As filed with the Securities and Exchange Commission on November 15, 2010

Registration No. 333-169399

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Amendment No. 3

to

Form S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

 

 

 

FIRST BANCORP.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

1519 Ponce de León Avenue, Stop 23

Santurce, Puerto Rico 00908

(787) 729-8200

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

Lawrence Odell

Executive Vice President and General Counsel

First BanCorp.

1519 Ponce de León Avenue, Stop 23

Santurce, Puerto Rico 00908

(787) 729-8109

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

 

 

 

Copies to:

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

EXPLANATORY NOTE

 

This Amendment No. 3 to the Registration Statement on Form S-1 (Registration No. 333-169399) of First BanCorp. (the “Registrant”) is being filed solely to incorporate by reference into the preliminary prospectus that already forms Part I of the Registration Statement the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010, which was filed with the Securities and Exchange Commission on November 9, 2010. No other changes or additions are being made hereby to the preliminary prospectus that already forms Part I of the Registration Statement.

 

SUBJECT TO COMPLETION: DATED NOVEMBER 15, 2010

 

PRELIMINARY PROSPECTUS

 

           Shares

 

 

Common Stock

 

First BanCorp. is the holding company for FirstBank Puerto Rico, a Puerto Rico-chartered commercial bank headquartered in San Juan, Puerto Rico.

 

We are offering           post-reverse stock split (as defined below) shares of our common stock representing an aggregate offering price of $500,000,000. Our common stock is traded on the New York Stock Exchange under the symbol “FBP.” On October 28, 2010, the last reported sale price of our common stock on the New York Stock Exchange was $0.29 per pre-reverse stock split share.

 

Before the registration statement of which this prospectus is a part is declared effective, we will effect a reverse stock split (the “reverse stock split”) in the range of between one new share of common stock for 10 old shares of common stock and one new share of common stock for 20 old shares of common stock, which is the range that our stockholders approved at our Special Meeting of Stockholders on August 24, 2010. The number of authorized shares of common stock will remain the same after the reverse stock split. Once the ratio for the reverse stock split is determined, except where we state otherwise, all of the numbers and prices of shares presented in this prospectus will be restated on a post-reverse stock split basis.

 

The public offering price for each share of our post-reverse stock split shares of common stock will be determined by a negotiation between us and the underwriters based upon market conditions, an estimate of the change in the market price of our common stock as a result of the reverse stock split and other factors on the day we price the shares. In the usual case, as a result of a reverse stock split (all other things being equal), the market price of common stock may not rise proportionally to the decrease in outstanding shares resulting from the reverse stock split. While it is not possible to predict the impact of the reverse stock split in our case, consideration of the impact of the reverse stock split will be necessary in determining the number of post-reverse stock split shares to include in this offering.

 

Although we want to receive gross proceeds of at least $500 million in this offering, we may determine to complete an offering for a number of shares of common stock that results in a lower amount of gross proceeds.

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 24 to read about factors you should consider before you make your investment decision.

 

 

We have granted the underwriters a 30-day option to purchase up to           additional post-reverse stock split shares of common stock (equal to 15% of the total number of shares we are offering) solely to cover over-allotments, if any.

 

Neither the Securities and Exchange Commission nor any securities commission of any state or other jurisdiction has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

These securities are not savings accounts, deposits, or other obligations of any bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 

The underwriters expect to deliver the common stock to purchasers on or about          , 2010, subject to customary closing conditions.

 

 

Sole Book-Running Manager

 

 

Lead Manager

 

UBS Investment Bank

 

 

 

 

The date of this prospectus is          , 2010

 

TABLE OF CONTENTS

 

 

 

We have not authorized anyone to provide any information other than that contained or incorporated by reference in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you.

 

This prospectus and any applicable prospectus supplement are not offers to sell nor are they seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus and any applicable prospectus supplement is complete and correct only as of the date on the front cover of such documents, regardless of the time of the delivery of such documents or any sale of these securities. In this prospectus, “First BanCorp,” “we,” “us,” and “our” refer to the consolidated operations of First BanCorp., and references to a company name refer solely to such company.

 

For investors outside the United States: Neither we nor any of the underwriters have taken any action to permit a public offering of the shares of our common stock or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third party research, surveys and studies are reliable, we have not independently verified such data.

 

This prospectus is part of a registration statement that we filed with Securities and Exchange Commission (the “SEC”). When required, we will file prospectus supplements to update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the headings “Additional Information” and “Incorporation By Reference.”

 

As permitted by SEC rules, this prospectus omits certain information that is included in the registration statement and its exhibits. Since the prospectus may not contain all of the information that you may find important, you should review the full text of these documents. If we have filed a contract, agreement or other document as an exhibit to the registration statement, you should read the exhibit for a more complete understanding of the document or matter involved. Each statement in this prospectus, including statements incorporated by reference as discussed below, regarding a contract, agreement or other document is qualified in its entirety by reference to the actual document.

 

We file annual, quarterly and special reports and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings are also available to the public from the SEC’s web site at http://www.sec.gov.

 

The SEC allows us to “incorporate by reference” the information we file with the SEC, which means we can disclose important information to you by referring to these documents. The information included in the following documents is incorporated by reference and is considered a part of this prospectus. The most recent information that we file with the SEC automatically updates and supersedes previously filed information.

 

We hereby incorporate by reference into this prospectus the following documents that we have filed with the SEC:

 

 

 

 

 

You may request a copy of these filings, other than an exhibit to a filing (unless that exhibit is specifically incorporated by reference into that filing), at no cost, by writing to us at the following address: First BanCorp., Attention: Lawrence Odell, Secretary, P.O. Box 9146, San Juan, Puerto Rico, 00908-0146. Telephone requests may be directed to: (787) 729-8109. E-mail requests may be directed to lawrence.odell@firstbankpr.com. You may also access this information at our website at www.firstbankpr.com by viewing the “SEC Filings” subsection of the “Investor Relations” menu. No additional information on our website is deemed to be part of or incorporated by reference into this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

 

PROSPECTUS SUMMARY

	•	Capital Ratios.  As of June 30, 2010, FirstBank’s capital ratios exceeded the minimum established capital ratios required for a “well-capitalized” depository institution, with approximately $355 million and $695 million of capital in excess of that required to satisfy the minimum ratios for total capital to risk-weighted assets and Tier 1 capital to risk-weighted assets, respectively. We recently completed an offer to exchange newly issued shares of our common stock for any and all of the issued and outstanding shares of Noncumulative Perpetual Monthly Income Preferred Stock, Series A through E, and an exchange of shares of our Series F Preferred Stock (as defined below) that we previously had sold to the United States Department of the Treasury (the “U.S. Treasury”), plus dividends accrued thereon, for shares of Series G Preferred Stock (as defined below). See “—Our Strategy—Strengthen our Capital Position.” The exchange offer improved the quality of our capital position by substantially increasing tangible common equity and enhanced our ability to meet any new capital requirements. As of June 30, 2010, on a pro forma basis after giving effect to the exchange offer and the exchange of Series F Preferred Stock for Series G Preferred Stock, our Tier 1 common equity to risk-weighted assets ratio would increase from 2.86% as of June 30, 2010 on an “as reported” basis to 6.93% and our tangible common equity to tangible assets ratio would increase from 2.57% as of June 30, 2010 on an “as reported” basis to 5.40%. See “Regulatory and Other Capital Ratios” and “Non-GAAP Data.” Further, we believe the completion of the exchange offer improves our ability to operate in the current economic environment, access the capital markets to fund strategic initiatives or other business needs and absorb any future credit losses.

	•	Regulatory Agreements.  On June 4, 2010, we announced that FirstBank had agreed to a Consent Order (the “Order”) issued by the FDIC and OCIF, dated as of June 2, 2010, and we had entered into a Written Agreement with the Federal Reserve, dated as of June 3, 2010 (the “Written Agreement” and collectively with the Order, the “Agreements”). The Agreements require us and FirstBank to take certain actions to, among other things, develop and adopt plans to attain certain capital levels and reduce non-performing and classified assets that have impacted FirstBank’s financial condition and performance. We have submitted our capital plan setting forth how we plan to improve our capital positions to comply with the above mentioned Agreements over time. Specifically, the capital plan

		details how we will achieve a total capital to risk-weighted assets ratio of at least 12%, a Tier 1 capital to risk-weighted assets ratio of at least 10% and a leverage ratio of at least 8%. In addition to the capital plan, we have submitted to our regulators a liquidity and brokered deposit plan, including a contingency funding plan, a non-performing asset reduction plan, a budget and profit plan, a strategic plan and a plan for the reduction of classified and special mention assets. Further, we have reviewed and enhanced our loan review program, various credit policies, our treasury and investments policy, our asset classification and allowance for loan and lease losses and non-accrual policies, our charge-off policy and our appraisal program. The Agreements also require the submission to the regulators of quarterly progress reports.

	•	Deleverage.  We have deleveraged our balance sheet in order to preserve capital, principally by selling investments and reducing the size of the loan portfolio. Significant decreases in assets have been achieved mainly through the non-renewal of matured commercial loans, such as temporary loan facilities to the Puerto Rico government, and through the charge-off of portions of loans deemed uncollectible. In addition, a reduced volume of loan originations has contributed to this deleveraging strategy.

	•	Asset Quality.  We have strengthened our processes to enhance asset quality through the implementation of stricter loan approval processes. In addition, the responsibilities of our Special Assets Group, which reports directly to our chief executive officer, have been expanded to include management of all activities related to our classified credits and non-performing assets for the commercial business with the purpose of improving their quality or disposing of the assets. See “—Our Strategy—Improve our Profitability.” Our Special Assets Group focuses on strategies for the accelerated reduction of non-performing assets through note sales, troubled debt restructurings, loss mitigation programs, sales of real estate owned and sales of loans through special purpose vehicles. In addition to the management of the resolution process for problem loans, the Special Assets Group oversees collection efforts for all loans to prevent migration to the non-performing and or classified status. Therefore, the Special Assets Group not only implements a remediation strategy, but also provides preventive oversight at a corporate level to reduce non-performing migration trends within the commercial loan portfolio.

	•	Corporate Governance.  We reorganized our management structure to better implement and execute our business strategies. In addition, since September of 2009 we have an independent chairman who is separate from the chief executive officer. Two new committees at the board level, a Strategic Planning Committee and a Compliance Committee, were established to provide ongoing monitoring of business strategies, financial targets and corporate objectives as well as compliance with regulatory Agreements.

		FirstBank’s				Average of SCAP
		more adverse				loss factor range on
		loss factor				the more adverse(1)
Residential Mortgage			9.51	%			11.51	%
Construction			51.28	%			16.50	%
CRE			19.09	%			8.00	%
C&I			7.35	%			6.50	%
Consumer			10.23	%			10.00	%

(1)		Average of high/low cumulative two-year loss factors

	•	capital preservation and optimization through the implementation of capital restructuring initiatives;
	•	enhanced and proactive management action plans on all loan portfolios across the entire credit cycle to improve asset quality, with the expectation of increased spreads and reduced portfolio risk;
	•	heightened efforts to grow core deposits and reduce dependency on brokered deposits, including increasing deposit growth through network optimization and core deposit penetration in commercial loan and government customers and in Florida and the Virgin Islands, which provide an additional source of funds to increase core deposits;
	•	initiatives to increase non-interest income through insurance fees and transaction banking services, among other things;
	•	initiatives to increase margins and loan yields through pricing rationalization; and
	•	continued operating efficiency improvements and expense reduction by expanding the specific initiatives and enhancing our technological infrastructure through targeted investments.

	•	our position as the second largest financial holding company in Puerto Rico and as the largest bank in the USVI as measured by total assets as of June 30, 2010;
	•	FirstBank’s recognized brand in Puerto Rico and the Virgin Islands, with consistent execution of a banking strategy focused on customer satisfaction and personalized service in both retail and commercial operations;
	•	a well-diversified operation with a wide range of financial services, including a diversified portfolio of products and services and over 630,000 retail and commercial customers who enable FirstBank to continue to grow and who provide FirstBank with opportunities to cross-sell its products;
	•	an ability to attract new customers and to cross-sell products due to its strong market share in retail deposits, commercial lending, automobile lending, finance leasing, personal loans and small loans;
	•	a high-quality technology and operating infrastructure that supports our customer focus while maintaining non-interest expenses at an efficient level;
	•	an experienced management team; and

	•	FirstBank’s established, integrated and geographically diverse network of branches, offices and service centers that are located in Puerto Rico, the Virgin Islands and Florida.

	•	a strong diversified franchise with 48 bank branches located throughout much of the island of Puerto Rico;
	•	an attractive business mix with substantial market share, ranking second in total loans and third in total deposits net of brokered CDs;

	•	a proven track record of organic growth and a core deposit growth strategy that has driven a $888.9 million, or 38%, increase in core deposits since December 31, 2007; and

	•	assets of $15.2 billion representing 84% of our total assets.

	•	a strong market position with market share in excess of 40% and limited competition;
	•	14 branches serving St. Thomas, St. Croix, St. John, Tortola and Virgin Gorda;
	•	an attractive customer and business segment mix, skewed more towards mass affluent retail customers and retail-oriented businesses; and
	•	assets of $1.1 billion representing 6% of our total assets.

	•	a limited market presence in highly attractive counties;
	•	10 branches serving primarily the south Florida region and a loan production office;
	•	64% increase in core deposits since December 2009 to $1.4 billion as of June 30, 2010;
	•	a local market that provides expansion opportunities under improved market conditions; and

	•	assets of $1.7 billion, representing 10% of our total assets.

	•	Completion of Exchange of Series F Preferred Stock into Convertible Preferred Stock.  On July 20, 2010, we exchanged our Fixed Rate Cumulative Perpetual Preferred Stock, Series F, $1,000 liquidation preference per share (“Series F Preferred Stock”), that we previously had sold to the U.S. Treasury, plus accrued dividends on the Series F Preferred Stock, for 424,174 shares of a new series of Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series G, $1,000 liquidation preference per share (“Series G Preferred Stock”), that has similar terms (including the same liquidation preference), but which we can convert, under the conditions described herein, into shares of common stock. This conversion of the Series G Preferred Stock would help to increase our tangible common equity, which has already been substantially improved by our completion of our offer to exchange shares of common stock for shares of preferred stock discussed below. See “—Recent Developments.”

	•	Completion of Exchange of Series A through E Preferred Stock into Common Stock.  On August 30, 2010, we completed our offer to exchange shares of common stock for our outstanding shares of

		Series A through E Preferred Stock. See “—Recent Developments.” Our issuance of 227,015,210 shares of common stock in the exchange offer increased our common equity to provide additional protection from the need to recognize future loan loss reserves against our loan portfolio and credit losses associated with the disposition of non-performing assets due to the current adverse economic situation and improves our Tier 1 common equity to risk-weighted assets ratio and tangible common equity to tangible assets ratio. Our ratio of Tier 1 common equity to risk-weighted assets, which was 2.86% as of June 30, 2010, would be 6.93% on a pro forma basis after giving effect to the exchange offer and the exchange of Series F Preferred Stock for Series G Preferred Stock, and our ratio of tangible common equity to tangible assets, which was 2.57% as of June 30, 2010, would be 5.40% on a pro forma basis after giving effect to the exchange offer and the exchange of Series F Preferred Stock for Series G Preferred Stock. See “Non-GAAP Data” for reconciliations of Tier 1 common equity and tangible common equity to stockholders’ equity, the most directly comparable GAAP financial measure, and tangible assets to total assets, the most directly comparable GAAP financial measure, as of June 30, 2010. In addition, the issuance of shares of common stock in the exchange offer satisfies a substantive condition to our ability to mandatorily convert the Series G Preferred Stock into common stock and improves our ability to meet any new capital requirements. See “—Recent Developments.”

	•	Obtain Stockholder Approval of Charter Amendments.  Our stockholders approved amendments to our Restated Articles of Incorporation to increase the number of authorized shares of our common stock and decrease the par value of our common stock. Such approval was obtained on August 24, 2010. See “—Recent Developments.”
	•	Opportunistic Deleveraging Strategies and Sales of Non-Performing Assets.  We intend to continue with the targeted deleveraging of our balance sheet through reduction of our construction portfolio, sales of investment securities on an opportunistic basis and the reduction of non-performing assets.
	•	Completion of this Common Stock Offering.  The completion of this common stock offering is the final element of our capital strategy. See “—Recent Developments.”

	•	Improve Asset Quality.  We intend to improve asset quality and reduce our level of delinquencies, non-performing assets and classified loans by:

	•	aggressively monitoring asset quality through our Special Assets Group, which was created in 2009 to address challenges faced by our operations in Florida and was recently tasked with managing all activities related to our classified credits and non-performing assets for the commercial business at a centralized level and overseeing collection efforts for performing loans that are not classified to prevent excess migration to the non-performing and/or classified status;
	•	accelerating the disposition and sale of certain non-performing assets and by engaging in other loss mitigation measures, such as the restructuring of certain credits;
	•	continuing to not originate construction loans until the adverse economic conditions in the markets in which we operate improve and reducing outstanding construction loan commitments through the sale of such loans and implementing other work-out initiatives, which also reduce the carrying costs associated with such loans;
	•	expanding FirstBank’s loss mitigation programs and its home ownership preservation assistance;
	•	taking advantage of the recently enacted Puerto Rico housing stimulus package, which we believe may increase our residential construction loan portfolio’s absorption rate;
	•	controlling the early delinquency stages with strengthened collection activities in all loan portfolios, including the use of external service providers for collection and loss mitigation programs; and

	•	accelerating the disposition of other real estate owned (“OREO”) properties by increasing sale channels and OREO unit resources.

	•	Growth of Core Deposits.  We intend to continue to grow our core deposits and reduce our dependence on brokered certificates of deposit by expanding and optimizing our network of retail branches, continuing local initiatives to increase our retail deposits, seeking to attract customers looking to diversify their banking relationships resulting from the recent consolidation in Puerto Rico’s banking industry and realigning our sales force to increase our presence in the commercial and governmental deposit and transaction banking market. The implementation of our core deposit growth strategy has resulted in an increase of $514.1 million, or 10%, in non-brokered deposits during the first half of 2010.
	•	Increase Non-Interest Income.  We intend to increase our non-interest income by expanding our fee-based businesses, such as cash management, merchant banking, interchange income and retail and commercial insurance programs through increased product offerings and incorporation of new technologies. Non-interest income represented approximately 11% and 12.7% of net interest income for the 2009 fiscal year and for the first six months of 2010, respectively. To grow our cash management and merchant services, we intend to further leverage our branch network as a selling channel in order to increase the cross-selling to current customers through training and new procedures to be implemented in branches and cash management operations. To grow our insurance business, we will continue to focus on targeted cross-selling of our various insurance offerings to FirstBank’s customer base. Currently, we have insurance relationships with approximately 18% of FirstBank’s retail clients and approximately 1% of FirstBank’s commercial clients.
	•	Improve Net Interest Margins.  We have been enhancing our risk based loan pricing by applying minimum acceptable pricing thresholds which include interest rate floors. Also, we have been changing the terms of our funding mix to incorporate other balance sheet strategies we have been implementing, such as originating a higher proportion of the residential mortgage loans production in conforming paper that can be sold in the market, thus eliminating the longer term asset from the balance sheet, and the maintenance of higher liquidity levels in short term instruments to properly position us under the current economic scenario. The execution of our capital strategy, including the completion of this common stock offering, will allow us to reposition our liquidity needs which we expect that, coupled with a stabilization of economic conditions, will also enable us to improve our net interest margin.
	•	Operational Efficiencies.  We intend to continue to improve our operating efficiency by further reducing controllable expenses, consolidating our infrastructure in a new service center building, rationalizing our business operations and enhancing our technological infrastructure through targeted investments. We have reduced the number of our employees from approximately 3,000 full time equivalents (“FTEs”) as of December 31, 2008 to 2,605 FTEs as of June 30, 2010.

	•	the investment of excess liquidity in higher yielding instruments;
	•	the further reduction in operating expenses;
	•	the increase in non-interest income;
	•	the reduction in nonrecurring operating expenses including, but not limited to, professional service fees;
	•	the reduction in expenses incurred with respect to real estate owned as such real estate is divested;

	•	improvement in net interest margin and the reduction in expenses incurred with respect to non-performing assets as our loan portfolio is strengthened;
	•	as our risk profile improves, the reduction in FDIC deposit insurance premiums, subject to increases mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); and
	•	the realization of the benefit of the reversal of the $277.7 million valuation allowance on the deferred tax asset as FirstBank returns to profitability.

		Quarter Ended												Nine-Month Period Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
		2010				2010				2009				2010				2009
		(in thousands, except per share data)
Net loss		$	(75,233	)		$	(90,640	)		$	(165,218	)		$	(272,872	)		$	(221,985	)
Non-cumulative preferred stock dividends (Series A through E)			—				—				(3,356	)			—				(23,494	)
Cumulative non-convertible preferred stock dividends (Series F)			(1,618	)			(5,000	)			(5,000	)			(11,618	)			(14,167	)
Cumulative convertible preferred stock dividend (Series G)			(4,183	)			—				—				(4,183	)			—
Preferred stock discount accretion (Series F and G)			(1,688	)			(1,170	)			(1,115	)			(4,010	)			(3,095	)
Favorable impact from issuing common stock in exchange for Series A through E preferred stock, net of issuance costs(1)			385,387				—				—				385,387				—
Favorable impact from issuing Series G mandatorily convertible preferred stock in exchange for Series F preferred stock(2)			55,122				—				—				55,122				—
Net income (loss) available to common stockholders—basic		$	357,787			$	(96,810	)		$	(174,689	)		$	147,826			$	(262,741	)
Convertible preferred stock dividends and accretion			5,626				—				—				5,626				—
Net income (loss) available to common stockholders—diluted		$	363,413			$	(96,810	)		$	(174,689	)		$	153,452			$	(262,741	)
Average common shares outstanding			171,483				92,521				92,511				119,131				92,511
Average potential common shares			1,126,792				—				—				379,725				—
Average common shares outstanding—assuming dilution			1,298,275				92,521				92,511				498,856				92,511
Basic earnings (loss) per common share		$	2.09			$	(1.05	)		$	(1.89	)		$	1.24			$	(2.84	)
Diluted earnings (loss) per common share		$	0.28			$	(1.05	)		$	(1.89	)		$	0.31			$	(2.84	)

(1)		Excess of carrying amount of Series A through E Preferred Stock exchanged over the fair value of new common shares issued.

(2)		Excess of carrying amount of Series F Preferred Stock exchanged and original warrant over the fair value of new Series G Preferred Stock issued and amended warrant.

		Quarter Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2010				2010				2010				2009				2009
		(dollars in thousands, except share data)
Earnings
Net loss		$	(75,233	)		$	(90,640	)		$	(106,999	)		$	(53,202	)		$	(165,218	)
Net income (loss) available to common stockholders—basic		$	357,787			$	(96,810	)		$	(113,151	)		$	(59,334	)		$	(174,689	)
Net income (loss) available to common stockholders—diluted		$	363,413			$	(96,810	)		$	(113,151	)		$	(59,334	)		$	(174,689	)
Adjusted pre-tax, pre-provision income(1)		$	43,410			$	35,739			$	40,063			$	62,909			$	62,280
Common share data
Earnings (loss) per common share basic		$	2.09			$	(1.05	)		$	(1.22	)		$	(0.64	)		$	(1.89	)
Earnings (loss) per common share diluted		$	0.28			$	(1.05	)		$	(1.22	)		$	(0.64	)		$	(1.89	)
Financial ratios
Return on average assets			(1.73	)%			(1.94	)%			(2.25	)%			(1.08	)%			(3.27	)%
Return on average common equity			(50.80	)%			(70.31	)%			(68.06	)%			(30.54	)%			(74.62	)%
Tier 1 capital			11.96	%			12.05	%			11.98	%			12.16	%			12.52	%
Total capital			13.25	%			13.35	%			13.26	%			13.44	%			13.79	%
Leverage			8.35	%			8.14	%			8.37	%			8.91	%			8.97	%
Tangible common equity(2)			5.21	%			2.57	%			2.74	%			3.20	%			3.62	%
Tier 1 common equity to risk-weight assets(2)			6.62	%			2.86	%			3.36	%			4.10	%			4.51	%
Net interest margin(3)			2.83	%			2.66	%			2.73	%			3.03	%			2.95	%
Efficiency			66.69	%			62.18	%			56.33	%			50.43	%			46.21	%
Common shares outstanding			319,557,932				92,542,722				92,542,722				92,542,722				92,542,722
Average common shares outstanding
Basic			171,483,057				92,521,245				92,521,245				92,514,124				92,510,506
Diluted			1,298,275,316				92,521,245				92,521,245				92,514,124				92,510,506

(1)		For a reconciliation of adjusted pre-tax, pre-provision income, a non-GAAP financial measure, to (loss) before income taxes, its comparable GAAP equivalent, for the quarterly periods ended September 30, 2010, June 30, 2010, March 31, 2010, December 31, 2009 and September 30, 2009, refer to the table set forth immediately below under “—Non-GAAP Measures—Earnings Data.”

(2)		For reconciliations of these ratios to GAAP for the quarterly periods ended September 30, 2010, June 30, 2010, March 31, 2010, December 31, 2009 and September 30, 2009, refer to the tables set forth immediately below under “—Non-GAAP Measures—Financial Ratios.”

(3)		On a tax-equivalent basis and excluding valuations. For a reconciliation of this non-GAAP financial measure to the comparable GAAP measure for the quarterly periods ended September 30, 2010, June 30, 2010, March 31, 2010, December 31, 2009 and September 30, 2009, refer to the table set forth immediately below under “—Non-GAAP Measures—Net Interest Margin.”

		Quarter Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
Adjusted Pre-Tax, Pre-Provision Income		2010				2010				2010				2009				2009
		(in thousands)
(Loss) before income taxes		$	(76,196	)		$	(86,817	)		$	(100,138	)		$	(49,891	)		$	(51,745	)
Add: Provision for loan and lease losses			120,482				146,793				170,965				137,187				148,090
Less: Net (gain) on sale and OTTI of investment securities			(48,281	)			(24,237	)			(30,764	)			(24,387	)			(34,065	)
Add: Loss on early extinguishment of repurchase agreements			47,405				—				—				—				—
Adjusted pre-tax, pre-provision income		$	43,410			$	35,739			$	40,063			$	62,909			$	62,280

		As of
		September 30,				June 30,				March 31,				December 31,				September 30,
Tangible Common Equity		2010				2010				2010				2009				2009
		(in thousands, except per share data and ratio results)
Tangible Equity:
Total equity—GAAP		$	1,321,979			$	1,438,289			$	1,488,543			$	1,599,063			$	1,698,843
Preferred equity			(411,876	)			(930,830	)			(929,660	)			(928,508	)			(927,374	)
Goodwill			(28,098	)			(28,098	)			(28,098	)			(28,098	)			(28,098	)
Core deposit intangible			(14,673	)			(15,303	)			(15,934	)			(16,600	)			(17,297	)
Tangible common equity		$	867,332			$	464,058			$	514,851			$	625,857			$	726,074
Tangible Assets:
Total assets—GAAP		$	16,678,879			$	18,116,023			$	18,850,964			$	19,628,448			$	20,081,185
Goodwill			(28,098	)			(28,098	)			(28,098	)			(28,098	)			(28,098	)
Core deposit intangible			(14,673	)			(15,303	)			(15,934	)			(16,600	)			(17,297	)
Tangible assets		$	16,636,108			$	18,072,622			$	18,806,932			$	19,583,750			$	20,035,790
Common shares outstanding			319,558				92,542				92,542				92,542				92,542
Tangible common equity ratio			5.21	%			2.57	%			2.74	%			3.20	%			3.62	%
Tangible book value per common share		$	2.71			$	5.01			$	5.56			$	6.76			$	7.85

		As of
Tier 1 Common Equity to		September 30,				June 30,				March 31,				December 31,				September 30,
Risk-Weighted Assets		2010				2010				2010				2009				2009
		(dollars in thousands)
Tier 1 Common Equity:
Total equity—GAAP		$	1,321,979			$	1,438,289			$	1,488,543			$	1,599,063			$	1,698,843
Qualifying preferred stock			(411,876	)			(930,830	)			(929,660	)			(928,508	)			(927,374	)
Unrealized (gain) on available-for-sale securities(1)			(30,295	)			(63,311	)			(22,948	)			(26,617	)			(73,095	)
Disallowed deferred tax asset(2)			(43,552	)			(38,078	)			(40,522	)			(11,827	)			(1,721	)
Goodwill			(28,098	)			(28,098	)			(28,098	)			(28,098	)			(28,098	)
Core deposit intangible			(14,673	)			(15,303	)			(15,934	)			(16,600	)			(17,297	)
Cumulative change gain in fair value of liabilities accounted for under a fair value option			(2,654	)			(3,170	)			(951	)			(1,535	)			(1,647	)
Other disallowed assets			(24	)			(66	)			(24	)			(24	)			(514	)
Tier 1 common equity		$	790,807			$	359,433			$	450,406			$	585,854			$	649,097
Total risk-weighted assets		$	11,940,412			$	12,570,330			$	13,402,979			$	14,303,496			$	14,394,968
Tier 1 common equity to risk-weighted assets ratio			6.62	%			2.86	%			3.36	%			4.10	%			4.51	%

(1)		Tier 1 capital excludes net unrealized gains (losses) on available-for-sale debt securities and net unrealized gains on available-for-sale equity securities with readily determinable fair values, in accordance with regulatory risk-based capital guidelines. In arriving at Tier 1 capital, institutions are required to deduct net unrealized losses on available-for-sale equity securities with readily determinable fair values, net of tax.

(2)		Approximately $64 million of our deferred tax assets at September 30, 2010 (June 30, 2010—$71 million; March 31, 2010—$69 million December 31, 2009—$102 million; September 30, 2009—$112 million) were included without limitation in regulatory capital pursuant to the risk-based capital guidelines, while approximately $44 million of such assets at September 30, 2010 (June 30, 2010—$38 million; March 31, 2010—$41 million; December 31, 2009—$12 million; September 30, 2009—$2 million) exceeded the limitation imposed by these guidelines and, as “disallowed deferred tax assets,” were deducted in arriving at Tier 1 capital. According to regulatory capital guidelines, the deferred tax assets that are dependent upon future taxable income are limited for inclusion in Tier 1 capital to the lesser of: (i) the amount of such deferred tax asset that the entity expects to realize within one year of the calendar quarter end-date, based on its projected future taxable income for that year, or (ii) 10% of the amount of the entity’s Tier 1 capital. Approximately $7 million of our other net deferred tax liability at September 30, 2010 (June 30, 2010—$12 million; March 31, 2010—$5 million; December 31, 2009—$5 million; September 30, 2009—$6 million) represented primarily the deferred tax effects of unrealized gains and losses on available-for-sale debt securities, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines.

		Quarter Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
Net Interest Income (in thousands)		2010				2010				2010				2009				2009
Interest Income—GAAP		$	204,028			$	214,864			$	220,988			$	243,449			$	242,022
Unrealized loss (gain) on derivative instruments			938				487				744				(2,764	)			1,485
Interest income excluding valuations			204,966				215,351				221,732				240,685				243,507
Tax-equivalent adjustment			6,777				7,222				9,912				12,311				12,925
Interest income on a tax-equivalent basis excluding valuations			211,743				222,573				231,644				252,996				256,432
Interest Expense—GAAP			90,326				95,802				104,125				106,152				112,889
Unrealized (loss) gain on derivative instruments and liabilities measured at fair value			(527	)			3,896				(989	)			(247	)			(1,589	)
Interest expense excluding valuations			89,799				99,698				103,136				105,905				111,300
Net interest income—GAAP		$	113,702			$	119,062			$	116,863			$	137,297			$	129,133
Net interest income excluding valuations		$	115,167			$	115,653			$	118,596			$	134,780			$	132,207
Net interest income on a tax-equivalent basis excluding valuations		$	121,944			$	122,875			$	128,508			$	147,091			$	145,132
Average Balances (in thousands)
Loans and leases		$	12,443,055			$	13,025,808			$	13,569,467			$	13,777,928			$	13,321,100
Total securities and other short-term investments			4,640,055				5,485,934				5,526,589				5,505,527				6,220,156
Average Interest-Earning Assets		$	17,083,110			$	18,511,742			$	19,096,056			$	19,283,455			$	19,541,256
Average Interest-Bearing Liabilities		$	15,002,168			$	16,378,022			$	16,910,781			$	17,112,556			$	17,308,432

		Quarter Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
Net Interest Income		2010				2010				2010				2009				2009
Average Yield/Rate
Average yield on interest-earning assets—GAAP			4.74	%			4.66	%			4.69	%			5.01	%			4.91	%
Average rate on interest-bearing liabilities—GAAP			2.39	%			2.35	%			2.50	%			2.46	%			2.59	%
Net interest spread—GAAP			2.35	%			2.31	%			2.19	%			2.55	%			2.32	%
Net interest margin—GAAP			2.64	%			2.58	%			2.48	%			2.82	%			2.62	%
Average yield on interest-earning assets excluding valuations			4.76	%			4.66	%			4.71	%			4.95	%			4.94	%
Average rate on interest-bearing liabilities excluding valuations			2.37	%			2.44	%			2.47	%			2.46	%			2.55	%
Net interest spread excluding valuations			2.39	%			2.22	%			2.24	%			2.49	%			2.39	%
Net interest margin excluding valuations			2.67	%			2.51	%			2.52	%			2.77	%			2.68	%
Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations			4.92	%			4.82	%			4.92	%			5.21	%			5.21	%
Average rate on interest-bearing liabilities excluding valuations			2.37	%			2.44	%			2.47	%			2.46	%			2.55	%
Net interest spread on a tax-equivalent basis and excluding valuations			2.55	%			2.38	%			2.45	%			2.75	%			2.66	%
Net interest margin on a tax-equivalent basis and excluding valuations			2.83	%			2.66	%			2.73	%			3.03	%			2.95	%

	•	the issuance of up to 256,401,610 shares of common stock in exchange (the “Exchange Offer”) for shares of our (i) 7.125% Noncumulative Perpetual Monthly Income Preferred Stock, Series A (“Series A Preferred Stock”), (ii) 8.35% Noncumulative Perpetual Monthly Income Preferred Stock, Series B (“Series B Preferred Stock”), (iii) 7.40% Noncumulative Perpetual Monthly Income Preferred Stock, Series C (“Series C Preferred Stock”), (iv) 7.25% Noncumulative Perpetual Monthly Income Preferred Stock, Series D (“Series D Preferred Stock”) and (v) 7.00% Noncumulative Perpetual Monthly Income Preferred Stock, Series E (“Series E Preferred Stock” and together with the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, the “Preferred Stock”);
	•	the issuance of shares of common stock to a director and to The Bank of Nova Scotia (“BNS”) if BNS exercises its anti-dilution right under the Stockholder Agreement, dated as of August 24, 2007 (the “Stockholder Agreement”), that we entered into with BNS at the time it acquired approximately 10% of our outstanding shares of common stock;
	•	an amendment to our Restated Articles of Incorporation to decrease the par value of our common stock from $1.00 to $0.10 per share;
	•	an amendment to our Restated Articles of Incorporation to increase the total number of authorized shares of common stock from 750 million to 2 billion; and

	•	an amendment to our Restated Articles of Incorporation empowering our board of directors to effect a reverse stock split, thereby enabling us to comply with New York Stock Exchange (“NYSE”) listing requirements, and pursuant to which the total number of authorized shares would remain at 2 billion.

	•	owners of new residences would be exempt from capital gain taxes to the extent the residences are bought on or after September 1, 2010 but prior to June 30, 2011;
	•	owners of existing residences would be exempt from capital gain taxes to the extent the residences are sold on or after September 1, 2010 but prior to June 30, 2011;
	•	buyers of existing residences and non-residential properties purchased on or after September 1, 2010 but prior to June 30, 2011 will be entitled to a 50% exemption on capital gain taxes provided that, with respect to non-residential properties, the purchase price does not exceed $3.0 million;
	•	owners of non-residential properties sold on or after September 1, 2010 but prior to June 30, 2011 will be exempt from capital gain taxes to the extent the sale price does not exceed $3.0 million;
	•	buyers of new residences bought on or after September 1, 2010 but prior to June 30, 2011 will be exempt from property taxes for five years;
	•	owners of new and existing residences will be exempt from income taxes on rental income derived from these properties for 10 years;
	•	new residences sold on or after September 1, 2010 but prior to June 30, 2011 will be fully exempt from recording costs; and

	•	existing residences and non-residential properties sold on or after September 1, 2010 but prior to June 30, 2011 will be entitled to a 50% exemption from recording costs.

Aggregate offering price of shares of common stock offered by us		$500,000,000*

Common stock to be outstanding after this offering		post-reverse stock split shares.*

Over allotment option		We have granted the underwriters an option for 30 days from the date of this prospectus to purchase up to           additional shares of common stock (equal to 15% of the total number of shares we are offering) to cover over allotments.

Use of proceeds		We expect to use the net proceeds from the sale of our common stock for general corporate purposes, including strengthening FirstBank’s capital position. See “Use of Proceeds.”
Dividend policy		We suspended the payment of dividends on our common stock effective in August 2009 and do not intend to pay cash dividends on our common stock for the foreseeable future. In addition, under the terms of the Written Agreement with the Federal Reserve, we are required to obtain prior approval from the Federal Reserve to declare or pay dividends and to receive dividends from FirstBank. See “Description of Capital Stock—Dividends and Distributions.”
Voting		Holders of shares of our common stock are entitled to one vote per share on all matters voted on by our stockholders. There are no cumulative voting rights for the election of directors.
New York Stock Exchange symbol		“FBP”
Risk factors		You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

*		The public offering price for each share of our post-reverse stock split shares of common stock will be determined by a negotiation between us and the underwriters based upon market conditions, an estimate of the change in the market price of our common stock as a result of the reverse stock split and other factors on the day we price the shares. In the usual case, as a result of a reverse stock split (all other things being equal), the market price of common stock may not rise proportionally to the decrease in outstanding shares resulting from the reverse stock split. While it is not possible to predict the impact of the reverse stock split in our case, consideration of the impact of the reverse stock split will be necessary in determining the number of post-reverse stock split shares to include in this offering.

		Although we want to receive gross proceeds of at least $500 million, we may determine to complete an offering for a number of shares of common stock that results in a lower amount of gross proceeds. In that case, we would not be able to fulfill the remaining substantive condition required for us to compel the conversion of the Series G Preferred Stock into common stock, which would mean that our tangible common equity would not benefit from an increase in the number of outstanding shares of common stock resulting from such a conversion and that we will continue to have to accrue dividends payable on the Series G Preferred Stock. In addition, the lower level of proceeds may require us to implement additional de-leveraging strategies to ensure our compliance with the capital plans we submitted to our regulators.

		Six-month				Six-month
		period ended				period ended
		June 30,				June 30,				Year ended December 31,
		2010				2009				2009				2008				2007				2006				2005
		(unaudited)				(unaudited)
		(dollars in thousands, except per share data)
Summary of Operations
Interest income		$	435,852			$	511,103			$	996,574			$	1,126,897			$	1,189,247			$	1,288,813			$	1,067,590
Interest expense			199,927				258,491				477,532				599,016				738,231				845,119				635,271
Net interest income			235,925				252,612				519,042				527,881				451,016				443,694				432,319
Provision for loan losses			317,758				294,581				579,858				190,948				120,610				74,991				50,644
Net interest (loss) income after provision for loan losses			(81,833	)			(41,969	)			(60,816	)			336,933				330,406				368,703				381,675
Non-interest income			84,851				53,468				142,264				74,643				67,156				31,336				63,077
Operating expenses			189,973				180,516				352,101				333,371				307,843				287,963				315,132
Income tax (expense) benefit			(10,684	)			112,250				(4,534	)			31,732				(21,583	)			(27,442	)			(15,016	)
Net (loss) income			(197,639	)			(56,767	)			(275,187	)			109,937				68,136				84,634				114,604
Net (loss) income attributable to common stock			(209,961	)			(88,052	)			(322,075	)			69,661				27,860				44,358				74,328
Net (loss) income per pre-reverse stock split common share
Basic			(2.27	)			(0.95	)			(3.48	)			0.75				0.32				0.54				0.92
Diluted			(2.27	)			(0.95	)			(3.48	)			0.75				0.32				0.53				0.90
Net (loss) income per post-reverse stock split share
Basic
Diluted
Selected Financial Data at Period-End
Total assets			18,116,023				20,012,887				19,628,448				19,491,268				17,186,931				17,390,256				19,917,651
Total loans			12,603,738				13,135,710				13,949,226				13,088,292				11,799,746				11,263,980				12,685,929
Deposits			12,727,575				12,035,427				12,669,047				13,057,430				11,034,521				11,004,287				12,463,752
Stockholders’ equity			1,438,289				1,840,686				1,599,063				1,548,117				1,421,646				1,229,553				1,197,841
Performance Ratios
Return on average assets			(2.10	)%			(0.58	)%			(1.39	)%			0.59	%			0.40	%			0.44	%			0.64	%
Return on average common equity			(69.13	)			(16.99	)			(34.07	)			7.89				3.59				6.85				10.23
Net interest margin(1)			2.70				2.89				2.93				3.20				2.83				2.84				3.23

		Six-month				Six-month
		period ended				period ended
		June 30,				June 30,				Year ended December 31,
		2010				2009				2009				2008				2007				2006				2005
		(unaudited)				(unaudited)
		(dollars in thousands, except per share data)
Capital Ratios
Total capital ratio (total capital to risk-weighted assets)			13.35	%			14.35	%			13.44	%			12.80	%			13.86	%			12.25	%			10.72	%
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)			12.05				13.08				12.16				11.55				12.61				11.06				9.71
Leverage ratio (Tier 1 capital to average assets)			8.14				9.12				8.91				8.30				9.29				7.82				6.72
Credit Quality Data
Non-performing assets to total assets			9.39	%			6.53	%			8.71	%			3.27	%			2.56	%			1.54	%			0.75	%
Non-performing loans to total loans receivable			12.40				8.94				11.23				4.49				3.50				2.24				1.06
Net charge offs to average loans held-in-portfolio			3.63				2.52				2.48				0.87				0.79				0.55				0.39
Allowance for loan losses to non-performing loans			38.97				34.81				33.77				47.95				46.04				62.79				110.18
Allowance for loan losses to year end loans held-in-portfolio			4.83				3.11				3.79				2.15				1.61				1.41				1.17
Other Data
Book value per share		$	5.48			$	9.88			$	7.25			$	10.78			$	9.42			$	8.16			$	8.01
Average total equity to average total assets			8.11				9.79				9.36				7.74				7.70				6.25				7.09
Pre-tax, pre-provision earnings(2)			130,803				125,564				309,205				269,153				210,329				187,067				180,264
Adjusted pre-tax, pre-provision earnings(3)			75,802				98,870				224,059				247,960				213,055				195,261				167,925

(1)		On a tax-equivalent basis and excluding valuations. For information about management’s use of this non-GAAP financial measure and a reconciliation of this non-GAAP financial measure to its comparable GAAP equivalent, see “Non-GAAP Data.”

(2)		Pre-tax, pre-provision earnings is net (loss) income without regard to the provision for loan losses and income tax expense (benefit). See “Non-GAAP Data” for information about management’s use of this financial measure and a reconciliation of pre-tax, pre-provision earnings to net loss (income).

(3)		Adjusted pre-tax, pre-provision earnings is net (loss) income without regard to the provision for loan losses, income tax expense (benefit), gain on sale of securities and recognition of other-than-temporary impairment. See “Non-GAAP Data” for information about management’s use of this financial measure and a reconciliation of this adjusted earnings measure to net (loss) income.

 

 

Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should consider carefully the risks described below, together with the other information contained in or incorporated by reference into this prospectus, including our financial statements and the related notes thereto. We believe the risks described below are the risks that are material to us as of the date of this prospectus. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you could lose all or part of your investment.

 

Risks Related to Our Business

 

FirstBank is operating under the Order with the FDIC and OCIF and we are operating under the Written Agreement with the Federal Reserve.

 

On June 4, 2010, we announced that FirstBank agreed to the Order, dated as of June 2, 2010, issued by the FDIC and OCIF, and we entered into the Written Agreement, dated as of June 3, 2010, with the Federal Reserve. The Agreements stem from the FDIC’s examination as of the period ended June 30, 2009 conducted during the second half of 2009. Although our regulatory capital ratios exceeded the required established minimum capital ratios for a “well-capitalized” institution as of June 30, 2010, because of the Order, FirstBank cannot be regarded as “well-capitalized” as of June 30, 2010.

 

Under the Order, FirstBank has agreed to address specific areas of concern to the FDIC and OCIF through the adoption and implementation of procedures, plans and policies designed to improve the safety and soundness of FirstBank. These actions include, among others, (1) having and retaining qualified management; (2) increased participation in the affairs of FirstBank by its board of directors; (3) development and implementation by FirstBank of a capital plan to attain a leverage ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 10% and a total risk-based capital ratio of at least 12%; (4) adoption and implementation of strategic, liquidity and fund management and profit and budget plans and related projects within certain timetables set forth in the Order and on an ongoing basis; (5) adoption and implementation of plans for reducing FirstBank’s positions in certain classified assets and delinquent and non-accrual loans within timeframes set forth in the Order; (6) refraining from lending to delinquent or classified borrowers already obligated to FirstBank on any extensions of credit so long as such credit remains uncollected, except where FirstBank’s failure to extend further credit to a particular borrower would be detrimental to the best interests of FirstBank, and any such additional credit is approved by the FirstBank’s board of directors; (7) refraining from accepting, increasing, renewing or rolling over brokered deposits without the prior written approval of the FDIC; (8) establishment of a comprehensive policy and methodology for determining the allowance for loan and lease losses and the review and revision of FirstBank’s loan policies, including the non-accrual policy; and (9) adoption and implementation of adequate and effective programs of independent loan review, appraisal compliance and an effective policy for managing FirstBank’s sensitivity to interest rate risk.

 

The Written Agreement, which is designed to enhance our ability to act as a source of strength to FirstBank, requires that we obtain prior Federal Reserve approval before declaring or paying dividends, receiving dividends from FirstBank, making payments on subordinated debt or trust preferred securities, incurring, increasing or guaranteeing debt (whether such debt is incurred, increased or guaranteed, directly or indirectly, by us or any of our non-banking subsidiaries) or purchasing or redeeming any capital stock. The Written Agreement also requires us to submit to the Federal Reserve a capital plan and progress reports, comply with certain notice provisions prior to appointing new directors or senior executive officers and comply with certain payment restrictions on severance payments and indemnification restrictions.

 

We anticipate that we will need to continue to dedicate significant resources to our efforts to comply with the Agreements, which may increase operational costs or adversely affect the amount of time our management has to conduct our operations. If we need to continue to recognize significant reserves, cannot raise additional

capital pursuant to this offering of common stock, or cannot accomplish other contemplated alternative capital preservation strategies, including among others, an accelerated deleverage strategy and the divestiture of profitable businesses, we and FirstBank may not be able to comply with the minimum capital requirements included in the capital plans required by the Agreements. These capital plans, which we have submitted but are subject to the approval of our regulators, set forth our plan to attain the capital ratio requirements set forth in the Order over time.

 

If, at the end of any quarter, we do not comply with any specified minimum capital ratios, we must notify our regulators. We must notify the Federal Reserve within 30 days of the end of any quarter of our inability to comply with a capital ratio requirement and submit an acceptable written plan that details the steps we will take to comply with the requirement. FirstBank must immediately notify the FDIC of its inability to comply with a capital ratio requirement and, within 45 days, it must either increase its capital to comply with the capital ratio requirements or submit a contingency plan to the FDIC for its sale, merger or liquidation. In the event of a liquidation of FirstBank, the holders of our outstanding preferred stock would rank senior to the holders of our common stock with respect to rights upon any liquidation of First BanCorp. If we fail to comply with the Agreements, we may become subject to additional regulatory enforcement action up to and including the appointment of a conservator or receiver for FirstBank. In many cases when a conservator or receiver is appointed for a wholly owned bank, the bank holding company files for bankruptcy protection.

 

We may need additional capital resources in the future, and these capital resources may not be available when needed or at all.

 

Due to our financial results during 2009 and the first half of 2010, we need to access the capital markets in order to raise additional capital to absorb future credit losses due to the distressed economic environment and potential further deterioration in our loan portfolio, to maintain adequate liquidity and capital resources, to finance future growth, investments or strategic acquisitions and to implement the capital plans required by the Agreements. We have been taking steps, including this offering, to obtain additional capital. Based on our stress test analysis, we believe that the proceeds from this offering will be sufficient to withstand the deterioration of current economic conditions to the levels assumed in that analysis, particularly in the residential and CRE markets where our business is primarily concentrated. We may need to raise significant additional capital if such deterioration exceeds the assumptions utilized for purposes of the stress test. Ultimately, the factors affecting whether we would need to raise additional capital include, among others, the requirements of regulators, additional provisions for loan losses and loan charge-offs and other risks discussed in this “Risk Factors” section. If we are unable to obtain additional necessary capital or otherwise improve our financial condition in the near future, or are unable to accomplish other alternate capital preservation strategies, which could allow us to meet the minimum capital requirements included in the capital plans required by the Agreements, we will be required to notify our regulators and take the additional steps described above, which may include submitting a contingency plan to the FDIC for the sale, liquidation or merger of FirstBank.

 

Certain funding sources may not be available to us and our funding sources may prove insufficient to replace deposits and support future growth.

 

FirstBank relies primarily on its issuance of brokered CDs, as well as customer deposits and advances from the Federal Home Loan Bank, to pay its operating expenses and interest on its debt, to maintain its lending activities and to replace certain maturing liabilities. As of June 30, 2010, we had $7.1 billion in brokered deposits outstanding, representing approximately 56% of our total deposits, and a reduction from $7.6 billion at year end 2009. The average term to maturity of the retail brokered CDs outstanding as of June 30, 2010 was approximately 1.2 years. Approximately 3% of the principal value of these certificates is callable at our option.

 

Although FirstBank has historically been able to replace maturing deposits and advances as desired, the Order requires FirstBank to obtain FDIC approval prior to issuing, increasing, renewing or rolling over brokered CDs and to develop a plan to reduce its reliance on brokered CDs. Although the FDIC has issued

temporary approvals permitting FirstBank to renew and/or roll over certain amounts of brokered CDs maturing through December 31, 2010, the FDIC may not continue to issue such approvals, and, even if issued, such approvals may not be for amounts of brokered CDs sufficient for FirstBank to meet its funding needs. The use of brokered CDs has been particularly important for the funding of our operations. If we are unable to issue brokered CDs, or are unable to maintain access to our other funding sources, our results of operations and liquidity would be adversely affected.

 

If we are required to rely more heavily on more expensive funding sources, profitability would be adversely affected. Although we consider such funding sources currently to be adequate for our liquidity needs, we may seek additional debt financing in the future to achieve our long-term business objectives. Any additional debt financing requires the prior approval from the Federal Reserve, and the Federal Reserve may not approve such additional debt. Additional borrowings, if sought, may not be available to us or on acceptable terms. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, our credit ratings and our credit capacity. If additional financing sources are unavailable or are not available on acceptable terms, our profitability and future prospects could be adversely affected.

 

We depend on cash dividends from FirstBank to meet our cash obligations, but the Written Agreement with the Federal Reserve prohibits the receipt of such dividends without prior Federal Reserve approval, which may adversely affect our ability to fulfill our obligations.

 

As a holding company, dividends from FirstBank have provided a substantial portion of our cash flow used to service the interest payments on our trust preferred securities and other obligations. As outlined in the Written Agreement, we cannot receive any cash dividends from FirstBank without prior written approval of the Federal Reserve. Our inability to receive approval from the Federal Reserve to receive dividends from FirstBank could adversely affect our ability to fulfill our obligations in the future.

 

We cannot pay any dividends on common stock or preferred stock or any interest, principal or other sums on subordinated debentures or trust preferred securities without prior Federal Reserve approval, which adversely affects our ability to make such payments.

 

The Written Agreement provides that we cannot declare or pay any dividends (including on the Series G Preferred Stock) or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities without prior written approval of the Federal Reserve. With respect to our $231.9 million of outstanding subordinated debentures, we have provided, within the time frame prescribed by the indentures governing the subordinated debentures, a notice to the trustees of the subordinated debentures of our election to an extension period. Under the indentures, we have the right, from time to time, and without causing an event of default, to defer payments of interest on the subordinated debentures by extending the interest payment period at any time and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. We have elected to defer the interest payments that would be due in September 2010 because the Federal Reserve did not approve our request submitted pursuant to the Written Agreement to pay interest on the subordinated debentures. To the extent our capital is insufficient, we may elect additional extension periods for future quarterly interest payments.

 

Our inability to receive approval from the Federal Reserve to make distributions of interest, principal or other sums on our trust preferred securities and subordinated debentures could result in a default under those obligations if we need to defer such payments for longer than twenty consecutive quarterly periods.

 

Banking regulators could take additional adverse action against us.

 

We are subject to supervision and regulation by the Federal Reserve. We are a bank holding company and a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). As such, we are permitted to engage in a broader spectrum of activities than those permitted to bank holding companies that are not financial holding companies. At this time, under the BHC Act, we may not be able to

engage in new activities or acquire shares or control of other companies. As of June 30, 2010, we and FirstBank continue to satisfy all applicable established capital guidelines. However, we have agreed to regulatory actions by our banking regulators that include, among other things, the submission of a capital plan by FirstBank to comply with more stringent capital requirements under an established time period in the capital plan. Our regulators could take additional action against us if we fail to comply with the Agreements, including the requirements of the submitted capital plans. Additional adverse action against us by our primary regulators could adversely affect our business.

 

Credit quality may result in future additional losses.

 

The quality of our credits has continued to be under pressure as a result of continued recessionary conditions in Puerto Rico and the State of Florida that have led to, among other things, higher unemployment levels, much lower absorption rates for new residential construction projects and further declines in property values. Our business depends on the creditworthiness of our customers and counterparties and the value of the assets securing our loans or underlying our investments. When the credit quality of the customer base materially decreases or the risk profile of a market, industry or group of customers changes materially, our business, financial condition, allowance levels, asset impairments, liquidity, capital and results of operations are adversely affected.

 

We have a significant construction loan portfolio, in the amount of $1.31 billion as of June 30, 2010, mostly secured by commercial and residential real estate properties. Due to their nature, these loans entail a higher credit risk than consumer and residential mortgage loans, since they are larger in size, concentrate more risk in a single borrower and are generally more sensitive to economic downturns. Although we have ceased new originations of construction loans, decreasing collateral values, difficult economic conditions and numerous other factors continue to create volatility in the housing markets and have increased the possibility that additional losses may have to be recognized with respect to our current nonperforming assets. Furthermore, given the current slowdown in the real estate market, the properties securing these loans may be difficult to dispose of if they are foreclosed.

 

Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance, which may adversely affect our capital, financial condition and results of operations.

 

We are subject to the risk of loss from loan defaults and foreclosures with respect to the loans we originate. We establish a provision for loan losses, which leads to reductions in our income from operations, in order to maintain our allowance for inherent loan losses at a level which our management deems to be appropriate based upon an assessment of the quality of the loan portfolio. Although our management strives to utilize its best judgment in providing for loan losses, our management may fail to accurately estimate the level of inherent loan losses or may have to increase our provision for loan losses in the future as a result of new information regarding existing loans, future increases in non-performing loans, changes in economic and other conditions affecting borrowers or for other reasons beyond our control. In addition, bank regulatory agencies periodically review the adequacy of our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of additional classified loans and loan charge-offs, based on judgments different than those of our management.

 

While we have substantially increased our allowance for loan and lease losses in 2009 and the first half of 2010, we may have to recognize additional provisions in the third and fourth quarters of 2010 to cover future credit losses in the portfolio. The level of the allowance reflects management’s estimates based upon various assumptions and judgments as to specific credit risks, evaluation of industry concentrations, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan and lease losses inherently involves a high degree of subjectivity and requires management to make significant estimates and judgments regarding current credit risks and future trends, all of which may undergo material changes. If our estimates prove to be incorrect, our allowance for credit losses may not be

sufficient to cover losses in our loan portfolio and our expense relating to the additional provision for credit losses could increase substantially.

 

Any such increases in our provision for loan losses or any loan losses in excess of our provision for loan losses would have an adverse effect on our future financial condition and results of operations. Given the difficulties facing some of our largest borrowers, these borrowers may fail to continue to repay their loans on a timely basis or we may not be able to assess accurately any risk of loss from the loans to these borrowers.

 

Changes in collateral values of properties located in stagnant or distressed economies may require increased reserves.

 

Substantially all of our loan portfolio is located within the boundaries of the U.S. economy. Whether the collateral is located in Puerto Rico, the USVI, the BVI or the U.S. mainland, the performance of our loan portfolio and the collateral value backing the transactions are dependent upon the performance of and conditions within each specific real estate market. Recent economic reports related to the real estate market in Puerto Rico indicate that certain pockets of the real estate market are subject to readjustments in value driven not by demand but more by the purchasing power of the consumers and general economic conditions. In southern Florida, we have been seeing the negative impact associated with low absorption rates and property value adjustments due to overbuilding. We measure the impairment based on the fair value of the collateral, if collateral dependent, which is generally obtained from appraisals. Updated appraisals are obtained when we determine that loans are impaired and are updated annually thereafter. In addition, appraisals are also obtained for certain residential mortgage loans on a spot basis based on specific characteristics such as delinquency levels, age of the appraisal and loan-to-value ratios. The appraised value of the collateral may decrease or we may not be able to recover collateral at its appraised value. A significant decline in collateral valuations for collateral dependent loans may require increases in our specific provision for loan losses and an increase in the general valuation allowance. Any such increase would have an adverse effect on our future financial condition and results of operations.

 

Worsening in the financial condition of critical counterparties may result in higher losses than expected.

 

The financial stability of several counterparties is critical for their continued financial performance on covenants that require the repurchase of loans, posting of collateral to reduce our credit exposure or replacement of delinquent loans. Many of these transactions expose us to credit risk in the event of a default by one of our counterparties. Any such losses could adversely affect our business, financial condition and results of operations.

 

Interest rate shifts may reduce net interest income.