purchase of securities available for sale  . . . . . . . . . . . . . . . . . . . . .       (4,639)          - - -
    Principal repayments and sales of securities available for sale  . . . . . . . . . .        7,012           - - -
    Increase in accounts receivable and mortgage servicing advances  . . . . . . . . . .       (3,698)         (6,207)
    Additions to excess servicing fee receivable . . . . . . . . . . . . . . . . . . . .      (10,821)         (2,316)
    Purchase of property, leasehold improvements and equipment . . . . . . . . . . . . .       (1,291)           (512)
    Additions to cost in excess of fair value of net assets acquired . . . . . . . . . .         (309)           (209)
    Proceeds from disposal of real estate held for sale  . . . . . . . . . . . . . . . .          677           1,392
    Acquisition of real estate held for sale . . . . . . . . . . . . . . . . . . . . . .       (1,031)         (1,321)
    Increase in mortgage servicing rights  . . . . . . . . . . . . . . . . . . . . . . .       (8,239)         (4,722)
    Proceeds from sale of servicing rights . . . . . . . . . . . . . . . . . . . . . . .        1,813           3,708
    Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (3,463)         (3,031)
                                                                                             --------      ----------

      Net cash used by investing activities  . . . . . . . . . . . . . . . . . . . . . .     (115,171)        (45,667)
                                                                                             --------      ----------

 CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase in notes payable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       39,548          21,546
    Increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       51,525          32,619
    Dividends declared and paid  . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (4,459)         (3,246)
    Issuance of advances from FHLB . . . . . . . . . . . . . . . . . . . . . . . . . . .        4,593           9,990
    Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          475           - - - 
                                                                                             --------      ----------

      Net cash provided by financing activities  . . . . . . . . . . . . . . . . . . . .       91,682          60,909 
                                                                                             --------      ----------

    Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . .       (2,543)         21,679

    Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . .       59,872          35,916 
                                                                                             --------      ----------

    Cash and cash equivalents at the end of period . . . . . . . . . . . . . . . . . . .     $ 57,329      $   57,595 
                                                                                             ========      ==========

 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

    Noncash financing activities-conversion of preferred stock . . . . . . . . . . . . .     $  1,080      $      307 
                                                                                             ========      ==========
 SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash used to pay interest  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 32,364      $   31,553 
                                                                                             ========      ==========
    Cash used to pay income taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  1,046      $    3,965 
                                                                                             ========      ==========
</TABLE>
         The accompanying notes are an integral part of this statement.





                                       5
<PAGE>   6



                     FIRST FINANCIAL CARIBBEAN CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


a.    The Consolidated Financial Statements (unaudited) include the accounts of
      First Financial Caribbean Corporation and its wholly-owned subsidiaries
      ("FFCC" or the "Company"), Doral Mortgage Corporation ("Doral"), RSC
      Corp.  ("RSC"), Centro Hipotecario de Puerto Rico, Inc., AAA Financial
      Services Corporation ("AAA Financial") and de Peurto Rico Doral Federal
      Savings Bank ("Doral Federal").  All significant intercompany accounts
      and transactions have been eliminated in consolidation.  The Consolidated
      Financial Statements (unaudited) have been prepared in conformity with
      the accounting policies stated in the Company's Annual Audited Financial
      Statements included in the Company's Annual Report on Form 10-K for the
      year ended December 31, 1995, and should be read in conjunction with the
      Notes to the Consolidated Financial Statements appearing in that report.
      All adjustments (consisting only of normal recurring accruals) which are,
      in the opinion of management, necessary for a fair presentation of
      results for the interim periods have been reflected.

b.    The results of operations for the quarters and nine-month periods ended
      September 30, 1996 are not necessarily indicative of the results to be
      expected for the full year.

c.    Cash dividends per share paid for the quarters and nine-month periods 
      ended September 30, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                          Quarter Ended            Nine-Month Period Ended
                                          September 30,                 September 30,
                                        -----------------          -----------------------
                                        1996         1995             1996          1995
                                        ----         ----             ----          ----
          <S>                         <C>          <C>              <C>           <C>
          Series A Preferred Stock    $  --        $0.2625           $0.3825      $0.7875
          Common Stock                $0.17        $  0.15           $  0.49      $  0.43
</TABLE>


      All outstanding shares of Series A Preferred Stock were redeemed on May
      10, 1996.

d.    At September 30, 1996, escrow funds include approximately $23.6 million
      deposited with Doral Federal.  These funds are included in the Company's
      financial statements.  Escrow funds also include approximately $13.8
      million deposited with other banks excluded from the Company's assets and
      liabilities.

e.    Certain reclassifications of prior years' data have been made to conform
      to 1996 classifications.

f.    The number of average shares of common stock used for computing the
      primary and fully diluted net income per share was as follows:

<TABLE>
<CAPTION>
                                    Quarter Ended                     Nine-Month Period Ended
                                    September 30,                          September 30,
                                ---------------------                 -----------------------
                                1996             1995                  1996             1995
                                ----             ----                  ----             ----
          <S>                 <C>              <C>                   <C>             <C>
          Primary             9,111,092        7,226,293             9,051,555       7,207,798
          Fully diluted       9,683,394        7,576,964             9,680,647       7,576,964
</TABLE>


g.    Employee costs and other expenses are shown in the Consolidated Statement
      of Income and Retained Earnings net of direct loan origination costs
      that, pursuant to SFAS No. 91 are capitalized as part of the carrying
      cost of mortgage loans and are offset against mortgage loan sales and
      fees when the loans are sold.  Employee costs would have been $7.3
      million and $5.9 million, respectively, for the quarters ended September
      30, 1996 and 1995, and $22.3 million and $18.1 million, respectively, for
      the nine-month periods ended September 30, 1996 and 1995, except for the
      application of SFAS No. 91.  Other expenses would have been $4.4 million
      and $3.1 million, respectively, for the quarters ended





                                       6
<PAGE>   7



      September 30, 1996 and 1995, and $11.8 million and $8.7 million,
      respectively, for the nine-month periods ended September 30, 1996 and
      1995, except for the application of SFAS No. 91.

      Set forth below is a breakdown of direct loan origination costs that were
      deferred pursuant to SFAS No. 91.

<TABLE>
<CAPTION>
                                      Quarter Ended                 Nine-Month Period Ended
                                      September 30,                      September 30,
                                 ----------------------            ------------------------
                                   1996         1995                 1996            1995
                                   ----         ----                 ----            ----
         <S>                     <C>            <C>                <C>             <C>
         Employee Costs          $ 5,537        $ 4,829            $ 16,073        $ 13,183
         Other Costs                 853            538               3,005           2,344 
                                 -------        -------            --------        --------
      
                                 $ 6,390        $ 5,367            $ 19,078        $ 15,527 
                                 =======        =======            ========        ========
</TABLE>

h.    On May 12, 1995, the Financial Accounting Standards Board issued
      Statement of Financial Accounting Standards No. 122, "Accounting for
      Mortgage Servicing Rights" ("SFAS No. 122"), an amendment to SFAS No. 65.
      The Company elected to adopt this standard for its financial statement
      reporting in the second quarter of 1995.  SFAS No. 122 prohibits
      retroactive application.  Accordingly, the Company's financial statement
      reporting for the first quarter of 1995 was accounted for under the
      original SFAS No. 65 and the results for the nine-month period ended
      September 30, 1996  are not directly comparable to the results for the
      nine-month period ended September 30, 1995 with respect to this specific
      matter.

      For the quarter and nine-month period ended September 30, 1996, the
      Company realized additional net income of approximately $1.0 million and
      $3.8 million, respectively, from the adoption of SFAS No. 122, compared
      to additional net income of $200,000 and $600,000, respectively, for the
      quarter and nine-month period ended September  30, 1995.  If the Company
      had not adopted SFAS No. 122 in the second quarter of 1995, the Company
      would have reported a net income of approximately $6.4 million for the
      third quarter of 1996 ($0.71 and $0.68 per common share on a primary and
      fully-diluted basis, respectively) and $17 million for the nine-month
      period ended September 30, 1996 ($1.88 and $1.79 per common share on a
      primary and fully-diluted basis, respectively).

      SFAS No. 122 requires that part of the cost of originating a mortgage
      loan be allocated to the mortgage servicing right based on its fair value
      relative to the aggregate fair value of the loan and the related
      servicing right taken as a whole.  To determine the fair value of the
      servicing rights pursuant to SFAS No. 122, the Company used market prices
      under comparable servicing sale contracts.

      SFAS No. 122 also requires that all capitalized mortgage servicing rights
      be evaluated for impairment based on the excess of the carrying amount of
      mortgage servicing rights over their fair value.  For purposes of
      measuring impairment, capitalized mortgage servicing rights are
      stratified pool by pool on the basis of interest rates.  An impairment is
      recognized whenever the prepayment pattern of the mortgage pool shows
      that the fair value of the related capitalized servicing rights is less
      than its carrying amounts.  An impairment is recognized by charging such
      excess to income.  The Company determined that no reserve for impairment
      was required for the nine-month period ended September 30, 1996.





                                       7
<PAGE>   8



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


LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash requirements arise from loan originations and
purchases, repayments of debt upon maturity, payments of operating and interest
expenses and servicing advances and loan repurchases.  The Company's primary
sources of liquidity are sales in the secondary mortgage market of the loans it
originates and purchases, short term borrowings under warehouse, gestation and
repurchase agreement lines of credit secured by pledges of its loans and
mortgage-backed securities (in most cases until such loans are sold and the
lenders repaid) and revenues from operations.  In the past, the Company has also
relied on publicly offered and privately-placed debt financings and preferred
and common stock issuances.   Doral Federal, the Company's thrift subsidiary,
also relies on deposits, borrowings from the Federal Home Loan Bank of New York
(the "FHLB-NY") as well as term notes backed by letters of credit of the
FHLB-NY.

      Total liabilities were approximately 6.21 and 6.12 times stockholders'
equity at September 30, 1996 and December 31, 1995, respectively.  The
Company's  leverage at September 30, 1996, reflects a net increase in stockho-
lders' equity of $16.7 million while liabilities increased by $116 million,
primarily as a result of an increase in deposit accounts and notes payable.

      The interim Consolidated Statement of Cash Flows reflects the working
capital needs of the Company.  Operating activities provided approximately $20.9
million of net cash during the nine-month period ended September 30, 1996,
compared to approximately $6.4 million in the comparable period of 1995.
Mortgage loan originations for the nine-month period ended September 30, 1996
increased by 44% as compared to the 1995 period.  Increased originations
resulted in increased sales of mortgage-backed securities and loans held for
sale during the period.  FFCC held mortgage loans (including mortgage loans
converted into mortgage-backed securities) prior to sale for an annualized
average period of approximately 294 days for the nine-month period ended
September 30, 1996 and 352 days during the year ended December 31, 1995.  This
decrease was due to increased sales of mortgage-backed securities held for
trading.

      Investing activities used cash of approximately $115.2 million during the
nine-month period ended September 30, 1996 due primarily to origination of
loans receivable and purchases of securities held to maturity of approximately
$66.3 million and $41.5 million, respectively.  The Company capitalized $8.2
million of mortgage servicing rights during the first nine months of 1996 in
relation to the adoption of SFAS No. 122 and mortgage loan purchases from third
parties.

      During the first nine months of 1996, financing activities provided
approximately $91.7 million of net cash primarily due to additional deposits
amounting to approximately $51.5 million received by Doral Federal and an
increase in notes payable of approximately $39.5 million.

      FFCC borrows money under warehousing lines of credit to fund its mortgage
loan commitments and repays the borrowings as the mortgages are sold.  The
warehousing lines of credit then become available for additional borrowings.
Included among FFCC's warehousing line of credit facilities are gestation or
presale facilities that permit the Company to obtain more favorable rates once
mortgage loans are in the process of securitization but prior to actual
issuance of the mortgage-backed securities as well as to finance such
mortgage-backed securities upon their issuance.  At September 30, 1996 and
December 31, 1995, FFCC had available warehousing lines of credit, including
gestation lines of credit, of $665 million and $525 million, respectively.  At
September 30, 1996 and December 31, 1995, FFCC had used approximately $203.4
million and $171.6 million, respectively, of credit available under its
warehousing lines of credit.  FFCC's warehousing lines of credit are generally
subject to termination at the discretion of the lender.

      FFCC also obtains short-term financing through repurchase agreement lines
of credit with financial institutions and investment banking firms.  Under
these agreements, FFCC sells GNMA, FNMA or FHLMC-guaranteed mortgage-backed
securities or collateralized mortgage obligations and simultaneously agrees to
repurchase them at a future date at a fixed price.  FFCC uses the proceeds of
such sales to repay borrowings under its warehousing lines of credit.  The
effective cost of funds under repurchase agreements is typically lower than the
cost of funds borrowed under FFCC's warehousing lines of credit.  At September
30, 1996, FFCC had used approximately $387.5 million of credit under repurchase
agreements.  FFCC's continued use of repurchase agreements will depend on the
cost of repurchase agreements relative to the cost of borrowing under its
warehousing lines of credit with banks and other financial institutions.





                                       8
<PAGE>   9




      The monthly weighted average interest rate of FFCC's borrowings for
warehousing lines of credit and for repurchase agreement lines of credit was
6.73% and 5.5%, respectively, for the nine-month period ended September 30, 1996
compared to 7.15% for warehousing lines of credit and 5.9% for repurchase
agreements in each case for the year ended December 31, 1995.

      Doral Federal obtains funding for its lending activities through the
receipt of deposits, FHLB-NY advances and from other borrowings, such as term
notes backed by FHLB-NY letters of credit.  As of September 30, 1996, Doral
Federal held approximately $155.1 million in deposits, including $7.8 million of
intercompany deposits that are eliminated in consolidation, at a weighted
average interest rate of 3.75%, approximately 27% of which consisted of
non-interest bearing deposits.  Approximately $10.8 million of total deposits
consisted of brokered certificates of deposit  obtained through broker-dealers
with maturities ranging from three to five years.  Doral Federal, as a member of
FHLB-NY, has access to collateralized borrowings from the FHLB-NY up to a
maximum of 30% of its total assets.  Advances and reimbursement obligations with
respect to letters of credit must be secured by qualifying assets with a market
value between 105% and 115% of the advances or reimbursement obligations.  At
September 30, 1996, Doral Federal had $15 million in outstanding advances from
the FHLB-NY at a weighted average interest rate cost of 6.24%.  In addition, as
of September 30, 1996, Doral Federal had $53.1 million outstanding in term notes
secured by FHLB-NY letters of credit at an average interest rate cost of 6.28%.
Approximately $5.0 million principal amount of such term notes bear interest at
a fluctuating rate based on the London Interbank bid rate for dollar deposits
("LIBID").  The interest rate on such floating rate notes has effectively been
fixed pursuant to an interest rate swap agreement with a major brokerage house.
The interest rates on all term  notes are subject to an upward adjustment to a
rate equal to 100% of LIBID for a term equal to the remaining term of the note
as a result of the recent changes to Section 936 of the Internal Revenue Code.
See "Prospective Trends -- Repeal of Section 936" herein.

      As of September 30, 1996, Doral Federal met all its minimum regulatory
capital requirements (i.e., tangible and core capital of at least 1.5% and
3.0%, respectively, of adjusted total assets and risk-based capital at least 8%
of risk adjusted total assets).  As of  September 30, 1996, Doral Federal had
tangible capital and core capital of $17.5 million or approximately 7.21% of
adjusted total assets.  As of such date, Doral Federal had risk-based capital
of $18.2 million or 17.8% of risk adjusted total assets.

      Servicing agreements relating to the mortgage-backed securities programs
of FNMA, FHLMC and GNMA and certain other investors and mortgage loans sold to
certain other purchasers, require FFCC to advance funds to make scheduled
payments of principal, interest, taxes and insurance, if such payments have not
been received from the borrowers. FFCC generally recovers funds advanced
pursuant to these arrangements within 30 days.  During the nine-month period
ended September 30, 1996, the monthly average amount of funds advanced by the
Company under such servicing agreements was approximately $6.5 million.

      During the nine-month period ended September 30, 1996, the Company
collected an average of approximately $925,000 per month in net servicing fees,
including late charges.  At September 30, 1996 and December 31, 1995, the
servicing portfolio amounted to approximately $3 billion and $2.7 billion,
respectively.  The Company may, from time to time, determine to sell portions
of its servicing portfolio and to purchase servicing rights from third parties.

        On October 10, 1996, the Company issued $75,000,000 of its 7.84% Senior
Notes due 2006 (the "Senior Notes").  The Senior Notes were issued pursuant to
an Indenture entered into between the Company and Bankers Trust Company, as
trustee.  The Senior Notes were sold in a public underwritten offering through
BT Securities Corporation.  The net proceeds from the sale of the notes were
used to repay $17.7 million on indebtedness owed by the Company under a five-
year senior servicing secured loan facility with a syndicate of banks
management by Bankers Trust Company, and for general corporate purposes,
including capital contributions to Doral Federal, AAA Financial and other       
subsidiaries.  See "Part II - Item 2 - Changes in Securities" for certain
covenants imposed on the Company under the Indenture for the Senior Notes.

      FFCC expects that it will continue to have adequate liquidity and
financing arrangements to finance its operations.  The Company will continue to
explore alternative and supplementary methods of financing its operations,
including both debt and equity financing.  There can be no assurance, however,
that the Company will be successful in consummating any such transactions.

ASSETS AND LIABILITIES

      At September 30, 1996, total assets were $1.051 billion compared to $918
million at December 31, 1995.  This increase was due primarily to a net
increase of $34.7 million and $56.5 million in securities held to maturity and
loans receivable,





                                       9
<PAGE>   10



respectively, at Doral Federal.  As of September 30, 1996, Doral Federal had
$243 million in assets compared to $160 million at December 31, 1995.  Total
liabilities were $905 million at September 30, 1996 compared to $789 million at
December 31, 1995.  This increase was largely the result of an increase in
deposit accounts and notes payable.  At September 30, 1996, Doral Federal's
deposit accounts totaled $155 million compared to $114 million at December 31,
1995.  Deposit accounts include $44.7 million in non-interest bearing demand
deposits representing escrow funds and other servicing accounts from the
Company's mortgage servicing operations.  The increase in deposits at Doral
Federal is primarily due to the offering of competitive interest rates and
increased market recognition achieved by Doral Federal.

      The Company's mortgage banking business is subject to the risk that
future changes in interest rates may adversely affect the value of the
Company's portfolio of mortgage loans and mortgage-backed securities.  Interest
rate fluctuations may also adversely affect net interest income.  FFCC attempts
to reduce these risks through forward commitments and other hedging techniques.

      The Company does not generally hedge conventional loans in the pipeline
or in the process of origination because these loans are generally offered to
customers at a certain spread over a prevailing rate that adjusts weekly rather
than established prior to closing and locked-in for a specified period of time.
The Company seeks to obtain commitments for the purchase of  FNMA and FHLMC
conforming loans and FNMA and FHLMC mortgage-backed securities following the
funding of such loans.  These loans are normally sold to institutional
investors or at the FNMA and FHLMC cash windows.  To the extent the Company
does engage in offerings of mortgage products which lock-in the interest rate
until the closing date, it attempts to obtain forward commitments at the time
it fixes the rates for the loans.  Non-conforming conventional loans are
normally sold in bulk to local financial institutions or packaged into
collateralized mortgage obligations.  The sale of non-conforming conventional
loans normally takes longer than the sale of conforming mortgage loans.
Accordingly, the Company attempts to manage the interest rate risk associated
with the holding of non-conforming loans for sale through the purchase of
listed options on U.S. Treasury securities as well as the purchase of option
contracts in the over-the-counter market on other interest rate sensitive
instruments.

      The Company normally holds GNMA securities for longer periods prior to
sale in order to maximize its net interest income and to take advantage of the
tax exempt status of the interest on such securities under Puerto Rico law.
Prices for GNMA securities in Puerto Rico tend to be more stable than on the
mainland U.S. because of the tax exempt status of interest paid on these
securities under Puerto Rico law.  This relative stability of prices for Puerto
Rico GNMA securities allows the Company to conduct a less aggressive hedging
strategy to attempt to protect the value of these assets than what might
otherwise be required.  The Company seeks to protect itself from interest rate
risk associated with its inventory of GNMA securities by purchasing listed
options on treasury bond futures contracts and other interest rate sensitive
instruments, as well as purchasing options on U.S. GNMA securities in the
over-the-counter market.  The Company has in place long-term repurchase
agreements secured by GNMA securities with a principal amount of approximately
$71.2 million.  The Company does not obtain forward commitments or otherwise
hedge  such GNMA securities  because they are financed pursuant to long-term
repurchase agreements.

      Contracts designated as trading hedges are marked-to-market monthly with
the resulting gains and losses charged to operations.  Changes in the market
value of such contracts that qualify as hedges of existing assets and
liabilities are recognized as an adjustment to the value of the asset or
liability being hedged.  Investment in such options is increased or decreased
in relation to interest rates changes and other market factors.

      The operations of the Company are also subject to interest rate risk
because its interest earning assets and interest-bearing liabilities reprice at
different times and in varying amounts.  FFCC's loans held for sale and
mortgage-backed securities held for trading inventories are fixed rate
interest-earning assets that are not subject to repricing (except for
replacement of assets through repayments, sales and new originations) while the
short-term borrowings used to finance these positions normally reprice
quarterly.  To protect against major fluctuations in short- term interest
rates, the Company purchases and writes listed put options on financial
instruments, including Eurodollars contracts.  This policy attempts to ensure a
relatively stable short-term cost of funds which the company can use to fund
its fixed rate interest earning assets.

      Doral Federal is also subject to risk as a result of fluctuations in
interest rates. Since most of Doral Federal's assets have fixed rates and
because interest on deposits will rise more quickly in a rapidly rising interest
rate environment than the composition of its loan portfolio, the net interest
income of Doral Federal could be adversely affected in such an environment.
Doral Federal attempts to obtain long-term deposits and other long- term debt
financing and/or advances from the FHLB-NY and term notes backed by FHLB-NY
letters of credit in order to fund its portfolio of loans receivable and other
fixed rate assets.

      In the future, FFCC may use alternative hedging techniques including
futures, options or other hedge vehicles to help mitigate interest rate and
market risk.  However, there can be no assurance that any of these hedging
techniques will be





                                       10
<PAGE>   11



successful.  To the extent they are not successful, the Company's profitability
may be adversely affected.  For the nine-months ended September 30, 1996, the
Company experienced hedging gains of $4.1 million, while for the nine-month
period ended September 30, 1995, the Company experienced hedging losses of $2.8
million.

RESULTS OF OPERATIONS FOR QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995

      Net income for the quarter ended September 30, 1996 increased to $7.4
million from $4.9 million for the comparable period of 1995.  The increase in
net income of $2.5 million from 1995 was due mainly to higher mortgage loan
sales and fees and to gains on sales of servicing rights amounting to $1.8
million.  No such sales of servicing rights were made in the third quarter of
1995.  Doral Federal contributed approximately $337,000 in net income for the
third quarter of 1996 compared to $580,000 for the third quarter of 1995.  The
decreased contribution of Doral Federal was due to a nonrecurring expense of
$588,000 related to the payment of a special assessment to the Federal Deposit
Insurance Corporation ("FDIC") due to the recent enactment of legislation to
recapitalize the Savings Association Insurance Fund ("SAIF").

     Revenues from mortgage loan sales and fees increased to $7.0 million for
the quarter ended September 30, 1996 from $4.9 million for the comparable period
of 1995.  This increase was primarily attributable to higher gains on loan sales
and fees from the increased volume of loan originations, due in part, to the
increased demand created by the deregulation of interest rates for conventional
mortgages in Puerto Rico.  The total volume of loans originated and purchased
for the quarter ended September 30, 1996 was $186 million compared to $156
million for the quarter ended September 30, 1995.  The total volume of loans
purchased was approximately $16 million for the quarter ended September 30, 1996
compared to $13 million for the comparable period of 1995.

      Net interest income increased by $1.4 million for the quarter ended
September 30, 1996 versus the comparable period of 1995.  Results for the
quarter include approximately $500,000 of interest expense attributable to
additional financing costs not directly related to interest earning assets,
compared to approximately $300,000 for the quarter and nine months period ended
September 30, 1995.  Doral Federal contributed approximately $1.7 million and
$1.1 million to the consolidated net interest income of the Company for the
quarters ended September 30, 1996 and 1995, respectively.

      The weighted average interest rate spread was 242 basis points
during the third quarter of 1996 compared to 277  basis points for the
comparable period of 1995.

      When FFCC sells the mortgage loans it has originated or purchased, it
generally retains the rights to service such loans and receives the related
servicing fees.  Mortgage loan servicing fees are based on a percentage of the
principal balances of the mortgages serviced and are credited to income as
mortgage payments are collected.  Loan servicing income was $2.65 million for
the quarter ended September 30, 1996 compared to $2.60 million for the same
period in 1995.  The Company's servicing portfolio totaled $3.0 billion at
September 30, 1996 compared to $2.6 billion at the same date a year ago.  The
Company's servicing portfolio at September 30, 1996 increased by approximately
$300 million over the size of the servicing portfolio at December 31, 1995.

      FFCC capitalizes as an asset any excess servicing fees receivable on
loans sold with servicing rights retained whenever the stated servicing fee
rate is materially higher than the servicing fee normally permitted by FNMA or
FHLMC.  The excess servicing fee receivable represents the discounted present
value of the excess of the interest rate on the loan over a normal servicing
fee and the interest required to be paid to investors.  The excess servicing
fee receivable is recognized at the time of sale of the related loan as an
adjustment to the resulting gain or loss on sale of the loan and is recorded in
the accompanying Consolidated Statement of Income and Retained Earnings under
"Mortgage loan sales and fees" even though such amount is received by the
Company over the life of the loan.  Sales of mortgage loans made during the
third quarter of 1996 resulted in the recording of approximately $3.1
million in excess servicing fee receivable compared approximately to $1.0 
million for the third quarter of 1995.

      Amortization of such excess servicing fees for each of the quarters ended
September 30, 1996 and 1995 was approximately $367,000 and $246,000,
respectively.  Amortization of excess servicing fees is based on the amount and
timing of estimated future cash flows.  The amortization of excess servicing
fee receivable is recorded as a reduction of servicing income.

      At September 30, 1996, the unamortized balance of mortgage servicing
rights approximated their fair value.  The amortization of mortgage servicing
rights for the quarters ended September 30, 1996 and 1995 was $246,000 and
$125,000, respectively, and is recorded in the accompanying Consolidated
Statement of Income and Retained Earnings under "Other





                                       11
<PAGE>   12



Expenses."  The Company capitalized approximately $2.4 million in mortgage
servicing rights during the third quarter of 1996.

      Aggregate expenses for the quarter ended September 30, 1996, increased by
approximately $1.2 million compared to the third quarter of 1995, primarily due
to a special one-time SAIF insurance assessment of $588,000  payable by Doral
Federal in connection with the recapitalization of the SAIF insurance fund,
additional costs associated with expanding the Company's customer base and loan
origination capacity and approximately $200,000 of expenses incurred in
connection with the commencement of operations of AAA Financial, the Company's
new broker-dealer subsidiary which commenced operations in September 1996.

RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.

      The Company's net income for the nine months ended September 30, 1996
increased to $20.8 million, compared to $14.5 million for the corresponding
period of 1995.  For the nine-month period ended September 30, 1996, Doral
Federal contributed approximately $1.5 million in net income compared to $1.2
million for the nine months ended September 30, 1995.  Results for the first
nine months of 1996 reflect the adoption by the Company as of April 1, 1995 of
SFAS No. 122.  Additional net income of approximately $3.8 million was realized
for the nine months ended September 30, 1996, compared to $600,000 for
the nine-month period ended September 30, 1995, from the adoption of SFAS No.
122.  During the first nine months of 1996, the Company had gains on sales of
servicing rights of approximately $1.8 million, compared to $3.6 million for
the nine months period ended September 30, 1995.

        Revenues from mortgage loan sales and fees for the first nine months of 
1996 increased 137% to $20.5 million from  $8.6 million for the comparable
period of 1995.  This increase was due to a higher volume of loan originations
and higher loan sales and fees.  The total volume of loans originated and
purchased was approximately $609 million for the nine-month period ended
September 30, 1996 compared to approximately $422 million for the nine-month
period ended September 30, 1995.  The increase of 44% in loan originations and
purchases was the result of increased demand for refinancing loans. 
Refinancing loans comprised 48% of production in the first nine months of 1996
compared to 42% for the same period in 1995.  The increase also reflected
hedging gains of approximately $4.1 million for the first nine months of 1996
compared to hedging losses of $2.8 million for the first nine months of 1995. 
Mortgage loan sales and fees reflect approximately $6.2 million of additional
gains on sale of mortgage loans as a result of the adoption of SFAS No. 122.

      Net interest income increased by approximately $1.5 million for the
nine-month period ended September 30, 1996 versus the comparable period of
1995.  The weighted average interest rate spread was 254 basis points
during the nine months ended September 30, 1996 compared to 277 basis points
for the comparable period of 1995.  Doral Federal contributed approximately
$4.9 million and $2.9 million to the consolidated net interest income of the
Company for the nine-month periods ended September 30, 1996 and 1995,
respectively.

      For the nine-month period ended September 30, 1996 loan servicing income
was $8.3 million compared to $8.0 million for the same period in 1995.  Sales
of mortgage loans during the first nine months of 1996 resulted in the
recording of approximately $10.1 million in excess servicing fees receivable
compared to $2.3 million for the first nine month of 1995.  Amortization of
excess servicing fee receivable for each of the nine-month periods ended
September 30, 1996 and 1995 was approximately $1.0 million and $600,000,
respectively.  The amortization of excess servicing fee receivable is recorded
as a reduction of servicing income.  For the nine-month periods ended September
30, 1996 and 1995, amortization of mortgage servicing rights was $722,000 and
$399,000, respectively.  Amortization of servicing rights is recorded as a
component of "Other Expenses."

      Aggregate expenses for the nine-month period ended September 30, 1996
increased by $5.7 million compared to the same period for 1995, primarily
because of additional costs associated with the expansion of the Company's
customer base and loan origination capacity.

PROSPECTIVE TRENDS

      MARKET TRENDS.  Demand for mortgage loans and prices for mortgage loans
and mortgage-backed securities are sensitive to changes in interest rates.
Increases in prevailing interest rates tend to adversely impact demand and
prices for mortgage loans and mortgage-backed securities and thereby adversely
impact mortgage loan originations and gain on sale of mortgage loans.  An
increase in prevailing interest rates could also adversely impact the Company's
net interest income.





                                       12
<PAGE>   13



      PRODUCT DIVERSIFICATION.  The Company has begun to further diversify its
available loan products by more aggressively offering home equity and personal
loans secured by mortgages.  These loans, which are secured by first or second
mortgage liens, generally have lower balances (between $10,000 and $40,000),
shorter maturities (between five to ten years) and bear higher interest rates.
The Company intends to sell these loans, other than such loans funded and
retained by Doral Federal, to local financial institutions, or to package them
into collateralized mortgage obligations.  When the Company sells these loans,
it normally retains the right to receive as a servicing fee interest payable on
the loan above a specified rate.  The present value of the servicing fee income
to be received over the life of the loan over and above the typical servicing
fee payable on conforming conventional loans and the interest rate required to
be paid to investors is recognized on the Company's income statement as a
component of the sale of the mortgage loan and is reflected as an asset on the
Company's balance sheet as excess servicing fees receivable.  As the volume of
originations of this type of loan product increases, the amount of excess
servicing fees receivable reflected on the financial statements of the Company
will increase.

      NEW BROKER-DEALER SUBSIDIARY.  During the third quarter of 1996, the
Company organized a new subsidiary, AAA Financial, a NASD licensed
broker-dealer.  AAA Financial is involved in a general securities business 
with special attention to the sale of Puerto Rico tax exempt GNMA Financial 
mortgage-backed securities and other Puerto Rico securities.  AAA Financial 
operates out of facilities located in the Hato Rey business district of San 
Juan and commenced operations in September 1996 with 12 employees and will 
continue to recruit and hire additional personnel in the near future, 
expecting to have approximately 20 employees by the end of the year.

      NEW ACCOUNTING STANDARDS.   In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 125").

      SFAS No. 125 establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
the consistent application of the financial components approach.  This approach
requires the recognition of financial assets and servicing assets that are
controlled by the reporting entity, the derecognition of financial assets when
control is surrendered, and the derecognition of liabilities when they are
extinguished.  Specific criteria are established for determining when control
has been surrendered in the transfer of financial assets.

      Liabilities and derivatives incurred or obtained by transferors in
conjunction with the transfer of financial assets are required to be measured
at fair value, if practicable.  Servicing assets and other retained interests
in transferred assets  are required to be measured by allocating the previous
carrying amount between the assets sold, if any, and the interest that is
retained, if any, based on the relative fair values of the assets at the date
of the transfer.  Servicing assets retained are subsequently subject to
amortization and assessment for impairment.

      SFAS  No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996. 
It is to be applied prospectively, earlier or retroactive application is not
permitted.

      Management has not yet estimated the effect, if any, of the adoption of
SFAS No. 125 on the Company's financial statements.

      REPEAL OF SECTION 936.  Section 936 of the U.S. Internal Revenue Code
("Section 936"), has historically provided incentives for U.S. corporations to
invest in Puerto Rico by granting a credit to qualifying corporations ("936
Corporations") against a portion of the U.S. income tax payable from the active
conduct of a trade or business in Puerto Rico and 100% of certain qualifying
investment income derived in Puerto Rico.  Section 936 together with
complementary Puerto Rico laws has provided incentives for 936 Corporations and
financial intermediaries receiving funds from 936 Corporations to invest in
mortgage loans and mortgage-backed securities originated in Puerto Rico.
Accordingly, Section 936 helped to create a pool of lower cost funds in Puerto
Rico that the Company has historically used to fund mortgage loans and
mortgage-backed securities.

      On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"Small Business Job Protection Act") was enacted into law.  The Small Business
Job Protection Act provides for the elimination of the U.S. federal income tax
benefits available to U.S. corporations operating and investing in Puerto Rico
under Section 936.  The Act repeals Section 936 subject to a ten-year
grandfather rule for 936 Corporations that were engaged in the active conduct
of a trade or business on October 13, 1995 and that qualified for and elected
the benefits of Section 936 for the corporation's taxable year which includes
such date.  During the grandfather period, the amount of income that will
benefit from the credit available under Section 936 derived from the active
conduct of a trade or business will be subject to varying caps.  The credit
available for





                                       13
<PAGE>   14



investment income was not subject to the grandfather rule and was eliminated
effective for taxable years beginning after December 31, 1995 but in no event
prior to July 1, 1996.

      While the final impact of a repeal of Section 936 cannot be determined at
this time, the repeal of Section 936 could have an adverse effect on the
general economic condition of Puerto Rico, the Company's predominant service
area, by reducing incentives for investment in Puerto Rico.  Any such adverse
effect on the general economy of Puerto Rico could lead to an increase in
mortgage delinquencies and a reduction in the level of residential construction
and demand for mortgage loans.  The elimination of Section 936, particularly
the elimination of the credit for investment income, could also lead to a
decrease in the amount of funds invested in the Puerto Rico financial market by
936 Corporations ("936 Funds"), thereby increasing funding costs and decreasing
liquidity for Puerto Rico mortgage products.  The magnitude of the impact of
the repeal of Section 936 on the Company's profitability or financial condition
cannot be determined at this time.  Management believes that the principal
impact of the loss of 936 Funds will be a moderate increase in the Company's
funding costs.  The Company, however,  has taken steps to attempt to reduce the
impact of any such adverse changes by diversifying its sources of funding and
identifying additional investors for its mortgage products.  During recent
periods, the disparity between the cost of 936 Funds and other sources of
funding such as the Euro-dollar market have decreased, thereby reducing the
adverse effect that the loss of such funding could have on the profitability of
the Company.





                                       14
<PAGE>   15




                          PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

      In the opinion of the Company's management, the pending and threatened
legal proceedings of which management is aware will not have a material adverse
effect on the financial condition of the Company.

ITEM 2 - CHANGES IN SECURITIES

      (a)  Not Applicable.

      (b)  On October 10, 1996, the Company issued $75,000,000 of its 7.84%
Senior Notes due 2006 (the "Senior Notes"), pursuant to an Indenture dated
October 10, 1996 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee.

            Under the terms of the Indenture, the Company is restricted from
making certain payments and capital distributions, including the payment of
dividends on its Common Stock ("Restricted Payments") if (i) an event of default
exists under the Indenture at the time of making such Restricted Payment or (ii)
at the time of and after giving effect to the proposed Restricted Payment, the
aggregate amount of all Restricted Payments made after October 10, 1996 exceeds
the sum of (a) 50% of the aggregate consolidated net income (or, in the case of
a consolidated net loss, minus 100% of such loss) of the Company for the period
(taken as one accounting period) commencing on October 1, 1996 to and including
the last day of the fiscal quarter ended immediately prior to the date of the
proposed Restricted Payments, plus (b) the aggregate net proceeds, received by
the Company from the issuance or sale (other than to a subsidiary) after October
10, 1996, of (A) shares of its capital stock (other than certain types of
preferred stock) or (B) indebtedness of the Company which has been converted
into or exchanged for shares of its capital stock (other than certain types of
preferred stock) plus (c) $15,000,000.

           A copy of the Indenture is included as Exhibit 10.69 to this
Quarterly Report on Form 10-Q.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

      Not Applicable.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Not Applicable.

ITEM 5 - OTHER INFORMATION

      Not Applicable.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits

           Exhibit 10.69 - Indenture, dated as of October 10, 1996, between the
           Company and Bankers Trust Company, as trustee, including form of
           Senior Note (incorporated herein by reference to the same exhibit
           number of the Company's Current Report on Form 8-K, dated October
           10, 1996.)

           Exhibit 10.70 - Employment Agreement, dated as of July 1, 1996,
           between FFCC and Mario S. Levis.

           Exhibit 27 - Financial Data Schedule (for SEC use only).

      (b)  Reports on Form 8-K





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<PAGE>   16



           (i)   Current Report on Form 8-K, dated September 11, 1996,
                 reporting under Item 5 "Other Events" the effect of the
                 passage of Hurricane Hortense on the Company's operations and
                 the receipt of all required regulatory approvals by AAA
                 Financial Services Corporation.

           (ii)  Current Report on Form 8-K, dated October 10, 1996, reporting
                 under Item 5 "Other Events," the closing of the issuance and
                 sale of $75,000,000 of the Company's 7.84% Senior Notes due
                 2006.





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<PAGE>   17

                                   SIGNATURES


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



                                         FIRST FINANCIAL CARIBBEAN CORPORATION
                                                    (Registrant)
                                           
                                           
                                           
Date:   November 12, 1996                           /s/ Salomon Levis           
                                              ----------------------------------
                                                        Salomon Levis
                                                    Chairman of the Board
                                                 and Chief Executive Officer
                                              
                                              
                                              
Date:   November 12, 1996                           /s/ Richard F. Bonini 
                                              ----------------------------------
                                                        Richard F. Bonini
                                                Senior Executive Vice President
                                                 and Chief Financial Officer
                                              
                                              
                                              
                                              
Date:   November 12, 1996                          /s/ Ricardo Melendez      
                                              ----------------------------------
                                                       Ricardo Melendez
                                               Vice President, Controller and
                                                 Principal Accounting Officer





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