UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

(Mark One)

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

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

COMMISSION FILE NUMBER 001-14793

FIRST BANCORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Puerto Rico		66-0561882
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification number)
1519 Ponce de León Avenue, Stop 23		00908
Santurce, Puerto Rico		(Zip Code)
(Address of principal executive offices)

(787) 729-8200

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o   No 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):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

Yes o   No þ

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

Common stock: 21,303,669 outstanding as of April 30, 2011.

 

 

FIRST BANCORP.
INDEX PAGE

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2011 and December 31, 2010			5
Consolidated Statements of Loss (Unaudited) — Quarters ended March 31, 2011 and March 31, 2010			6
Consolidated Statements of Cash Flows (Unaudited) — Quarters ended March 31, 2011 and March 31, 2010			7
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) — Quarters ended March 31, 2011 and March 31, 2010			8
Consolidated Statements of Comprehensive Loss (Unaudited) — Quarters ended March 31, 2011 and March 31, 2010			9
Notes to Consolidated Financial Statements (Unaudited)			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			50
Item 3. Quantitative and Qualitative Disclosures About Market Risk			95
Item 4. Controls and Procedures			95
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			96
Item 1A. Risk Factors			96
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			96
Item 3. Defaults Upon Senior Securities			96
Item 4. Reserved			96
Item 5. Other Information			96
Item 6. Exhibits			96
SIGNATURES
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Forward Looking Statements

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

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

	•		uncertainty about whether the Corporation will be able to fully comply with the written agreement dated June 3, 2010 (the “Written Agreement”) that the Corporation entered into with the Federal Reserve Bank of New York (the “FED” or “Federal Reserve”) and the order dated June 2, 2010 (the “FDIC Order” and collectively with the Written Agreement, (the “Agreements”) that the Corporation’s banking subsidiary, FirstBank Puerto Rico (“FirstBank” or “the Bank”) entered into with the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (“OCIF”) that, among other things, require the Bank to attain certain capital levels and reduce its special mention, classified, delinquent and non-accrual assets;
	•		uncertainty as to whether the Corporation will be able to issue $350 million of equity so as to meet the remaining substantive condition necessary to compel the United States Department of the Treasury (the “U.S. Treasury”) to convert into common stock the shares of the Corporation’s Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series G (the “Series G Preferred Stock”), that the Corporation issued to the U.S. Treasury;
	•		uncertainty as to whether the Corporation will be able to complete any other future capital-raising efforts;
	•		uncertainty as to the availability of certain funding sources, such as retail brokered certificates of deposit (“CDs”);
	•		the Corporation’s reliance on brokered CDs and its ability to obtain, on a periodic basis, approval from the FDIC to issue brokered CDs to fund operations and provide liquidity in accordance with the terms of the Order;
	•		the risk of not being able to fulfill the Corporation’s cash obligations or resume paying dividends to the Corporation’s stockholders due to the Corporation’s inability to receive approval from the FED to receive dividends from the Corporation’s banking subsidiary, FirstBank;
	•		the risk of being subject to possible additional regulatory actions;
	•		the strength or weakness of the real estate market and of the consumer and commercial credit sectors and their impact on the credit quality of the Corporation’s loans and other assets, including the construction and commercial real estate loan portfolios, which have contributed and may continue to contribute to, among other things, the high levels of non-performing assets, charge-offs and the provision expense and may subject the Corporation to further risk from loan defaults and foreclosures;
	•		adverse changes in general economic conditions in the United States and in Puerto Rico, including the interest rate scenario, market liquidity, housing absorption rates, real estate prices and disruptions in the U.S. capital markets, which may reduce interest margins, impact funding sources and affect demand for all of the Corporation’s products and services and the value of the Corporation’s assets;
	•		an adverse change in the Corporation’s ability to attract new clients and retain existing ones;
	•		a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico and the current fiscal problems and budget deficit of the Puerto Rico government;

	•		uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the United States and the U.S. and British Virgin Islands, which could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results;
	•		uncertainty about the effectiveness of the various actions undertaken to stimulate the U.S. economy and stabilize the U.S. financial markets, and the impact such actions may have on the Corporation’s business, financial condition and results of operations;
	•		changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the Federal Reserve, the FDIC, government-sponsored housing agencies and local regulators in Puerto Rico and the U.S. and British Virgin Islands;
	•		the risk of possible failure or circumvention of controls and procedures and the risk that the Corporation’s risk management policies may not be adequate;
	•		the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in our non-interest expense;
	•		the risk of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.;
	•		the impact on the Corporation’s results of operations and financial condition associated with acquisitions and dispositions;
	•		a need to recognize additional impairments of financial instruments or goodwill relating to acquisitions;
	•		the adverse effect of litigation;
	•		risks that further downgrades in the credit ratings of the Corporation’s long-term senior debt will adversely affect the Corporation’s ability to make future borrowings;
	•		the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on our businesses, business practices and cost of operations;
	•		general competitive factors and industry consolidation; and
	•		the future dilution to holders of the Corporation’s common stock resulting from additional issuances of common stock or securities convertible into common stock.

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

     Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

FIRST BANCORP

(Unaudited)

(In thousands, except for share information)		March 31, 2011				December 31, 2010
ASSETS
Cash and due from banks		$	663,581			$	254,723
Money market investments:
Federal funds sold			5,382				6,236
Time deposits with other financial institutions			1,355				1,346
Other short-term investments			202,976				107,978
Total money market investments			209,713				115,560
Investment securities available for sale, at fair value:
Securities pledged that can be repledged			1,667,261				1,344,873
Other investment securities			1,056,906				1,399,580
Total investment securities available for sale			2,724,167				2,744,453
Investment securities held to maturity, at amortized cost:
Securities pledged that can be repledged			—				239,553
Other investment securities			—				213,834
Total investment securities held to maturity (2010-fair value of $476,516)			—				453,387
Other equity securities			99,060				55,932
Loans, net of allowance for loan and lease losses of $561,695 (2010 - $553,025)			10,528,080				11,102,411
Loans held for sale, at lower of cost or market			305,494				300,766
Total loans, net			10,833,574				11,403,177
Premises and equipment, net			206,863				209,014
Other real estate owned			91,948				84,897
Accrued interest receivable on loans and investments			55,580				59,061
Due from customers on acceptances			598				1,439
Other assets			219,006				211,434
Total assets		$	15,104,090			$	15,593,077
LIABILITIES
Deposits:
Non-interest-bearing deposits		$	707,938			$	668,052
Interest-bearing deposits			11,008,498				11,391,058
Total deposits			11,716,436				12,059,110
Securities sold under agreements to repurchase			1,400,000				1,400,000
Advances from the Federal Home Loan Bank (FHLB)			540,440				653,440
Notes payable (including $12,437 and $11,842 measured at fair value as of March 31, 2011 and December 31, 2010, respectively)			27,837				26,449
Other borrowings			231,959				231,959
Bank acceptances outstanding			598				1,439
Accounts payable and other liabilities			159,551				162,721
Total liabilities			14,076,821				14,535,118
Commitments and Contingencies (Note 22)
STOCKHOLDERS’ EQUITY
Preferred stock, authorized 50,000,000 shares: issued 22,828,174; outstanding 2,946,046; aggregate liquidation value of $487,221:
Fixed Rate Cumulative Mandatorily Convertible Preferred Stock: issued and outstanding 424,174 shares			363,677				361,962
Non-cumulative Perpetual Monthly Income Preferred Stock: issued 22,004,000 shares and outstanding 2,521,872 shares			63,047				63,047
Common stock, $0.10 par value, authorized 2,000,000,000 shares; issued 21,963,522 shares			2,196				2,196
Less: Treasury stock (at par value)			(66	)			(66	)
Common stock outstanding, 21,303,669 shares outstanding			2,130				2,130
Additional paid-in capital			319,483				319,459
Legal surplus			299,006				299,006
Accumulated deficit			(35,498	)			(5,363	)
Accumulated other comprehensive income, net of tax expense of $5,205 (December 31, 2010 - $5,351)			15,424				17,718
Total stockholders’equity			1,027,269				1,057,959
Total liabilities and stockholders’ equity		$	15,104,090			$	15,593,077

The accompanying notes are an integral part of these statements.

FIRST BANCORP

		Quarter Ended
		March 31,				March 31,
(In thousands, except per share data)		2011				2010
Interest income:
Loans		$	157,971			$	177,433
Investment securities			22,623				43,119
Money market investments			309				436
Total interest income			180,903				220,988
Interest expense:
Deposits			54,059				65,966
Loans payable			—				2,177
Federal funds purchased and securities sold under agreements to repurchase			13,136				25,282
Advances from FHLB			4,745				7,694
Notes payable and other borrowings			2,684				3,006
Total interest expense			74,624				104,125
Net interest income			106,279				116,863
Provision for loan and lease losses			88,732				170,965
Net interest income (loss) after provision for loan and lease losses			17,547				(54,102	)
Non-interest income:
Other service charges on loans			1,718				1,756
Service charges on deposit accounts			3,332				3,468
Mortgage banking activities			6,591				2,500
Net gain on sale of investments, net of impairments on equity securities			19,341				30,764
Other non-interest income			9,503				6,838
Total non-interest income			40,485				45,326
Non-interest expenses:
Employees’ compensation and benefits			30,439				31,728
Occupancy and equipment			15,250				14,851
Business promotion			2,664				2,205
Professional fees			5,137				5,287
Taxes, other than income taxes			3,255				3,821
Insurance and supervisory fees			15,177				18,518
Net loss on real estate owned (REO) operations			5,500				3,693
Other non-interest expenses			5,444				11,259
Total non-interest expenses			82,866				91,362
Loss before income taxes			(24,834	)			(100,138	)
Income tax expense			(3,586	)			(6,861	)
Net loss		$	(28,420	)		$	(106,999	)
Net loss attributable to common stockholders		$	(35,437	)		$	(113,151	)
Net loss per common share:
Basic		$	(1.66	)		$	(18.34	)
Diluted		$	(1.66	)		$	(18.34	)
Dividends declared per common share		$	—			$	—

The accompanying notes are an integral part of these statements.

FIRST BANCORP

		Quarter Ended
		March 31,				March 31,
(In thousands)		2011				2010
Cash flows from operating activities:
Net Loss		$	(28,420	)		$	(106,999	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation			5,810				5,171
Amortization and impairment of core deposit intangible			589				666
Provision for loan and lease losses			88,732				170,965
Deferred income tax expense			1,746				4,076
Stock-based compensation recognized			24				24
Gain on sale of investments, net			(18,710	)			(31,364	)
Other-than-temporary impairments on investment securities			—				600
Derivatives instruments and hedging activities loss			518				1,733
Gain on sale of assets FB Insurance VI			(2,845	)			—
Net gain on sale of loans and impairments			(5,505	)			(220	)
Net amortization of premiums and discounts on deferred loan fees and costs			395				246
Net increase in mortgage loans held for sale			(1,382	)			(4,385	)
Amortization of broker placement fees			5,359				5,465
Net amortization of premium and discounts on investment securities			1,736				968
Increase in accrued income tax payable			1,642				2,384
Decrease in accrued interest receivable			3,481				8,517
Decrease in accrued interest payable			(22	)			(417	)
(Increase) decrease in other assets			(2,355	)			13,208
(Decrease) increase in other liabilities			(7,145	)			12,659
Total adjustments			72,068				190,296
Net cash provided by operating activities			43,648				83,297
Cash flows from investing activities:
Principal collected on loans			569,498				1,050,262
Loans originated			(503,164	)			(565,515	)
Purchases of loans			(32,728	)			(41,893	)
Proceeds from sale of loans			330,978				19,064
Proceeds from sale of repossessed assets			21,920				19,575
Proceeds from sale of available-for-sale securities			41,422				393,433
Proceeds from sale of held-to-maturity securities			348,798				—
Purchases of securities available for sale			—				(99,867	)
Proceeds from principal repayments and maturities of securities held to maturity			33,726				35,998
Proceeds from principal repayments and maturities of securities available for sale			106,117				423,747
Additions to premises and equipment			(3,810	)			(6,278	)
Proceeds from sale of other investment securities			—				5,602
Proceeds from sale of assets FB Insurance VI			2,940				—
Proceeds from securities litigations settlement			631				—
Decrease in other equity securities			4,500				—
Net cash provided by investing activities			920,828				1,234,128
Cash flows from financing activities:
Net (decrease) increase in deposits			(348,465	)			203,321
Net decrease in loans payable			—				(300,000	)
Net decrease in securities sold under agreements to repurchase			—				(576,631	)
Net FHLB advances paid			(113,000	)			(18,000	)
Net cash used in financing activities			(461,465	)			(691,310	)
Net increase in cash and cash equivalents			503,011				626,115
Cash and cash equivalents at beginning of period			370,283				704,084
Cash and cash equivalents at end of period		$	873,294			$	1,330,199
Cash and cash equivalents include:
Cash and due from banks		$	663,581			$	675,551
Money market instruments			209,713				654,648
		$	873,294			$	1,330,199

The accompanying notes are an integral part of these statements.

FIRST BANCORP

		Quarter Ended
		March 31,				March 31,
(In thousands)		2011				2010
Preferred Stock:
Balance at beginning of period		$	425,009			$	928,508
Accretion of preferred stock discount			1,715				1,152
Balance at end of period			426,724				929,660
Common Stock outstanding			2,130				6,169
Additional Paid-In-Capital:
Balance at beginning of period			319,459				220,596
Stock-based compensation recognized			24				24
Balance at end of period			319,483				220,620
Legal Surplus			299,006				299,006
(Accumulated deficit) Retained Earnings :
Balance at beginning of period			(5,363	)			118,291
Net loss			(28,420	)			(106,999	)
Cash dividends declared on common stock			—				—
Cash dividends declared on preferred stock			—				—
Accretion of preferred stock discount			(1,715	)			(1,152	)
Balance at end of period			(35,498	)			10,140
Accumulated Other Comprehensive Income (Loss), net of tax:
Balance at beginning of period			17,718				26,493
Other comprehensive loss, net of tax			(2,294	)			(3,545	)
Balance at end of period			15,424				22,948
Total stockholders’equity		$	1,027,269			$	1,488,543

The accompanying notes are an integral part of these statements.

FIRST BANCORP

		Quarter Ended
		March 31,				March 31,
		2011				2010
Net loss		$	(28,420	)		$	(106,999	)
Other comprehensive loss:
Unrealized gains and losses on available-for-sale securities:
Unrealized holding (losses) gains arising during the period			(5,181	)			17,529
Reclassification adjustments for net gain included in net income			(48	)			(20,696	)
Reclassification adjustments for other-than-temporary impairment on equity securities			—				350
Net unrealized gains on securities reclassified from held to maturity to available for sale			2,789				—
Income tax benefit (expense) related to items of other comprehensive income			146				(728	)
Other comprehensive loss for the period, net of tax			(2,294	)			(3,545	)
Total comprehensive loss		$	(30,714	)		$	(110,544	)

The accompanying notes are an integral part of these statements.

FIRST BANCORP

PART I — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     The Consolidated Financial Statements (unaudited) have been prepared in conformity with the accounting policies stated in the Corporation’s Audited Consolidated Financial Statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2010, included in the Corporation’s 2010 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the statement of financial position, results of operations and cash flows for the interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation.

     The results of operations for the quarter ended March 31, 2011 are not necessarily indicative of the results to be expected for the entire year.

     All share and per share amounts of common shares included in the consolidated financial statements have been adjusted to retroactively reflect the 1-for-15 reverse stock split effected January 7, 2011.

     Capital and Liquidity

     The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. Sustained weak economic conditions that have severely affected Puerto Rico and the United States over the last several years have adversely impacted First BanCorp’s and FirstBank’s results of operations and capital levels. The significant loss in 2010, primarily related to credit losses (including losses associated with adversely classified loans and non-performing loans transferred to held for sale), the increase in the deposit insurance premium expense and increases to the deferred tax asset valuation allowance reduced the Corporation’s and the Bank’s capital levels during 2010. The net loss for the first quarter of 2011 was primarily related to credit losses. As of March 31, 2011, the Corporation’s Total Capital, Tier 1 Capital and Leverage ratios were 11.97%, 10.65% and 7.78%, respectively, compared to 12.02%, 10.73% and 7.57%, respectively, as of December 31, 2010. Meanwhile, FirstBank’s Total Capital, Tier 1 Capital and Leverage ratios as of March 31, 2011 were 11.71%, 10.40% and 7.60%, respectively, up from 11.57%, 10.28% and 7.25%, respectively, as of December 31, 2010. The improvement in the capital ratios for FirstBank was primarily related to a $22 million capital contribution from the holding company.

     As described in Note 17, Regulatory Matters, FirstBank is currently operating under a Consent Order ( the “FDIC Order”) with the FDIC and the OCIF and First BanCorp has entered into a Written Agreement (the “Written Agreement” and collectively with the Order the “Agreements”) with the Federal Reserve. The minimum capital ratios established by the FDIC Order are 8% for Leverage (Tier 1 Capital to Average Total Assets), 10% for Tier 1 Capital to Risk-Weighted Assets and 12% for Total Capital to Risk-Weighted Assets. The FDIC Order does not contain a specific date for achieving the minimum capital ratios.

     The Corporation is working to complete a capital raise to ensure that the projected level of regulatory capital can support its balance sheet over the long-term. As part of the Corporation’s capital raising efforts, the Corporation has been engaged in conversations with a number of entities, including private equity firms. The issuance of additional equity securities and other capital management or business strategies could depress the market price of our common stock and result in the dilution of our common stockholders.

     In March 2011, the Corporation submitted an updated Capital Plan (the “Capital Plan”) to the regulators. The Capital Plan contemplates a $350 million capital raise through the issuance of new common shares for cash, and other actions to further reduce the Corporation’s and the Bank’s risk-weighted assets, strengthen their capital positions and meet the minimum capital ratios required under the FDIC Order. Among the strategies contemplated in the Capital Plan are further reduction of the Corporation’s loan portfolio and investment portfolio. The Capital Plan identified specific targeted Leverage, Tier 1 Capital to Risk-Weighted Assets and Total Capital to Risk-Weighted Assets ratios to be achieved by the Bank each calendar quarter until the capital levels required under the FDIC Order are achieved. As of March 31, 2011, all capital ratios for FirstBank are above the targeted capital levels and the Corporation expects to be in compliance with the minimum capital ratios under the FDIC Order by June 30, 2011.

     If the Bank fails to achieve the capital ratios as provided in the FDIC Order, within 45 days of being out of compliance, the Bank would be required to increase capital in an amount sufficient to comply with the capital ratios set forth in the Capital Plan, or submit to

the regulators a contingency plan for the sale, merger, or liquidation of the institution in the event the primary sources of capital are not available. Thereafter the FDIC would determine whether and when to initiate an acceptable contingency plan.

     Should the Corporation’s efforts to raise capital not be completed, the Corporation’s Capital Plan includes other actions which could allow the Bank to attain the minimum capital ratios under the FDIC Order. The strategies incorporated into the Capital Plan to meet the minimum capital ratios include the following:

          Strategies completed during the first quarter of 2011:

	•		Sale of performing first lien residential mortgage loans — The Bank sold approximately $236 million in mortgage loans to another financial institution during February 2011. Proceeds were used, in part, to reduce funding sources and to support liquidity reserves.
	•		Sale of Investment securities — The Bank sold approximately $330 million in investment securities during March 2011. Proceeds were used, in part, to reduce funding sources and to support liquidity reserves.
	•		The Corporation contributed $22 million of capital to the Bank during March 2011.

          Strategies completed or expected to be completed by June 30, 2011:

	•		Sale of performing first lien residential mortgage loans- The Bank entered into a letter of intent to sell mortgage loans before June 30, 2011. During the first quarter of 2011, the Corporation reclassified from held for investment to held for sale approximately $282 million related to this transaction. The loans were sold in April 2011.
	•		Sale of investment securities — The Bank sold approximately $268 million in investment securities on April 6, 2011.
	•		Sale of commercial loan participations — The Bank has commenced negotiations to sell approximately $150 million in loan participations to other financial institutions by June 30, 2011.
	•		The proceeds received from the above three transactions will be used to reduce funding sources.

     Upon the successful completion of these actions, when combined with the achievement of operating results in line with management’s current expectations, management expects that the Corporation and the Bank will attain the minimum capital ratios set forth in the Capital Plan. However, no assurance can be given that the Corporation and the Bank will be able to achieve such ratios.

     In the event the Corporation is unable to complete its capital raising efforts during 2011 and actual credit losses exceed amounts projected, the Capital Plan includes additional actions designed to allow the Bank to maintain the minimum capital ratios for the foreseeable future, including the sale of additional assets.

     Both the Corporation and the Bank actively manage liquidity and cash flow needs. The Corporation suspended common and preferred dividends to stockholders since August 2009. As of March 31, 2011, the holding company had $19.8 million of cash and cash equivalents. Cash and cash equivalents at the Bank as of March 31, 2011 were approximately $873.3 million. The Bank has $100 million, $187 million and $15.4 million, in repurchase agreements, FHLB advances and notes payable, respectively, maturing over the next twelve months. In addition, it had $5.7 billion in brokered CDs as of March 31, 2011, of which $3.0 billion mature over the next twelve months. Liquidity at the Bank level is highly dependent on bank deposits, which fund 77.82% of the Bank’s assets (or 39.91% excluding brokered CDs). The Corporation has continued to issue brokered CDs pursuant to approvals received from the FDIC to renew or roll over certain amounts of brokered CDs through June 30, 2011. Management cannot be certain it will continue to obtain waivers from the restrictions to issue brokered CDs under the FDIC Order to meet its obligations and execute its business plans. As of March 31, 2011, the Bank held approximately $332 million of readily pledgeable or sellable investment securities. As previously noted above, the Corporation plans to sell certain loans and investments in 2011 to that would allow it to meet and maintain minimum capital ratios required by the FDIC Order. Based on current and expected liquidity needs and sources, management expects First BanCorp to be able to meet its obligations for a reasonable period of time. During 2010, the Corporation and the Bank suffered credit downgrades. The Bank suffered a further downgrade in April 2011. The Corporation does not have any outstanding debt or derivative agreements that would be affected by the credit downgrades. Furthermore, given our non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume to credit ratings, the liquidity of the Corporation so far has not been affected in any material way by the downgrades. The Corporation’s ability to access new non-deposit funding, however, could be adversely affected by these downgrades and any additional downgrades.

     If unanticipated market factors emerge, such as a significant increase in the provision for loan and lease losses, or if the Corporation is unable to raise additional capital or complete identified capital preservation initiatives, successfully execute its strategic operating plans, issue a sufficient amount of brokered CDs or comply with the FDIC Order, its banking regulators could take further action, which could include actions that may have a material adverse effect on the Bank’s business, results of operations and financial position, including the appointment of a conservator or receiver.

Adoption of new accounting requirements and recently issued but not yet effective accounting requirements

     The Financial Accounting Standards Board (“FASB”) has issued the following accounting pronouncements and guidance relevant to the Corporation’s operations:

     In December 2010, the FASB updated the Accounting Standards Codification (“Codification”) to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. As a result, current GAAP will be improved by eliminating an entity’s ability to assert that a reporting unit is not required to perform Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence of qualitative factors that indicate the goodwill is more likely than not impaired. As a result, goodwill impairments may be reported sooner than under current practice. The objective of this Update is to address questions about entities with reporting units with zero or negative carrying amounts because some entities concluded that Step 1 of the test is passed in those circumstances because the fair value of their reporting unit will generally be greater than zero. As a result of that conclusion, some constituents raised concerns that Step 2 of the test is not performed despite factors indicating that goodwill may be impaired. The amendments in this Update do not provide guidance on how to determine the carrying amount or measure the fair value of the reporting unit. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this guidance did not have an impact on the Corporation’s financial statements.

     In December 2010, the FASB updated the Codification to clarify required disclosures of supplementary pro forma information for business combinations. The amendments specify that, if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the year had occurred as of the beginning of the comparable prior annual period only. Additionally, the Update expands disclosures to include a description of the nature and amount of material nonrecurring pro forma adjustments directly attributable to the business combination included in the pro forma revenue and earnings. This guidance is effective for reporting periods beginning after December 15, 2010; early adoption is permitted. The Corporation adopted this guidance with no impact on the financial statements.

     In April 2011, the FASB updated the Codification to clarify the guidance on a creditor’s evaluation of whether a restructuring constitutes a troubled debt restructuring (“TDR”). Under the amendments, a creditor must separately conclude that a loan modification constitutes a “concession” and that the debtor is experiencing “financial difficulties” when evaluating whether a loan modification constitutes a TDR. If a creditor determines that it has granted a concession to a debtor, the creditor must make a separate assessment about whether the debtor is experiencing financial difficulties to determine whether the restructuring constitutes a TDR. The amendments clarify the guidance on a creditor’s evaluation of whether it has granted a concession and what constitutes financial difficulty. In addition, the amendments clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring constitutes a TDR. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Corporation is currently evaluating the impact of the adoption of this guidance on the financial statements.

     In April 2011, the FASB updated the Codification to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this Update remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The Board concluded that this criterion is not a determining factor of effective control. Consequently, the amendments in this Update also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Eliminating the transferor’s ability criterion and related implementation guidance from an entity’s assessment of effective control should improve the accounting for repurchase agreements and other similar transactions. The amendments in this Update are effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Corporation is currently evaluating the impact of the adoption of this guidance on the financial statements.

2 — EARNINGS PER COMMON SHARE

     The calculations of earnings per common share for the quarters ended on March 31, 2011 and 2010 are as follows:

		Quarter Ended
		March 31,				March 31,
		2011				2010
		(In thousands, except per share data)
Net loss:
Net loss		$	(28,420	)		$	(106,999	)
Cumulative non-convertible preferred stock dividends (Series F)			—				(5,000	)
Cumulative convertible preferred stock dividend (Series G)			(5,302	)			—
Preferred stock discount accretion (Series G and F)			(1,715	)			(1,152	)
Net loss attributable to common stockholders		$	(35,437	)		$	(113,151	)
Average common shares outstanding (1)			21,303				6,168
Average potential common shares (1)			—				—
Average common shares outstanding- assuming dilution (1)			21,303				6,168
Basic loss per common share (1)		$	(1.66	)		$	(18.34	)
Diluted loss per common share (1)		$	(1.66	)		$	(18.34	)

     Loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average common shares issued and outstanding. Net loss attributable to common stockholders represents net loss adjusted for preferred stock dividends including dividends declared, and cumulative dividends related to the current dividend period that have not been declared as of the end of the period, and the accretion of discount on preferred stock issuances. Basic weighted average common shares outstanding exclude unvested shares of restricted stock.

     Potential common shares consist of common stock issuable under the assumed exercise of stock options, unvested shares of restricted stock, and outstanding warrants using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from the exercise, in addition to the amount of compensation cost attributable to future services, are used to purchase common stock at the exercise date. The difference between the number of potential shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Stock options, unvested shares of restricted stock, and outstanding warrants that result in lower potential shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect on earnings per share. For the quarters ended March 31, 2011 and 2010, there were 131,532 and 163,687 outstanding stock options, respectively; warrants outstanding to purchase 389,483 shares of common stock and 716 and 1,432 unvested shares of restricted stock, respectively, that were excluded from the computation of diluted earnings per common share because their inclusion would have an antidilutive effect.

3 — STOCK OPTION PLAN

     Between 1997 and January 2007, the Corporation had a stock option plan (“the 1997 stock option plan”) that authorized the granting of up to 579,740 options on shares of the Corporation’s common stock to eligible employees. The options granted under the plan could not exceed 20% of the number of common shares outstanding. Each option provides for the purchase of one share of common stock at a price not less than the fair market value of the stock on the date the option was granted. Stock options were fully vested upon grant. The maximum term to exercise the options is ten years. The stock option plan provides for a proportionate adjustment in the exercise price and the number of shares that can be purchased in the event of a stock dividend, stock split, reclassification of stock, merger or reorganization and certain other issuances and distributions such as stock appreciation rights.

     Under the 1997 stock option plan, the Compensation and Benefits Committee (the “Compensation Committee”) had the authority to grant stock appreciation rights at any time subsequent to the grant of an option. Pursuant to stock appreciation rights, the optionee surrenders the right to exercise an option granted under the plan in consideration for payment by the Corporation of an amount equal to the excess of the fair market value of the shares of common stock subject to such option surrendered over the total option price of such shares. Any option surrendered is cancelled by the Corporation and the shares subject to the option are not eligible for further

grants under the option plan. On January 21, 2007, the 1997 stock option plan expired; all outstanding awards granted under this plan continue in full force and effect, subject to their original terms. No awards for shares could be granted under the 1997 stock option plan as of its expiration.

     On April 29, 2008, the Corporation’s stockholders approved the First BanCorp 2008 Omnibus Incentive Plan (the “Omnibus Plan”). The Omnibus Plan provides for equity-based compensation incentives (the “awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other stock-based awards. This plan allows the issuance of up to 253,333 shares of common stock, subject to adjustments for stock splits, reorganizations and other similar events. The Corporation’s Board of Directors, upon receiving the relevant recommendation of the Compensation Committee, has the power and authority to determine those eligible to receive awards and to establish the terms and conditions of any awards subject to various limits and vesting restrictions that apply to individual and aggregate awards. During the fourth quarter of 2008, the Corporation granted 2,412 shares of restricted stock with a fair value of $130.35 under the Omnibus Plan to the Corporation’s independent directors. Of the original 2,412 shares of restricted stock, 268 were forfeited in the second half of 2009, 1,424 vested and, as of March 31, 2011, 720 remain restricted.

     For the quarters ended March 31, 2011 and 2010, the Corporation recognized $23,333 of stock-based compensation expense related to the aforementioned restricted stock awards. The total unrecognized compensation cost related to the non-vested restricted shares was $62,223 as of March 31, 2011 which expected to be recognized over the next eight months.

The Corporation accounts for stock options using the “modified prospective” method. There were no stock options granted during 2011 and 2010, therefore no compensation associated with stock options was recorded in those years. No stock options were exercised during the first quarter of 2011 or in 2010.

     Stock-based compensation accounting guidance requires the Corporation to develop an estimate of the number of share-based awards that will be forfeited due to employee or director turnover. Quarterly changes in the estimated forfeiture rate may have a significant effect on share-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period in which the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase to the expense recognized in the financial statements. When unvested options or shares of restricted stock are forfeited, any compensation expense previously recognized on the forfeited awards is reversed in the period of the forfeiture.

     Stock options outstanding as of March 31, 2011 follows:

Quarter Ended

March 31, 2011

Weighted-Average

Remaining

Aggregate

Number of

Weighted-Average

Contractual Term

Intrinsic Value

Options

Exercise Price

(Years)

(In thousands)

End of period outstanding and exercisable

131,532

$

202.91

4.28

$

—

4 — INVESTMENT SECURITIES

Investment Securities Available for Sale

     The amortized cost, non-credit loss component of other-than-temporary impairment (“OTTI”) on securities recorded in other comprehensive income (“OCI”), gross unrealized gains and losses recorded in OCI, approximate fair value, weighted-average yield and contractual maturities of investment securities available for sale as of March 31, 2011 and December 31, 2010 were as follows:

		March 31, 2011																								December 31, 2010
						Non-Credit																								Non-Credit
						Loss Component				Gross												Weighted								Loss Component				Gross												Weighted
		Amortized				of OTTI				Unrealized								Fair				average				Amortized				of OTTI				Unrealized								Fair				average
		cost				Recorded in OCI				gains				losses				value				yield%				cost				Recorded in OCI				gains				losses				value				yield%
		(Dollars in thousands)
U.S. Treasury securities:
Due within one year		$	58,430			$	—			$	329			$	—			$	58,759				0.91			$	—			$	—			$	—			$	—			$	—				—
After 1 to 5 years			550,081				—				6,953				—				557,034				1.37				599,987				—				8,727				—				608,714				1.34
Obligations of U.S. Government sponsored agencies:
After 1 to 5 years			554,322				—				2,398				5,027				551,693				1.09				604,630				—				2,714				3,991				603,353				1.17
Puerto Rico Government obligations:
Due within one year			709				—				16				—				725				6.68				—				—				—				—				—				—
After 1 to 5 years			38,613				—				1,350				—				39,963				5.08				26,768				—				522				—				27,290				4.70
After 5 to 10 years			111,374				—				276				2				111,648				5.21				104,352				—				432				—				104,784				5.18
After 10 years			9,458				—				60				—				9,518				5.87				4,746				—				21				—				4,767				6.22
United States and Puerto Rico Government obligations			1,322,987				—				11,382				5,029				1,329,340				1.70				1,340,483				—				12,416				3,991				1,348,908				1.65
Mortgage-backed securities:
FHLMC certificates:
After 1 to 5 years			2,043				—				32				—				2,075				3.79				—				—				—				—				—				—
After 10 years			1,533				—				101				—				1,634				5.00				1,716				—				101				—				1,817				5.00
			3,576				—				133				—				3,709				4.31				1,716				—				101				—				1,817				5.00
GNMA certificates:
Due within one year			15				—				—				—				15				6.18				30				—				—				—				30				6.49
After 1 to 5 years			243				—				11				—				254				3.90				—				—				—				—				—				—
After 5 to 10 years			1,015				—				61				—				1,076				5.06				1,319				—				74				—				1,393				4.80
After 10 years			933,292				—				29,245				2,545				959,992				4.24				962,246				—				31,105				3,396				989,955				4.25
			934,565				—				29,317				2,545				961,337				4.24				963,595				—				31,179				3,396				991,378				4.25
FNMA certificates:
After 1 to 5 years			2,062				—				101				—				2,163				3.86				—				—				—				—				—				—
After 5 to 10 years			96,630				—				5,117				—				101,747				4.36				75,547				—				3,987				—				79,534				4.50
After 10 years			139,002				—				8,682				—				147,684				5.48				126,847				—				8,678				—				135,525				5.51
			237,694				—				13,900				—				251,594				5.01				202,394				—				12,665				—				215,059				5.13
Collateralized Mortgage Obligations issued or guaranteed by FHLMC, FNMA and GNMA:
After 10 years			107,222				—				1,268				—				108,490				0.99				112,989				—				1,926				—				114,915				0.99
Other mortgage pass-through trust certificates:
After 10 years			95,417				27,063				1				—				68,355				2.04				100,130				27,814				1				—				72,317				2.31
Total mortgage-backed securities			1,378,474				27,063				44,619				2,545				1,393,485				3.97				1,380,824				27,814				45,872				3,396				1,395,486				3.97
Corporate bonds:
After 10 years			2,000				—				—				705				1,295				5.80				—				—				—				—				—				—
Equity securities (without contractual maturity) (1)			77				—				—				30				47				—				77				—				—				18				59				—
Total investment securities available for sale		$	2,703,538			$	27,063			$	56,001			$	8,309			$	2,724,167				2.86			$	2,721,384			$	27,814			$	58,288			$	7,405			$	2,744,453				2.83

     Maturities of mortgage-backed securities are based on contractual terms assuming no prepayments. Expected maturities of investments might differ from contractual maturities because they may be subject to prepayments and/or call options as was the case with $50 million of U.S. agency debt securities called during 2011. The weighted-average yield on investment securities available for sale is based on amortized cost and, therefore, does not give effect to changes in fair value. The net unrealized gain or loss on securities available for sale and the non-credit loss component of OTTI are presented as part of OCI.

     The following tables show the Corporation’s available-for-sale investments’ fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2011 and December 31, 2010. It also includes debt securities for which an OTTI was recognized and only the amount related to a credit loss was recognized in earnings:

		As of March 31, 2011
		Less than 12 months								12 months or more								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
Debt securities:
U.S. Government agencies obligations		$	247,990			$	5,027			$	—			$	—			$	247,990			$	5,027
Puerto Rico Government obligations			99,998				2				—				—				99,998				2
Mortgage-backed securities:
GNMA			196,374				2,545				—				—				196,374				2,545
Other mortgage pass-through trust certificates			—				—				68,145				27,063				68,145				27,063
Corporate bonds			—				—				1,295				705				1,295				705
Equity securities			47				30				—				—				47				30
		$	544,409			$	7,604			$	69,440			$	27,768			$	613,849			$	35,372

		As of December 31, 2010
		Less than 12 months								12 months or more								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
Debt securities:
U.S. Government agencies obligations		$	249,026			$	3,991			$	—			$	—			$	249,026			$	3,991
Mortgage-backed securities:
GNMA			192,799				3,396				—				—				192,799				3,396
Other mortgage pass-through trust certificates			—				—				72,101				27,814				72,101				27,814
Equity securities			59				18				—				—				59				18
		$	441,884			$	7,405			$	72,101			$	27,814			$	513,985			$	35,219