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As filed with
the Securities and Exchange Commission on August 18,
2010
Registration
No. 333-165252
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 5
to
Form S-4
on
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST BANCORP.
(Exact name of registrant as
specified in its charter)
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Puerto Rico
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6022
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66-0561882
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S Employer
Identification Number)
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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 registrants 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:
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Linda L. Griggs
Gail A. Pierce
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
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James R. Tanenbaum
Anna T. Pinedo
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
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Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable after
this registration statement becomes effective.
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):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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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, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus may change. We may not complete
the exchange offer and issue these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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PROSPECTUS
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SUBJECT TO COMPLETION
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Dated August 18, 2010
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Offer to
Exchange
Up to
256,401,610 shares of our Common Stock for any and all
issued and outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred
Stock
(subject to the
limitations and qualifications described herein)
First BanCorp is offering to exchange (the Exchange
Offer), on the terms and subject to the conditions set
forth in this prospectus and in the accompanying letters of
transmittal, up to 256,401,610 newly issued shares of our common
stock, par value $1.00 per share (our Common Stock),
for any and all of the issued and outstanding shares of:
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$90,000,000 in aggregate liquidation preference of our 7.125%
Noncumulative Perpetual Monthly Income Preferred Stock,
Series A (Series A Preferred Stock);
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$75,000,000 in aggregate liquidation preference of our 8.35%
Noncumulative Perpetual Monthly Income Preferred Stock,
Series B (Series B Preferred Stock);
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$103,500,000 in aggregate liquidation preference of our 7.40%
Noncumulative Perpetual Monthly Income Preferred Stock,
Series C (Series C Preferred Stock);
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$92,000,000 in aggregate liquidation preference of our 7.25%
Noncumulative Perpetual Monthly Income Preferred Stock,
Series D (Series D Preferred
Stock); and
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$189,600,000 in aggregate liquidation preference of our 7.00%
Noncumulative Perpetual Monthly Income Preferred Stock,
Series E (Series E Preferred Stock and,
collectively with our Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, Preferred Stock).
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The Exchange Offer will expire at 11:59 p.m., New York City
time, on August 24, 2010 (the expiration date),
unless extended or earlier terminated by us. You must validly
tender your shares of Preferred Stock for exchange in the
Exchange Offer on or prior to the expiration date to receive
shares of our Common Stock.
Our Common Stock trades on the New York Stock Exchange
(NYSE) under the symbol FBP. As of
August 17, 2010, the closing sale price for our Common
Stock on the NYSE was $0.52 per share.
None of First BanCorp, the dealer manager, the exchange agent,
the information agent or any other person is making any
recommendation as to whether you should tender your shares of
Preferred Stock. You must make your own decision after reading
this prospectus and the documents incorporated by reference
herein and consulting with your advisors.
Before deciding to exchange your securities for shares of our
Common Stock, you are encouraged to read and carefully consider
this prospectus (including the documents incorporated by
reference herein) in its entirety, in particular the risk
factors beginning on page 26 of this prospectus.
The shares of our Common Stock are not savings accounts,
deposits or other obligations of any of our bank or non-bank
subsidiaries and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, any state or
the Commonwealth of Puerto Rico securities commission, the
Federal Deposit Insurance Corporation, the Board of Governors of
the Federal Reserve System nor any other regulatory body has
approved or disapproved of the Exchange Offer or of the
securities to be issued in the Exchange Offer or determined if
this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The Dealer
Manager for the Exchange Offer is:
UBS
Investment Bank
(Cover Page Continued on Next
Page)
(Cover Page Continued)
The
Exchange Agent and the Information Agent for the Exchange Offer
is:
BNY
Mellon Shareowner Services
In
its capacity as the Exchange Agent:
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By Mail:
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By Hand or Overnight Courier:
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BNY Mellon Shareowner Services
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BNY Mellon Shareowner Services
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Attn: Corporate Actions Dept.
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Attn: Corporate Actions Dept., 27th Floor
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P.O. Box 3301
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480 Washington Boulevard
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South Hackensack, NJ 07606
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Jersey City, NJ 07310
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By Facsimile:
(For Eligible Institutions Only)
(201) 680-4626
Confirm Facsimile Transmission:
(201) 680-4860
In
its capacity as the Information Agent:
BNY Mellon Shareowner Services
480 Washington Boulevard, 27th Floor
Jersey City, NJ 07310
Toll Free: (800) 777-3674
Call Collect: (201) 680-6579
The date of this prospectus is August , 2010.
(Cover Page Continued on Next
Page)
(Cover Page Continued)
For each share of Preferred Stock that we accept for exchange in
accordance with the terms of the Exchange Offer, we will issue a
number of shares of our Common Stock having the aggregate dollar
value (the Exchange Value) set forth in the
applicable table below. We refer to the number of shares of our
Common Stock we will issue (based on the Relevant Price (as
defined below)) for each share of Preferred Stock we accept in
the Exchange Offer as the exchange ratio. The
Relevant Price will be fixed at 4:30 p.m., New
York City time, on the second business day immediately preceding
the expiration date of the Exchange Offer, will be announced
prior to 9:00 a.m., New York City time, on the immediately
succeeding business day (which we currently expect to be
August 23, 2010, unless the Exchange Offer is extended) and
will be equal to the greater of (1) the average Volume
Weighted Average Price, or VWAP, of a share of our
Common Stock, determined as described on page 9 of this
prospectus under the heading Questions and Answers about
the Exchange OfferHow will the Average VWAP be
determined? during the five
trading-day
period ending on the second business day immediately preceding
the expiration date of the Exchange Offer and (2) the
Minimum Share Price of $1.18 per share of our Common
Stock. If the Minimum Share Price is used to determine the
exchange ratio, 11.6525 shares of Common Stock will be
issued in exchange for each share of Preferred Stock that we
accept for tender in the Exchange Offer. Depending on the
trading price of our Common Stock compared to the Relevant
Price, the market value of the Common Stock we issue in exchange
for each share of Preferred Stock we accept for exchange may be
less than, equal to or greater than the applicable Exchange
Value. If the trading price of our Common Stock is below
$1.18 per share, the market value of our Common Stock to be
received in the Exchange Offer will be less than the applicable
Exchange Value.
Based on the Exchange Values set forth in the table below and
the Minimum Share Price disclosed above, we will accept tenders
of all shares of Preferred Stock.
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Aggregate
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liquidation
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Liquidation
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preference
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preference
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Exchange
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CUSIP
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Title of
Securities
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outstanding
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per
share
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Value
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318672201
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7.125% Noncumulative Perpetual Monthly Income Preferred Stock,
Series A
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$
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90,000,000
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$
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25
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$
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13.75
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318672300
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8.35% Noncumulative Perpetual Monthly Income Preferred Stock,
Series B
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$
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75,000,000
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$
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25
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$
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13.75
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318672409
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7.40% Noncumulative Perpetual Monthly Income Preferred Stock,
Series C
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$
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103,500,000
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$
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25
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$
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13.75
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318672508
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7.25% Noncumulative Perpetual Monthly Income Preferred Stock,
Series D
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$
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92,000,000
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$
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25
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$
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13.75
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318672607
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7.00% Noncumulative Perpetual Monthly Income Preferred Stock,
Series E
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$
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189,600,000
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$
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25
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$
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13.75
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The Exchange Offer will expire at 11:59 p.m., New York City
time, on August 24, 2010 (unless we extend the Exchange
Offer or terminate it early). You may withdraw any shares of
Preferred Stock that you tender at any time prior to the
expiration date of the Exchange Offer.
Our obligation to exchange shares of our Common Stock for shares
of Preferred Stock in the Exchange Offer is subject to a number
of conditions that must be satisfied or waived, including, among
others, (i) pursuant to NYSE listing requirements, the
approval by the holders of our Common Stock to the issuance of
up to 256,401,610 shares of Common Stock upon the exchange
of Preferred Stock in the Exchange Offer, (ii) the approval
by the holders of our Common Stock of an amendment to our
Restated Articles of Incorporation (Articles of
Incorporation) to reduce the par value of a share of
Common Stock from $1.00 to $0.10 per share, if necessary to
issue shares of Common Stock in the Exchange Offer, and
(iii) the absence of any change or development (affecting
our business or otherwise) that in our reasonable judgment may
materially reduce the anticipated benefits to us of the Exchange
Offer or that has had, or could reasonably be expected to have,
a material adverse effect on us or our businesses, financial
condition, operations or prospects. Our obligation to exchange
is not subject to any minimum tender condition.
Important
Certain shares of Preferred Stock were issued in book-entry
form, and are currently represented by one or more global
certificates held for the account of The Depository
Trust Company (DTC). If your securities are
book-entry securities, you may tender your shares of Preferred
Stock by transferring them through DTCs Automated Tender
Offer Program (ATOP) or following the other
procedures described under The Exchange
OfferProcedures for Tendering Shares of Preferred
Stock.
If your interest as a holder of Preferred Stock is in
certificated form, you must deliver to BNY Mellon Shareowner
Services (the Exchange Agent) (1) the
certificates for the shares of your Preferred Stock to be
exchanged in the manner specified in the accompanying letter of
transmittal and (2) a proper assignment of the shares of
Preferred Stock to First BanCorp, or to any transfer agent for
the shares of Preferred Stock, or in blank.
If you are a beneficial owner of shares of Preferred Stock that
are held by or registered in the name of a broker, securities
dealer, custodian, commercial bank, trust company or other
nominee, and you wish to participate in the Exchange Offer, you
must promptly contact your broker, securities dealer, custodian,
commercial bank, trust company or other nominee to instruct it
to tender your shares of Preferred Stock and to agree to the
terms of the accompanying letter of transmittal. You are
urged to instruct your broker, securities dealer, custodian,
commercial bank, trust company or other nominee at least five
business days prior to the expiration date of the Exchange Offer
in order to allow adequate processing time for your instruction.
Tenders not received by the Exchange Agent, on or prior to
the expiration date will be disregarded and have no effect.
We are not providing for guaranteed delivery procedures and,
therefore, you must allow sufficient time for the necessary
tender procedures to be completed during normal business hours
of DTC on or prior to the expiration date of the Exchange Offer.
Tenders not received by the Exchange Agent on or prior to the
expiration date will be disregarded and have no effect.
We are incorporating by reference into this prospectus important
business and financial information that is not included in or
delivered with this prospectus. This information is available
without charge to security holders upon written or oral request.
Requests should be directed to either First BanCorp or BNY
Mellon Shareowner Services (the Information Agent)
as follows:
First BanCorp.
Attention: Lawrence Odell, Secretary
P.O. Box 9146
San Juan, Puerto Rico,
00908-0146
(787) 729-8109
BNY Mellon Shareowner Services
480 Washington Boulevard, 27th
Floor
Jersey City, NJ 07310
Toll Free: (800) 777-3674
Call Collect: (201) 680-6579
In order to ensure timely delivery of such documents,
security holders must request this information no later than
five business days before the date by which they must make their
investment decision. Accordingly, any request for documents
should have been made by August 17, 2010 to ensure timely
delivery of the documents on or prior to the expiration date of
the Exchange Offer.
You should rely only on the information contained in or
incorporated by reference into this prospectus. We have not
authorized anyone to provide you with information that is
different. You should assume that the information contained in
or incorporated by reference into this prospectus is accurate
only as of the date of this prospectus or as of the date of the
document incorporated by reference, as applicable. We are not
making an offer of these securities in any jurisdiction where
such offer is not permitted.
In this prospectus, unless otherwise stated or the context
otherwise requires, Corporation, we,
us, our and First BanCorp
refer to First BanCorp. and its subsidiaries.
TABLE OF
CONTENTS
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1
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3
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4
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5
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14
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19
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26
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50
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53
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59
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60
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80
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82
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99
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105
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106
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EX-23.1 |
Forward-looking
Statements
Certain statements in this prospectus are
forward-looking statements. These forward-looking
statements may relate to First BanCorps financial
condition, results of operations, plans, objectives, future
performance and business, including, but not limited to,
statements with respect to the adequacy of the allowance for
loan and lease losses, market risk and the impact of interest
rate changes, capital markets conditions, capital adequacy and
liquidity and the effect of new accounting guidance on the
Corporations financial condition and results of
operations. All statements contained herein that are not clearly
historical in nature are forward-looking, and the words
anticipate, believe,
continues, expect, estimate,
intend, project and similar expressions
and future or conditional verbs such as will,
would, should, could,
might, can, may, or similar
expressions are generally intended to identify forward-looking
statements.
These forward-looking statements are not guarantees of future
performance and involve certain risks, uncertainties, estimates
and assumptions by us that are difficult to predict. Various
factors, some of which are beyond our control, could cause
actual results to differ materially from those expressed in, or
implied by, such forward-looking statements. Factors that might
cause such a difference include, but are not limited to:
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uncertainty about whether we will be able to fully comply with
the written agreement dated June 3, 2010 (the
Agreement) that we entered into with the Federal
Reserve Bank of New York (the Fed) and the order
dated June 2, 2010 (the Order and collectively
with the Agreement, the Agreements) that our banking
subsidiary, First Bank Puerto Rico (First Bank 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;
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uncertainty as to whether we will be able to meet the conditions
necessary to compel the United States Department of the Treasury
(the U.S. Treasury) to convert into Common
Stock the shares of our preferred stock that we issued to the
U.S. Treasury;
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uncertainty as to whether we will be able to complete future
capital-raising efforts;
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the risk of being subject to possible additional regulatory
action, including as a result of an inability to implement the
capital plans submitted in accordance with the Agreements;
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the strength or weakness of the real estate market and of the
consumer and commercial credit sector and their impact on the
credit quality of our loans and other assets, including our
construction and commercial real estate loan portfolios, which
have contributed and may continue to contribute to, among other
things, the increase in the levels of non-performing assets,
charge-offs and the provision expense;
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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 our products and services and the value of our
assets;
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our reliance on brokered certificates of deposit and our ability
to obtain, on a periodic basis, approval to issue brokered
certificates of deposit to fund operations and provide liquidity
in accordance with the terms of the Order;
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an adverse change in our ability to attract new clients and
retain existing ones;
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a decrease in demand for our products and services and lower
revenues and earnings because of the continued recession in
Puerto Rico, the recently announced consolidation of the banking
industry in Puerto Rico and the current fiscal problems and
budget deficit of the Puerto Rico government;
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1
Forward-looking
Statements
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a need to recognize additional impairments of financial
instruments or goodwill relating to acquisitions;
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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
our financial performance and could cause our actual results for
future periods to differ materially from prior results and
anticipated or projected results;
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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 our business, financial condition and results of
operations;
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changes in the fiscal and monetary policies and regulations of
the federal government, including those determined by the Fed,
the FDIC, government-sponsored housing agencies and local
regulators in Puerto Rico and the U.S. and British Virgin
Islands;
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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;
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risks of not being able to generate sufficient income to realize
the benefit of the deferred tax asset;
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risks of not being able to recover the assets pledged to Lehman
Brothers Special Financing, Inc.;
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changes in our expenses associated with acquisitions and
dispositions;
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developments in technology;
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the impact of Doral Financial Corporations financial
condition on the repayment of its outstanding secured loans to
us;
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risks associated with further downgrades in the credit ratings
of our securities;
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general competitive factors and industry consolidation; and
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the possible future dilution to holders of our Common Stock
resulting from additional issuances of Common Stock or
securities convertible into Common Stock.
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Although the forward-looking statements are based on
our current beliefs and expectations, we do not undertake, and
specifically disclaim 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.
You should carefully consider these factors and the risk factors
beginning on page 26 of this prospectus. All
forward-looking statements attributable to First
BanCorp or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements
contained in this prospectus.
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Where You Can Find
More Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (the SEC). Our SEC filings are available
to the public over the Internet at the SECs website at
http://www.sec.gov,
which contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC. You may also read and copy any document we file
with the SEC at its public reference facilities located at
100 F Street, N.E., Washington, DC 20549. Please
call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
facilities.
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Incorporation of
Certain Documents by Reference
We hereby incorporate by reference into this prospectus the
following documents that we have filed with the SEC:
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Our Annual Report on
Form 10-K
for the year ended December 31, 2009 filed on March 2,
2010;
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Our Proxy Statement for the Annual Meeting of Stockholders held
on April 27, 2010 filed on April 6, 2010;
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Our Proxy Statement for the August 24, 2010 Special Meeting
of Stockholders filed on August 2, 2010;
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Our Current Reports on
Form 8-K
filed on February 3, 2010 (excluding Items 2.02 and
9.01), April 29, 2010 (excluding Items 2.02 and 9.01,
as amended by
Form 8-K/A
filed on May 3, 2010), June 4, 2010, July 2,
2010, July 7, 2010, July 15, 2010, July 16, 2010,
July 20, 2010, August 17, 2010 and August 18,
2010; and
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Our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2010 and June 30,
2010 filed on May 10, 2010 and August 9, 2010,
respectively.
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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.
Please note that this Registration Statement and the
Schedule TO filed in connection with the Exchange Offer do
not permit incorporation by reference of future filings. If a
material change occurs in the information set forth in this
prospectus, we will amend this Registration Statement and the
Schedule TO accordingly.
4
Questions and
Answers about the Exchange Offer
The following are certain questions regarding the Exchange
Offer that you may have as a holder of shares of Preferred Stock
and the answers to those questions. These questions and answers
may not contain all of the information that is important to you
and are qualified in their entirety by the more detailed
information included or incorporated by reference into this
prospectus. Before deciding to exchange your securities for
shares of our Common Stock, you should carefully consider the
information contained in or incorporated by reference into this
prospectus, including the information set forth under the
heading Risk Factors beginning on page 26 of
this prospectus. For further information about us, see
Where You Can Find More Information.
WHAT IS THE
PURPOSE OF THE EXCHANGE OFFER?
We decided to conduct this Exchange Offer to improve our capital
structure given the continuing difficult economic conditions in
the markets in which we operate and the evolving regulatory
environment. We must increase our common equity to provide
additional protection against the future recognition of
additional loan loss reserves against our loan portfolio and
credit losses associated with the disposition of non-performing
assets due to the current economic situation in Puerto Rico and
the United States that has impacted the Corporations asset
quality and earnings performance. Total non-performing loans to
total loans increased to 12.40% as of June 30, 2010 from
11.23% as of December 31, 2009 and from 8.94% as of
June 30, 2009.
The restructuring of our equity components through the Exchange
Offer will strengthen the quality of our regulatory capital
position and enhance our ability to meet any new capital
requirements. Furthermore, through the Exchange Offer, we are
seeking to improve the Corporations Tier 1 common
equity to risk-weighted assets ratio. In the Supervisory Capital
Assessment Program (the SCAP) applied to large
money-center banks in the U.S., federal regulators established a
4% Tier 1 common equity to risk-weighted assets ratio as
the minimum threshold to determine the potential capital needs
of such banks. While the SCAP is not applicable to us, we
believe that the Tier 1 common equity ratio is being viewed
by financial analysts and rating agencies as a guide for
measuring the capital adequacy of banking institutions. The
Exchange Offer will also improve our tangible common equity to
tangible assets ratio, which is another metric used by financial
analysts to determine a banks capital requirements. As of
June 30, 2010, our Tier 1 common equity ratio was
2.86% and our tangible common equity ratio was 2.57%. If 70% of
our outstanding shares of Preferred Stock is exchanged in the
Exchange Offer, which is the Corporations targeted success
rate for the Exchange Offer, our Tier 1 common equity ratio
and tangible common equity ratio as of June 30, 2010 on a
pro forma basis after giving effect to the Exchange Offer would
have been 5.92% and 4.70%, respectively. Our Tier 1 common
equity would be strengthened by $385 million based on a 70%
success rate for the exchange. See Regulatory and Other
Capital RatiosReconciliation of Tangible Common Equity and
Tangible Assets and Regulatory and Other Capital
RatiosReconciliation of Common Stockholders Equity
(GAAP) to Tier 1 Common Equity (Non-GAAP).
Finally, if holders of $385 million of the liquidation
preference of the Preferred Stock tender their shares of
Preferred Stock in the Exchange Offer, we raise
$500 million of additional capital, and the holders of our
Common Stock approve amendments to our Articles of
Incorporation, within nine months of the July 7, 2010 date
of our agreement with the U.S. Treasury, we will meet the
substantive conditions necessary for us to compel the U.S.
Treasury to convert into Common Stock the shares of a new series
of Fixed Rate Cumulative Mandatorily Convertible Preferred
Stock, Series G (the Series G Preferred Stock), that
we issued to the U.S. Treasury in exchange for the $400 million
liquidation value of our Fixed Rate Cumulative Perpetual
Preferred Stock, Series F, $1,000 liquidation preference per
share (Series F Preferred Stock), and accrued and
unpaid dividends. No assurance can be given that we will
5
Questions and
Answers about the Exchange Offer
able to meet these conditions for the conversion of the
Series G Preferred Stock, including the requirement to
raise additional capital. See Agreement with the U.S.
Treasury.
WHAT ARE THE
REQUIREMENTS OF THE RECENT REGULATORY AGREEMENTS?
The Corporation entered into the Agreement with the Fed dated
June 3, 2010 and our subsidiary, FirstBank Puerto Rico
(FirstBank or the Bank), agreed to the
Order with the FDIC and the OCIF dated June 2, 2010.
Pursuant to these Agreements, the Corporation and FirstBank have
agreed to take certain actions designed to improve their
financial condition. These actions include the adoption and
implementation of various plans, procedures and policies related
to their capital, lending activities, liquidity and funds
management and strategy. In addition, the Order requires
FirstBank to develop and adopt a plan to attain a leverage ratio
of at least 8%, a Tier 1 capital to risk-weighted assets
ratio of at least 10% and a Total capital to risk-weighted
assets ratio of at least 12%, and obtain approval prior to
issuing, increasing, renewing or rolling over brokered deposits.
The Agreement also requires the Corporation to obtain the
approval of the Fed prior to paying dividends, receiving
dividends from FirstBank, incurring, increasing or guaranteeing
any debt, or purchasing or redeeming any stock, to comply with
certain notice provisions prior to appointing any new directors
or senior executive officers and to comply with certain
restrictions on severance payments and indemnification.
Concurrently with the issuance by the FDIC of its Order, the
FDIC granted FirstBank a temporary waiver through June 30,
2010 to enable it to continue accessing the brokered deposit
market. FirstBank has obtained an additional waiver through
September 30, 2010. FirstBank will request waivers for
future periods although no assurance can be given that the FDIC
will continue to issue such waivers. Any failure to obtain a
future waiver would have a significantly adverse effect on
FirstBank, which has relied on brokered deposits to fund a major
part of its operations and had, as of June 30, 2010,
$7.1 billion in brokered deposits outstanding, representing
approximately 56% of our total deposits. For more information
about the Agreements, see Regulatory Agreements.
WHAT ADDITIONAL
EFFORTS IS THE CORPORATION TAKING TO IMPROVE ITS
CAPITAL?
We have assured our regulators that we are committed to raising
capital and we have submitted capital plans to our regulators
regarding how we plan to raise capital. In addition to this
Exchange Offer, we have been taking steps to implement
strategies to increase tangible common equity and regulatory
capital through (1) the issuance of approximately
$500 million of equity in one or more public or private
offerings (a Capital Raise), (2) the conversion
into Common Stock of the shares of Series G Preferred Stock
that we issued to the U.S. Treasury in exchange for the Series F
Preferred Stock that we sold to it on January 16, 2009, as
further discussed below, and (3) a rights offering to
common stockholders. With respect to a Capital Raise, we plan to
seek to raise at least $500 million of equity because we
believe that amount would enable us to absorb possible
additional losses based on a worst case evaluation of possible
losses over the next five years while maintaining the capital
ratios required for a well-capitalized financial institution as
well as those required by the FDICs Order. We expect to
amend this Prospectus to disclose any material developments
relating to a Capital Raise that occur prior to the expiration
date of the Exchange Offer. If we complete a Capital Raise, we
expect to issue rights to the holders of our currently
outstanding 92,542,722 shares of Common Stock that entitle
them to acquire one share of Common Stock for each share of
Common Stock they own at a price equal to the purchase price in
a Capital Raise. No assurance can be given that we will complete
a Capital Raise, the conversion of the Series G Preferred Stock
or a rights offering.
We believe that the Exchange Offer and, to the extent completed,
the conversion of the Series G Preferred Stock into Common
Stock and a Capital Raise would enhance our long-term
financial stability, improve our ability to operate in the
current economic environment, and improve our ability to access
the capital markets in order to fund strategic initiatives or
other business needs and to absorb any future credit losses.
6
Questions and
Answers about the Exchange Offer
Our inability to complete the Exchange Offer would hinder our
efforts to sell Common Stock in a Capital Raise. If we need to
continue to recognize significant reserves and we cannot
complete a Capital Raise, the Corporation 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 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. In addition to a Capital Raise,
the capital plans contemplate alternative capital preservation
strategies, including among other things, an accelerated
deleverage strategy and the divesture of profitable businesses.
If, at the end of any quarter, we do not comply with any
specified minimum capital ratios, we must notify our regulators.
The Corporation must notify the Fed within 30 days of the
end of any quarter of its inability to comply with a capital
ratio requirement and submit an acceptable written plan that
details the steps it 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 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 any outstanding
preferred stock would rank senior to the holders of our Common
Stock with respect to rights upon any liquidation of the
Corporation.
WHAT ARE THE
TERMS OF THE EXCHANGE OF THE SERIES F PREFERRED STOCK FOR SERIES
G PREFERRED STOCK?
On July 20, 2010, we exchanged our Series F Preferred
Stock, which has a liquidation preference of $400 million, and
accrued and unpaid dividends on the Series F Preferred Stock,
for 424,174 shares of a new series of Series G Preferred
Stock, that has similar terms (including the same liquidation
preference), but which we can convert, under the conditions
described below, into shares of Common Stock based on an initial
conversion rate of 896.3045 shares of Common Stock for each
share of Series G Preferred Stock (calculated by dividing $650,
or a discount of 35% from the $1,000 liquidation preference per
share of Series G Preferred Stock, by the initial conversion
price of $0.7252 per share, which is subject to adjustment). No
assurance can be given that we will able to meet the conditions
for the conversion of the Series G Preferred Stock,
including the requirement to raise additional capital. See
Agreement with the U.S. Treasury.
HOW WOULD THE
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AFFECT
PARTICIPANTS IN THE EXCHANGE OFFER?
Existing holders of Preferred Stock that participate in the
Exchange Offer would be significantly diluted if we issue
additional shares of Common Stock other than through the
Exchange Offer. These possible additional issuances include:
(i) the possible issuance of shares of Common Stock in a
Capital Raise at a price significantly below the book value per
share of Common Stock as of June 30, 2010 of $5.48;
(ii) the possible issuance of shares of Common Stock to the
U.S. Treasury upon conversion of the Series G
Preferred Stock; and (iii) the possible issuance of
additional shares of Common Stock to The Bank of Nova Scotia
(BNS) pursuant to its anti-dilution right, subject
to the consent of the Federal Reserve (see Agreement with
The Bank of Nova Scotia). Our issuance of
256,401,610 shares of Common Stock in the Exchange Offer,
which is 100% of the shares offered in the Exchange Offer, would
reduce on a pro forma basis our loss per share for the six-month
period ended June 30, 2010 from $2.27 to $0.60 and our book
value per share as of June 30, 2010 from $5.48 to $3.03.
If, subsequent to our issuance of 256,401,610 shares of Common
Stock in the Exchange Offer, we were to issue shares of Common
Stock to the U.S. Treasury upon conversion of the Series G
Preferred Stock, to investors in a Capital Raise and to BNS, we
estimate that we would issue approximately 1.43 billion
additional shares based on (i) our agreement with the U.S.
Treasury and (ii) a sale in a Capital Raise of $500 million at a
per-share price of $0.57, the market price of our Common Stock
on July 14, 2010. Accordingly, our loss per share for the
six-month period ended June 30, 2010 and our book value per
share as of June 30, 2010 would be reduced on a pro forma
basis to $0.12 and $1.16, respectively. Such
7
Questions and
Answers about the Exchange Offer
additional issuances of shares of Common Stock would decrease
the voting power of participants in the Exchange Offer from 73%
after the completion of the Exchange Offer, assuming all of the
Preferred Stock is tendered, to 14% if approximately 1.68
billion shares of Common Stock are issued in a Capital Raise, to
the U.S. Treasury and to BNS upon its exercise in full of
its anti-dilution right. Finally, the additional issuances of
shares of Common Stock may adversely impact the market price of
our Common Stock.
At this time, we expect that any investor in a Capital Raise
would acquire less than 10% of our outstanding shares to avoid
being considered a bank holding company under the Bank Holding
Company Act of 1956. If the Series G Preferred Stock is
converted into Common Stock, the U.S. Treasury would acquire a
significant percentage of our Common Stock. Any such ownership
would give the U.S. Treasury the ability to influence
stockholder matters in a manner that may conflict with the
interests of other holders of Common Stock.
WHAT ARE THE KEY
TERMS OF THE EXCHANGE OFFER?
We are offering to exchange up to 256,401,610 newly issued
shares of our Common Stock for any and all issued and
outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock.
For each share of Preferred Stock that we accept for exchange in
accordance with the terms of the Exchange Offer, we will issue a
number of shares of our Common Stock having the Exchange Value
set forth in the table below unless the Minimum Share Price is
used to determine the exchange ratio, in which case we would
issue 11.6525 shares of Common Stock for each share of
Preferred Stock.
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Aggregate
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liquidation
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Liquidation
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preference
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preference
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Exchange
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CUSIP
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Title of
securities
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outstanding
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per
share
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Value
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318672201
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7.125% Noncumulative Perpetual Monthly Income Preferred Stock,
Series A
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$
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90,000,000
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$
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25
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$
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13.75
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318672300
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8.35% Noncumulative Perpetual Monthly Income Preferred Stock,
Series B
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$
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75,000,000
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$
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25
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$
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13.75
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318672409
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7.40% Noncumulative Perpetual Monthly Income Preferred Stock,
Series C
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$
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103,500,000
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$
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25
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$
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13.75
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318672508
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7.25% Noncumulative Perpetual Monthly Income Preferred Stock,
Series D
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$
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92,000,000
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$
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25
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$
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13.75
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318672607
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7.00% Noncumulative Perpetual Monthly Income Preferred Stock,
Series E
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$
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189,600,000
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$
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25
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$
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13.75
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Depending on the trading price of our Common Stock compared
to the Relevant Price, the market value of the Common Stock we
issue on the settlement date in exchange for each share of
Preferred Stock we accept for exchange may be less than, equal
to or greater than the applicable Exchange Value referred to
above. If the trading price of our Common Stock is below $1.18
per share, the market value of our Common Stock to be received
in the Exchange Offer will be less than the applicable Exchange
Value.
WHAT
CONSIDERATION ARE WE OFFERING IN EXCHANGE FOR SHARES OF
PREFERRED STOCK?
For each share of Preferred Stock that we accept for exchange in
accordance with the terms of the Exchange Offer, we will issue a
number of shares of our Common Stock having the aggregate dollar
value (based on the Relevant Price) equal to the applicable
Exchange Value.
8
Questions and
Answers about the Exchange Offer
Depending on the trading price of our Common Stock compared
to the Relevant Price, the market value of the Common Stock we
issue in exchange for each share of Preferred Stock we accept
for exchange may be less than, equal to or greater than the
applicable Exchange Value.
If the Minimum Share Price is used to determine the exchange
ratio, 11.6525 shares of Common Stock will be issued in
exchange for each share of Preferred Stock that we accept for
tender in the Exchange Offer. If the trading price of our Common
Stock is below $1.18 per share, the market value of our
Common Stock to be received in the Exchange Offer will be less
than the applicable Exchange Value.
HOW WILL THE
AVERAGE VWAP BE DETERMINED?
Average VWAP during a period means the arithmetic average of
VWAP for each trading day during that period. VWAP for any day
means the per share volume weighted average price of our Common
Stock on that day as displayed under the heading Bloomberg VWAP
on Bloomberg Page FBP US <equity> VAP (or its
equivalent successor page if such page is not available) in
respect of the period from the scheduled open of trading on the
relevant trading day until the scheduled close of trading on the
relevant trading day (or if such VWAP is unavailable, the market
price of one share of our Common Stock on such trading day
determined, using a volume weighted average method, by a
nationally recognized investment banking firm we retain for that
purpose).
HOW MAY I OBTAIN
INFORMATION REGARDING THE RELEVANT PRICE AND APPLICABLE EXCHANGE
RATIOS?
Throughout the Exchange Offer, the indicative average VWAP, the
Minimum Share Price, the resultant indicative Relevant Price and
the indicative exchange ratios will be available at
www.firstbankpr.com, by clicking on Exchange Offer in the
Investor Relations section at this address, and from the
Information Agent, at one of its numbers listed on the back
cover page of this prospectus.
We will announce the final exchange ratio for each series of
Preferred Stock prior to 9:00 a.m., New York City time, on
the business day immediately succeeding the second business day
prior to the expiration date of the Exchange Offer, and those
final exchange ratios will also be available by that time at
www.firstbankpr.com, by clicking on Exchange Offer in the
Investor Relations section at this address, and from the
Information Agent. No additional information on our website is
deemed to be part of or incorporated by reference into this
prospectus.
Depending on the trading price of our Common Stock compared
to the Relevant Price, the market value of the Common Stock we
issue in exchange for each share of Preferred Stock we accept
for exchange may be less than, equal to or greater than the
applicable Exchange Value.
WILL ALL SHARES
OF PREFERRED STOCK THAT I TENDER BE ACCEPTED IN THE EXCHANGE
OFFER?
Yes, we will accept all shares of Preferred Stock validly
tendered in the Exchange Offer.
WHAT HAPPENS TO
TENDERED SHARES OF PREFERRED STOCK THAT ARE NOT ACCEPTED FOR
EXCHANGE?
If your tendered shares of Preferred Stock are not accepted for
exchange because the tender is not in proper form, our
acceptance of the tender would be unlawful, in our opinion, or
for any other reason pursuant to the terms and conditions of the
Exchange Offer, such shares will be returned without expense to
you or, in the case of shares of Preferred Stock tendered by
book-entry transfer, such shares will be credited to an account
maintained at DTC, designated by the participant who delivered
such shares, in each case, promptly following the expiration or
termination, as applicable, of the Exchange Offer.
9
Questions and
Answers about the Exchange Offer
WILL FRACTIONAL
SHARES BE ISSUED IN THE EXCHANGE OFFER?
We will not issue fractional shares of our Common Stock in the
Exchange Offer and no cash will be paid for fractional shares.
Instead, the number of shares of Common Stock received by each
holder whose shares of Preferred Stock are accepted for exchange
in the Exchange Offer will be rounded down to the nearest whole
number.
WHAT ARE THE
CONDITIONS APPLICABLE TO THE EXCHANGE OFFER?
Our obligation to exchange shares of our Common Stock for shares
of Preferred Stock in the Exchange Offer is subject to a number
of conditions that must be satisfied or waived by us, including,
among others, (i) pursuant to NYSE listing requirements,
the approval by the holders of our Common Stock to the issuance
of up to 256,401,610 shares of Common Stock upon the
exchange of Preferred Stock in the Exchange Offer, (ii) the
approval by the holders of our Common Stock of an amendment to
our Articles of Incorporation to reduce the par value of a share
of Common Stock from $1.00 to $0.10 per share if necessary to
issue shares of Common Stock in the Exchange Offer, and
(iii) the absence of any change or development (affecting
our business or otherwise) that in our reasonable judgment may
materially reduce the anticipated benefits to us of the Exchange
Offer or that has had, or could reasonably be expected to have,
a material adverse effect on us or our businesses, financial
condition, operations or prospects. Our obligation to exchange
is not subject to any minimum tender condition.
We will hold a special meeting of the holders of our Common
Stock at our principal offices located at 1519 Ponce
de Leon Avenue, Santurce, Puerto Rico, on August 24,
2010, for the purpose of seeking approval of such holders of the
issuance of up to 256,401,610 shares of Common Stock upon
the exchange of Preferred Stock in the Exchange Offer in an
amount equal to a majority of the votes cast, provided that the
total votes cast at such special meeting represents more than
50% of the issued and outstanding shares of our Common Stock,
and the approval of the amendment to our Articles of
Incorporation to reduce the par value of a share of Common Stock
from $1.00 to $0.10 per share, if necessary. In addition,
holders of our Common Stock will be asked to approve an
amendment to our Articles of Incorporation to increase the
number of authorized shares of Common Stock from 750,000,000 to
2,000,000,000 shares so that we will have sufficient shares
of Common Stock in case we are able to issue shares of Common
Stock upon conversion of the Series G Preferred Stock and
in a Capital Raise. In addition, holders of Common Stock will be
asked to approve the issuance of shares of Common Stock to
(i) BNS if it exercises its anti-dilution right in
connection with the Exchange Offer or the issuance of
Series G Preferred Stock to the U.S. Treasury and
(ii) a director pursuant to the terms of the Exchange Offer
and to approve a reverse stock split.
HOW DO I
PARTICIPATE IN THE EXCHANGE OFFER?
The Exchange Offer will expire at 11:59 p.m., New York City
time on August 24, 2010, unless extended or earlier
terminated by us. You may withdraw any shares of Preferred Stock
that you previously tendered in the Exchange Offer on or prior
to the expiration date of the Exchange Offer.
Certain shares of Preferred Stock were issued in book-entry form
and are currently represented by one or more global certificates
held for the account of DTC. If your securities are book-entry
securities, you may tender your shares of Preferred Stock by
transferring them through ATOP or following the other procedures
described under The Exchange OfferProcedures for
Tendering Shares of Preferred Stock.
If your interest as a holder of Preferred Stock is in
certificated form, you must deliver to the Exchange Agent
(1) the certificates for the shares of your Preferred Stock
to be exchanged in the manner specified in the accompanying
letter of transmittal and (2) a proper assignment of the
shares of Preferred Stock to First BanCorp, or to any transfer
agent for the shares of Preferred Stock, or in blank.
10
Questions and
Answers about the Exchange Offer
If you hold your shares of Preferred Stock through a bank,
broker or other nominee, in order to validly tender your shares
of Preferred Stock in the Exchange Offer, you must follow the
instructions provided by your broker, securities dealer,
custodian, commercial bank, trust company or other nominee with
regard to procedures for tendering, in order to enable your
broker, securities dealer, custodian, commercial bank, trust
company or other nominee to comply with the procedures described
below. Beneficial owners are urged to appropriately instruct
their broker, securities dealer, custodian, commercial bank,
trust company or other nominee at least five business days prior
to the expiration date in order to allow adequate processing
time for their instruction.
In order for a broker, securities dealer, custodian, commercial
bank, trust company or other nominee to validly tender your
shares of Preferred Stock in the Exchange Offer, such broker,
securities dealer, custodian, commercial bank, trust company or
other nominee must deliver to the Exchange Agent an electronic
message that will contain:
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your acknowledgment and agreement to, and agreement to be bound
by, the terms of the accompanying letter of transmittal; and
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a timely confirmation of book-entry transfer of your shares of
Preferred Stock into the Exchange Agents account.
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Should you have any questions as to the procedures for tendering
your shares of Preferred Stock, please call your broker,
securities dealer, custodian, commercial bank, trust company or
other nominee; or call the Information Agent.
WE ARE NOT PROVIDING FOR GUARANTEED DELIVERY PROCEDURES AND,
THEREFORE, YOU MUST ALLOW SUFFICIENT TIME FOR THE NECESSARY
TENDER PROCEDURES TO BE COMPLETED DURING NORMAL BUSINESS HOURS
OF DTC ON OR PRIOR TO THE EXPIRATION DATE.
See The Exchange OfferProcedures for Tendering
Shares of Preferred Stock.
DO I HAVE A
CHOICE IN WHETHER TO TENDER MY PREFERRED STOCK?
Yes. Holders of Preferred Stock are not required to tender their
Preferred Stock pursuant to this prospectus. All rights and
obligations pursuant to which each series of Preferred Stock was
issued will continue with respect to the Preferred Stock that
remains outstanding after the expiration date.
MAY I TENDER ONLY
A PORTION OF THE PREFERRED STOCK THAT I HOLD?
Yes. You may choose to tender in the Exchange Offer all or any
portion of the Preferred Stock that you hold.
WHAT ARE THE
CONSEQUENCES OF NOT EXCHANGING MY PREFERRED STOCK?
After the completion of the Exchange Offer, we intend to delist
any remaining shares of our Preferred Stock from trading on the
NYSE and, to the extent permitted by law, we intend to
deregister any such remaining shares under the Exchange Act. The
delisting of any such remaining shares, the reduction in the
number of shares of Preferred Stock available for trading and
our suspension of dividends on Preferred Stock may have a
significant and adverse effect on the liquidity of any trading
market for, and the price of, shares of Preferred Stock not
exchanged in the Exchange Offer. Therefore, if you do not
exchange your Preferred Stock in the Exchange Offer, your shares
of Preferred Stock may become illiquid for an indefinite period
of time.
11
Questions and
Answers about the Exchange Offer
WILL WE PAY
DIVIDENDS ON PREFERRED STOCK THAT REMAINS OUTSTANDING AFTER THE
COMPLETION OF THE EXCHANGE OFFER?
The Agreement we entered into with the Fed requires, among other
things, that we obtain the approval of the Fed before we pay
dividends, including dividends on the Preferred Stock. We cannot
determine if or when we may pay such dividends in the future. On
July 30, 2009, we announced the suspension of dividends on
our Common Stock, Preferred Stock and previously outstanding
Series F Preferred Stock, which was sold to the U.S. Treasury on
January 16, 2009, effective with the preferred dividend for
August 2009. We have not paid dividends on the Preferred
Stock since August 2009. Resumption of the payment of dividends
on our Preferred Stock also will require us to conclude that
their payment will not affect our capital position. Furthermore,
we are generally not obligated or required to pay dividends on
Preferred Stock and no such dividends can be paid unless they
are declared by our board of directors out of funds legally
available for payment.
WILL THE COMMON
STOCK TO BE ISSUED IN THE EXCHANGE OFFER BE LISTED FOR
TRADING?
We will file an application with the NYSE to list the shares of
our Common Stock to be issued in the Exchange Offer. For more
information regarding the market for our Common Stock, see
Market Price, Dividend and Distribution Information.
IS THE
CORPORATION MAKING A RECOMMENDATION REGARDING WHETHER I SHOULD
TENDER IN THE EXCHANGE OFFER?
We are not making any recommendation regarding whether you
should tender or refrain from tendering your Preferred Stock in
the Exchange Offer. Accordingly, you must make your own
determination as to whether to tender your Preferred Stock in
the Exchange Offer and, if so, the number of shares of Preferred
Stock to tender. Before making your decision, we urge you to
carefully read this prospectus in its entirety, including the
information set forth in the Risk Factors section of
this prospectus and all documents incorporated by reference
herein.
WILL I HAVE TO
PAY ANY FEES OR COMMISSIONS IF I TENDER MY PREFERRED
STOCK?
Tendering holders are not obligated to pay brokerage fees or
commissions to us or to the Dealer Manager, the Exchange Agent
or the Information Agent. If your shares of Preferred Stock are
held through a broker, securities dealer, custodian, commercial
bank, trust company or other nominee who tenders the Preferred
Stock on your behalf, your broker, securities dealer, custodian,
commercial bank, trust company or other nominee may charge you a
commission for doing so. You should consult with your broker,
securities dealer, custodian, commercial bank, trust company or
other nominee to determine whether any charges will apply.
WILL THE
CORPORATION RECEIVE ANY CASH PROCEEDS FROM THE EXCHANGE
OFFER?
No. The Corporation will not receive any cash proceeds from the
Exchange Offer.
WILL THE EXCHANGE
OFFER TRIGGER ANY ANTI-DILUTION RIGHTS?
Both BNS and the U.S. Treasury have anti-dilution rights.
Pursuant to the terms of the Stockholder Agreement, dated
August 24, 2007, by and between us and BNS (the
Stockholder Agreement), for as long as BNS
beneficially owns at least 5% of our outstanding Common Stock,
BNS has an anti-dilution right and a right of first refusal. For
example, if we were to issue all 256,401,610 shares of
Common Stock in the Exchange Offer, BNS would be entitled under
its anti-dilution right to acquire up to 28,476,121 additional
shares of our Common Stock at a price equal to the price per
share at which the shares of our Common Stock were issued in the
Exchange Offer, subject to the
12
Questions and
Answers about the Exchange Offer
consent of the Federal Reserve. If BNS declines to exercise any
part of its anti-dilution right and we issue
256,401,610 shares of Common Stock in the Exchange Offer,
BNSs beneficial ownership would be reduced to
approximately 2.65%. See Agreement with The Bank of Nova
Scotia.
In addition, the U.S. Treasury has an anti-dilution right
relating to the warrant that it acquired at the same time that
it acquired shares of our Series F Preferred Stock in
January 2009. This right will be triggered if the value of the
Preferred Stock exchanged for Common Stock in the Exchange
Offer, as determined by our board of directors, is equal to less
than 90% of the market value of the Common Stock as determined
pursuant to the terms of the warrant. At the time we exchanged
the Series F Preferred Stock for Series G Preferred
Stock, we issued to the U.S. Treasury an amended and restated
warrant to replace the original warrant. Like the original
warrant, the amended and restated warrant has an anti-dilution
right that requires an adjustment to the exercise price for, and
the number of shares underlying, the warrant. This adjustment
will be necessary under various circumstances, including if we
issue shares of Common Stock for consideration per share that is
lower than the initial conversion price of the Series G
Preferred Stock, or $0.7252. See Agreement with the U.S.
Treasury.
WILL THE EXCHANGE
OFFER AFFECT OUR REGULATORY CAPITAL RATIOS?
No. The Exchange Offer itself will not affect our Total capital
or Tier 1 capital. These ratios will only be affected if
BNS exercises its anti-dilution right under the Stockholder
Agreement and acquires shares of our Common Stock. See
Agreement with The Bank of Nova Scotia. However, the
Exchange Offer will improve our tangible common equity ratio and
our Tier 1 common equity to risk-weighted assets ratio,
which are non-GAAP financial measures used by financial
analysts, investment bankers and others to evaluate capital
adequacy.
WILL THE
CORPORATION NEED TO RAISE ADDITIONAL CAPITAL AFTER THE
COMPLETION OF THE EXCHANGE OFFER?
We also intend to conduct a Capital Raise, given the continuing
difficult economic conditions in Puerto Rico and the other
markets in which we operate and the potential for future credit
losses. Even if we are able to complete a Capital Raise, the
Corporation expects to undertake additional efforts to raise
capital through a rights offering and possibly a sale of
additional shares of Common Stock in an offering later in 2010.
No assurance can be given that any of these additional offerings
will be completed.
If BNS continues to own at least 5% of our outstanding shares of
Common Stock at the time of any such sale of Common Stock, it
can exercise its anti-dilution right and right of first refusal
in connection with any such offering. No assurance can be given
that any issuance of shares of Common Stock in an offering will
be possible at an acceptable price, or that BNS will exercise
its anti-dilution right or right of first refusal in the event
of an offering, or that the Federal Reserve will approve any
such purchase by BNS. If BNS exercises its anti-dilution right
or right of first refusal in connection with an offering, the
NYSE listing requirements may require us to, once again, seek
stockholder approval of the issuance of shares of our Common
Stock to BNS. See Agreement with The Bank of Nova
Scotia.
WHAT ARE THE TAX
CONSEQUENCES OF MY PARTICIPATING IN THE EXCHANGE
OFFER?
We anticipate that no gain or loss will be recognized upon
completion of the Exchange Offer by any persons subject to
United States federal or Puerto Rico income tax.
WHO CAN I TALK TO
IF I HAVE QUESTIONS?
If you have questions regarding the Exchange Offer, please
contact the Dealer Manager or the Information Agent at the
addresses and telephone numbers included on the back cover of
this prospectus.
13
Summary
The following summary highlights material information
contained in this prospectus. It may not contain all of the
information that is important to you and is qualified in its
entirety by the more detailed information included or
incorporated by reference into this prospectus. Before deciding
to exchange your securities for shares of our Common Stock, you
should carefully consider the information contained in or
incorporated by reference into this prospectus, including the
information set forth under the heading Risk Factors
starting on page 26 in this prospectus.
THE
CORPORATION
First BanCorp is a publicly-owned financial holding company that
is subject to regulation, supervision and examination by the
Federal Reserve. The Corporation was incorporated under the laws
of the Commonwealth of Puerto Rico to serve as the bank holding
company for FirstBank Puerto Rico (FirstBank or the
Bank). The Corporation controls two wholly-owned
subsidiaries: FirstBank and FirstBank Insurance Agency, Inc.
(FirstBank Insurance Agency), through which we
operate a total of 176 branches, stand-alone offices and
in-branch service centers throughout Puerto Rico, the United
States and British Virgin Islands and the state of Florida
specializing in commercial banking, residential mortgage loan
originations, finance leases, personal loans, small loans, auto
loans and insurance agency services. FirstBank is a Puerto
Rico-chartered commercial bank and FirstBank Insurance Agency is
a Puerto Rico-chartered insurance agency. FirstBank is subject
to the supervision, examination and regulation of both the
Office of the Commissioner of Financial Institutions of the
Commonwealth of Puerto Rico and the FDIC. Deposits are insured
through the FDIC Deposit Insurance Fund. In addition, within
FirstBank, the operations in the U.S. Virgin Islands are
subject to regulation and examination by the United States
Virgin Islands Banking Board; in the British Virgin Islands,
operations are subject to regulation by the British Virgin
Islands Financial Services Commission. As of June 30, 2010,
First BanCorp had approximately $18.1 billion in assets,
$12.7 billion in deposits and $1.4 billion in
stockholders equity.
The Corporations principal executive offices are located
at 1519 Ponce de Leon Avenue, Stop 23, Santurce, Puerto Rico
00908, and its telephone number is
(787) 729-8200.
REGULATORY
AGREEMENTS
The Corporation entered into the Agreement with the Fed dated
June 3, 2010 and our subsidiary, FirstBank, agreed to the
Order with the FDIC and the OCIF dated June 2, 2010.
Pursuant to these Agreements, the Corporation and FirstBank have
agreed to take certain actions designed to improve their
financial condition. These actions include the adoption and
implementation of various plans, procedures and policies related
to their capital, lending activities, liquidity and funds
management and strategy. In addition, the Order requires
FirstBank to develop and adopt a plan to attain a leverage ratio
of at least 8%, a Tier 1 capital to risk-weighted assets
ratio of at least 10% and a Total capital to
risk-weighted
assets ratio of at least 12%, and obtain approval prior to
issuing, increasing, renewing or rolling over brokered deposits.
The Agreement also requires the Corporation to obtain the
approval of the Fed prior to paying dividends, receiving
dividends from FirstBank, incurring, increasing or guaranteeing
any debt, or purchasing or redeeming any stock, to comply with
certain notice provisions prior to appointing any new directors
or senior executive officers and to comply with certain
restrictions on severance payments and indemnification.
Concurrently with the issuance by the FDIC of its Order, the
FDIC granted FirstBank a temporary waiver through June 30,
2010 to enable it to continue accessing the brokered deposit
market. FirstBank has obtained an additional waiver through
September 30, 2010. FirstBank will request waivers for
future periods although no assurance can be given that the FDIC
will continue to issue such waivers. Any failure to obtain a
future waiver would have a significantly adverse effect on
FirstBank, which has relied on brokered deposits to fund a major
part of its operations and had, as of June 30, 2010,
$7.1 billion in brokered deposits outstanding, representing
approximately 56% of our total deposits. For more information
about the Agreements, see Regulatory Agreements.
14
THE EXCHANGE
OFFER
We decided to conduct this Exchange Offer to improve our capital
structure given the continuing difficult economic conditions in
the markets in which we operate and the evolving regulatory
environment. We must increase our common equity to provide
additional protection against the future recognition of
additional loan loss reserves against our loan portfolio and
credit losses associated with the disposition of non-performing
assets due to the current economic situation in Puerto Rico and
the United States that has impacted the Corporations asset
quality and earnings performance. Total non-performing loans to
total loans increased to 12.40% as of June 30, 2010 from
11.23% as of December 31, 2009 and from 8.94% as of
June 30, 2009. The Exchange Offer will strengthen our
capital position if it is successful. Our Tier 1 capital
will only be affected if BNS decides to exercise its
anti-dilution right under the Stockholder Agreement and acquires
shares of our Common Stock. See Agreement with The Bank of
Nova Scotia. The Exchange Offer will improve the
Corporations Tier 1 common equity to risk-weighted
assets ratio and tangible common equity to tangible assets
ratio, which, as of June 30, 2010, were 2.86% and 2.57%,
respectively. If 70% of our outstanding shares of Preferred
Stock is exchanged in the Exchange Offer, which is the
Corporations targeted success rate for the Exchange Offer,
our Tier 1 common equity ratio and tangible common equity
ratio as of June 30, 2010 on a pro forma basis after giving
effect to the Exchange Offer would have been 5.92% and 4.70%,
respectively. Our Tier 1 common equity would be
strengthened by $385 million based on a 70% success rate
for the exchange. See Regulatory and Other Capital
Ratios Reconciliation of Tangible Common Equity and
Tangible Assets and Regulatory and Other Capital
Ratios Reconciliation of Common Stockholders
Equity (GAAP) to Tier 1 Common Equity (Non-GAAP). We
believe that the Exchange Offer will enhance our long-term
financial stability and improve our ability to operate in the
current economic environment. In addition, it will improve our
ability to access the capital markets in order to fund strategic
initiatives or other business needs and to absorb any future
credit losses. See The Exchange OfferPurpose of the
Exchange Offer. Finally, if holders of $385 million
of the liquidation preference of the Preferred Stock tender
their shares of Preferred Stock in the Exchange Offer, we raise
$500 million of additional capital, and the holders of our
Common Stock approve amendments to our Articles of
Incorporation, within nine months of the July 7, 2010 date
of our agreement with the U.S. Treasury, we will meet the
substantive conditions necessary for us to compel the
U.S. Treasury to convert into Common Stock the shares of a
new series of Series G Preferred Stock that we issued to
the U.S. Treasury in exchange for the $400 million
liquidation value of our Series F Preferred Stock, and
accrued and unpaid dividends. See Agreement with the
U.S. Treasury.
ADDITIONAL
EFFORTS THE CORPORATION IS TAKING TO IMPROVE ITS
CAPITAL
We have assured our regulators that we are committed to raising
capital and we have submitted capital plans to our regulators
regarding how we plan to raise capital. In addition to this
Exchange Offer, we have been taking steps to implement
strategies to increase tangible common equity and regulatory
capital through (1) a Capital Raise, (2) the
conversion into Common Stock of the shares of Series G
Preferred Stock, subject to the satisfaction of the conditions
to such conversion, and (3) a rights offering to common
stockholders. With respect to a Capital Raise, we are seeking to
raise at least $500 million of equity because we believe
that amount would enable us to absorb possible additional losses
based on a worst case evaluation of possible losses over the
next five years while maintaining the capital ratios required
for a well-capitalized financial institution as well as those
required by the FDICs Order. We expect to amend this
Prospectus to disclose any material developments relating to a
Capital Raise that occur prior to the expiration date of the
Exchange Offer. If we complete a Capital Raise, we expect to
issue rights to the holders of our currently outstanding
92,542,722 shares of Common Stock that entitle them to
acquire one share of Common Stock for each share of Common Stock
they own at a price equal to the purchase price in a Capital
Raise. No assurance can be given that we will complete a Capital
Raise, the conversion of the Series G Preferred Stock or a
rights offering.
Our inability to complete the Exchange Offer would hinder our
efforts to sell Common Stock in a Capital Raise. If we need to
continue to recognize significant reserves and we cannot
complete a Capital
15
Raise, the Corporation 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 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. In addition to a Capital Raise, the capital plans
contemplate alternative capital preservation strategies,
including among other things, an accelerated deleverage strategy
and the divesture of profitable businesses. If, at the end of
any quarter, we do not comply with any specified minimum capital
ratios, we must notify our regulators. The Corporation must
notify the Fed within 30 days of the end of any quarter of
its inability to comply with a capital ratio requirement and
submit an acceptable written plan that details the steps it 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 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 any outstanding preferred stock would rank senior to
the holders of our Common Stock with respect to rights upon any
liquidation of the Corporation.
AGREEMENT WITH
THE U.S. TREASURY RELATING TO THE CONVERSION OF THE
SERIES G PREFERRED STOCK
On July 20, 2010, we issued to the U.S. Treasury
shares of Series G Preferred Stock in exchange for our
Series F Preferred Stock, which had a liquidation
preference of $400 million, and accrued and unpaid
dividends on the Series F Preferred Stock. The
Series G Preferred Stock has similar terms (including the
same liquidation preference), but is convertible, as described
below, into approximately 380.2 million shares of Common
Stock based on an initial conversion rate of
896.3045 shares of Common Stock for each share of
Series G Preferred Stock (calculated by dividing $650, or a
discount of 35% from the $1,000 liquidation preference per share
of Series G Preferred Stock, by the initial conversion
price of $0.7252 per share, which is subject to adjustment). See
Agreement with the U.S. Treasury.
IMPACT OF
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK ON
PARTICIPANTS IN THE EXCHANGE OFFER
Participants in the Exchange Offer would be significantly
diluted if we issue additional shares of Common Stock other than
through the Exchange Offer. These additional issuances include:
(i) the possible issuance of shares of Common Stock in a
Capital Raise at a price significantly below the book value per
share of Common Stock as of June 30, 2010 of $5.48;
(ii) the possible issuance of shares of Common Stock upon
conversion of the Series G Preferred Stock; and
(iii) the possible issuance of additional shares of Common
Stock to BNS pursuant to its anti-dilution right, subject to the
consent of the Federal Reserve (see Agreement with The
Bank of Nova Scotia).
Our issuance of 256,401,610 shares of Common Stock in the
Exchange Offer would reduce on a pro forma basis our loss per
share for the six-month period ended June 30, 2010 from
$2.27 to $0.60 and our book value per share as of June 30,
2010 from $5.48 to $3.03. If, subsequent to our issuance of
256,401,610 shares of Common Stock in the Exchange Offer,
we were to issue shares of Common Stock to the
U.S. Treasury upon conversion of the Series G
Preferred Stock, to investors in a Capital Raise and to BNS, we
estimate that we would issue approximately 1.43 billion
additional shares based on (i) our agreement with the
U.S. Treasury and (ii) a sale in a Capital Raise of
$500 million at a per-share price of $0.57, the market
price of our Common Stock on July 14, 2010. Accordingly,
our loss per share for the six-month period ended June 30,
2010 and our book value per share as of June 30, 2010 would
be reduced on a pro forma basis to $0.12 and $1.16,
respectively. Such additional issuances of shares of Common
Stock would decrease the voting power of participants in the
Exchange Offer from 73% after the completion of the Exchange
Offer, assuming all of the Preferred Stock is tendered, to 14%
if approximately 1.68 billion shares of Common Stock
are issued in a Capital Raise, to the U.S. Treasury and to
BNS upon its exercise in full of its anti-dilution right.
Finally, the additional issuances of shares of Common Stock may
adversely impact the market price of our Common Stock.
16
The participants in the Exchange Offer may also experience
additional dilution upon the exercise by the U.S. Treasury
of its warrant. The Corporation has outstanding a warrant held
by the U.S. Treasury to purchase 5,842,259 shares of
Common Stock. If this warrant is exercised, the issuance of
shares of Common Stock would further reduce the loss per share,
book value per share and voting power of the participants in the
Exchange Offer. In addition, as of June 30, 2010, there are
approximately 2,073,200 shares of Common Stock underlying
options granted to employees pursuant to the 1997 Stock Option
Plan. The holders of these options are unlikely to exercise
their options because the weighted average exercise price was
$13.24 as of June 30, 2010.
At this time, we expect that any investor in a Capital Raise
would acquire less that 10% of our outstanding shares to avoid
being considered a bank holding company under the Bank Holding
Company Act of 1956. If the Series G Preferred Stock is
converted into Common Stock, the U.S. Treasury would acquire
approximately 21% of our Common Stock, assuming approximately
1.68 billion shares are issued in the Exchange Offer, in
the Capital Raise, to the U.S. Treasury and to BNS. Any
such ownership would give the U.S. Treasury the ability to
influence stockholder matters in a manner that may conflict with
the interests of other holders of Common Stock.
REGULATORY AND
OTHER CAPITAL
RATIOS(1)
The following table sets forth our capital ratios as of
June 30, 2010 on an as reported basis, as well
as on a pro forma basis after giving effect to the Exchange
Offer. The pro forma ratios presented reflect
(i) completion of the Exchange Offer under the Low
Participation Scenario and (ii) completion of the Exchange
Offer under the High Participation Scenario. This table should
be read in conjunction with the information set forth under
Selected Financial Data, Unaudited Pro Forma
Financial Information, Regulatory and Other Capital
Ratios and our consolidated audited financial statements
set forth in our
Form 10-Q
for the quarter ended June 30, 2010, which are incorporated
by reference into this prospectus. See also Risk
Factors.
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As of
June 30, 2010
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Pro forma for
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Pro forma for
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Exchange Offer
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Exchange Offer
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As
reported
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(Low)(2)
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(High)(3)
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Total capital (Total capital to risk-weighted assets)
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13.35
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%
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13.35
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%
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13.35
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%
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Tier 1 capital ratio (Tier 1 capital to
risk-weighted assets)
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12.05
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12.05
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12.05
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Leverage (Tier 1 capital to average assets)
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8.14
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8.14
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8.14
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Tangible common equity (Tangible common equity to tangible
assets)
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2.57
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4.09
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5.31
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Tier 1 common (Tier 1 common equity to
risk-weighted assets)
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2.86
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5.05
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6.80
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(1) |
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The tangible common equity ratio is a non-GAAP financial
measure. It is not prepared in accordance with generally
accepted accounting principles in the United States
(GAAP). The tangible common equity ratio is
generally used by financial analysts and investment bankers to
evaluate capital adequacy. The ratio of Tier 1 common
equity to risk-weighted assets is a non-GAAP financial measure
used by the Federal Reserve in connection with the stress test
administered to the 19 largest U.S. bank holding companies
under the SCAP, the results of which were announced on
May 7, 2009. For a reconciliation of these non-GAAP
financial measures to U.S. GAAP, see Regulatory and
Other Capital Ratios Reconciliation of Tangible
Common Equity and Tangible Assets and Regulatory and
Other Capital Ratios Reconciliation of Common
Stockholders Equity (GAAP) to Tier 1 Common Equity
(Non-GAAP). |
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(2) |
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The Low Participation Scenario assumes
(i) the exchange of 50% of the outstanding shares of
Preferred Stock ($275.05 million aggregate liquidation
preference) for 128,200,805 shares of our Common Stock, and
(ii) a Relevant Price of $1.18 per share. |
17
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(3) |
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The High Participation Scenario assumes
(i) the exchange of 90% of the outstanding shares of
Preferred Stock ($495.09 million aggregate liquidation
preference) for 230,761,449 shares of our Common Stock, and
(ii) a Relevant Price of $1.18 per share. |
DIVIDEND
SUSPENSION ON COMMON STOCK AND PREFERRED STOCK
On July 30, 2009, we announced the suspension of dividends
on our Common Stock, Preferred Stock and previously outstanding
Series F Preferred Stock effective with the preferred
dividend for August 2009. We are generally not obligated or
required to pay dividends on our Common Stock or preferred stock
and no such dividends can be paid unless they are declared by
our board of directors out of funds legally available for
payment. Moreover, the Agreement with the Fed requires us to
obtain its approval before we pay any dividends. Furthermore,
our board of directors cannot declare, set apart or pay any
dividends on shares of our Common Stock unless (i) any
accrued and unpaid dividends on our Preferred Stock for the
twelve monthly dividend periods ending on the immediately
preceding dividend payment date have been paid or are paid
contemporaneously and the full monthly dividend on our Preferred
Stock for the then current month has been or is
contemporaneously declared and paid or declared and set apart
for payment and, (ii) with respect to our Series G
Preferred Stock, any accrued and unpaid dividends for past
dividend periods, including the latest completed dividend
period, on all outstanding shares of Series G Preferred
Stock have been declared and paid in full.
ANTI-DILUTION
RIGHTS THAT MAY BE TRIGGERED BY THE EXCHANGE OFFER
Both BNS and the U.S. Treasury have anti-dilution rights.
BNSs anti-dilution right will be triggered by the Exchange
Offer. If BNS exercises its anti-dilution right, BNS would be
entitled to acquire up to that number of shares of Common Stock
that would enable it to maintain its percentage interest in the
Corporation, or up to 28,476,121 additional shares of our Common
Stock if we issue 256,401,610 shares in the Exchange Offer,
at a price equal to the price per share at which the shares of
our Common Stock were issued in the Exchange Offer. The U.S.
Treasury has an anti-dilution right relating to the warrant that
it acquired at the same time that it acquired shares of our
Series F Preferred Stock in January 2009. This right will
be triggered if the value of the Preferred Stock exchanged for
Common Stock in the Exchange Offer, as determined by our board
of directors, is equal to less than 90% of the market value of
the Common Stock as determined pursuant to the terms of the
warrant. At the time we exchanged the Series F Preferred
Stock for Series G Preferred Stock, we issued to the U.S.
Treasury an amended and restated warrant to replace the original
warrant. Like the original warrant, the amended and restated
warrant has an anti-dilution right that requires an adjustment
to the exercise price for, and the number of shares underlying,
the warrant. This adjustment will be necessary under various
circumstances, including if we issue shares of Common Stock for
consideration per share that is lower than the initial
conversion price of the Series G Preferred Stock, or
$0.7252. See Agreement with the U.S. Treasury
and Agreement with The Bank of Nova Scotia.
18
Summary of Terms of
the Exchange Offer
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Exchange Offer |
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We are offering to issue up to 256,401,610 newly issued shares
of our Common Stock in exchange for any and all of the issued
and outstanding shares of Preferred Stock, validly tendered and
not validly withdrawn on or prior to the expiration date, upon
the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal
(including, if the Exchange Offer is extended or amended, the
terms and conditions of any such extension or amendment). |
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For each share of Preferred Stock that we accept for exchange in
accordance with the terms of the Exchange Offer, we will issue a
number of shares of our Common Stock having the aggregate dollar
value (based on the Relevant Price) equal to the Exchange Value
set forth in the table below. |
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Depending on the trading price of our Common Stock compared
to the Relevant Price, the market value of the Common Stock we
issue in exchange for each share of Preferred Stock we accept
for exchange may be less than, equal to or greater than the
applicable Exchange Value referred to below. |
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Set forth below is a table that shows, with respect to each
series of Preferred Stock, the aggregate liquidation preference
outstanding, the liquidation preference per share of Preferred
Stock and the applicable Exchange Value for each series. |
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Aggregate
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liquidation
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Liquidation
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preference
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preference
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Exchange
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CUSIP
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Title
of securities
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outstanding
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per
share
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Value
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318672201
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7.125% Noncumulative Perpetual Monthly Income Preferred Stock,
Series A
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$90,000,000
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$
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25
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$
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13.75
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318672300
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8.35% Noncumulative Perpetual Monthly Income Preferred Stock,
Series B
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$75,000,000
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$
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25
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$
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13.75
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318672409
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7.40% Noncumulative Perpetual Monthly Income Preferred Stock,
Series C
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$103,500,000
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$
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25
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$
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13.75
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318672508
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7.25% Noncumulative Perpetual Monthly Income Preferred Stock,
Series D
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$92,000,000
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$
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25
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$
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13.75
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318672607
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7.00% Noncumulative Perpetual Monthly Income Preferred Stock,
Series E
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$189,600,000
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$
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25
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$
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13.75
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See The Exchange OfferTerms of the Exchange
Offer and The Exchange OfferProcedures for
Tendering Shares of Preferred Stock. |
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Purpose of the Exchange Offer |
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We are conducting this Exchange Offer to improve our capital
structure given the continuing difficult economic conditions in
the markets in which we operate and the evolving regulatory
environment. We believe that the Exchange Offer will enhance our
long-term financial stability and improve our ability to operate
in the current economic environment. In addition, it will
improve our ability to access the capital markets in order to
fund strategic initiatives or other business needs and to |
19
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absorb any future credit losses. Finally, if holders of
$385 million of the liquidation preference of the Preferred
Stock tender their shares of Preferred Stock in the Exchange
Offer, we raise $500 million of additional capital, and the
holders of our Common Stock approve amendments to our Articles
of Incorporation, within nine months of the July 7, 2010
date of our agreement with the U.S. Treasury, we will meet
the substantive conditions necessary for us to compel the
U.S. Treasury to convert into Common Stock the shares of
Series G Preferred Stock that we issued to the
U.S. Treasury in exchange for the $400 million
liquidation value of our Series F Preferred Stock, and
accrued and unpaid dividends. See Agreement with the
U.S. Treasury. |
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Consideration Offered in the Exchange Offer |
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We are offering to exchange up to 256,401,610 newly issued
shares of our Common Stock for outstanding shares of Preferred
Stock, on the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal. |
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As of August 13, 2010, we had approximately
92.5 million shares of Common Stock outstanding. |
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Our acceptance of validly tendered shares of Preferred Stock for
exchange is subject to the terms and conditions of the Exchange
Offer. We will promptly return any securities that are not
accepted for exchange, such as, because the tender is not in
proper form or our acceptance of the tender would be unlawful,
in our opinion, following the expiration of the Exchange Offer.
We will promptly return all tendered securities following
termination of the Exchange Offer. |
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For each share of Preferred Stock that we accept for exchange in
accordance with the terms of the Exchange Offer, we will issue a
number of shares of our Common Stock having the aggregate dollar
value (based on the Relevant Price) equal to the Exchange Value
set forth in the table under The Exchange OfferTerms
of the Exchange OfferOffer Consideration, subject to
the Minimum Share Price limitation. |
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Depending on the trading price of our Common Stock compared
to the Relevant Price described above, the market value of the
Common Stock we issue in exchange for each share of Preferred
Stock we accept for exchange may be less than, equal to or
greater than the relevant Exchange Value referred to above. |
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If the Minimum Share Price is used to determine the exchange
ratio, 11.6525 shares of Common Stock will be issued in
exchange for each share of Preferred Stock that we accept for
tender in the Exchange Offer; the market value of those shares
will be less than the applicable Exchange Value if the trading
price of our Common Stock is below $1.18 per share. |
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We are not making a recommendation as to whether you should
exchange your shares of Preferred Stock in the |
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Exchange Offer. We have not retained, and do not intend to
retain, any unaffiliated representatives to act solely on behalf
of the holders of the shares of Preferred Stock for purposes of
negotiating the Exchange Offer or preparing a report concerning
the fairness of the Exchange Offer. You must make your own
independent decision regarding your participation in the
Exchange Offer. |
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Publication of Exchange Ratio Information |
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Throughout the Exchange Offer, the indicative average VWAP, the
Minimum Share Price, the resultant indicative Relevant Price,
and the indicative exchange ratios will be available at
www.firstbankpr.com, by clicking on Exchange Offer in the
Investor Relations section at this address, and from the
Information Agent, at one of its numbers listed on the back
cover page of this prospectus. We will announce the final
exchange ratio for each series of Preferred Stock prior to
9:00 a.m., New York City time, on the business day
immediately succeeding the second business day prior to the
expiration date of the Exchange Offer, and those final exchange
ratios will also be available by that time at
www.firstbankpr.com, by clicking on Exchange Offer in the
Investor Relations section at this address, and from the
Information Agent. No additional information on our website is
deemed to be part of or incorporated by reference into this
prospectus. |
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Expiration Date |
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The Exchange Offer will expire at 11:59 p.m., New York City
time, on August 24, 2010 unless the Exchange Offer is
extended or earlier terminated by us. The term expiration
date means such date and time or, if an Exchange Offer is
extended, the latest date and time to which the Exchange Offer
is so extended. |
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Fractional Shares |
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We will not issue fractional shares of our Common Stock in the
Exchange Offer and no cash will be paid for fractional shares.
Instead, the number of shares of Common Stock received by each
holder whose shares of Preferred Stock are accepted for exchange
in the Exchange Offer will be rounded down to the nearest whole
number. |
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Settlement Date |
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The settlement date with respect to the Exchange Offer will be a
date promptly following the expiration date. We currently expect
the settlement date to be three trading days after the
expiration date. |
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Withdrawal Rights |
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You may withdraw previously tendered shares of Preferred Stock
at any time before the expiration date of the Exchange Offer. In
addition, you may withdraw any shares of Preferred Stock that
you tender that are not accepted by us for exchange after the
expiration of 40 business days after the commencement of the
Exchange Offer. See The Exchange OfferWithdrawal of
Tenders. |
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Conditions to the Exchange Offer |
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Our obligation to issue shares of our Common Stock in exchange
for shares of Preferred Stock in the Exchange Offer is subject
to a number of conditions that must be satisfied or |
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waived by us, including, among others, (i) pursuant to
NYSE listing requirements, the approval by the holders of our
Common Stock to the issuance of up to 256,401,610 shares of
Common Stock upon the exchange of Preferred Stock in the
Exchange Offer, (ii) the approval by the holders of our
Common Stock of an amendment to our Articles of Incorporation to
reduce the par value of a share of Common Stock from $1.00 to
$0.10 per share, if necessary to issue shares of Common Stock in
the Exchange Offer (the reduction will be necessary to complete
the Exchange Offer if, for example, the market value of a share
of Preferred Stock tendered in the exchange is less than $10 at
a time when the market value of the Common Stock would result in
the issuance of more than 10 shares per tendered share of
Preferred Stock), and (iii) the absence of any change or
development (affecting our business or otherwise) that in our
reasonable judgment may materially reduce the anticipated
benefits to us of the Exchange Offer or that has had, or could
reasonably be expected to have, a material adverse effect on us
or our businesses, financial condition, operations or prospects.
See The Exchange OfferConditions of the Exchange
Offer. |
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Extensions; Waivers and Amendments; Termination |
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Subject to applicable law, we reserve the right to:
(1) extend the Exchange Offer; (2) waive any and all
conditions to or amend the Exchange Offer in any respect,
including amending the Exchange Value or the Minimum Share
Price; or (3) terminate the Exchange Offer. Any extension,
waiver, amendment or termination will be followed as promptly as
practicable by a public announcement thereof, such announcement
in the case of an extension to be issued no later than
9:00 a.m., New York City time, on the next business day
after the last previously scheduled expiration date. See
The Exchange OfferExpiration Date; Extension;
Termination; Amendment. |
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Procedures for Tendering Shares of Preferred Stock |
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Certain shares of Preferred Stock were issued in book-entry
form, and are currently represented by one or more global
certificates held for the account of DTC. If your securities are
book entry securities, you may tender your shares of Preferred
Stock by transferring them through ATOP or following the other
procedures described under The Exchange
OfferProcedures for Tendering Shares of Preferred
Stock. |
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If you hold your shares of Preferred Stock through a broker,
securities dealer, custodian, commercial bank, trust company or
other nominee, in order to validly tender your shares of
Preferred Stock in the Exchange Offer, you must follow the
instructions provided by your broker, securities dealer,
custodian, commercial bank, trust company or other nominee with
regard to procedures for tendering, in order to enable your
broker, securities dealer, custodian, commercial bank, trust
company or other nominee to comply with the procedures described
below. |
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Beneficial owners are urged to instruct appropriately their
broker, securities dealer, custodian, commercial bank, trust |
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company or other nominee at least five business days prior to
the expiration date in order to allow adequate processing time
for their instruction. |
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In order for a broker, securities dealer, custodian, commercial
bank, trust company or other nominee to tender validly your
shares of Preferred Stock in the Exchange Offer, such broker,
securities dealer, custodian, commercial bank, trust company or
other nominee must deliver to the Exchange Agent an electronic
message that will contain: |
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Ø your
acknowledgment and agreement to, and agreement to be bound by,
the terms of the accompanying letter of transmittal; and
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Ø a
timely confirmation of book-entry transfer of your shares of
Preferred Stock into the Exchange Agents account.
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Should you have any questions as to the procedures for tendering
your shares of Preferred Stock, please call your broker,
securities dealer, custodian, commercial bank, trust company or
other nominee; or call the Information Agent. |
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On the date of any tender for exchange, if your interest in
shares of Preferred Stock is in certificated form, you must do
each of the following in order to validly tender for exchange: |
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Ø complete
and manually sign the accompanying letter of transmittal
provided by the Information Agent, or a facsimile of the letter
of transmittal, and deliver the signed letter to;
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Ø surrender
the certificates for your shares of Preferred Stock to the
Information Agent;
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Ø if
required, furnish appropriate endorsements and transfer
documents; and
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Ø if
required, pay all transfer or similar taxes.
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You may obtain copies of the required form of the letter of
transmittal from the Exchange Agent. |
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WE ARE NOT PROVIDING FOR GUARANTEED DELIVERY PROCEDURES AND,
THEREFORE, YOU MUST ALLOW SUFFICIENT TIME FOR THE NECESSARY
TENDER PROCEDURES TO BE COMPLETED DURING NORMAL BUSINESS HOURS
OF DTC ON OR PRIOR TO THE EXPIRATION DATE. |
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TENDERS RECEIVED BY THE EXCHANGE AGENT AFTER THE EXPIRATION
DATE WILL BE DISREGARDED AND HAVE NO EFFECT. |
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See The Exchange OfferProcedures for Tendering
Shares of Preferred Stock. |
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United States Federal Income Tax Considerations |
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For United States federal income tax purposes: (i) the
exchange of shares of Preferred Stock for shares of our Common
Stock |
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pursuant to the Exchange Offer will be treated as a
recapitalization within the meaning of Section 368(a)(1)(E)
of the Internal Revenue Code of 1986, as amended, and
(ii) it is intended that this prospectus, in combination
with the related letter of transmittal, will constitute a plan
of reorganization, within the meaning of Treasury
Regulation Section 1.368-2(g).
Therefore, we anticipate that no gain or loss will be recognized
upon completion of the Exchange Offer by any persons subject to
United States federal income tax. See Certain Material
U.S. Federal Income Tax Considerations. Each holder should
consult its own tax advisor regarding the U.S. federal, state,
local, and foreign income and other tax consequences of
exchanging shares of Preferred Stock for shares of our Common
Stock and of owning and disposing of shares of our Common Stock. |
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Puerto Rico Income Tax Considerations |
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For Puerto Rico income tax purposes: (i) the exchange of
the shares of Preferred Stock for shares of our Common Stock
pursuant to the Exchange Offer will be treated as a
recapitalization within the meaning of
Section 1112(g)(1)(E) of the Puerto Rico Internal Revenue
Code of 1994, as amended (the PR Code) and
(ii) it is intended that this prospectus, in combination
with the related letter of transmittal, will constitute a plan
of reorganization, within the meaning of
Article 1112(g)-2(i)
of the Regulations under the PR Code. Therefore, we anticipate
that no gain or loss will be recognized upon completion of the
Exchange Offer by any persons subject to Puerto Rico income tax.
See TaxationCertain Puerto Rico Tax
Considerations. Each holder should consult its own tax
advisor regarding the application to its particular
circumstances of the Puerto Rico income tax consequences as well
as the application of any, state, local and foreign income and
other tax consequences of exchanging the shares of Preferred
Stock for our Common Stock and of owning and disposing of our
Common Stock. |
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Consequences of Not Exchanging Shares of Preferred Stock |
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Shares of Preferred Stock not exchanged in the Exchange Offer
will remain outstanding after completion of the Exchange Offer.
The reduction in the number of shares available for trading
after completing the Exchange Offer, our suspension of the
payment of dividends on Preferred Stock since August 2009, our
inability to pay any dividends without Fed approval under the
Agreement, our delisting of any remaining shares of Preferred
Stock from trading on the NYSE and, to the extent permitted by
law, the deregistration of any such remaining shares under the
Exchange Act may have a significant and adverse effect on the
liquidity of any trading market for, and the price of, such
shares of Preferred Stock and may result in the shares of
Preferred Stock being illiquid for an indefinite period of time. |
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Comparison of Rights |
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There are material differences between the rights of holders of
our Common Stock and holders of preferred stock. See |
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Description and Comparison of Preferred Stock,
Series G Preferred Stock and Common Stock Rights. |
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Appraisal/Dissenters Rights |
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No appraisal or dissenters rights are available to holders
of shares of Preferred Stock under applicable law in connection
with the Exchange Offer. |
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Market Trading |
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Our Common Stock is traded on the NYSE under the symbol
FBP. The last reported closing price of our Common
Stock on August 17, 2010, the last trading day prior to the
date of this prospectus, was $0.52 per share. We will file an
application with the NYSE to list the shares of our Common Stock
to be issued in the Exchange Offer. The shares of Preferred
Stock are traded on the NYSE. After the completion of the
Exchange Offer, we intend to delist any remaining shares of our
Preferred Stock from trading on the NYSE. |
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Brokerage Commissions |
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No brokerage commissions are payable by the holders of the
shares of Preferred Stock to the Dealer Manager, the Exchange
Agent and Information Agent or us. |
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Soliciting Dealer Fee |
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With respect to any tender of a series of shares of Preferred
Stock, we will pay the relevant soliciting dealer a fee not to
exceed 0.50% of the aggregate liquidation preference or
liquidation amount, as applicable, of all securities accepted
for exchange. See The Exchange OfferSoliciting
Dealer Fee. |
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Dealer Manager |
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UBS Securities LLC |
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Exchange Agent and Information Agent |
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BNY Mellon Shareowner Services |
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Further Information |
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If you have questions about any of the terms of the Exchange
Offer, please contact the Dealer Manager or the Information
Agent. If you have questions regarding the procedures for
tendering your shares of Preferred Stock, please contact your
broker, securities dealer, custodian, commercial bank, trust
company or other nominee; or contact the Exchange Agent and
Information Agent. The contact information for the Dealer
Manager and the Information Agent and Exchange Agent is set
forth on the back cover page of this prospectus. |
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As required by the Securities Act of 1933, as amended, First
BanCorp filed a registration statement
(No. 333-165252)
relating to the Exchange Offer with the Securities and Exchange
Commission. This document is a part of that registration
statement, which includes additional information. See also
Where You Can Find More Information. |
25
Risk Factors
You should carefully consider the risks described below and
all of the information contained in or incorporated by reference
into this prospectus before you decide whether to participate in
the Exchange Offer.
RISK RELATING TO
OUR BUSINESS
Our banking
subsidiary is operating under a Consent Order with the FDIC and
OCIF and the Corporation is operating under a Written Agreement
with the Federal Reserve Bank of New York.
On June 4, 2010, we announced that FirstBank has agreed to
a Consent Order (the Order) issued by the FDIC and
OCIF dated June 2, 2010, and the Corporation has entered
into a Written Agreement with the Fed dated June 3, 2010
(collectively, the Agreements). These Agreements
stem from the FDICs examination as of the period ended
June 30, 2009 conducted during the second half of 2009.
Under the Order, the Bank has agreed to address specific areas
through the adoption and implementation of procedures, plans and
policies designed to improve the safety and soundness of the
Bank. These actions include, among others, that the Bank will
have and retain qualified management and have active Board
participation in the affairs of the Bank, develop and adopt a
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%, reduce the level of special
mention and classified assets and delinquent and non-accrual
loans, develop a funds management plan, which includes a
reduction in the reliance on brokered deposits, obtain approval
prior to the issuance of any brokered deposits and report
quarterly on the Banks progress in meeting the
requirements of the Order.
The Written Agreement, which is designed to enhance the
Corporations ability to act as a source of strength to the
Bank, requires that the Corporation obtain Fed approval before
paying dividends, receiving dividends from the Bank, making
payments on subordinated debt or trust preferred securities,
incurring or guaranteeing debt or purchasing or redeeming any
corporate stock. The Written Agreement also requires the
Corporation to submit to the Fed 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 these
Agreements, which may increase operational costs or adversely
affect the amount of time our management has to conduct our
operations. Our inability to complete the Exchange Offer or the
conversion of the Series G Preferred Stock into Common
Stock within the nine-month period required by our agreement
with the U.S. Treasury would hinder our efforts to sell
Common Stock in a Capital Raise. If we need to continue to
recognize significant reserves and we cannot complete a Capital
Raise, or cannot accomplish other alternate capital preservation
strategies contemplated, including among others, an accelerated
deleverage strategy and the divesture of profitable businesses
the Corporation 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. The Corporation must notify the Fed
within 30 days of the end of any quarter of its inability
to comply with a capital ratio requirement and submit an
acceptable written plan that details the steps it 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 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 any
26
Risk
Factors
outstanding preferred stock would rank senior to the holders of
our Common Stock with respect to rights upon any liquidation of
the Corporation. 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 the Bank. In many cases when a conservator or receiver is
appointed for a wholly-owned bank, the bank holding company
files for bankruptcy protection.
Additional
capital is necessary to assure future compliance with the
Agreements.
The Corporation must increase its common equity to provide
additional protection against future operating losses resulting
from the continuing adverse economic conditions in Puerto Rico
and the United States. If we are not able to increase our
capital or otherwise improve our financial condition in the near
term, we believe that it is likely that our regulators could
take additional regulatory action that could materially affect
our business, operations, financial condition, or results of
operations or the value of our Common Stock.
We will need
additional capital resources in the future and these capital
resources may not be available when needed or at all.
Due to 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, maintain adequate liquidity and
capital resources, finance future growth, investments or
strategic acquisitions and implement the capital plans required
by the Agreements. We have been taking steps to raise
$500 million of common equity. We cannot provide assurances
that such capital will be available on acceptable terms or at
all. If we are unable to obtain additional 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 believe that it is likely that our regulators
would take additional regulatory action that could have a
material adverse effect on our business, operations, financial
condition or results of operations or the value of our Common
Stock. In addition, without adequate capital, we may not be able
to maintain adequate liquidity and capital resources or to
finance future growth, make strategic acquisitions or
investments.
Certain funding
sources may not be available to us.
Our funding sources include core deposits, brokered deposits,
borrowings from the Federal Home Loan Bank and repurchase
agreements with several counterparties.
A large portion of FirstBanks funding is retail brokered
certificates of deposit (CDs). We issue brokered CDs
to, among other things, pay operating expenses, maintain our
lending activities, replace certain maturing liabilities, and
control interest rate risk. 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.
The Order we recently entered into requires us to obtain
approval prior to issuing, renewing or rolling over brokered CDs
and to develop a plan to reduce our reliance on brokered CDs.
Although the FDIC has issued temporary waivers through
September 30, 2010, no assurance can be given that we will
continue to receive such waivers or that such waivers will
enable us to issue brokered CDs in amounts that meet our 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, our results of operations and liquidity would be
adversely affected.
27
Risk
Factors
During 2009 and 2010, the Bank participated in liquidity
stimulus programs promoted by the U.S. Government. As
market conditions improved, the stimulus was gradually
withdrawn, and participating financial institutions have been
asked to shift to regular funding sources, and re-pay borrowings
such as Advances from the Federal Reserve Bank Discount Window.
Although the Fed no longer permits FirstBank to borrow from the
Discount Window for its regular funding needs, we believe that
continued access to our regular funding sources will enable the
Corporation to obtain adequate funds. The loss of access to the
Discount Window could adversely affect access to funds if these
other sources of funds prove to be inadequate.
We depend on cash
dividends from FirstBank to meet our cash obligations, but the
Agreement with the Fed prohibits the payment of such dividends
without prior Fed 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 Agreement, the Bank cannot pay
any cash dividends or other payments to the Corporation without
prior written approval of the Fed. Additionally, the Corporation
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
Fed. Our inability to receive dividends from FirstBank could
adversely affect our ability to fulfill our obligations in the
future.
Banking
regulators could take additional adverse action against
us.
We are subject to supervision and regulation by the Fed. We are
a bank holding company that qualifies as a financial holding
corporation. 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. As of
June 30, 2010, First BanCorp and FirstBank continue to
satisfy all applicable established capital guidelines.
Nevertheless, we agreed to regulatory actions by our banking
regulators that included, among other things, the submission of
a capital plan by FirstBank to comply with more stringent
capital requirements under an established time period proposed
by us 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. If we
were not to continue to qualify as a financial holding
corporation, we might be required to discontinue certain
activities and may be prohibited from engaging in new activities
without prior regulatory approval. Additional adverse action
against us by our primary regulators could adversely affect our
business.
Credit quality,
which is continuing to deteriorate, 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
its customers and counterparties and the value of the assets
securing its 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.
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. We
periodically review the allowance for loan and lease losses for
adequacy considering economic conditions and trends, collateral
values and credit quality indicators, including charge-off
experience and levels of past due loans and non-performing
assets. Our future
28
Risk
Factors
results may be materially and adversely affected by worsening
defaults and severity rates related to the underlying collateral.
We may have more
credit risk and higher credit losses due to our construction
loan portfolio.
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. Rapidly changing
collateral values, general 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.
We are subject to
default risk on loans, which may adversely affect our
results.
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
utilizes its best judgment in providing for loan losses, there
can be no assurance that management has accurately estimated the
level of inherent loan losses or that we will not have to
increase our provision for loan losses in the future as a result
of future increases in non-performing loans or for other reasons
beyond our control.
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, we can give no assurance that these borrowers will
continue to repay their loans on a timely basis or that we will
continue to be able to accurately assess any risk of loss from
the loans to these borrowers.
Changes in
collateral valuation for 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 U.S. Virgin Islands, British
Virgin Islands 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 South
Florida, we have been seeing the negative impact associated with
low absorption rates and property value adjustments due to
overbuilding. 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
29
Risk
Factors
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.
Shifts in short-term interest rates may reduce net interest
income, which is the principal component of our earnings. Net
interest income is the difference between the amount received by
us on our interest-earning assets and the interest paid by us on
its interest-bearing liabilities. When interest rates rise, we
must pay more in interest on our liabilities while the interest
earned on our assets does not rise as quickly, which may cause
our profits to decrease. This adverse impact on earnings is
greater when the slope of the yield curve flattens, that is,
when short-term interest rates increase more than long-term
rates.
Increases in
interest rates may reduce the value of holdings of
securities.
Fixed-rate securities acquired by us are generally subject to
decreases in market value when interest rates rise, which may
require recognition of a loss (e.g., the identification of
other-than-temporary
impairment on our available for sale or held to maturity
investments portfolio), thereby adversely affecting our results
of operations. Market-related reductions in value also affect
the capabilities of financing these securities.
Increases in
interest rates may reduce demand for mortgage and other
loans.
Higher interest rates increase the cost of mortgage and other
loans to consumers and businesses and may reduce demand for such
loans, which may negatively impact our profits by reducing the
amount of loan origination income.
Accelerated
prepayments may adversely affect net interest income.
Net interest income of future periods will be affected by our
decision to deleverage our investment securities portfolio to
preserve our capital position. Also, net interest income could
be affected by prepayments of mortgage-backed securities.
Acceleration in the prepayments of mortgage-backed securities
would lower yields on these securities, as the amortization of
premiums paid upon acquisition of these securities would
accelerate.
Conversely, acceleration in the prepayments of mortgage-backed
securities would increase yields on securities purchased at a
discount, as the amortization of the discount would accelerate.
These risks are directly linked to future period market interest
rate fluctuations. Also, net interest income in future periods
might be affected by our investment in callable securities.
Approximately $951 million of investment securities, mainly
U.S. Agency debentures, with an average yield of 2.10% were
called during the first half of 2010. As of June 30, 2010,
we had approximately $392 million in debt securities
(mainly U.S. agency securities) with embedded calls and
with an average yield of 2.26% (mainly securities with
contractual maturities of 2 to 3 years). However, we used
proceeds from called securities and invested some of its
liquidity in the second quarter of 2010 through the purchase of
approximately $1.9 billion of investment securities.
Changes in
interest rates may reduce net interest income due to basis
risk.
Basis risk occurs when market rates for different financial
instruments or the indices used to price assets and liabilities
change at different times or by different amounts. It is the
risk of adverse consequences resulting from unequal changes in
the difference, also referred to as the spread,
between two or more rates for different instruments with the
same maturity. The interest expense for liability instruments
30
Risk
Factors
such as brokered CDs at times does not change by the same amount
as interest income received from loans or investments. The
liquidity crisis that erupted in late 2008, and that slowly
began to subside during 2009, caused a wider than normal spread
between brokered CD costs and LIBOR rates for similar terms.
This, in turn, has prevented us from capturing the full benefit
of a decrease in interest rates, as the floating rate loan
portfolio re-prices with changes in the LIBOR indices, while the
brokered CD rates decreased less than the LIBOR indices. To the
extent that such pressures fail to subside in the near future,
the margin between our LIBOR-based assets and the higher cost of
the brokered CDs may compress and adversely affect net interest
income.
If all or a
significant portion of the unrealized losses in our investment
securities portfolio on our consolidated balance sheet were
determined to be
other-than-temporarily
impaired, we would recognize a material charge to our earnings
and our capital ratios would be adversely affected.
For the year ended December 31, 2009 and the first half of
2010, we recognized a total of $1.7 million in
other-than-temporary
impairments. To the extent that any portion of the unrealized
losses in our investment securities portfolio is determined to
be other-than-temporary and, in the case of debt securities, the
loss is related to credit factors, we recognize a charge to
earnings in the quarter during which such determination is made
and capital ratios could be adversely affected. If any such
charge is significant, a rating agency might downgrade our
credit rating or put it on credit watch. Even if we do not
determine that the unrealized losses associated with this
portfolio require an impairment charge, increases in these
unrealized losses adversely affect our tangible common equity
ratio, which may adversely affect credit rating agency and
investor sentiment towards us. This negative perception also may
adversely affect our ability to access the capital markets or
might increase our cost of capital. Valuation and
other-than-temporary
impairment determinations will continue to be affected by
external market factors including default rates, severity rates
and macro-economic factors.
Downgrades in our
credit ratings could further increase the cost of borrowing
funds.
Fitch Ratings Ltd. (Fitch) currently rates First
BanCorps and FirstBanks long-term senior debt
B−, six notches below investment grade.
Standard and Poors (S&P) rates First
BanCorp CCC+, or seven notches below investment
grade. Moodys Investor Service (Moodys)
rates FirstBanks long-term senior debt B3, and
S&P rates it CCC+. On June 4, 2010,
Moodys placed FirstBank on Credit Watch
Negative. Furthermore, on June 25, 2010, Fitch placed
First BanCorp and FirstBank on Credit Watch Negative.
We do not have any outstanding debt or derivative agreements
that would be affected by a credit downgrade. Our liquidity is
contingent upon our ability to obtain new external sources of
funding to finance our operations; however, our current credit
ratings and any future downgrades in credit ratings could hinder
our access to external funding
and/or cause
external funding to be more expensive, which could in turn
adversely affect the results of operations. Changes in credit
ratings may also affect the fair value of certain liabilities
and unsecured derivatives, measured at fair value in the
financial statements, for which our own credit risk is an
element considered in the fair value determination.
These debt and financial strength ratings are current opinions
of the rating agencies. As such, they may be changed, suspended
or withdrawn at any time by the rating agencies as a result of
changes in, or unavailability of, information or based on other
circumstances.
Our funding
sources may prove insufficient to replace deposits and support
future growth.
Our banking subsidiary, FirstBank, relies on customer deposits,
brokered deposits and advances from the Federal Home Loan Bank
(FHLB) to fund its operations. Although FirstBank
has historically been able to replace maturing deposits and
advances if desired, no assurance can be given that it would be
31
Risk
Factors
able to replace these funds in the future if our financial
condition or general market conditions were to change or the
FDIC did not approve our request to issue brokered CDs as
required by the Order. Our financial flexibility will be
severely constrained if FirstBank is unable to maintain access
to funding or if adequate financing is not available to
accommodate future growth at acceptable interest rates. Finally,
if we are required to rely more heavily on more expensive
funding sources to support future growth, revenues may not
increase proportionately to cover costs. In this case,
profitability would be adversely affected. Although we consider
such sources of funds adequate for our liquidity needs, we may
seek additional debt financing in the future to achieve our
long-term business objectives. There can be no assurance that
the Fed would approve such additional debt or that additional
borrowings, if sought, would be available to us or on what
terms. If additional financing sources are unavailable or are
not available on reasonable terms, our growth and future
prospects could be adversely affected.
Adverse credit
market conditions may affect our ability to meet liquidity
needs.
We need liquidity to, among other things, pay our operating
expenses and interest on our debt, maintain our lending
activities and replace certain maturing liabilities. Without
sufficient liquidity, we may be forced to curtail our
operations. 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 credit capacity.
Our financial condition and cash flows could be materially
affected by continued disruptions in financial markets.
Our controls and
procedures may fail or be circumvented, our risk management
policies and procedures may be inadequate, and operational risk
could adversely affect our consolidated results of
operations.
We may fail to identify and manage risks related to a variety of
aspects of our business, including, but not limited to,
operational risk, interest-rate risk, trading risk, fiduciary
risk, legal and compliance risk, liquidity risk and credit risk.
We have adopted various controls, procedures, policies and
systems to monitor and manage risk. While we currently believe
that our risk management process is effective, we cannot provide
assurance that those controls, procedures, policies and systems
will always be adequate to identify and manage the risks in the
various businesses. In addition, our businesses and the markets
in which we operate are continuously evolving. We may fail to
fully understand the implications of changes in our businesses
or the financial markets and fail to adequately or timely
enhance our risk framework to address those changes. If our risk
framework is ineffective, either because it fails to keep pace
with changes in the financial markets or our businesses or for
other reasons, we could incur losses, suffer reputational damage
or find ourselves out of compliance with applicable regulatory
mandates or expectations.
We may also be subject to disruptions from external events that
are wholly or partially beyond our control, which could cause
delays or disruptions to operational functions, including
information processing and financial market settlement
functions. In addition, our customers, vendors and
counterparties could suffer from such events. Should these
events affect us, or the customers, vendors or counterparties
with which we conduct business, our consolidated results of
operations could be negatively affected. When we record balance
sheet reserves for probable loss contingencies related to
operational losses, we may be unable to accurately estimate our
potential exposure, and any reserves we establish to cover
operational losses may not be sufficient to cover our actual
financial exposure, which may have a material impact on our
consolidated results of operations or financial condition for
the periods in which we recognize the losses.
Competition for
our employees is intense, and we may not be able to attract and
retain the highly skilled people we need to support our
business.
Our success depends, in large part, on our ability to attract
and/or
retain key people. Competition for the best people in most
activities in which we engage can be intense, and we may not be
able to hire
32
Risk
Factors
people or retain them, particularly in light of uncertainty
concerning evolving compensation restrictions applicable to
banks but not applicable to other financial services firms. The
unexpected loss of services of one or more of our key personnel
could adversely affect our business because the loss of their
skills, knowledge of our markets, and years of industry
experience and, in some cases, because of the difficulty of
promptly finding qualified replacement personnel. Similarly, the
loss of key employees, either individually or as a group, can
adversely affect our customers perception of our ability
to continue to manage certain types of investment management
mandates.
Further increases
in the FDIC deposit insurance premium may have a significant
financial impact on us.
The FDIC insures deposits at FDIC insured financial institutions
up to certain limits. The FDIC charges insured financial
institutions premiums to maintain the Deposit Insurance Fund
(the DIF). Current economic conditions have resulted
in higher bank failures and expectations of future bank
failures. In the event of a bank failure, the FDIC takes control
of a failed bank and ensures payment of deposits up to insured
limits (which have recently been increased) using the resources
of the DIF. The FDIC is required by law to maintain adequate
funding of the DIF, and the FDIC may increase premium
assessments to maintain such funding.
On February 27, 2009, the FDIC determined that it would
assess higher rates for institutions that relied significantly
on secured liabilities or on brokered deposits but, for
well-managed and well-capitalized banks, only when accompanied
by rapid asset growth. On May 22, 2009, the FDIC adopted a
final rule imposing a 5 basis-point special assessment on each
insured depository institutions assets minus Tier 1
capital as of June 30, 2009. On November 12, 2009, the
FDIC adopted a final rule imposing a
13-quarter
prepayment of FDIC premiums due on December 30, 2009.
Although FirstBank obtained a waiver from the FDIC to make such
prepayment, the FDIC may further increase our premiums or impose
additional assessments or prepayment requirements on us in the
future.
We may not be
able to recover all assets pledged to Lehman Brothers Special
Financing, Inc.
Lehman Brothers Special Financing, Inc. (Lehman) was
the counterparty to First BanCorp on certain interest rate swap
agreements. During the third quarter of 2008, Lehman failed to
pay the scheduled net cash settlement due to us, which
constituted an event of default under those interest rate swap
agreements. We terminated all interest rate swaps with Lehman
and replaced them with other counterparties under similar terms
and conditions. In connection with the unpaid net cash
settlement due as of June 30, 2010 under the swap
agreements, we have an unsecured counterparty exposure with
Lehman, which filed for bankruptcy on October 3, 2008, of
approximately $1.4 million. This exposure was reserved in
the third quarter of 2008. We had pledged collateral of
$63.6 million with Lehman to guarantee its performance
under the swap agreements in the event payment thereunder was
required. The book value of pledged securities with Lehman as of
June 30, 2010 amounted to approximately $64.5 million.
We believe that the securities pledged as collateral should not
be part of the Lehman bankruptcy estate given the facts that the
posted collateral constituted a performance guarantee under the
swap agreements and was not part of a financing agreement, and
ownership of the securities was never transferred to Lehman.
Upon termination of the interest rate swap agreements,
Lehmans obligation was to return the collateral to us.
During the fourth quarter of 2009, we discovered that Lehman
Brothers, Inc., acting as agent of Lehman, had deposited the
securities in a custodial account at JP Morgan/Chase, and that,
shortly before the filing of the Lehman bankruptcy proceedings,
it had provided instructions to have most of the securities
transferred to Barclays Capital in New York. After
Barclays refusal to turn over the securities, during the
month of December 2009, we filed a lawsuit against
Barclays Capital in federal court in New York demanding
the return of the securities. During the month of February 2010,
Barclays filed a motion with the court requesting that the
Corporations claim be
33
Risk
Factors
dismissed on the grounds that the allegations of the complaint
are not sufficient to justify the granting of the remedies
therein sought. Shortly thereafter, we filed our opposition
motion. A hearing on the motions was held in court on
April 28, 2010. The court on that date, after hearing the
arguments by both sides, concluded that the Corporations
equitable-based causes of action, upon which the return of the
investment securities is being demanded, contain allegations
that sufficiently plead facts warranting the denial of
Barclays motion to dismiss our claim. Accordingly, the
judge ordered the case to proceed to trial. A scheduling
conference that had been set for August 26, 2010, for
purposes of having the parties agree on a timetable for
discovery has been temporarily suspended. The judge decided to
order the parties to submit to a mediation process prior to a
scheduling conference. While there have been preliminary
telephonic conversations with the appointed mediator, no formal
mediation sessions have been held. It is expected that within
the next 30 days the mediator will issue a notice for
mediation sessions. While we believe we have valid reasons to
support our claim for the return of the securities, no
assurances can be given that we will ultimately succeed in our
litigation against Barclays Capital to recover all or a
substantial portion of the securities.
Additionally, we continue to pursue our claim filed in January
2009 in the proceedings under the Securities Protection Act with
regard to Lehman Brothers Incorporated in Bankruptcy Court,
Southern District of New York. An estimated loss was not accrued
as we are unable to determine the timing of the claim resolution
or whether we will succeed in recovering all or a substantial
portion of the collateral or its equivalent value. If additional
relevant negative facts become available in future periods, a
need to recognize a partial or full reserve of this claim may
arise. Considering that the investment securities have not yet
been recovered by the Corporation, despite our efforts in this
regard, we decided to classify such investments as
non-performing during the second quarter of 2009.
Our businesses
may be adversely affected by litigation.
From time to time, our customers, or the government on their
behalf, may make claims and take legal action relating to our
performance of fiduciary or contractual responsibilities. We may
also face employment lawsuits or other legal claims. In any such
claims or actions, demands for substantial monetary damages may
be asserted against us resulting in financial liability or an
adverse effect on our reputation among investors or on customer
demand for our products and services. We may be unable to
accurately estimate our exposure to litigation risk when we
record balance sheet reserves for probable loss contingencies.
As a result, any reserves we establish to cover any settlements
or judgments may not be sufficient to cover our actual financial
exposure, which may have a material impact on our consolidated
results of operations or financial condition.
In the ordinary course of our business, we are also subject to
various regulatory, governmental and law enforcement inquiries,
investigations and subpoenas. These may be directed generally to
participants in the businesses in which we are involved or may
be specifically directed at us. In regulatory enforcement
matters, claims for disgorgement, the imposition of penalties
and the imposition of other remedial sanctions are possible.
In view of the inherent difficulty of predicting the outcome of
legal actions and regulatory matters, we cannot provide
assurance as to the outcome of any pending matter or, if
determined adversely against us, the costs associated with any
such matter, particularly where the claimant seeks very large or
indeterminate damages or where the matter presents novel legal
theories, involves a large number of parties or is at a
preliminary stage. The resolution of certain pending legal
actions or regulatory matters, if unfavorable, could have a
material adverse effect on our consolidated results of
operations for the quarter in which such actions or matters are
resolved or a reserve is established.
34
Risk
Factors
Our businesses
may be negatively affected by adverse publicity or other
reputational harm.
Our relationships with many of our customers are predicated upon
our reputation as a fiduciary and a service provider that
adheres to the highest standards of ethics, service quality and
regulatory compliance. Adverse publicity, regulatory actions,
like the recent Agreements, litigation, operational failures,
the failure to meet customer expectations and other issues with
respect to one or more of our businesses could materially and
adversely affect our reputation, ability to attract and retain
customers or sources of funding for the same or other
businesses. Preserving and enhancing our reputation also depends
on maintaining systems and procedures that address known risks
and regulatory requirements, as well as our ability to identify
and mitigate additional risks that arise due to changes in our
businesses, the market places in which we operate, the
regulatory environment and customer expectations. If any of
these developments has a material adverse effect on our
reputation, our business will suffer.
Changes in
accounting standards issued by the Financial Accounting
Standards Board or other standard-setting bodies may adversely
affect our financial statements.
Our financial statements are subject to the application of GAAP,
which is periodically revised
and/or
expanded. Accordingly, from time to time, we are required to
adopt new or revised accounting standards issued by the
Financial Accounting Standards Board. Market conditions have
prompted accounting standard setters to promulgate new
requirements that further interpret or seek to revise accounting
pronouncements related to financial instruments, structures or
transactions as well as to issue new standards expanding
disclosures. The impact of accounting pronouncements that have
been issued but not yet implemented is disclosed in our annual
reports on
Form 10-K
and quarterly reports on
Form 10-Q.
An assessment of proposed standards is not provided as such
proposals are subject to change through the exposure process
and, therefore, the effects on our financial statements cannot
be meaningfully assessed. It is possible that future accounting
standards that we are required to adopt could change the current
accounting treatment that we apply to our consolidated financial
statements and that such changes could have a material adverse
effect on our financial condition and results of operations.
Losses in future
reporting periods may require us to adjust the valuation
allowance against our deferred tax assets.
We evaluate the deferred tax assets for recoverability based on
all available evidence. This process involves significant
management judgment about assumptions that are subject to change
from period to period based on changes in tax laws or variances
between the future projected operating performance and the
actual results. We are required to establish a valuation
allowance for deferred tax assets if we determine, based on
available evidence at the time the determination is made, that
it is more likely than not that some portion or all of the
deferred tax assets will not be realized. In evaluating the
more-likely-than-not criterion, we consider all positive and
negative evidence as of the end of each reporting period. Future
adjustments, either increases or decreases, to the deferred tax
asset valuation allowance will be determined based upon changes
in the expected realization of the net deferred tax assets. The
realization of the deferred tax assets ultimately depends on the
existence of sufficient taxable income in either the carryback
or carryforward periods under the tax law. Due to significant
estimates utilized in establishing the valuation allowance and
the potential for changes in facts and circumstances, it is
reasonably possible that we will be required to record
adjustments to the valuation allowance in future reporting
periods. Such a charge could have a material adverse effect on
our results of operations, financial condition and capital
position.
35
Risk
Factors
If our goodwill
or amortizable intangible assets become impaired, it may
adversely affect our operating results.
If our goodwill or amortizable intangible assets become
impaired, we may be required to record a significant charge to
earnings. Under GAAP, we review our amortizable intangible
assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is
tested for impairment at least annually. Factors that may be
considered a change in circumstances, indicating that the
carrying value of the goodwill or amortizable intangible assets
may not be recoverable, include reduced future cash flow
estimates and slower growth rates in the industry.
The goodwill impairment evaluation process requires us to make
estimates and assumptions with regards to the fair value of our
reporting units. Actual values may differ significantly from
these estimates. Such differences could result in future
impairment of goodwill that would, in turn, negatively impact
our results of operations and the reporting unit where goodwill
is recorded.
We conducted our annual evaluation of goodwill during the fourth
quarter of 2009. This evaluation is a two-step process. The Step
1 evaluation of goodwill allocated to the Florida reporting
unit, which is one level below the United States business
segment, indicated potential impairment of goodwill. The Step 1
fair value for the unit was below the carrying amount of its
equity book value as of the December 31, 2009 valuation
date, requiring the completion of Step 2. Step 2 required a
valuation of all assets and liabilities of the Florida unit,
including any recognized and unrecognized intangible assets, to
determine the fair value of net assets. To complete Step 2, we
subtracted from the units Step 1 fair value the determined
fair value of the net assets to arrive at the implied fair value
of goodwill. The results of the Step 2 analysis indicated that
the implied fair value of goodwill exceeded the goodwill
carrying value of $27 million, resulting in no goodwill
impairment. If we are required to record a charge to earnings in
our consolidated financial statements because an impairment of
the goodwill or amortizable intangible assets is determined, our
results of operations could be adversely affected.
RISK RELATED TO
BUSINESS ENVIRONMENT AND OUR INDUSTRY
Difficult market
conditions have affected the financial industry and may
adversely affect us in the future.
Given that almost all of our business is in Puerto Rico and the
United States and given the degree of interrelation between
Puerto Ricos economy and that of the United States, we are
particularly exposed to downturns in the U.S. economy.
Dramatic declines in the U.S. housing market over the past
few years, with falling home prices and increasing foreclosures,
unemployment and under-employment, have negatively impacted the
credit performance of mortgage loans and resulted in significant
write-downs of asset values by financial institutions, including
government-sponsored entities as well as major commercial banks
and investment banks. These write-downs, initially of
mortgage-backed securities but spreading to credit default swaps
and other derivative and cash securities, in turn, have caused
many financial institutions to seek additional capital from
private and government entities, to merge with larger and
stronger financial institutions and, in some cases, fail.
Reflecting concern about the stability of the financial markets
in general and the strength of counterparties, many lenders and
institutional investors have reduced or ceased providing funding
to borrowers, including other financial institutions. This
market turmoil and tightening of credit have led to an increased
level of commercial and consumer delinquencies, erosion of
consumer confidence, increased market volatility and widespread
reduction of business activity in general. The resulting
economic pressure on consumers and erosion of confidence in the
financial markets has already adversely affected our industry
and may adversely affect our business, financial condition and
results of operations. We do not expect that the difficult
conditions in the financial markets are likely to improve in the
near future. A worsening of these conditions would likely
exacerbate the adverse effects of these
36
Risk
Factors
difficult market conditions on us and other financial
institutions. In particular, we may face the following risks in
connection with these events:
|
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Our ability to assess the creditworthiness of our customers may
be impaired if the models and approaches we use to select,
manage and underwrite the loans become less predictive of future
behaviors.
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Ø
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The models used to estimate losses inherent in the credit
exposure require difficult, subjective, and complex judgments,
including forecasts of economic conditions and how these
economic predictions might impair the ability of the borrowers
to repay their loans, which may no longer be capable of accurate
estimation and which may, in turn, impact the reliability of the
models.
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Ø
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Our ability to borrow from other financial institutions or to
engage in sales of mortgage loans to third parties (including
mortgage loan securitization transactions with
government-sponsored entities) on favorable terms, or at all,
could be adversely affected by further disruptions in the
capital markets or other events, including deteriorating
investor expectations.
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Ø
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Competitive dynamics in the industry could change as a result of
consolidation of financial services companies in connection with
current market conditions.
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Ø |
We may be unable to comply with the Agreements, which could
result in further regulatory enforcement actions.
|
A prolonged
economic slowdown or decline in the real estate market in the
U.S. mainland could continue to harm our results of
operations.
The residential mortgage loan origination business has
historically been cyclical, enjoying periods of strong growth
and profitability followed by periods of shrinking volumes and
industry-wide losses. The market for residential mortgage loan
originations is currently in decline and this trend could also
reduce the level of mortgage loans we may produce in the future
and adversely affect our business. During periods of rising
interest rates, refinancing originations for many mortgage
products tend to decrease as the economic incentives for
borrowers to refinance their existing mortgage loans are
reduced. In addition, the residential mortgage loan origination
business is impacted by home values. Over the past twenty-one
months, residential real estate values in many areas of the
U.S. mainland have decreased significantly, which has led
to lower volumes and higher losses across the industry,
adversely impacting our mortgage business.
The actual rates of delinquencies, foreclosures and losses on
loans have been higher during the current economic slowdown.
Rising unemployment, higher interest rates or declines in
housing prices have had a greater negative effect on the ability
of borrowers to repay their mortgage loans. Any sustained period
of increased delinquencies, foreclosures or losses could
continue to harm our ability to sell loans, the prices we
receives for loans, the values of mortgage loans
held-for-sale
or residual interests in securitizations, which could harm our
financial condition and results of operations. In addition, any
additional material decline in real estate values would further
weaken the collateral
loan-to-value
ratios and increase the possibility of loss if a borrower
defaults. In such event, we will be subject to the risk of loss
on such real asset arising from borrower defaults to the extent
not covered by third-party credit enhancement.
Our business
concentration in Puerto Rico imposes risks.
We conduct our operations in a geographically concentrated area,
as our main market is Puerto Rico. This imposes risks from lack
of diversification in the geographical portfolio. Our financial
condition and results of operations are highly dependent on the
economic conditions of Puerto Rico, where adverse political or
economic developments, natural disasters, and other events could
affect among others, the volume of loan originations, increase
the level of non-performing assets, increase the rate of
foreclosure losses on loans, and reduce the value of our loans
and loan servicing portfolio.
37
Risk
Factors
Our credit
quality may be adversely affected by Puerto Ricos current
economic condition.
Beginning in March 2006 and continuing to today, a number of key
economic indicators have shown that the economy of Puerto Rico
has been in recession during that period of time.
Construction remained weak during 2009 and the first half of
2010, as Puerto Ricos fiscal situation and decreasing
public investment in construction projects affected the sector.
During the period from January to May 2010, cement sales, an
indicator of construction activity, declined by 25.4% as
compared to 2009. As of April 2010, exports increased by 7.9%,
while imports decreased by 0.9%, a negative trade, which
continues since the first negative trade balance of the last
decade was registered in November 2006.
On March 12, 2010, the Puerto Rico Planning Board announced
the release of Puerto Ricos projected macroeconomic data
for the fiscal year ending on June 30, 2010. The fiscal
year 2009 showed a reduction of real GNP of 3.7%, while the
projections for the 2010 fiscal year point toward a reduction of
3.6%. In general, the Puerto Rico economy continued its trend of
decreasing growth, primarily due to weaker manufacturing, softer
consumption and decreased government investment in construction.
The above economic concerns and uncertainty in the private and
public sectors may also have an adverse effect on the credit
quality of our loan portfolios, as delinquency rates are
expected to increase in the short term, until the economy
stabilizes. A potential reduction in consumer spending may also
impact growth in our other interest and non-interest revenue
sources.
Rating downgrades
on the government of Puerto Ricos debt obligations may
affect our credit exposure.
Even though Puerto Ricos economy is closely integrated to
that of the U.S. mainland and its government and many of
its instrumentalities are investment grade rated borrowers in
the U.S. capital markets, the current fiscal situation of
the government of Puerto Rico has led nationally recognized
rating agencies to downgrade its debt obligations in the past.
Between May 2006 and mid-2009, the government of Puerto
Ricos bonds were downgraded as a result of factors such as
its inability to implement meaningful steps to curb operating
expenditures and to improve managerial and budgetary controls,
high debt levels and chronic deficits and its continued reliance
on operating budget loans from the Government Development Bank
for Puerto Rico. Although the Puerto Rico bonds ratings
were subsequently upgraded, future downgrades may affect our
credit exposure.
The failure of
other financial institutions could adversely affect
us.
Our ability to engage in routine funding transactions could be
adversely affected by future failures of financial institutions
and the actions and commercial soundness of other financial
institutions. Financial institutions are interrelated as a
result of trading, clearing, counterparty and other
relationships. We have exposure to different industries and
counterparties, and routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment banks,
investment companies and other institutional clients. In certain
of these transactions, we are required to post collateral to
secure the obligations to the counterparties. In the event of a
bankruptcy or insolvency proceeding involving one of such
counterparties, we may experience delays in recovering the
assets posted as collateral or may incur a loss to the extent
that the counterparty was holding collateral in excess of the
obligation to such counterparty. There is no assurance that any
such losses would not materially and adversely affect our
financial condition and results of operations.
In addition, many of these transactions expose us to credit risk
in the event of a default by our counterparty or client. In
addition, the credit risk may be exacerbated when the collateral
held by us cannot be realized or is liquidated at prices not
sufficient to recover the full amount of the loan or
38
Risk
Factors
derivative exposure due to us. There is no assurance that any
such losses would not materially and adversely affect our
financial condition and results of operations.
Legislative and
regulatory actions taken now or in the future as a result of the
current crisis in the financial industry may impact our
business, governance structure, financial condition or results
of operations.
Current economic conditions, particularly in the financial
markets, have resulted in government regulatory agencies and
political bodies placing increased focus and scrutiny on the
financial services industry. The U.S. government has
intervened on an unprecedented scale, responding to what has
been commonly referred to as the financial crisis, by
temporarily enhancing the liquidity support available to
financial institutions, establishing a commercial paper funding
facility, temporarily guaranteeing money market funds and
certain types of debt issuances and increasing insurance on bank
deposits.
These programs have subjected financial institutions,
particularly those participating in the
U.S. Treasurys Troubled Asset Relief Program (the
TARP), to additional restrictions, oversight and
costs. In addition, new proposals for legislation continue to be
introduced in the U.S. Congress that could further
substantially increase regulation of the financial services
industry, impose restrictions on the operations and general
ability of firms within the industry to conduct business
consistent with historical practices, including in the areas of
compensation, interest rates, financial product offerings and
disclosures, and have an effect on bankruptcy proceedings with
respect to consumer residential real estate mortgages, among
other things. Federal and state regulatory agencies also
frequently adopt changes to their regulations or change the
manner in which existing regulations are applied.
We also face increased regulation and regulatory scrutiny as a
result of our participation in the TARP. The Corporation issued
Series G Preferred Stock to the U.S. Treasury in
exchange for the shares of Series F Preferred Stock and
accrued and unpaid dividends. We also issued to the
U.S. Treasury an amended and restated warrant to replace
the original warrant that we issued to the U.S. Treasury
under the TARP. Pursuant to the terms of this issuance, we are
prohibited from increasing the dividend rate on our Common Stock
in an amount exceeding the last quarterly cash dividend paid per
share, or the amount publicly announced (if lower), of Common
Stock prior to October 14, 2008, which was $0.07 per share,
without approval.
On January 21, 2009, the U.S. House of Representatives
approved legislation amending the TARP provisions of Emergency
Economic Stabilization Act (EESA) to include
quarterly reporting requirements with respect to lending
activities, examinations by an institutions primary
federal regulator of the use of funds and compliance with
program requirements, restrictions on acquisitions by depository
institutions receiving TARP funds and authorization for the
U.S. Treasury to have an observer at board meetings of
recipient institutions, among other things. On February 17,
2009, President Obama signed into law the American Reinvestment
and Recovery Act of 2009 (the ARRA). The ARRA
contains expansive new restrictions on executive compensation
for financial institutions and other companies participating in
the TARP. The ARRA amends the executive compensation and
corporate governance provisions of EESA. In doing so, it
continues all the same compensation and governance restrictions
and adds substantially to restrictions in several areas. In
addition, on June 10, 2009, the U.S. Treasury issued
regulations implementing the compensation requirements under the
ARRA. The regulations became applicable to existing TARP
recipients upon publication in the Federal Register on
June 15, 2009. On June 21, 2010, the banking agencies
issued additional guidance on incentive compensation. The
guidance is designed to provide employees with incentives that
appropriately balance risk and reward, and ensure that incentive
compensation arrangements are compatible with effective controls
and risk management, and are supported by strong corporate
governance, including active and effective oversight by the
holding company or banks board of directors. The
aforementioned compensation requirements and restrictions may
adversely affect our ability to retain or hire senior bank
officers.
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Risk
Factors
On July 21, 2010, the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Dodd-Frank Act) was
signed into law, which significantly changes the regulation of
financial institutions and the financial services industry. The
Dodd-Frank Act includes provisions affecting large and small
financial institutions alike, including several provisions that
will affect how community banks, thrifts, and small bank and
thrift holding companies will be regulated in the future. The
Act includes, among other things, provisions that, together with
regulations to be developed thereunder, will affect corporate
governance and executive compensation at all publicly-traded
companies; abolish the Office of Thrift Supervision and transfer
its functions to the other federal banking agencies, such as the
Office of the Comptroller of Currency and the Federal Reserve;
allow financial institutions to pay interest on business
checking accounts; would change the base for FDIC insurance
assessments to a banks average consolidated total assets
minus average tangible equity, rather than upon its deposit
base, and permanently raise the current standard maximum deposit
insurance amount to $250,000; expand the FDICs authority
to raise insurance premiums; and impose new capital requirements
on bank and thrift holding companies. The Dodd-Frank Act also
limits interchange fees on debit cards and establishes the
Bureau of Consumer Financial Protection as an independent entity
within the Federal Reserve, which will be given the authority to
promulgate consumer protection regulations applicable to certain
entities offering consumer financial services or products,
including banks. The legislation also restricts proprietary
trading, places restrictions on the owning or sponsoring of
hedge and private equity funds, and the derivatives activities
of banks and their affiliates. The legislation also calls for
the FDIC to raise the ratio of reserves to deposits from 1.15%
to 1.35% for deposit insurance purposes as to those institutions
with assets in excess of $10 billion. The Collins Amendment
to the Dodd-Frank Act eliminates certain trust preferred
securities from Tier 1 capital. TARP preferred securities
are excepted from this treatment. These regulatory capital
deductions are to be phased in incrementally over a period
of three years beginning on January 1, 2013. This provision
also requires the federal banking agencies, to establish minimum
leverage and risk-based capital requirements that will apply to
both insured banks and their holding companies. Regulations
implementing this provision must be issued within 18 months
of July 21, 2010.
These provisions, or any other aspects of current or proposed
regulatory or legislative changes to laws applicable to the
financial industry, if enacted or adopted, may impact the
profitability of the business activities or change certain of
our business practices, including the ability to offer new
products, obtain financing, attract deposits, make loans, and
achieve satisfactory interest spreads, and could expose the
Corporation to additional costs, including increased compliance
costs. These changes also may require the Corporation to invest
significant management attention and resources to make any
necessary changes to operations in order to comply, and could
therefore also materially adversely affect our business,
financial condition, and results of operations. The
Corporations management is actively reviewing the
provisions of the Dodd-Frank Act, many of which are phased-in
over the next several months and years, and assessing its
probable impact on the operations of the Corporation. However,
the ultimate effect of the Dodd-Frank Act on the financial
services industry in general, and the Corporation in particular,
is uncertain at this time.
A separate legislative proposal would impose a new fee or tax on
U.S. financial institutions as part of the 2010 budget
plans in an effort to reduce the anticipated budget deficit and
to recoup losses anticipated from the TARP. Such an assessment
is estimated to be 15-basis points, levied against bank assets
minus Tier 1 capital and domestic deposits. It appears that
this fee or tax would be assessed only against the 50 or so
largest financial institutions in the U.S., which are those with
more than $50 billion in assets, and therefore would not
directly affect us. However, the large banks that are affected
by the tax may choose to seek additional deposit funding in the
marketplace, driving up the cost of deposits for all banks. The
administration has also considered a transaction tax on trades
of stock in financial institutions and a tax on executive
bonuses. The U.S. Congress has also recently adopted
additional consumer protection laws such as the Credit Card
Accountability Responsibility and Disclosure Act of 2009, and
the Federal Reserve has adopted numerous new regulations
addressing banks credit card,
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Risk
Factors
overdraft and mortgage lending practices. Additional consumer
protection legislation and regulatory activity is anticipated in
the near future. Internationally, both the Basel Committee on
Banking Supervision (the Basel Committee) and the
Financial Stability Board (established in April 2009 by the
Group of Twenty Finance Ministers and Central Bank Governors to
take action to strengthen regulation and supervision of the
financial system with greater international consistency,
cooperation and transparency) have committed to raise capital
standards and liquidity buffers within the banking system. Such
proposals and legislation, if finally adopted, would change
banking laws and our operating environment and that of our
subsidiaries in substantial and unpredictable ways. We cannot
determine whether such proposals and legislation will be
adopted, or the ultimate effect that such proposals and
legislation, if enacted, or regulations issued to implement the
same, would have upon our financial condition or results of
operations.
Monetary policies
and regulations of the Fed could adversely affect our business,
financial condition and results of operations.
In addition to being affected by general economic conditions,
our earnings and growth are affected by the policies of the
Federal Reserve. An important function of the Fed is to regulate
the money supply and credit conditions. Among the instruments
used by the Fed to implement these objectives are open market
operations in U.S. Government securities, adjustments of
the discount rate and changes in reserve requirements against
bank deposits. These instruments are used in varying
combinations to influence overall economic growth and the
distribution of credit, bank loans, investments and deposits.
Their use also affects interest rates charged on loans or paid
on deposits.
On January 6, 2010, the member agencies of the Federal
Financial Institutions Examination Council, which includes the
Fed, issued an interest rate risk advisory reminding banks to
maintain sound practices for managing interest rate risk,
particularly in the current environment of historically low
short-term interest rates.
The monetary policies and regulations of the Fed have had a
significant effect on the operating results of commercial banks
in the past and are expected to continue to do so in the future.
The effects of such policies upon our business, financial
condition and results of operations cannot be predicted.
We face extensive
and changing government regulation, which may increase our costs
of and expose us to risks related to compliance.
Most of our businesses are subject to extensive regulation by
multiple regulatory bodies. These regulations may affect the
manner and terms of delivery of our services. If we do not
comply with governmental regulations, we may be subject to
fines, penalties, lawsuits or material restrictions on our
businesses in the jurisdiction where the violation occurred,
which may adversely affect our business operations. Changes in
these regulations can significantly affect the services that we
are asked to provide as well as our costs of compliance with
such regulations. In addition, adverse publicity and damage to
our reputation arising from the failure or perceived failure to
comply with legal, regulatory or contractual requirements could
affect our ability to attract and retain customers. In recent
years, regulatory oversight and enforcement have increased
substantially, imposing additional costs and increasing the
potential risks associated with our operations. If this
regulatory trend continues, it could adversely affect our
operations and, in turn, our consolidated results of operations.
The imposition of
additional property tax payments in Puerto Rico may further
deteriorate our commercial, consumer and mortgage loan
portfolios.
On March 9, 2009, the Governor of Puerto Rico signed into
law the Special Act Declaring a State of Fiscal Emergency and
Establishing an Integral Plan of Fiscal Stabilization to Save
Puerto Ricos Credit, Act No. 7 the Act).
The Act imposes a series of temporary and permanent measures,
including the
41
Risk
Factors
imposition of a 0.591% special tax applicable to properties used
for residential (excluding those exempt as detailed in the Act)
and commercial purposes, and payable to the Puerto Rico Treasury
Department. This temporary measure will be effective for tax
years that commenced after June 30, 2009 and before
July 1, 2012. The imposition of this special property tax
could adversely affect the disposable income of borrowers from
the commercial, consumer and mortgage loan portfolios and may
cause an increase in our delinquency and foreclosure rates.
RISKS RELATED TO
THE FUTURE ISSUANCE OF A SIGNIFICANT AMOUNT OF OUR COMMON STOCK
AND DILUTION OF HOLDERS OF OUR COMMON STOCK, INCLUDING
PARTICIPANTS IN THE EXCHANGE OFFER
Additional
issuances of Common Stock or securities convertible into Common
Stock, including issuances to the U.S. Treasury, BNS and
Investors in a Capital Raise, would further dilute existing
holders of our Common Stock, including participants in the
Exchange Offer.
During the first quarter of 2010, the Corporation announced its
plan to enhance its capital structure. The Corporation retained
Sandler ONeill + Partners and UBS Securities LLC to find
purchasers for approximately $500 million of Common Stock.
Any issuance of Common Stock in a Capital Raise or to the U.S.
Treasury upon conversion of the Series G Preferred Stock,
in the Exchange Offer or to BNS pursuant to its anti-dilution
right would adversely affect the voting power, earnings per
share and book value per share of outstanding shares of Common
Stock and perhaps also the market price of our Common Stock. The
closing price of a share of Common Stock on August 17, 2010
was $0.52, and the book value of a share of Common Stock as of
June 30, 2010 was $5.48.
In connection with our 2007 sale of 9,250,450 shares of
Common Stock to BNS, we agreed to give BNS an anti-dilution
right and a right of first refusal when we sell shares of Common
Stock to third parties. This right will be triggered by the
issuance of Common Stock in the Exchange Offer and any other
issuances, including to the U.S. Treasury and investors in
a Capital Raise. In addition, in January 2009, in connection
with our issuance of Series F Preferred Stock to the
U.S. Treasury, we also issued to the U.S. Treasury a
warrant to purchase 5,842,259 shares of our Common Stock at
an exercise price of $10.27 per share. The warrant had a
10-year term
and was exercisable at any time. At the time we exchanged the
Series F Preferred Stock for Series G Preferred Stock,
we issued to the U.S. Treasury an amended and restated
warrant having a 10-year term to replace the original warrant.
Like the original warrant, the amended and restated warrant has
an anti-dilution right that requires an adjustment to the
exercise price for, and the number of shares underlying, the
warrant. This adjustment will be necessary under various
circumstances, including if we issue shares of Common Stock for
consideration per share that is lower than the initial
conversion price of the Series G Preferred Stock, or
$0.7252. The possible future issuance of equity securities to
BNS, the U.S. Treasury or investors in a Capital Raise
would affect our current stockholders in a number of ways,
including by:
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diluting the voting power of the current holders of Common Stock;
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diluting the earnings per share and book value per share of the
outstanding shares of Common Stock; and
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making the payment of dividends on Common Stock more expensive.
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Our issuance of 256,401,610 shares of Common Stock in the
Exchange Offer would reduce on a pro forma basis our loss per
share for the six-month period ended June 30, 2010 from
$2.27 to $0.60 and our book value per share as of June 30,
2010 from $5.48 to $3.03. If, subsequent to our issuance of
256,401,610 shares of Common Stock in the Exchange Offer,
we were to issue shares of Common Stock to the
U.S. Treasury in exchange for the Series G Preferred
Stock, to investors in a Capital Raise and to BNS, we estimate
that we would issue approximately 1.68 billion additional
shares based on (i) our agreement with the
U.S. Treasury and (ii) a sale in a Capital Raise of
$500 million at a per-share price of $0.57, the market
price of our Common Stock on July 14, 2010. Accordingly,
our loss per
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Risk
Factors
share for the six-month period ended June 30, 2010 and our
book value per share as of June 30, 2010 would be reduced
on a pro forma basis to $0.12 and $1.16, respectively. Such
additional issuances of shares of Common Stock would decrease
the voting power of participants in the Exchange Offer from 73%
after the completion of the Exchange Offer, assuming all of the
Preferred Stock is tendered, to 14% if approximately
1.68 billion shares of Common Stock are issued in a
Capital Raise, to the U.S. Treasury and to BNS upon its
exercise in full of its anti-dilution right. Finally, the
additional issuances of shares of Common Stock may adversely
impact the market price of our Common Stock.
If we do not complete a Capital Raise prior to completing the
Exchange Offer, we will continue to seek to issue
$500 million of Common Stock. No assurance can be given,
however, that we will be able to raise additional capital. An
increase in the Corporations capital through an issuance
of Common Stock or other offering, or the perception that such
issuance or offering may occur, may adversely affect the market
price of our Common Stock.
If we do not improve our financial condition, or are unable to
accomplish other alternate capital preservation strategies
contemplated, including among others, an accelerated deleverage
strategy and the divesture of profitable businesses, which could
allow us to meet the minimum capital requirements contemplated
by the capital plans that we have submitted to our regulators,
we believe that it is likely that our regulators could take
additional regulatory action that would have a material adverse
effect on our business, operations, financial condition or
results of operations or the value of our Common Stock.
RISKS RELATED TO
THE MARKET PRICE AND VALUE OF THE COMMON STOCK OFFERED IN THE
EXCHANGE OFFER
The Exchange
Offer will result in a substantial amount of our Common Stock
becoming available for sale in the market, which could adversely
affect the market price of our Common Stock.
As of August 13, 2010, we had 92,542,722 shares of our
Common Stock outstanding. Following completion of the Exchange
Offer, assuming we issue the maximum number of shares of our
Common Stock in the Exchange Offer and assuming we issue the
anti-dilution shares to BNS, this figure will increase to
377,420,453 shares of our Common Stock. The issuance of
such a large number of shares of our Common Stock in such a
short period of time will significantly reduce earnings per
share and could adversely affect the market price of our Common
Stock.
The Minimum Share
Price limitation may result in your receiving shares of our
Common Stock worth significantly less than the shares you would
receive in the absence of that constraint.
The closing sale price for our Common Stock on the NYSE on
August 17, 2010 was $0.52 per share, which is less than the
Minimum Share Price. If the average VWAP is less than the
Minimum Share Price, we will use the Minimum Share Price and not
the average VWAP to calculate the number of shares of our Common
Stock you will receive. In that case you will receive shares of
our Common Stock with a value that is significantly less than
the value of the shares you would receive in the absence of that
limitation.
If the number of
shares of our Common Stock offered in the Exchange Offer for
each share of Preferred Stock is determined based on the average
VWAP of our Common Stock during the five
trading-day
period ending on the second business day immediately preceding
the expiration date (and not the Minimum Share Price of $1.18
per share), the market price of our Common Stock may fluctuate,
and the market price of shares of our Common Stock upon
settlement of the Exchange Offer could be less than the market
price used to determine the number of shares you will
receive.
The number of shares of our Common Stock offered for each share
of Preferred Stock accepted for exchange will be determined
based on the average VWAP of our Common Stock during the five
trading-day
period ending on the second business day immediately preceding
the currently scheduled
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Risk
Factors
expiration date (subject to the Minimum Share Price of $1.18 per
share), regardless of any increase or decrease in the market
price of our Common Stock or Preferred Stock between the
expiration date of the Exchange Offer and the settlement date.
Therefore, the market price of our Common Stock at the time you
receive your Common Stock on the settlement date could be
significantly less than the market price used to determine the
number of shares you will receive.
The market price
of our Common Stock may be subject to significant fluctuations
and volatility.
The stock markets have recently experienced high levels of
volatility. These market fluctuations have adversely affected,
and may continue to adversely affect, the trading price of our
Common Stock. In addition, the market price of our Common Stock
has been subject to significant fluctuations and volatility
because of factors specifically related to our businesses and
may continue to fluctuate or further decline. Factors that could
cause fluctuations, volatility or further decline in the market
price of our Common Stock, many of which could be beyond our
control, include the following:
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our ability to comply with the Agreements;
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any additional regulatory actions against us;
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our ability to complete this exchange, a Capital Raise, the
conversion into Common Stock of the Series G Preferred
Stock or any other issuances of Common Stock;
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changes or perceived changes in the condition, operations,
results or prospects of our businesses and market assessments of
these changes or perceived changes;
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announcements of strategic developments, acquisitions and other
material events by us or our competitors, including any future
failures of banks in Puerto Rico;
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our announcement of the sale of Common Stock at a particular
price per share;
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changes in governmental regulations or proposals, or new
governmental regulations or proposals, affecting us, including
those relating to the current financial crisis and global
economic downturn and those that may be specifically directed to
us;
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the continued decline, failure to stabilize or lack of
improvement in general market and economic conditions in our
principal markets;
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the departure of key personnel;
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changes in the credit, mortgage and real estate markets;
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operating results that vary from the expectations of management,
securities analysts and investors;
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operating and stock price performance of companies that
investors deem comparable to us; and
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market assessments as to whether and when the Exchange Offer and
the acquisition of additional newly issued shares by BNS will be
consummated.
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You are urged to obtain current market quotations for our Common
Stock when you consider the Exchange Offer.
Our suspension of
dividends could adversely affect our stock price and result in
the expansion of our board of directors.
In March 2009, the Board of Governors of the Federal Reserve
issued a supervisory guidance letter intended to provide
direction to bank holding companies (BHCs) on the
declaration and payment of dividends, capital redemptions and
capital repurchases by BHCs in the context of their capital
planning process. The letter reiterates the long-standing
Federal Reserve supervisory policies and guidance to the effect
that BHCs should only pay dividends from current earnings. More
specifically, the letter heightens expectations that BHCs will
inform and consult with the Federal Reserve supervisory staff on
the declaration and payment of dividends that exceed earnings
for the period for which a dividend is being
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Risk
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paid. In consideration of the financial results reported for the
second quarter ended June 30, 2009, the Corporation
decided, as a matter of prudent fiscal management and following
the Federal Reserve guidance, to suspend payment of Common Stock
dividends and dividends on our Preferred Stock and Series G
Preferred Stock. Our Agreement with the Fed precludes us from
declaring any dividends without the prior approval of the Fed.
The Corporation cannot anticipate if and when the payment of
dividends might be reinstated.
This suspension could adversely affect the Corporations
stock price. Further, in general, if dividends on our preferred
stock are not paid for 18 monthly dividend periods or more,
the preferred stockholders will have the right to elect two
additional members of the our board of directors until all
accrued and unpaid dividends for all past dividend periods have
been declared and paid in full.
The price of our
Common Stock is depressed and may not recover.
The price of our Common Stock has declined significantly from a
closing price of $12.17 on September 19, 2008, to a closing
price of $0.52 on August 17, 2010, the last trading day
prior to the date of this prospectus. Our stock price may never
recover to prior levels. Many factors that we cannot predict or
control, including the factors listed under Risks Related
to the Market Price and Value of the Common Stock Offered in the
Exchange OfferThe market price of our Common Stock may be
subject to continued significant fluctuations and
volatility, and factors over which we may only have
limited control, including the factors listed under
Risks Relating to Our Business, may cause
sudden changes in the price of our Common Stock or prevent the
price of our Common Stock from recovering.
Our Common Stock
could be delisted if we fall below applicable compliance
standards.
Under NYSE rules, a listed company will be considered below
compliance standards if the average closing price of its common
stock is less than $1.00 over a consecutive 30
trading-day
period. As of July 6, 2010, the average closing price of
our Common Stock over the last 30
trading-day
period was $0.98. Accordingly, the price of our Common Stock is
below the price criteria compliance standard. If we are unable
to cure this deficiency within six months, our Common Stock may
be suspended from trading on or delisted from the NYSE, which
will adversely impact the market liquidity of our Common Stock.
RISKS RELATED TO
THE RIGHTS OF HOLDERS OF OUR COMMON STOCK COMPARED TO THE RIGHTS
OF HOLDERS OF OUR DEBT OBLIGATIONS AND SHARES OF PREFERRED
STOCK
The holders of
our debt obligations, any shares of Preferred Stock that remain
outstanding after the Exchange Offer and the Series G
Preferred Stock will have priority over our Common Stock with
respect to payment in the event of liquidation, dissolution or
winding up and with respect to the payment of
dividends.
In any liquidation, dissolution or winding up of First BanCorp,
our Common Stock would rank below all debt claims against us and
claims of all of our outstanding shares of preferred stock,
including any shares of Preferred Stock that are not exchanged
for Common Stock in the Exchange Offer and the Series G
Preferred Stock.
As a result, holders of our Common Stock, including holders of
shares of Preferred Stock whose securities are accepted for
exchange in the Exchange Offer, will not be entitled to receive
any payment or other distribution of assets upon the
liquidation, dissolution or winding up of First BanCorp until
after all our obligations to our debt holders have been
satisfied and holders of senior equity securities and trust
preferred securities have received any payment or distribution
due to them.
In addition, we are required to pay dividends on our preferred
stock before we pay any dividends on our Common Stock. Holders
of our Common Stock will not be entitled to receive payment of
any dividends on their shares of our Common Stock unless and
until we obtain the Feds approval to resume
45
Risk
Factors
payments of dividends on any shares of preferred stock remaining
after completion of the Exchange Offer.
Dividends on our
Common Stock have been suspended and you may not receive funds
in connection with your investment in our Common Stock without
selling your shares of our Common Stock.
The Agreement that we entered into with the Fed prohibits us
from paying any dividends or making any distributions without
the prior approval of the Fed. Holders of our Common Stock are
only entitled to receive dividends as our board of directors may
declare out of funds legally available for payment of such
dividends. We have suspended dividend payments on our Common
Stock since August 2009. Furthermore, so long as any shares of
preferred stock remain outstanding and until we obtain the
Feds approval, we cannot declare, set apart or pay any
dividends on shares of our Common Stock (i) unless any
accrued and unpaid dividends on our preferred stock for the
twelve monthly dividend periods ending on the immediately
preceding dividend payment date have been paid or are paid
contemporaneously and the full monthly dividend on our preferred
stock for the then current month has been or is
contemporaneously declared and paid or declared and set apart
for payment and, (ii) with respect to our Series G
Preferred Stock, unless any accrued and unpaid dividends for
past dividend periods, including the latest completed dividend
period, on all outstanding shares have been declared and paid in
full. Prior to January 16, 2012, unless we have redeemed or
converted all of the shares of Series G Preferred Stock or
the U.S. Treasury has transferred all of Series G
Preferred Stock to third parties, the consent of the
U.S. Treasury will be required for us to, among other
things, increase the dividend rate per share of Common Stock
above $0.07 per share or repurchase or redeem equity securities,
including our Common Stock, subject to certain limited
exceptions. This could adversely affect the market price of our
Common Stock. Also, we are a bank holding company and our
ability to declare and pay dividends is dependent also on
certain federal regulatory considerations, including the
guidelines of the Federal Reserve regarding capital adequacy and
dividends. Moreover, the Federal Reserve and the FDIC have
issued policy statements stating that bank holding companies and
insured banks should generally pay dividends only out of current
operating earnings. In the current financial and economic
environment, the Federal Reserve has indicated that bank holding
companies should carefully review their dividend policy and has
discouraged dividend pay-out ratios that are at the 100% or
higher level unless both asset quality and capital are very
strong.
In addition, the terms of our outstanding junior subordinated
debt securities held by trusts that issue trust preferred
securities prohibit us from declaring or paying any dividends or
distributions on our capital stock, including our Common Stock
and preferred stock, or purchasing, acquiring, or making a
liquidation payment on such stock, if we have given notice of
our election to defer interest payments but the related deferral
period has not yet commenced or a deferral period is continuing.
Accordingly, you may have to sell some or all of your shares of
our Common Stock in order to generate cash flow from your
investment. You may not realize a gain on your investment when
you sell your shares of Common Stock and may lose the entire
amount of your investment.
Offerings of
debt, which would be senior to our Common Stock and/or to
preferred equity securities, may adversely affect the market
price of our Common Stock.
Subject to any required approval of our regulators or if our
capital ratios or those of our banking subsidiary fall below the
required minimums, we or our banking subsidiary could be forced
to raise additional capital by making additional offerings of
debt or preferred equity securities, including medium-term
notes, trust preferred securities, senior or subordinated notes
and preferred stock. Upon liquidation, holders of our debt
securities and shares of preferred stock and lenders with
respect to other borrowings will receive distributions of our
available assets prior to the holders of our Common
46
Risk
Factors
Stock. Additional equity offerings may dilute the holdings of
our existing stockholders or reduce the market price of our
Common Stock, or both.
Our board of directors is authorized to issue one or more
classes or series of preferred stock from time to time without
any action on the part of the stockholders. Our board of
directors also has the power, without stockholder approval, to
set the terms of any such classes or series of preferred stock
that may be issued, including voting rights, dividend rights and
preferences over our Common Stock with respect to dividends or
upon our dissolution, winding up and liquidation and other
terms. If we issue preferred shares in the future that have a
preference over our Common Stock with respect to the payment of
dividends or upon liquidation, or if we issue preferred shares
with voting rights that dilute the voting power of our Common
Stock, the rights of holders of our Common Stock or the market
price of our Common Stock could be adversely affected.
ADDITIONAL RISKS
RELATED TO THE EXCHANGE OFFER
We may not
receive stockholder approval for the issuance of up to
256,401,610 shares of Common Stock upon the exchange of
Preferred Stock in the Exchange Offer or the reduction of the
par value of our Common Stock.
We will not be able to complete the Exchange Offer if our
holders of Common Stock do not approve the issuance of Common
Stock in the Exchange Offer, and we may not be able to complete
the Exchange Offer if they do not approve an amendment to our
Articles of Incorporation to reduce the par value of a share of
Common Stock from $1.00 to $0.10 per share. Because our Common
Stock is listed on the NYSE, we are subject to NYSE listing
requirements. NYSE Listed Company Manual Section 312.03(c)
requires stockholder approval prior to the issuance of our
Common Stock in any transaction or series of transactions, other
than pursuant to a public offering, if (1) the shares of
Common Stock will have upon issuance voting power equal to 20%
or more of the voting power outstanding before the issuance of
such Common Stock or (2) the number of shares of Common
Stock to be issued will upon issuance equal 20% or more of the
number of shares of Common Stock outstanding before the issuance
of Common Stock. Pursuant to the terms of the Exchange Offer, up
to 256,401,610 shares of Common Stock may be issued upon
the exchange of Preferred Stock. Because the issuance of up to
256,401,610 shares of Common Stock in the aggregate causes
the transaction to exceed the 20% thresholds described above, we
are required to seek stockholder approval prior to the
completion of the Exchange Offer.
If, for example, the market value of a share of Preferred Stock
tendered in the exchange is less than $10 at a time when the
market value of a share of Common Stock would result in the
issuance of more than 10 shares per tendered share of
Preferred Stock, we would be precluded from issuing any shares
of Common Stock in the exchange if the par value of our Common
Stock is still $1.00 per share. Therefore, we have requested the
approval by the holders of our Common Stock of an amendment to
our Articles of Incorporation to reduce the par value of a share
of Common Stock from $1.00 to $0.10 per share, if necessary to
complete the Exchange Offer.
The value of the
Common Stock you receive may be lower than the Exchange Value of
your shares of Preferred Stock.
Depending on the trading price of our Common Stock compared to
the Relevant Price described above, the market value of the
Common Stock we issue at the settlement date in exchange for
each share of Preferred Stock we accept for exchange may be less
than, equal to or greater than the applicable Exchange Value
referred to above. If the Minimum Share Price is used to
determine the exchange ratio, we will issue 11.6525 shares
of Common Stock in exchange for each share of Preferred Stock
that we accept for tender in the Exchange Offer and, if the
trading price of our Common Stock is below $1.18
47
Risk
Factors
per share, the market value of such shares of Common Stock will
be less than the applicable Exchange Value.
Even if we
complete the Exchange Offer, without a high level of
participation, we may fail to realize the anticipated benefits
of the Exchange Offer, including the intended goals of
substantially improving our tangible common equity ratio and our
Tier 1 common equity ratio.
Important goals of the Exchange Offer are to improve our
tangible common equity ratio and our Tier 1 common equity
ratio and to convert the Series G Preferred Stock into
Common Stock. A view has recently developed that the tangible
common equity ratio and Tier 1 common equity ratio are
important metrics for analyzing a financial institutions
financial condition and capital strength. We believe that
improving these two capital ratios will enhance our standing
with our federal banking regulators, improve market and public
perceptions of our financial strength and improve our ability to
operate in the current economic environment and to access the
capital markets in order to fund strategic initiatives or other
business needs and to absorb any future credit losses. Moreover,
our agreement with the U.S. Treasury provides that we can
compel the conversion of the Series G Preferred Stock into
Common Stock if $385 million of the liquidation preference
of the Preferred Stock is exchanged for Common Stock, we raise
$500 million of additional capital, and our stockholders
approve amendments to our Articles of Incorporation. If the
response to the Exchange Offer is less than $385 million,
we will not be able to compel the conversion of the
Series G Preferred Stock and we may fail to reach our goals
for our tangible common equity ratio and Tier 1 common
equity ratio and, in this situation, we may have to increase
these ratios through other means, including by seeking to sell
more than $500 million of equity in a Capital Raise, which could
further dilute the existing holders of our Common Stock,
including participants in the Exchange Offer. In addition, any
such additional equity issuances would reduce any earnings
available to the holders of our Common Stock and the return
thereon unless our earnings increase correspondingly. We cannot
predict the timing or size of future equity issuances, if any,
or the effect that they may have on the market price of the
Common Stock. As such, there is a risk that the benefits, if
any, realized from the Exchange Offer will not be sufficient to
restore market and public perceptions of our financial strength
or to reach desired tangible common equity and Tier 1
capital levels.
We have not
obtained a third-party determination that the terms of the
Exchange Offer are fair to holders of the shares of Preferred
Stock.
We are not making a recommendation as to whether you should
exchange your shares of Preferred Stock in the Exchange Offer.
We have not retained, and do not intend to retain, any
unaffiliated representative to act solely on behalf of the
holders of the shares of Preferred Stock for purposes of
negotiating the Exchange Offer or preparing a report concerning
the fairness of the Exchange Offer. You must make your own
independent decision regarding your participation in the
Exchange Offer.
Failure to
successfully complete the Exchange Offer could negatively affect
the price of our Common Stock.
Several conditions must be satisfied or waived in order to
complete the Exchange Offer, including (i) pursuant to NYSE
listing requirements, the receipt of the approval of the holders
of our Common Stock to the issuance of up to
256,401,610 shares of Common Stock upon the exchange of
Preferred Stock in the Exchange Offer, (ii) the approval by the
holders of our Common Stock of an amendment to our Articles of
Incorporation to reduce the par value of a share of Common Stock
from $1.00 to $0.10 per share if necessary to issue shares of
Common Stock in the Exchange Offer, and (iii) the absence
of any event that in our reasonable judgment would materially
impair the anticipated benefits to us of the Exchange Offer or
that has had, or could reasonably be expected to have, a
material adverse effect on us or our businesses, financial
condition, operations or prospects. See The Exchange
OfferConditions of the Exchange Offer.
48
Risk
Factors
The foregoing conditions may not be satisfied, and if not
satisfied or waived, the Exchange Offer may not occur or may be
delayed.
If the Exchange Offer is not completed or is delayed, we may be
subject to the following material risks:
|
|
Ø
|
the market price of our Common Stock may decline to the extent
that the current market price of our Common Stock is positively
affected by market assumption that the Exchange Offer will be
completed;
|
|
Ø
|
the market price of our shares of Preferred Stock may decline to
the extent that the current market price of our shares of
Preferred Stock is positively affected by a market assumption
that the Exchange Offer has been or will be completed;
|
|
Ø
|
we may not be able to increase our regulatory and other capital
ratios, including our tangible common equity ratio and
Tier 1 common equity ratio and, as a result, we may fail to
increase a key measure of financial strength as viewed by our
federal banking regulators and the market and may not improve
our ability to operate in the current economic environment and
to access the capital markets in order to fund strategic
initiatives or other business needs or to absorb any future
credit losses; and
|
|
Ø
|
we may be required to attempt to raise capital.
|
RISK RELATED TO
NOT PARTICIPATING IN THE EXCHANGE OFFER
If the Exchange
Offer is successful, there may no longer be a trading market for
any remaining shares of Preferred Stock and the price for such
shares of Preferred Stock may be depressed.
The Exchange Offer is for any and all shares of Preferred Stock.
Any shares of Preferred Stock not exchanged in the Exchange
Offer will remain outstanding after the completion of the
Exchange Offer. The reduction in the number of shares available
for trading after the completion of the Exchange Offer, our
suspension of the payment of dividends on Preferred Stock since
August 2009, our inability to pay any dividends without Fed
approval under the Agreement, our delisting of any remaining
shares of Preferred Stock from trading on the NYSE and, to the
extent permitted by law, the deregistration of any such
remaining shares under the Exchange Act may have a significant
and adverse effect on the liquidity of any trading market for,
and the price of, any such remaining shares of Preferred Stock
and may result in the shares of Preferred Stock being illiquid
for an indefinite period of time.
49
Selected Financial
Data
The following data summarizes our consolidated financial
information as of and for each of the five years ended
December 31, 2009 and the six-month period ended
June 30, 2010 and 2009. You should read the following
financial data in conjunction with the information set forth
under Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
financial statements and the related notes thereto included in
our Annual Reports on
Form 10-K
for the years ended December 31, 2009, 2008, 2007, 2006 and
2005 and our report on
Form 10-Q
for the six-month period ended June 30, 2010 and 2009,
respectively, from which this information is derived. For more
information, see Where You Can Find More Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month
|
|
|
Six-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended
|
|
|
Period ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Year ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands,
except per share and ratio results)
|
|
|
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
|
|
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 (taxable equivalent basis)
|
|
|
2.70
|
|
|
|
2.89
|
|
|
|
2.93
|
|
|
|
3.20
|
|
|
|
2.83
|
|
|
|
2.84
|
|
|
|
3.23
|
|
Capital Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital
|
|
|
12.05
|
%
|
|
|
13.08
|
%
|
|
|
12.16
|
%
|
|
|
11.55
|
%
|
|
|
12.61
|
%
|
|
|
11.06
|
%
|
|
|
9.71
|
%
|
Total risk-based capital
|
|
|
13.35
|
|
|
|
14.35
|
|
|
|
13.44
|
|
|
|
12.80
|
|
|
|
13.86
|
|
|
|
12.25
|
|
|
|
10.72
|
|
Tier 1 leverage ratio
|
|
|
8.14
|
|
|
|
9.12
|
|
|
|
8.91
|
|
|
|
8.30
|
|
|
|
9.29
|
|
|
|
7.82
|
|
|
|
6.72
|
|
Credit Quality Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Book value per share
|
|
$
|
5.48
|
|
|
$
|
9.88
|
|
|
$
|
7.25
|
|
|
$
|
10.78
|
|
|
$
|
9.42
|
|
|
$
|
8.16
|
|
|
$
|
8.01
|
|
Ratio of earnings to fixed charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Interest on Deposits
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
1.13
|
|
|
|
1.12
|
|
|
|
1.14
|
|
|
|
1.23
|
|
Excluding Interest on Deposits
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
1.41
|
|
|
|
1.42
|
|
|
|
1.47
|
|
|
|
1.53
|
|
Ratio of earnings to fixed charges & Preferred
Stock Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Interest on Deposits
|
|
|
(B
|
)
|
|
|
(B
|
)
|
|
|
(B
|
)
|
|
|
1.06
|
|
|
|
1.05
|
|
|
|
1.07
|
|
|
|
1.14
|
|
Excluding Interest on Deposits
|
|
|
(B
|
)
|
|
|
(B
|
)
|
|
|
(B
|
)
|
|
|
1.16
|
|
|
|
1.14
|
|
|
|
1.20
|
|
|
|
1.29
|
|
(footnotes on following
page)
50
Selected
Financial Data
|
|
|
(A) |
|
For the six-month periods ended June 30, 2010 and 2009,
and for the year ended December 31, 2009, the ratio
coverage was less than 1:1. The Corporation would have to
generate additional earnings of $187.0 million,
$169.0 million and $270.7 million, respectively, to
cover fixed charges and achieve a ratio of 1:1. |
|
|
|
(B) |
|
For the six-month periods ended June 30, 2010 and
June 30, 2009 and for the year ended December 31,
2009, the ratio coverage was less than 1:1. The Corporation
would have to generate additional earnings of
$199.3 million, $200.3 million, and
$317.5 million, respectively, to cover fixed charges and
preferred dividends and achieve a ratio of 1:1. |
For purposes of computing the consolidated ratios of earnings to
fixed charges and earnings to fixed charges and Preferred Stock
Dividends, earnings consist of pre-tax income from continuing
operations plus fixed charges and amortization of capitalized
interest, less interest capitalized. Fixed charges consist of
interest expensed and capitalized, amortization of debt issuance
costs, and First BanCorps estimate of the interest
component of rental expense. Ratios are presented both including
and excluding interest on deposits. The term Preferred
Stock Dividends is the amount of pre-tax earnings that is
required to pay dividends on our outstanding Preferred Stock.
LONG-TERM
OBLIGATIONS AND OUTSTANDING PREFERRED STOCK
The principal balance of our long-term obligations (excluding
deposits) and our outstanding preferred stock on a consolidated
basis as of the end of each of the five years ended
December 31, 2009 and the six-month period ended
June 30, 2010 and 2009 are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
As of
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in
thousands)
|
|
|
Long-term obligations
|
|
$
|
2,869,306
|
|
|
$
|
3,396,787
|
|
|
$
|
3,312,516
|
|
|
$
|
3,821,128
|
|
|
$
|
2,730,860
|
|
|
$
|
2,042,047
|
|
|
$
|
3,849,275
|
|
Cumulative preferred stock
|
|
|
380,730
|
|
|
|
376,159
|
|
|
|
378,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cumulative preferred stock
|
|
|
550,100
|
|
|
|
550,100
|
|
|
|
550,100
|
|
|
|
550,100
|
|
|
|
550,100
|
|
|
|
550,100
|
|
|
|
550,100
|
|
PRO FORMA DATA
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2010 AND THE YEAR
ENDED DECEMBER 31, 2009
The following pro forma data reflects the impact on net loss per
common share, net loss per common share attributable to common
stockholders, the ratio of earnings to fixed charges and the
ratio of earnings to fixed charges and preferred stock dividends
for the six-month period ended June 30, 2010 and the year
ended December 31, 2009 based on an assumed high and low
participation rates in the
51
Selected
Financial Data
Exchange Offer. The data does not give effect to the conversion
of the Series G Preferred Stock or a Capital Raise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
|
|
|
|
|
Participation
|
|
Participation
|
|
|
|
|
|
|
Scenario
|
|
Scenario
|
|
|
|
|
|
|
Six-Month
|
|
Six-Month
|
|
High
|
|
Low
|
|
|
Period Ended
|
|
Period Ended
|
|
Participation
|
|
Participation
|
|
|
June 30,
2010
|
|
June 30,
2010
|
|
Scenario FY
09
|
|
Scenario FY
09
|
|
|
Loss per common share from continuing operations (basic and
diluted)
|
|
|
0.61
|
|
|
|
0.90
|
|
|
|
0.85
|
|
|
|
1.25
|
|
Net loss per common share (basic and diluted)
|
|
|
0.65
|
|
|
|
0.95
|
|
|
|
0.93
|
|
|
|
1.41
|
|
Ratio of earnings to fixed charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Interest on Deposits
|
|
|
|
(A)
|
|
|
|
(A)
|
|
|
|
(A)
|
|
|
|
(A)
|
Excluding Interest on Deposits
|
|
|
|
(A)
|
|
|
|
(A)
|
|
|
|
(A)
|
|
|
|
(A)
|
Ratio of earnings to fixed charges & Preferred
Stock Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Interest on Deposits
|
|
|
|
(B)
|
|
|
|
(B)
|
|
|
|
(B)
|
|
|
|
(B)
|
Excluding Interest on Deposits
|
|
|
|
(B)
|
|
|
|
(B)
|
|
|
|
(B)
|
|
|
|
(B)
|
Book value per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
For the six-month period ended June 30, 2010 and the
year ended December 31, 2009, the ratio coverage was less
than 1:1. The Corporation would have to generate additional
earnings of $187.0 million and $270.7 million,
respectively, under both, the High and Low Participation
Scenarios, to achieve a ratio of 1:1 for the six-month
period ended June 30, 2010 and year ended December 31,
2009. |
|
|
|
(B) |
|
For the six-month period ended June 30, 2010 and the
year ended December 31, 2009, the ratio coverage was less
than 1:1. The Corporation would have to generate additional
earnings of $199.3 million and $296.4 million,
respectively, under both, the High Participation Scenario and
Low Participation Scenario to achieve a ratio of 1:1 for
the six-month period ended June 30, 2010 and the year ended
December 31, 2009. |
52
Unaudited Pro Forma
Financial Information
The following selected unaudited pro forma financial information
has been presented to give effect to and show the pro forma
impact of the Exchange Offer on First BanCorps balance
sheet as of June 30, 2010 and First BanCorps results
of operations for the fiscal year ended December 31, 2009
and the six-month period ended June 30, 2010 assuming two
different levels of participation in the Exchange Offer as
discussed below. The unaudited pro forma financial information
does not give effect to the conversion of the Series G
Preferred Stock or a Capital Raise.
The unaudited pro forma financial information is presented for
illustrative purposes only and does not necessarily indicate the
financial position or results that would have been realized had
the Exchange Offer been completed as of the dates indicated or
that will be realized in the future when and if the Exchange
Offer is completed. The selected unaudited pro forma financial
information has been derived from, and should be read in
conjunction with, the summary historical consolidated financial
information included elsewhere in this prospectus and First
BanCorps historical consolidated financial statements
included in our Annual Report on
Form 10-K
for the year ended December 31, 2009 and our quarterly
report on Form 10-Q for the period ended June 30, 2010
filed with the SEC, which are incorporated by reference into
this prospectus.
UNAUDITED PRO
FORMA BALANCE SHEETS
The unaudited pro forma consolidated balance sheet of First
BanCorp as of June 30, 2010 has been presented as if the
Exchange Offer had been completed on January 1, 2009. We
have shown the pro forma impact of a High Participation
Scenario and a Low Participation Scenario
prepared using the assumptions set forth below.
The High Participation Scenario assumes (i) the
exchange of 90% of the outstanding shares of Preferred Stock
($495.09 million aggregate liquidation preference) for
230,761,449 shares of our Common Stock, and (ii) a
Relevant Price of $1.18 per share.
The Low Participation Scenario assumes (i) the
exchange of 50% of the outstanding shares of Preferred Stock
($275.05 million aggregate liquidation preference) for
128,200,805 shares of our Common Stock, and (ii) a
Relevant Price of $1.18 per share.
If the Relevant Price is greater than the $1.18 per share amount
assumed in the preceding paragraph, there will be a decrease in
the number of shares of Common Stock being issued and an
increase in surplus, and increase in earnings per share relative
to the pro forma financial statement information.
There can be no assurance that the foregoing assumptions will be
realized in the future.
53
Unaudited Pro
Forma Financial Information
High
Participation Scenario
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
Actual
|
|
|
|
|
|
Pro forma
|
|
|
|
June 30,
|
|
|
Exchange of
|
|
|
June 30,
|
|
|
|
2010
|
|
|
Preferred
Stock
|
|
|
2010
|
|
|
|
|
|
(In thousands,
except per share amounts)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
523,047
|
|
|
$
|
(6,876
|
)(5)
|
|
$
|
516,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
5,066
|
|
|
|
|
|
|
|
5,066
|
|
Time deposits with other financial institutions
|
|
|
1,588
|
|
|
|
|
|
|
|
1,588
|
|
Other short-term investments
|
|
|
15,390
|
|
|
|
|
|
|
|
15,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total money market investments
|
|
|
22,044
|
|
|
|
|
|
|
|
22,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value
|
|
|
3,954,910
|
|
|
|
|
|
|
|
3,954,910
|
|
Investment securities held to maturity, at amortized cost
|
|
|
533,302
|
|
|
|
|
|
|
|
533,302
|
|
Other equity securities
|
|
|
69,843
|
|
|
|
|
|
|
|
69,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,558,055
|
|
|
|
|
|
|
|
4,558,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
11,898,808
|
|
|
|
|
|
|
|
11,898,808
|
|
Loans held for sale, at lower of cost or market
|
|
|
100,626
|
|
|
|
|
|
|
|
100,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
|
11,999,434
|
|
|
|
|
|
|
|
11,999,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
207,440
|
|
|
|
|
|
|
|
207,440
|
|
Other real estate owned
|
|
|
72,358
|
|
|
|
|
|
|
|
72,358
|
|
Accrued interest receivable on loans and investments
|
|
|
66,390
|
|
|
|
|
|
|
|
66,390
|
|
Due from customers on acceptances
|
|
|
1,036
|
|
|
|
|
|
|
|
1,036
|
|
Accounts receivable from investment sales
|
|
|
319,459
|
|
|
|
|
|
|
|
319,459
|
|
Other assets
|
|
|
346,760
|
|
|
|
|
|
|
|
346,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,116,023
|
|
|
$
|
(6,876
|
)
|
|
$
|
18,109,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
$
|
715,166
|
|
|
$
|
|
|
|
$
|
715,166
|
|
Interestbearing deposits
|
|
|
12,012,409
|
|
|
|
|
|
|
|
12,012,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
12,727,575
|
|
|
|
|
|
|
|
12,727,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
2,584,438
|
|
|
|
|
|
|
|
2,584,438
|
|
Advances from the Federal Home Loan Bank (FHLB)
|
|
|
940,440
|
|
|
|
|
|
|
|
940,440
|
|
Notes payable
|
|
|
24,059
|
|
|
|
|
|
|
|
24,059
|
|
Other borrowings
|
|
|
231,959
|
|
|
|
|
|
|
|
231,959
|
|
Bank acceptances outstanding
|
|
|
1,036
|
|
|
|
|
|
|
|
1,036
|
|
Accounts payable from investment purchases
|
|
|
8,475
|
|
|
|
|
|
|
|
8,475
|
|
Accounts payable and other liabilities
|
|
|
159,752
|
|
|
|
|
|
|
|
159,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,677,734
|
|
|
|
|
|
|
|
16,677,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
930,830
|
|
|
|
(495,090
|
)(1)
|
|
|
435,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
102,440
|
|
|
|
230,761
|
(2)
|
|
|
333,201
|
|
Less: Treasury stock (at cost)
|
|
|
(9,898
|
)
|
|
|
|
|
|
|
(9,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding
|
|
|
92,542
|
|
|
|
230,761
|
|
|
|
323,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
134,270
|
|
|
|
46,375
|
(3)
|
|
|
180,645
|
|
Legal surplus
|
|
|
299,006
|
|
|
|
|
|
|
|
299,006
|
|
(Accumulated deficit) retained earnings
|
|
|
(81,670
|
)
|
|
|
211,078
|
(4)
|
|
|
129,408
|
|
Accumulated other comprehensive income
|
|
|
63,311
|
|
|
|
|
|
|
|
63,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,438,289
|
|
|
|
(6,876
|
)
|
|
|
1,431,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
18,116,023
|
|
|
$
|
(6,876
|
)
|
|
$
|
18,109,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value per common share
|
|
$
|
5.48
|
|
|
$
|
(2.40
|
)
|
|
$
|
3.08
|
|
Tangible book value per common share
|
|
$
|
5.01
|
|
|
$
|
(2.06
|
)
|
|
$
|
2.95
|
|
54
Unaudited Pro
Forma Financial Information
|
|
|
1. |
|
Assumes exchange offer participation at 90% with a ratio of
Exchange Value to liquidation preference equal to 55%. |
|
|
|
2. |
|
Represents the issuance of Common Stock at par value of
$1.00. |
|
|
|
3. |
|
Represents the additional paid in capital with respect to
newly issued common stock, net of exchange costs and adjusted
for the issuance costs of preferred shares exchanged. |
|
|
|
4. |
|
Represents the excess of the preferred stock carrying value,
reduced by the issuance costs of preferred shares exchanged,
over the value of the common stock to be issued on the Exchange
Offer considering the assumptions described in note
(1) above. |
|
|
|
5. |
|
Represents the costs associated with this Exchange offer
calculated on a pro-rata basis according to the number of shares
exchanged. The amount was reduced from additional paid in
capital. |
55
Unaudited Pro
Forma Financial Information
LOW PARTICIPATION
SCENARIO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
Actual
|
|
|
|
|
|
Pro forma
|
|
|
|
June 30,
|
|
|
Exchange of
|
|
|
June 30,
|
|
|
|
2010
|
|
|
Preferred
Stock
|
|
|
2010
|
|
|
|
|
|
(in thousands,
except per share amounts)
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
523,047
|
|
|
$
|
(4,126
|
)(5)
|
|
$
|
518,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
5,066
|
|
|
|
|
|
|
|
5,066
|
|
Time deposits with other financial institutions
|
|
|
1,588
|
|
|
|
|
|
|
|
1,588
|
|
Other short-term investments
|
|
|
15,390
|
|
|
|
|
|
|
|
15,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total money market investments
|
|
|
22,044
|
|
|
|
|
|
|
|
22,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value
|
|
|
3,954,910
|
|
|
|
|
|
|
|
3,954,910
|
|
Investment securities held to maturity, at amortized cost
|
|
|
533,302
|
|
|
|
|
|
|
|
533,302
|
|
Other equity securities
|
|
|
69,843
|
|
|
|
|
|
|
|
69,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,558,055
|
|
|
|
|
|
|
|
4,558,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
11,898,808
|
|
|
|
|
|
|
|
11,898,808
|
|
Loans held for sale, at lower of cost or market
|
|
|
100,626
|
|
|
|
|
|
|
|
100,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
|
11,999,434
|
|
|
|
|
|
|
|
11,999,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
207,440
|
|
|
|
|
|
|
|
207,440
|
|
Other real estate owned
|
|
|
72,358
|
|
|
|
|
|
|
|
72,358
|
|
Accrued interest receivable on loans and investments
|
|
|
66,390
|
|
|
|
|
|
|
|
66,390
|
|
Due from customers on acceptances
|
|
|
1,036
|
|
|
|
|
|
|
|
1,036
|
|
Accounts receivable from investment sales
|
|
|
319,459
|
|
|
|
|
|
|
|
319,459
|
|
Other assets
|
|
|
346,760
|
|
|
|
|
|
|
|
346,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,116,023
|
|
|
$
|
(4,126
|
)
|
|
$
|
18,111,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
$
|
715,166
|
|
|
$
|
|
|
|
$
|
715,166
|
|
Interest bearing deposits
|
|
|
12,012,409
|
|
|
|
|
|
|
|
12,012,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
12,727,575
|
|
|
|
|
|
|
|
12,727,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
2,584,438
|
|
|
|
|
|
|
|
2,584,438
|
|
Advances from the Federal Home Loan Bank (FHLB)
|
|
|
940,440
|
|
|
|
|
|
|
|
940,440
|
|
Notes payable
|
|
|
24,059
|
|
|
|
|
|
|
|
24,059
|
|
Other borrowings
|
|
|
231,959
|
|
|
|
|
|
|
|
231,959
|
|
Bank acceptances outstanding
|
|
|
1,036
|
|
|
|
|
|
|
|
1,036
|
|
Accounts payable from investment purchases
|
|
|
8,475
|
|
|
|
|
|
|
|
8,475
|
|
Accounts payable and other liabilities
|
|
|
159,752
|
|
|
|
|
|
|
|
159,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,677,734
|
|
|
|
|
|
|
|
16,677,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
930,830
|
|
|
|
(275,050
|
)(1)
|
|
|
655,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
102,440
|
|
|
|
128,201
|
(2)
|
|
|
230,641
|
|
Less: Treasury stock (at cost)
|
|
|
(9,898
|
)
|
|
|
|
|
|
|
(9,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding
|
|
|
92,542
|
|
|
|
128,201
|
|
|
|
220,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
134,270
|
|
|
|
25,458
|
(3)
|
|
|
159,728
|
|
Legal surplus
|
|
|
299,006
|
|
|
|
|
|
|
|
299,006
|
|
(Accumulated deficit) retained earnings
|
|
|
(81,670
|
)
|
|
|
117,265
|
(4)
|
|
|
35,595
|
|
Accumulated other comprehensive income
|
|
|
63,311
|
|
|
|
|
|
|
|
63,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,438,289
|
|
|
|
(4,126
|
)
|
|
|
1,434,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
18,116,023
|
|
|
$
|
(4,126
|
)
|
|
$
|
18,111,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value per common share
|
|
$
|
5.48
|
|
|
$
|
(1.95
|
)
|
|
$
|
3.53
|
|
Tangible book value per common share
|
|
$
|
5.01
|
|
|
$
|
(1.68
|
)
|
|
$
|
3.33
|
|
56
Unaudited Pro
Forma Financial Information
|
|
|
1. |
|
Assumes exchange offer participation at 50% with a ratio of
Exchange Value to liquidation preference equal to 55%. |
|
2. |
|
Represents the issuance of Common Stock at par value of
$1.00. |
|
3. |
|
Represents the additional paid in capital with respect to
newly issued common stock, net of exchange costs and adjusted
for the issuance costs of preferred shares exchanged. |
|
4. |
|
Represents the excess of the preferred stock carrying value,
reduced by the issuance costs of preferred shares exchanged,
over the value of the common stock to be issued on the Exchange
Offer considering the assumptions described in note
(1) above. |
|
5. |
|
Represents the costs associated with this Exchange offer
calculated on a pro-rata basis according to the number of shares
exchanged. The amount was reduced from additional paid in
capital. |
PRO FORMA
EARNINGS IMPLICATIONS
The following presents the pro forma impact of the Exchange
Offer on certain statement of operations items and losses per
Common Share for the six-month period ended June 30, 2010
and the year ended December 31, 2009 as if the Exchange
Offer had been completed on January 1, 2009. We have
calculated the pro forma information below by
(1) eliminating all the actual dividends in 2009 paid to
holders of shares of Preferred Stock who participate at the
levels assumed in each of the High Participation Scenario and
the Low Participation Scenario, and (2) assuming that the
new shares of our Common Stock issuable in the Exchange Offer
were issued on January 1, 2009 and received dividends
through August 2009. The retained earnings impact of the
Exchange Offer has not been included in the analysis because it
is not recurring.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Implications
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
Participation
|
|
|
Participation
|
|
|
|
|
|
Participation
|
|
|
Participation
|
|
|
|
Actual
|
|
|
Scenario
|
|
|
Scenario
|
|
|
Actual
|
|
|
Scenario
|
|
|
Scenario
|
|
|
|
Six-Month
Period
|
|
|
Six-Month
Period
|
|
|
Six-Month
Period
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Ended
June 30,
|
|
|
Ended
June 30,
|
|
|
Ended
June 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
(in thousands,
except per share amounts) (unaudited)
|
|
|
Interest income
|
|
|
435,852
|
|
|
|
435,852
|
|
|
|
435,852
|
|
|
|
996,574
|
|
|
|
996,574
|
|
|
|
996,574
|
|
Interest expense
|
|
|
199,927
|
|
|
|
199,927
|
|
|
|
199,927
|
|
|
|
477,532
|
|
|
|
477,532
|
|
|
|
477,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
235,925
|
|
|
|
235,925
|
|
|
|
235,925
|
|
|
|
519,042
|
|
|
|
519,042
|
|
|
|
519,042
|
|
Provision for loan losses
|
|
|
317,758
|
|
|
|
317,758
|
|
|
|
317,758
|
|
|
|
579,858
|
|
|
|
579,858
|
|
|
|
579,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest loss provision for loan and lease losses
|
|
|
(81,833
|
)
|
|
|
(81,833
|
)
|
|
|
(81,833
|
)
|
|
|
(60,816
|
)
|
|
|
(60,816
|
)
|
|
|
(60,816
|
)
|
Non-interest income
|
|
|
84,851
|
|
|
|
84,851
|
|
|
|
84,851
|
|
|
|
142,264
|
|
|
|
142,264
|
|
|
|
142,264
|
|
Non-interest expenses
|
|
|
189,973
|
|
|
|
189,973
|
|
|
|
189,973
|
|
|
|
352,101
|
|
|
|
352,101
|
|
|
|
352,101
|
|
Income tax expense
|
|
|
(10,684
|
)
|
|
|
(10,684
|
)
|
|
|
(10,684
|
)
|
|
|
(4,534
|
)
|
|
|
(4,534
|
)
|
|
|
(4,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(197,639
|
)
|
|
|
(197,639
|
)
|
|
|
(197,639
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to preferred stockholders(a)
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
42,661
|
|
|
|
21,516
|
|
|
|
30,914
|
|
Preferred stock discount accretion
|
|
|
2,322
|
|
|
|
2,322
|
|
|
|
2,322
|
|
|
|
4,227
|
|
|
|
4,227
|
|
|
|
4,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
|
(209,961
|
)
|
|
|
(209,961
|
)
|
|
|
(209,961
|
)
|
|
|
(322,075
|
)
|
|
|
(300,930
|
)
|
|
|
(310,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
(197,639
|
)
|
|
|
(197,639
|
)
|
|
|
(197,639
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
Preferred stock dividends and accretion of discount
|
|
|
12,322
|
|
|
|
12,322
|
|
|
|
12,322
|
|
|
|
46,888
|
|
|
|
25,743
|
|
|
|
35,141
|
|
Pro forma net loss attributable to common stockholders
|
|
|
(209,961
|
)
|
|
|
(209,961
|
)
|
|
|
(209,961
|
)
|
|
|
(322,075
|
)
|
|
|
(300,930
|
)
|
|
|
(310,328
|
)
|
57
Unaudited Pro
Forma Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Implications
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
Participation
|
|
|
Participation
|
|
|
|
|
|
Participation
|
|
|
Participation
|
|
|
|
Actual
|
|
|
Scenario
|
|
|
Scenario
|
|
|
Actual
|
|
|
Scenario
|
|
|
Scenario
|
|
|
|
Six-Month
Period
|
|
|
Six-Month
Period
|
|
|
Six-Month
Period
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Ended
June 30,
|
|
|
Ended
June 30,
|
|
|
Ended
June 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
(in thousands,
except per share amounts) (unaudited)
|
|
|
Common shares used to calculate actual (loss) per common share
|
|
|
92,521
|
|
|
|
92,521
|
|
|
|
92,521
|
|
|
|
92,511
|
|
|
|
92,511
|
|
|
|
92,511
|
|
Common shares newly issued
|
|
|
|
|
|
|
230,761
|
|
|
|
128,201
|
|
|
|
|
|
|
|
230,761
|
|
|
|
128,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma number of common shares
|
|
|
|
|
|
|
323,282
|
|
|
|
220,722
|
|
|
|
|
|
|
|
323,272
|
|
|
|
220,712
|
|
Pro forma losses per common share (basic and diluted)
|
|
|
|
|
|
$
|
(0.65
|
)
|
|
$
|
(0.95
|
)
|
|
|
|
|
|
$
|
(0.93
|
)
|
|
$
|
(1.41
|
)
|
|
|
|
(a) |
|
For the six-month period ended June 30, 2010 and the year
ended December 31, 2009, reflects Series F Preferred
Stock cumulative preferred dividends of $10.0 million and
$12.6 million, respectively, not declared as of the end of
the period related to the Series F Preferred Stock issued
to the U.S. Treasury in connection with the Troubled Asset
Relief Program (TARP) Capital Purchase Program.
|
58
Use of Proceeds
We will not receive any cash proceeds from the Exchange Offer.
59
Regulatory and Other
Capital Ratios
The following table sets forth our capital ratios as of
June 30, 2010 on an as reported basis, as well
as on a pro forma basis after giving effect to the Exchange
Offer. The pro forma ratios presented reflect:
(i) completion of the Exchange Offer under the Low
Participation Scenario and (ii) completion of the Exchange
Offer under the High Participation Scenario. This table should
be read in conjunction with the information set forth under
Selected Financial Data, Unaudited Pro Forma
Financial Information, Regulatory and Other Capital
Ratios and our consolidated unaudited financial statements
set forth in our
Form 10-Q
for the quarter ended June 30, 2010, which are incorporated
by reference into this prospectus. See also Risk
Factors.
REGULATORY AND
OTHER CAPITAL RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2010
|
|
|
|
|
|
|
Pro forma for
|
|
|
Pro forma for
|
|
|
|
|
|
|
Exchange Offer
|
|
|
Exchange Offer
|
|
|
|
As
reported
|
|
|
(Low)(1)
|
|
|
(High)(2)(3)
|
|
|
|
|
Total capital (Total capital to risk-weighted assets)
|
|
|
13.35
|
%
|
|
|
13.35
|
%
|
|
|
13.35
|
%
|
Tier 1 capital ratio (Tier 1 capital to
risk-weighted assets)
|
|
|
12.05
|
|
|
|
12.05
|
|
|
|
12.05
|
|
Leverage (Tier 1 capital to average assets)
|
|
|
8.14
|
|
|
|
8.14
|
|
|
|
8.14
|
|
Tangible common equity (Tangible common equity to tangible
assets)
|
|
|
2.57
|
|
|
|
4.09
|
|
|
|
5.31
|
|
Tier 1 common (Tier 1 common equity to
risk-weighted assets)
|
|
|
2.86
|
|
|
|
5.05
|
|
|
|
6.80
|
|
|
|
|
(1) |
|
The Low Participation Scenario assumes
(i) the exchange of 50% of the outstanding shares of
Preferred Stock ($275.05 million aggregate liquidation
preference) for 128,200,805 shares of our Common Stock, and
(ii) a Relevant Price of $1.18 per share. |
|
(2) |
|
The High Participation Scenario assumes
(i) the exchange of 90% of the outstanding shares of
Preferred Stock ($495.09 million aggregate liquidation
preference) for 230,761,449 shares of our Common Stock, and
(ii) a Relevant Price of $1.18 per share. |
|
|
|
(3) |
|
If 70% of the outstanding shares of Preferred Stock are
exchanged in the Exchange Offer, which is the Corporations
targeted success rate for the Exchange Offer, our Tier 1
common equity ratio and tangible common equity ratios as of
June 30, 2010 on a pro forma basis after giving effect to
the Exchange Offer would have been 5.92% and 4.70%,
respectively. |
RECONCILIATION OF
TANGIBLE COMMON EQUITY AND TANGIBLE ASSETS
The tangible common equity ratio and tangible book value per
common share are non-GAAP measures generally used by financial
analysts and investment bankers to evaluate capital adequacy.
Tangible common equity is total equity less preferred equity,
goodwill and core deposit intangibles. Tangible assets are total
assets less goodwill and core deposit intangibles. Management
and many stock analysts use the tangible common equity ratio and
tangible book value per common share in conjunction with more
traditional bank capital ratios to compare the capital adequacy
of banking organizations with significant amounts of goodwill or
other intangible assets, typically stemming from the use of the
purchase accounting method accounting for mergers and
acquisitions. Neither tangible common equity nor tangible assets
or related measures should be considered in isolation or as a
substitute for stockholders equity, total assets or any
other measure calculated in accordance with GAAP. Moreover, the
manner in which the Corporation calculates its tangible common
equity, tangible assets and any other related measures may
differ from that of other companies reporting measures with
similar names.
60
Regulatory and
Other Capital Ratios
The following table is a reconciliation of the
Corporations tangible common equity and tangible assets as
of June 30, 2010.
Supplemental
InformationNon-GAAP Measures
Table
18Tangible Common Equity
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|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
|
|
|
(dollars in
thousands)
|
|
|
Tangible Equity:
|
|
|
|
|
Total equityGAAP
|
|
$
|
1,438,289
|
|
Preferred equity
|
|
|
(930,830
|
)
|
Goodwill
|
|
|
(28,098
|
)
|
Core deposit intangible
|
|
|
(15,303
|
)
|
|
|
|
|
|
Tangible common equity
|
|
$
|
464,058
|
|
|
|
|
|
|
Tangible Assets:
|
|
|
|
|
Total assetsGAAP
|
|
$
|
18,116,023
|
|
Goodwill
|
|
|
(28,098
|
)
|
Core deposit intangible
|
|
|
(15,303
|
)
|
|
|
|
|
|
Tangible assets
|
|
$
|
18,072,622
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
92,542
|
|
|
|
|
|
|
Tangible common equity ratio
|
|
|
2.57
|
%
|
RECONCILIATION OF
COMMON STOCKHOLDERS EQUITY (GAAP) TO TIER 1 COMMON
EQUITY (NON-GAAP)
The Tier 1 common equity to risk-weighted assets ratio is
calculated by dividing (a) tier 1 capital less
non-common elements including qualifying perpetual preferred
stock and qualifying trust preferred securities, by
(b) risk-weighted assets, which assets are calculated in
accordance with applicable bank regulatory requirements. The
Tier 1 common equity ratio is not required by
U.S. generally accepted accounting principles, or GAAP, or
on a recurring basis by applicable bank regulatory requirements.
However, this ratio was used by the Federal Reserve in
connection with its stress test administered to the 19 largest
U.S. bank holding companies under the Supervisory Capital
Assessment Program, the results of which were announced on
May 7, 2009. Management is currently monitoring this ratio,
along with the other ratios set forth in the table above, in
evaluating the Corporations capital levels and believes
that, at this time, the ratio may be of interest to investors.
Non-GAAP financial measures have inherent limitations, are not
required to be uniformly applied and are not audited. To
mitigate these limitations, we have procedures in place to
calculate these measures using the appropriate GAAP or
regulatory components. Although these non-GAAP financial
measures are frequently used by stakeholders in the evaluation
of a company, they have limitations as analytical tools, and
should not be considered in isolation, or as a substitute for
analyses of results as reported under GAAP.
61
Regulatory and
Other Capital Ratios
The following table provides a reconciliation of common
stockholders equity (GAAP) to Tier 1 common equity
(non-GAAP) as of June 30, 2010:
Table
19 Tier 1 Common Equity to Risk-Weighted
Assets
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
|
|
|
(dollars in
|
|
|
|
thousands)
|
|
|
Tier 1 Common Equity:
|
|
|
|
|
Total equityGAAP
|
|
$
|
1,438,289
|
|
Qualifying preferred stock
|
|
|
(930,830
|
)
|
Unrealized (gain) loss on
available-for-sale
securities(1)
|
|
|
(63,311
|
)
|
Disallowed deferred tax
asset(2)
|
|
|
(38,078
|
)
|
Goodwill
|
|
|
(28,098
|
)
|
Core deposit intangible
|
|
|
(15,303
|
)
|
Cumulative change gain in fair value of liabilities accounted
for under a fair value option
|
|
|
(3,170
|
)
|
Other disallowed assets
|
|
|
(66
|
)
|
|
|
|
|
|
Tier 1 common equity
|
|
$
|
359,433
|
|
|
|
|
|
|
Total risk-weighted assets
|
|
|
12,570,330
|
|
|
|
|
|
|
Tier 1 common equity to risk-weighted assets ratio
|
|
|
2.86
|
%
|
|
|
|
(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 $71 million of the Corporations
deferred tax assets at June 30, 2010 were included without
limitation in regulatory capital pursuant to the risk-based
capital guidelines, while approximately $38 million of such
assets at June 30, 2010 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 entitys
Tier 1 capital. Approximately $12 million of the
Corporations other net deferred tax liability at
June 30, 2010 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. |
62
The Exchange Offer
PURPOSE AND
BACKGROUND OF THE TRANSACTIONS
Purpose of the
Exchange Offer
We decided to conduct this Exchange Offer to improve our capital
structure given the continuing difficult economic conditions in
the markets in which we operate and the evolving regulatory
environment. We must increase our common equity to provide
additional protection against the future recognition of
additional loan loss reserves against our loan portfolio and
credit losses associated with the disposition of non-performing
assets due to the current economic situation in Puerto Rico and
the United States that has impacted the Corporations asset
quality and earnings performance. Total non-performing loans to
total loans increased to 12.40% as of June 30, 2010 from
11.23% as of December 31, 2009 and from 8.94% as of
June 30, 2009.
The restructuring of our equity components through the Exchange
Offer will strengthen the quality of our regulatory capital
position although the Exchange Offer itself will not affect our
Tier 1 capital. Our Tier 1 capital will only be
affected if BNS decides to exercise its anti-dilution right
under the Stockholder Agreement and acquire shares of our Common
Stock. See Agreement with The Bank of Nova Scotia.
Through the Exchange Offer, we are seeking to improve the
Corporations Tier 1 common equity to risk-weighted
assets ratio. In the SCAP applied to large money-center banks in
the U.S., federal regulators established a 4% Tier 1 common
equity to risk-weighted assets ratio as the minimum threshold to
determine the potential capital needs of such banks. While the
SCAP is not applicable to us, we believe that the Tier 1
common equity ratio is being viewed by financial analysts and
rating agencies as a guide for measuring the capital adequacy of
banking institutions. The Exchange Offer will also improve our
tangible common equity to tangible assets ratio, which is
another metric used by financial analysts to determine a
banks capital requirements. As of June 30, 2010, our
Tier 1 common equity ratio was 2.86% and our tangible
common equity ratio was 2.57%. If 70% of our outstanding shares
of Preferred Stock is exchanged in the Exchange Offer, which is
the Corporations targeted success rate for the Exchange
Offer, our Tier 1 common equity ratio and tangible common
equity ratio as of June 30, 2010 on a pro forma basis after
giving effect to the Exchange Offer would have been 5.92% and
4.20%, respectively. Our Tier 1 common equity would be
strengthened by $385 million based on a 70% success rate
for the exchange. See Regulatory and Other Capital
RatiosReconciliation of Tangible Common Equity and
Tangible Assets and Regulatory and Other Capital
RatiosReconciliation of Common Stockholders Equity
(GAAP) to Tier 1 Common Equity (Non-GAAP).
We believe that the Exchange Offer will enhance our long-term
financial stability and improve our ability to operate in the
current economic environment. In addition, it will improve our
ability to access the capital markets in order to fund strategic
initiatives or other business needs and to absorb any future
credit losses. Moreover, by conducting the Exchange Offer, we
will be in a better position to meet any new capital
requirements. Further, as provided for in our agreement with the
U.S. Treasury, if holders of $385 million of the
liquidation preference of the Preferred Stock tender their
shares of Preferred Stock in the Exchange Offer, we raise $500
million of additional capital, and the holders of our Common
Stock approve amendments to our Articles of Incorporation,
within nine months of the July 7, 2010 date of our
agreement with the U.S. Treasury, we will meet the
substantive conditions necessary to compel the conversion into
Common Stock of the Series G Preferred Stock that we issued to
the U.S. Treasury in exchange for our Series F Preferred Stock.
No assurance can be given that we will able to meet these
conditions for the conversion of the Series G Preferred
Stock, including the requirement to raise additional capital.
63
The Exchange
Offer
In addition, our federal banking regulators are re-emphasizing
the importance of a number of risk, capital and liquidity
management issues and are requiring banking institutions to
maintain enhanced internal management processes geared towards
achieving and maintaining capital levels that are commensurate
with business activities and risks of all types. To the extent
the Exchange Offer is successful, the Corporation will be in a
better position to comply with the previously discussed
Agreements and to satisfy any additional government regulation
that may be imposed. Both federal banking regulators and the
Basel Committee on Banking Supervision (Basel III) have
taken recent steps to raise capital standards and other
requirements, and a new set of capital and liquidity
requirements could be finalized as soon as year-end 2010. The
elements, ratios and transition rules for these capital
standards are expected to be advanced by Basel III as early
as September 2010. The phase-in period for the new standards is
expected to begin within the next few years. If the Exchange
Offer is successful, we believe the Corporation will be in a
better position to satisfy any additional capital requirements
that may be imposed.
The issuance of Common Stock in connection with the Exchange
Offer and any additional Common Stock issuances, including any
issuance of additional shares of Common Stock in a possible
offering or to BNS pursuant to its anti-dilution right, right of
first refusal or otherwise, will likely be highly dilutive to
our common stockholders and may adversely affect the market
price of our Common Stock.
ADDITIONAL
EFFORTS THE CORPORATION IS TAKING TO IMPROVE ITS
CAPITAL
We have assured our regulators that we are committed to raising
capital and are actively pursuing capital strengthening
initiatives. In addition to this Exchange Offer, we are taking
steps to implement strategies to increase tangible common equity
and regulatory capital through (1) a Capital Raise,
(2) the conversion into Common Stock of the shares of
Series G Preferred Stock, and (3) a rights offering to
existing stockholders. See Agreement with the U.S.
Treasury. With respect to a Capital Raise, we plan to seek
to raise at least $500 million of equity because we believe
that amount would enable us to absorb possible additional losses
based on a worst case evaluation of possible losses over the
next five years while maintaining the capital ratios required
for a well-capitalized financial institution, which would also
comply with the capital requirements in the FDICs Order.
We expect to amend this Prospectus to disclose any material
developments relating to a Capital Raise that occur prior to the
expiration date of the Exchange Offer. We expect that any rights
offering would be conducted after completion of the Exchange
Offer, any Capital Raise and any conversion of the Series G
Preferred Stock. No assurance can be given that we will complete
a Capital Raise, the conversion of the U.S. Treasurys
Series G Preferred Stock or a rights offering.
TERMS OF THE
EXCHANGE OFFER
Generally
We are offering to issue up to 256,401,610 newly issued
shares of our Common Stock in exchange for any and all issued
and outstanding shares of Preferred Stock, validly tendered and
not validly withdrawn, on or prior to the expiration date, upon
the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal
(including, if the Exchange Offer is extended or amended, the
terms and conditions of any such extension or amendment). You
may exchange any or all of your shares of Preferred Stock in the
Exchange Offer. All shares of Preferred Stock accepted for
exchange in the Exchange Offer will be retired by our board of
directors and restored to the status of authorized but unissued
shares of preferred stock without designation as to series.
Offer
Consideration
For each share of Preferred Stock that we accept for exchange in
accordance with the terms of the Exchange Offer, we will issue a
number of shares of our Common Stock having the aggregate dollar
64
The Exchange
Offer
value (based on the Relevant Price) equal to the Exchange Value
set forth in the table below. We refer to the number of shares
of our Common Stock we will issue for each share of Preferred
Stock we accept in the Exchange Offer as the exchange
ratio applicable to such share of Preferred Stock and we
will round the exchange ratio down to four decimal places. As
used in this prospectus:
|
|
Ø
|
The Relevant Price will be equal to the greater of
(1) the average Volume Weighted Average Price, or
VWAP, of a share of our Common Stock, determined as
described below, during the five
trading-day
period ending on the second business day immediately preceding
the expiration date of the Exchange Offer, and (2) the
Minimum Share Price of $1.18 per share of our Common
Stock;
|
|
Ø
|
Average VWAP during a period means the arithmetic average of
VWAP for each trading day during that period; and
|
|
Ø
|
VWAP for any day means the per share volume weighted average
price of our Common Stock on the NYSE from 9:30 a.m. to
4:00 p.m., New York City time, on that day as displayed
under the heading Bloomberg VWAP on Bloomberg Page FBP US
VAP (or its equivalent successor page if such page is not
available) in respect of the period from the scheduled opening
of trading on the relevant trading day until the scheduled close
of trading on the relevant trading day (or if such volume
weighted average price is unavailable, the market price of one
share of our Common Stock on such trading day determined, using
a volume weighted average method, by a nationally recognized
investment banking firm retained by us for this purpose).
|
In addition, depending upon fluctuations in the trading price of
our Common Stock compared to the Relevant Price, the market
value of the Common Stock we issue on the settlement date in
exchange for each share of Preferred Stock we accept for
exchange may be less than, equal to or greater than the
applicable Exchange Value.
Publication of
Exchange Ratio Information
Throughout the Exchange Offer, the indicative average VWAP, the
Minimum Share Price, the resultant indicative Relevant Price,
and the indicative exchange ratios will be available at
www.firstbankpr.com, by clicking on Exchange Offer in the
Investor Relations section at this address, and from the
Information Agent, at the number listed on the back cover page
of this prospectus. We will announce the final exchange ratio
for each series of Preferred Stock prior to 9:00 a.m., New
York City time, on the business day immediately succeeding the
second business day prior to the expiration date of the Exchange
Offer, and those final exchange ratios will also be available by
that time at www.firstbankpr.com, by clicking on Exchange Offer
in the Investor Relations section at this address, and from the
Information Agent. No additional information on our website is
deemed to be part of or incorporated by reference into this
prospectus.
The following summarizes the exchange ratio information that
will be available during the Exchange Offer:
|
|
Ø
|
By 4:30 p.m., New York City time, on each trading day
before the five
trading-day
period referred to in the next bullet, the web page referred to
above will show an indicative exchange ratio for each series of
Preferred Stock calculated using VWAP for that day and the
immediately preceding four trading days (as though that day were
the second business day prior to the expiration date).
|
|
Ø
|
During the five
trading-day
period ending two business days immediately preceding the
expiration date, the web page referred to above will show
indicative exchange ratios for each series of Preferred Stock
using cumulative actual trading data, updated every three hours
starting at 10:30 a.m., New York City time. In particular:
|
|
|
|
|
-
|
On the first trading day of that five
trading-day
period, indicative ratios will reflect actual
Intra-day
VWAP during the elapsed portion of that day.
|
|
|
-
|
On each subsequent trading day during that five
trading-day
period, indicative ratios will reflect the arithmetic average of
VWAP on the preceding trading days in that five
trading-day
period and
|
65
The Exchange
Offer
|
|
|
|
|
actual
Intra-day
VWAP during the elapsed portion of that subsequent trading day,
weighting VWAP for each preceding trading day in the period the
same as such actual
Intra-day
VWAP. For example, on the last trading day of the five
trading-day
period the arithmetic average will equal (i) the combined
VWAP for the preceding four trading days plus the actual
Intra-day
VWAP during the elapsed portion of the last trading day divided
by (ii) five.
|
|
|
Ø
|
The five-day
VWAP period will end two business days immediately preceding the
expiration date.
|
|
Ø
|
Intra-day
VWAP at any time on any day means the volume weighted
average price of one share of Common Stock on the NYSE for the
period beginning at the official open of trading on that day and
ending as of that time on that day, as calculated by Bloomberg.
The data used to derive the
Intra-day
VWAP during the last five
trading-days
will reflect a
20-minute
reporting delay.
|
|
Ø
|
We will announce the final exchange ratio for each series of
Preferred Stock prior to 9:00 a.m., New York City
time, on the business day immediately succeeding the second
business day prior to the expiration date of the Exchange Offer,
and those final exchange ratios will also be available by that
time at www.firstbankpr.com, by clicking on Exchange Offer in
the Investor Relations section at this address,. No additional
information on our website is deemed to be part of or
incorporated by reference into this prospectus.
|
|
Ø
|
At any time during the Exchange Offer, you may also contact the
Information Agent to obtain the indicative average VWAP, the
Minimum Share Price, the resultant indicative Relevant Price and
the indicative exchange ratios (and, once it is determined, the
final exchange ratio for Preferred Stock) at its toll-free
number provided on the back cover page of this prospectus.
|
CONDITIONS OF THE
EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, we
will not be required to accept for exchange, or to issue shares
of our Common Stock in respect of, any shares of Preferred Stock
tendered pursuant to the Exchange Offer, and may terminate,
extend or amend the Exchange Offer, may (subject to
Rule 13e-4(f)
and
Rule 14e-1
under the Exchange Act) postpone the acceptance for exchange of,
and issuance of shares of our Common Stock in respect of, any
shares of Preferred Stock so tendered in the Exchange Offer, if,
in our reasonable judgment (as applicable), any of the following
conditions exist with respect to the Exchange Offer on or prior
to the expiration date:
|
|
Ø |
we do not receive the necessary stockholder approval of the
issuance of up to 256,401,610 shares of Common Stock upon
the exchange of Preferred Stock in the Exchange Offer and
stockholder approval of an amendment to our Articles of
Incorporation to reduce the par value of a share of Common Stock
from $1.00 to $0.10 per share if necessary to issue shares of
Common Stock in the Exchange Offer. The reduction will be
necessary to complete the Exchange Offer if, for example, the
market value of a share of Preferred Stock tendered in the
exchange is less than $10 at a time when the market value of a
share of Common Stock would result in the issuance of more than
10 shares per tendered share of Preferred Stock;
|
|
|
Ø |
there has been instituted, threatened in writing or be pending,
any action, proceeding or investigation by or before any
governmental authority, including any court, governmental,
regulatory or administrative branch or agency, tribunal or
instrumentality (including the Federal Reserve) that challenges
the Exchange Offer or otherwise relates in any manner to the
Exchange Offer that, in our reasonable judgment, does, could or
could reasonably be expected to (a) prohibit, prevent or
delay completion of the Exchange Offer, (b) materially
impair the contemplated benefits to us of the Exchange Offer, or
otherwise result in the completion of the Exchange Offer not
being, or to not reasonably be likely to be, in our best
interest, or (c) have a material adverse effect on the
business, financial condition, operations or prospects of First
BanCorp and its subsidiaries, taken as a whole (any of the
effects described in clause (a), (b) or (c), a
Material Adverse Effect). We will not view as a
Material Adverse Effect our inability to convert the
Series G Preferred Stock into Common Stock;
|
66
The Exchange
Offer
|
|
Ø
|
there has been proposed, enacted, entered, issued, promulgated,
enforced or deemed applicable by any governmental authority,
including any court, governmental, regulatory or administrative
branch or agency, tribunal or instrumentality (including the
Federal Reserve), any order, statute, rule, regulation,
judgment, injunction, stay, decree or executive order, or any
change in the interpretation of any of the foregoing, that, in
our reasonable judgment, has had, could or could reasonably be
expected to have, a Material Adverse Effect;
|
|
Ø
|
there has been proposed, enacted, entered, issued, promulgated,
enforced or deemed applicable to First BanCorp any change in
U.S. GAAP that, in our reasonable judgment, has had, could
or could reasonably be expected to have, a Material Adverse
Effect;
|
|
Ø
|
there has occurred, or is reasonably likely to occur, any
Material Adverse Effect; or
|
|
Ø
|
there has occurred:
|
|
|
|
|
-
|
any general suspension of, or limitation on, prices for trading
in securities in the United States securities or financial
markets;
|
|
|
-
|
any material adverse change in the price of our Common Stock in
the United States securities or financial markets;
|
|
|
-
|
a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or Puerto Rico;
|
|
|
-
|
any limitation (whether or not mandatory) by any government or
governmental, regulatory or administrative authority, agency or
instrumentality, or other event that, in our reasonable
judgment, would, or would be reasonably likely to, affect the
extension of credit by banks or other lending
institutions; or
|
|
|
-
|
a commencement or significant worsening of a war or armed
hostilities or other national or international calamity,
including, but not limited to, catastrophic terrorist attacks
against the United States or its citizens.
|
In addition to the conditions described above, and
notwithstanding any other provision of the Exchange Offer, we
will not be required to accept for exchange, or to issue Common
Stock in respect of, any shares of Preferred Stock tendered
pursuant to the Exchange Offer, and may terminate, extend or
amend the Exchange Offer and may (subject to
Rule 13e-4(f)
and
Rule 14e-1
under the Exchange Act) postpone the acceptance for exchange of,
and issuance of shares of our Common Stock in respect of, any
shares of Preferred Stock so tendered in the Exchange Offer
unless the registration statement of which this prospectus forms
a part becomes effective and no stop order suspending the
effectiveness of the registration statement and no proceeding
for that purpose has been instituted or is pending, or, to our
knowledge, is contemplated or threatened by the SEC.
All conditions to the Exchange Offer must be satisfied or waived
prior to the applicable expiration date. The Exchange Offer is
not subject to any minimum tender condition.
We expressly reserve the right, subject to applicable law, to
amend or terminate the Exchange Offer and to reject for exchange
any of the shares of Preferred Stock not previously accepted for
exchange upon the occurrence of any of the conditions to the
Exchange Offer, as specified above. In addition, we expressly
reserve the right, at any time or at various times, to waive any
conditions of the Exchange Offer, in whole or in part (including
the right to waive a particular condition with respect to the
Exchange Offer), except as to the requirements that the holders
of the Common Stock approve the issuance of the Common Stock
upon the exchange of Preferred Stock in the Exchange Offer and
the issuance of additional shares of Common Stock to BNS if it
exercises its anti-dilution right and that the registration
statement remain effective, which conditions we will not waive.
We will give oral or written notice (with any oral notice to be
promptly confirmed in writing) of any amendment, non-acceptance,
67
The Exchange
Offer
termination or waiver to the Exchange Agent as promptly as
practicable, followed by a timely press release.
These conditions are for our sole benefit, and we may assert
them with respect to the Exchange Offer, regardless of the
circumstances that may give rise to them, or waive them in whole
or in part with respect to the Exchange Offer at any or at
various times in our sole discretion. If we fail at any time to
exercise any of the foregoing rights with respect to the
Exchange Offer, this failure will not constitute a waiver of
such right with respect to the Exchange Offer. The conditions to
the Exchange Offer, other than those dependent upon the receipt
of necessary stockholder and government approvals to consummate
the Exchange Offer, if any, must be satisfied or otherwise
waived by us on or prior to the expiration date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
liquidation
|
|
|
Liquidation
|
|
|
|
|
|
|
|
|
|
preference
|
|
|
preference
|
|
|
Exchange
|
|
CUSIP
|
|
|
Title of
securities
|
|
outstanding
|
|
|
per
share
|
|
|
Value
|
|
|
|
|
|
318672201
|
|
|
7.125% Noncumulative Perpetual Monthly Income Preferred Stock,
Series A
|
|
|
$90,000,000
|
|
|
$
|
25
|
|
|
$
|
13.75
|
|
|
318672300
|
|
|
8.35% Noncumulative Perpetual Monthly Income Preferred Stock,
Series B
|
|
|
$75,000,000
|
|
|
$
|
25
|
|
|
$
|
13.75
|
|
|
318672409
|
|
|
7.40% Noncumulative Perpetual Monthly Income Preferred Stock,
Series C
|
|
|
$103,500,000
|
|
|
$
|
25
|
|
|
$
|
13.75
|
|
|
318672508
|
|
|
7.25% Noncumulative Perpetual Monthly Income Preferred Stock,
Series D
|
|
|
$92,000,000
|
|
|
$
|
25
|
|
|
$
|
13.75
|
|
|
318672607
|
|
|
7.00% Noncumulative Perpetual Monthly Income Preferred Stock,
Series E
|
|
|
$189,600,000
|
|
|
$
|
25
|
|
|
$
|
13.75
|
|
EXPIRATION DATE;
EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 11:59 p.m., New York City
time, on August 24, unless extended or earlier terminated
by us. The term expiration date means such date and
time or, if the Exchange Offer is extended, then the latest date
and time to which the Exchange Offer is so extended. In any
event, we will hold the Exchange Offer open for at least 20
business days.
We reserve the right to extend the period of time that the
Exchange Offer is open, if we elect to extend the Exchange
Offer, and delay acceptance for exchange of the shares of
Preferred Stock tendered in the Exchange Offer, by giving oral
or written notice to the Exchange Agent and by a public
announcement no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled
expiration date. During any such extension, all shares of
Preferred Stock previously tendered and not validly withdrawn in
the Exchange Offer will remain subject to the Exchange Offer,
and subject to your right to withdraw the shares of Preferred
Stock in accordance with the terms of the Exchange Offer. We
also reserve the right to waive any and all conditions to or
amend the Exchange Offer in any respect, including amending the
Exchange Value or the Minimum Share Price, or to terminate the
Exchange Offer.
If we terminate or amend the Exchange Offer, we will notify the
Exchange Agent by oral or written notice and will issue a timely
public announcement regarding the termination or amendment. Upon
termination of the Exchange Offer for any reason, any shares of
Preferred Stock previously tendered in the Exchange Offer will
be promptly returned to the tendering holders.
If we make a material change in the terms of the Exchange Offer,
or the information concerning the Exchange Offer, or waive a
material condition of the Exchange Offer, we will promptly
disseminate disclosure regarding the changes to the Exchange
Offer, and extend the Exchange Offer, if required by law, so
that the Exchange Offer remains open a minimum of five business
days from the date we disseminate disclosure regarding such
changes.
68
The Exchange
Offer
FRACTIONAL
SHARES
No fractional shares of our Common Stock will be issued in the
Exchange Offer and no cash will be paid for fractional shares.
Instead, the number of shares of Common Stock received by each
holder whose shares of Preferred Stock are accepted for exchange
in the Exchange Offer will be rounded down to the nearest whole
number.
PROCEDURES FOR
TENDERING SHARES OF PREFERRED STOCK
Generally
In order to receive shares of our Common Stock in exchange for
your shares of Preferred Stock, you must validly tender your
shares of Preferred Stock on or prior to the expiration date,
and not validly withdraw them.
If you hold your shares of Preferred Stock through a broker,
securities dealer, custodian, commercial bank, trust company or
other nominee, in order to validly tender shares of Preferred
Stock in the Exchange Offer, you must follow the instructions
provided by your broker, securities dealer, custodian,
commercial bank, trust company or other nominee with regard to
procedures for tendering your shares of Preferred Stock, in
order to enable your broker, securities dealer, custodian,
commercial bank, trust company or other nominee to comply with
the procedures described below. Beneficial owners are urged
to appropriately instruct their broker, securities dealer,
custodian, commercial bank, trust company or other nominee at
least five business days prior to the expiration date in order
to allow adequate processing time for their instruction.
In order for your broker, securities dealer, custodian,
commercial bank, trust company or other nominee to validly
tender shares of Preferred Stock in the Exchange Offer, such
broker, securities dealer, custodian, commercial bank, trust
company or other nominee must deliver to the Exchange Agent via
DTC an electronic message that will contain:
|
|
Ø
|
your acknowledgment and agreement to, and agreement to be bound
by, the terms of the accompanying letter of transmittal; and
|
|
Ø
|
a timely confirmation of book-entry transfer of your shares of
Preferred Stock into the Exchange Agents account.
|
On the date of any tender for exchange, if your interest is in
certificated form, you must do each of the following in order to
validly tender for exchange:
|
|
Ø
|
complete and manually sign the accompanying letter of
transmittal provided by the Exchange Agent, or a facsimile of
the exchange notice, and deliver the signed letter to the
Exchange Agent;
|
|
Ø
|
surrender the certificates of your shares of Preferred Stock to
the Exchange Agent;
|
|
Ø
|
if required, furnish appropriate endorsements and transfer
documents; and
|
|
Ø
|
if required, pay all transfer or similar taxes.
|
You may obtain copies of the required form of the letter of
transmittal from the Exchange Agent.
Should you have any questions as to the procedures for tendering
your shares of Preferred Stock, please call your broker,
securities dealer, custodian, commercial bank, trust company or
other nominee; or call the Information Agent.
Tendering your shares of Preferred Stock pursuant to any of the
procedures described herein, and acceptance thereof by us for
exchange, will constitute a binding agreement between you and
us, upon the terms and subject to the conditions of the Exchange
Offer. By executing the accompanying letter of transmittal (or
by tendering shares of Preferred Stock through book-entry
transfer), and subject to and effective upon acceptance for
exchange of, and issuance of shares of our Common Stock for, the
shares
69
The Exchange
Offer
of Preferred Stock tendered therewith, you, among other things:
(i) irrevocably sell, transfer, convey and assign to or
upon the order of First BanCorp, all right, title and interest
in and to the shares of Preferred Stock tendered thereby;
(ii) waive any and all other rights with respect to such
shares of Preferred Stock (including with respect to any
existing or past defaults and their consequences in respect of
such shares of Preferred Stock and any undeclared dividends or
unpaid distributions, as applicable); and (iii) release and
discharge First BanCorp and its subsidiaries from any and all
claims that you may have now, or may have in the future, arising
out of, or related to, such shares of Preferred Stock, including
any claims that you are entitled to receive additional payments
with respect to such shares of Preferred Stock or to participate
in any redemption or defeasance of such shares of Preferred
Stock. Further, by executing the accompanying letter of
transmittal (or by tendering shares of Preferred Stock through
book-entry transfer), and subject to and effective upon
acceptance for exchange of the shares of Preferred Stock
tendered therewith, you irrevocably constitute and appoint the
Exchange Agent as your true and lawful agent and
attorney-in-fact with respect to any such tendered shares of
Preferred Stock, with full power of substitution and
resubstitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest) to (a) deliver
certificates representing such shares of Preferred Stock, or
transfer ownership of such shares of Preferred Stock on the
account books maintained by DTC, together, in any such case,
with all accompanying evidences of transfer and authenticity, to
First BanCorp, (b) present such shares of Preferred Stock
for transfer on the relevant security register and
(c) receive all benefits or otherwise exercise all rights
of beneficial ownership of such shares of Preferred Stock
(except that the Exchange Agent will have no rights to, or
control over, the shares of our Common Stock issued in respect
of such shares of Preferred Stock, except (A) as described
in the accompanying letter of transmittal or (B) as your
agent, all in accordance with the terms of the applicable
Exchange Offer).
In all cases, exchange of shares of Preferred Stock accepted for
exchange in the Exchange Offer will be made only after timely
receipt by the Exchange Agent or confirmation of book-entry
transfer of such shares of Preferred Stock, a properly completed
and duly executed accompanying letter of transmittal (or a
facsimile thereof or satisfaction of the procedures of DTC) and
any other documents required thereby.
Tender of Shares
of Preferred Stock Held Through DTC
DTC participants must electronically transmit their acceptance
of an Exchange Offer by causing DTC to transfer their shares of
Preferred Stock to the Exchange Agent in accordance with
DTCs ATOP procedures for such a transfer. DTC will then
send an Agents Message to the Exchange Agent.
The term Agents Message means a message
transmitted by DTC, received by the Exchange Agent and forming a
part of the Book-Entry Confirmation (defined below), which
states that DTC has received an express acknowledgment from the
DTC participant tendering shares of Preferred Stock that are the
subject of such Book-Entry Confirmation that such participant
has received and agrees to be bound by the terms of the Exchange
Offer, as set forth in this prospectus and the accompanying
letter of transmittal and that we may enforce such agreement
against such participant. You should allow sufficient time for
completion of the ATOP procedures during the normal business
hours of DTC on the expiration date. Tenders not received by the
Exchange Agent on or prior to the expiration date will be
disregarded and have no effect.
Signature
Guarantees
Signatures on the accompanying letter of transmittal must be
guaranteed by a firm that is a participant in the Security
Transfer Agents Medallion Program or the Stock Exchange
Medallion Program or is otherwise an eligible guarantor
institution as that term is defined in
Rule 17A(d)-15
under the Exchange Act (generally a member of a registered
national securities exchange, a member of the Financial Industry
Regulatory Authority, Inc. (FINRA) or a commercial
bank or trust company
70
The Exchange
Offer
having an office in the United States) (an Eligible
Institution), unless (i) such accompanying letter of
transmittal is signed by the registered holder of the shares of
Preferred Stock tendered therewith and the Common Stock issued
in exchange for shares of Preferred Stock is to be issued in the
name of and delivered to, or if any shares of Preferred Stock
not accepted for exchange are to be returned to, such holder or
(ii) such shares of Preferred Stock are tendered for the
account of an Eligible Institution.
Book-Entry
Transfer
The Exchange Agent, promptly after the date of this prospectus
(to the extent such arrangements have not been previously made),
will establish and maintain an account with respect to the
shares of Preferred Stock at DTC, and any financial institution
that is a DTC participant and whose name appears on a security
position listing as the owner of shares of Preferred Stock may
make book-entry delivery of such shares of Preferred Stock by
causing DTC to transfer such shares of Preferred Stock into the
Exchange Agents account in accordance with DTCs
procedures for such transfer. The confirmation of a book-entry
transfer of shares of Preferred Stock into the Exchange
Agents account at DTC as described above is referred to
herein as a Book-Entry Confirmation. Although
delivery of shares of Preferred Stock may be effected through
book-entry transfer into the Exchange Agents account at
DTC, an Agents Message, and any other required documents,
must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth on the back cover of
this prospectus on or before the expiration date. Delivery of
documents to DTC does not constitute delivery to the Exchange
Agent.
Validity
All questions as to the form of all documents and the validity
(including time of receipt) and acceptance of all tenders of
shares of Preferred Stock will be determined by us, in our sole
discretion, the determination of which shall be final and
binding. Alternative, conditional or contingent tenders of
shares of Preferred Stock will not be considered valid. We
reserve the absolute right, in our sole discretion, to reject
any or all tenders of shares of Preferred Stock that are not in
proper form or the acceptance of which, in our opinion, would be
unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular shares
of Preferred Stock.
Any defect or irregularity in connection with tenders of shares
of Preferred Stock must be cured within such time as we
determine, unless waived by us. Tenders of shares of Preferred
Stock shall not be deemed to have been made until all defects
and irregularities have been waived by us or cured. A defective
tender (which defect is not waived by us) will not constitute a
valid tender of shares of Preferred Stock. None of First
BanCorp, the Exchange Agent and the Information Agent, the
Dealer Manager or any other person will be under any duty to
give notice of any defects or irregularities in the tenders of
shares of Preferred Stock, or will incur any liability to
holders for failure to give any such notice.
Guaranteed
Delivery
We are not providing for guaranteed delivery procedures and
therefore you must allow sufficient time for the necessary
tender procedures to be completed during normal business hours
of DTC on or prior to the expiration date. Tenders received by
the Exchange Agent after the expiration date will be disregarded
and have no effect.
WITHDRAWAL OF
TENDERS
You may withdraw your tender of shares of Preferred Stock at any
time on or prior to the expiration date. In addition, if not
previously returned, you may withdraw shares of Preferred Stock
that you tender that are not accepted by us for exchange after
the expiration of 40 business days following commencement of the
Exchange Offer. For a withdrawal to be effective, the Exchange
Agent must receive a computer generated notice of withdrawal,
transmitted by DTC on behalf of the holder in
71
The Exchange
Offer
accordance with DTCs procedures or, in the case of a
withdrawal of shares of Preferred Stock tendered in certificated
form, a written notice of withdrawal, sent by facsimile, receipt
confirmed by telephone, or letter before the expiration date.
Any notice of withdrawal must:
|
|
Ø
|
specify the name of the person that tendered the shares of
Preferred Stock to be withdrawn;
|
|
Ø
|
identify the shares of Preferred Stock to be withdrawn and the
liquidation preference of such shares of Preferred Stock;
|
|
Ø
|
include a statement that the holder is withdrawing its election
to exchange the shares of Preferred Stock; and
|
|
Ø
|
be signed by the holder in the same manner as the original
signature on the accompanying letter of transmittal by which
such shares of Preferred Stock were tendered or otherwise as
described above, including any required signature guarantee.
|
Any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn shares of
Preferred Stock or otherwise comply with DTCs procedures.
Any shares of Preferred Stock withdrawn will not have been
validly tendered for purposes of the Exchange Offer. Any shares
of Preferred Stock that have been tendered for exchange, but
which are not exchanged for any reason, will be credited to an
account with DTC specified by the holder, as soon as practicable
after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn shares of Preferred Stock may
be re-tendered by following one of the procedures described
under Procedures for Tendering Shares of Preferred
Stock.
If you wish to withdraw shares of Preferred Stock through a
broker, securities dealer, custodian, commercial bank, trust
company or other nominee, you should contact your broker,
securities dealer, custodian, commercial bank, trust company or
other nominee for instructions on how to withdraw your shares of
Preferred Stock.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information as of
August 13, 2010 with respect to shares of our Common
Stock and Preferred Stock beneficially owned (unless otherwise
indicated in the footnotes) by: (1) each person known to
the Corporation to be the beneficial owner of more than 5% of
the Common Stock of the Corporation; (2) each director and
executive officer named in the Summary Compensation Table in our
most recent proxy statement (the Named Executive
Officers); and (3) all directors and executive
officers of the Corporation as a group. This information has
been provided by each of the directors and executive officers at
the request of the Corporation or derived from statements filed
with the SEC pursuant to Section 13(d) or 13(g) of the
Exchange Act. Beneficial ownership of securities as shown below
has been determined in accordance with applicable guidelines
issued by the SEC. Beneficial ownership includes the possession,
directly or indirectly, through any formal or informal
arrangement, either individually or in a group, of voting power
(which includes the power to vote, or to direct the voting of,
such security)
and/or
investment power (which includes the power to dispose of, or to
direct the disposition of, such security). Except as set forth
below, neither we nor, to the best of our knowledge, any of our
executive officers, directors, affiliates or subsidiaries nor,
to the best of our knowledge, any of our subsidiaries
directors or executive officers, nor any associates or
subsidiaries of
72
The Exchange
Offer
any of the foregoing, (a) own any shares of Preferred Stock
or (b) have effected any transactions involving the shares
of Preferred Stock during the
60-day
period prior to the date of this prospectus.
Beneficial Owners
of More Than 5% of Common
Stock(1)
|
|
|
|
|
|
|
|
|
Name and
address
|
|
Number of
shares
|
|
|
Percentage(2)
|
|
|
|
|
The Bank of Nova Scotia
|
|
|
9,250,450
|
(3)
|
|
|
10.00
|
%
|
44 King Street West 6th Fl.
Toronto, Canada M5H 1H1
|
|
|
|
|
|
|
|
|
Angel Alvarez-Pérez
|
|
|
6,360,518
|
(4)
|
|
|
6.87
|
%
|
Condominio Plaza Stella Apt.1504
Avenida Magdalena 1362
San Juan, Puerto Rico 00907
|
|
|
|
|
|
|
|
|
BlackRock, Inc.
|
|
|
6,220,207
|
(5)
|
|
|
6.72
|
%
|
40 East 52nd Street
New York, NY 10022
|
|
|
|
|
|
|
|
|
First Trust Portfolios L.P.
|
|
|
4,676,229
|
(6)
|
|
|
5.05
|
%
|
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This table excludes shares that the U.S. Treasury may acquire
at any time pursuant to the warrant it acquired in January
2009. |
|
|
|
(2) |
|
Based on 92,542,722 shares of Common Stock outstanding
as of August 13, 2010. |
|
|
|
(3) |
|
On August 24, 2007, the Corporation entered into a
Stockholder Agreement with BNS, which completed a private
placement of 9,250,450 shares of Common Stock at a price of
$10.25 per share pursuant to the terms of an investment
agreement dated February 15, 2007. BNS filed a
Schedule 13D on September 4, 2007 reporting the 10% or
9,250,450 shares beneficial ownership of the Corporation as
of August 24, 2007 and reported that it possessed sole
voting power and sole dispositive power over
9,250,450 shares. |
|
|
|
(4) |
|
Based solely on a Schedule 13D/A filed with the SEC on
May 13, 2009 by Mr. Angel Àlvarez-Pérez in
which Mr. Àlvarez-Pérez reported aggregate beneficial
ownership of 6,360,518 shares of the Corporation. Mr.
Àlvarez-Pérez reported that he possessed sole voting
power and sole dispositive power over 6,339,218 shares and
shared voting power and dispositive power over
21,300 shares. |
|
|
|
(5) |
|
Based solely on a Schedule 13G filed with the SEC on
January 29, 2010 in which BlackRock, Inc. reported
aggregate beneficial ownership of 6,220,207 shares of the
Corporation as of December 31, 2009. BlackRock, Inc.
reported that it possessed sole voting power and sole
dispositive power over 6,220,227 shares. |
|
|
|
(6) |
|
Based solely on a Schedule 13G/A filed with the SEC on
February 10, 2010 in which First Trust Portfolios L.P.
and certain of its affiliates reported aggregate beneficial
ownership of 4,676,229 shares of the Corporation as of
December 31, 2009. First Trust Portfolios L.P. and
certain of its affiliates reported that they possessed shared
power to vote or to direct the vote of and shared power to
dispose or to direct the disposition over
4,676,229 shares. |
73
The Exchange
Offer
Beneficial
Ownership of Common Stock by Directors, Named Executive Officers
and Directors and Executive Officers as a Group
|
|
|
|
|
|
|
|
|
|
|
Amount and nature
of
|
|
|
Percent of
|
|
Name of
beneficial owner
|
|
beneficial
ownership(1)
|
|
|
class
|
|
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
Aurelio Alemán
|
|
|
872,000
|
|
|
|
*
|
|
José Menéndez-Cortada
|
|
|
45,896
|
|
|
|
*
|
|
Jorge L. Díaz
|
|
|
62,737
|
(2)
|
|
|
*
|
|
José Ferrer-Canals
|
|
|
5,527
|
|
|
|
*
|
|
Sharee Ann Umpierre-Catinchi
|
|
|
81,677
|
(3)
|
|
|
*
|
|
Fernando Rodríguez-Amaro
|
|
|
32,207
|
|
|
|
*
|
|
Héctor M. Nevares-LaCosta
|
|
|
4,543,396
|
(4)
|
|
|
4.91
|
%
|
Frank Kolodziej
|
|
|
2,762,483
|
|
|
|
2.99
|
%
|
José F. Rodríguez
|
|
|
324,077
|
|
|
|
*
|
|
Named Executive Officers:
|
|
|
|
|
|
|
|
|
Luis
Beauchamp(5)
|
|
|
17,000
|
|
|
|
*
|
|
Orlando Berges
|
|
|
10,000
|
|
|
|
*
|
|
Lawrence Odell
|
|
|
225,000
|
|
|
|
*
|
|
Randolfo
Rivera(6)
|
|
|
24,340
|
|
|
|
*
|
|
Calixto García-Velez
|
|
|
|
|
|
|
*
|
|
Fernando
Scherrer(7)
|
|
|
47,500
|
|
|
|
*
|
|
All current directors and executive officers as a group
(17 persons)
|
|
|
9,394,078
|
|
|
|
10.02
|
%
|
|
|
|
* |
|
Represents less than 1% of our outstanding Common Stock. |
|
|
|
(1) |
|
For purposes of this table, beneficial ownership
is determined in accordance with
Rule 13d-3
under the 1934 Act, pursuant to which a person or group of
persons is deemed to have beneficial ownership of a
security if that person has the right to acquire beneficial
ownership of such security within 60 days. Therefore, it
includes the number of shares of Common Stock that could be
purchased by exercising stock options that were exercisable as
of August 13, 2010 or within 60 days after that date,
as follows: Mr. Alemán, 672,000; Mr. Odell,
175,000; and 1,221,000 shares for all current directors and
executive officers as a group. Also, it includes shares granted
under the First BanCorp 2008 Omnibus Incentive Plan, subject to
transferability restrictions and/or forfeiture upon failure to
meet vesting conditions, as follows:
Mr. Menéndez-Cortada, 2,685;
Mr. Díaz-Irizarry, 2,685; Mr. Ferrer-Canals,
2,685; Ms. Umpierre-Catinchi, 2,685;
Mr. Rodríguez-Amaro, 2,685; Mr. Nevares-LaCosta,
2,685; Mr. Kolodziej, 2,685; and Mr. Rodríguez,
2,685; which represent 21,480 shares for all current
directors and executive officers as a group. The amount does not
include shares of Common Stock acquired through the
Corporations Defined Contribution Plan pursuant to which
participants may acquire units equivalent to shares of Common
Stock through a unitized stock fund. |
74
The Exchange
Offer
|
|
|
(2) |
|
This amount includes 22,460 shares owned separately by
his spouse. |
|
(3) |
|
This amount includes 9,000 shares owned jointly with her
spouse. |
|
(4) |
|
This amount includes 3,941,459 shares owned by
Mr. Nevares-LaCostas father over which he has voting
and investment power as attorney-in-fact. |
|
(5) |
|
Mr. Beauchamp resigned as Chief Executive Officer of the
Corporation on September 28, 2009. |
|
(6) |
|
Mr. Rivera is no longer an employee of the Corporation
effective as of June 28, 2010. |
|
(7) |
|
Mr. Scherrer resigned as Chief Financial Officer of the
Corporation on July 31, 2009. |
Beneficial
Ownership of Preferred Stock by Directors and Executive
Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
beneficial ownership
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
preferred
|
|
|
|
|
|
|
|
|
|
|
shares
|
|
|
|
|
|
|
|
|
|
|
beneficially
|
|
|
Percent
|
|
Name
|
|
Position
|
|
Title of
securities
|
|
owned
|
|
|
of
class
|
|
|
|
|
José Menéndez-Cortada
|
|
Chairman of the Board of Directors
|
|
Series A Preferred Stock
|
|
|
1,500
|
|
|
|
|
*
|
|
|
|
|
Series B Preferred Stock
|
|
|
500
|
|
|
|
|
*
|
|
|
|
|
Series C Preferred Stock
|
|
|
2,000
|
|
|
|
|
*
|
|
|
|
|
Series D Preferred Stock
|
|
|
6,000
|
|
|
|
|
*
|
Jorge L. Díaz
|
|
Director
|
|
Series B Preferred Stock
|
|
|
2,150
|
|
|
|
|
*
|
Sharee Ann Umpierre-Catinchi
|
|
Director
|
|
Series E Preferred Stock
|
|
|
92,000
|
|
|
|
1.21
|
%
|
Héctor M. Nevares-LaCosta
|
|
Director
|
|
Series A Preferred Stock
|
|
|
18,000(1
|
)
|
|
|
|
*
|
|
|
|
|
Series B Preferred Stock
|
|
|
73,300(2
|
)
|
|
|
2.44
|
%
|
|
|
|
|
Series C Preferred Stock
|
|
|
22,000
|
|
|
|
|
*
|
|
|
|
|
Series D Preferred Stock
|
|
|
82,800(3
|
)
|
|
|
2.25
|
%
|
Dacio Pasarell
|
|
Executive Vice President
|
|
Series D Preferred Stock
|
|
|
300
|
|
|
|
|
*
|
|
|
|
|
Series E Preferred Stock
|
|
|
4,300
|
|
|
|
|
*
|
|
|
|
* |
|
Represents less than 1% of applicable class of Preferred
Stock. |
|
|
|
(1) |
|
This amount includes 8,000 shares held in a trust for
the benefit of Mr. Nevares-LaCostas parents over
which Mr. Nevares-LaCosta has voting and investment power
as trustee. |
|
(2) |
|
This amount includes 20,000 shares owned by
Mr. Nevares-LaCostas parents over which he has voting
and investment power as attorney-in-fact. |
|
(3) |
|
This amount includes 6,400 shares owned by
Mr. Nevares-LaCostas parents over which he has voting
and investment power as attorney-in-fact. |
José Menéndez-Cortada, Jorge L. Díaz, Sharee Ann
Umpierre-Catinchi, Héctor M. Nevares-LaCosta and Dacio
Pasarell have advised us that they will participate in the
Exchange Offer. At the special meeting of the holders of our
Common Stock in August 2010, we will seek the approval of
our holders of Common Stock to our issuance of shares of Common
Stock in the Exchange Offer to Mr. Nevares-LaCosta in
accordance with the NYSE listing requirements.
75
The Exchange
Offer
CONSEQUENCES OF
NOT EXCHANGING SHARES OF PREFERRED STOCK
Shares of Preferred Stock not exchanged in the Exchange Offer
will remain outstanding after completion of the Exchange Offer.
The reduction in the number of shares available for trading
after completing the Exchange Offer, our suspension of the
payment of dividends on Preferred Stock since August 2009, our
inability to pay any dividends without Fed approval under the
Agreement, our delisting of any remaining shares of Preferred
Stock from trading on the NYSE and, to the extent permitted by
law, the deregistration of any such remaining shares under the
Exchange Act may have a significant and adverse effect on the
liquidity of any trading market for, and the price of, such
shares of Preferred Stock and may result in the shares of
Preferred Stock being illiquid for an indefinite period of time.
NO
APPRAISAL/DISSENTERS RIGHTS
No appraisal or dissenters rights are available to holders
of shares of Preferred Stock under applicable law in connection
with the Exchange Offer.
ACCOUNTING
TREATMENT
We will derecognize the net carrying amount of the shares of
Preferred Stock (currently recorded as stockholders
equity) tendered for Common Stock. The excess of the carrying
amount of the shares of Preferred Stock retired over the fair
value of the Common Stock issued will be recorded in retained
earnings and will result in a decrease in net losses per common
share. The excess of the fair value over the par value of the
Common Stock issued will be recorded in surplus. The par value
of the Common Stock will be recorded in the Common Stock caption
in our balance sheet.
SECURITIES
ISSUABLE IN THE EXCHANGE OFFER
The following table shows the approximate number of shares that
could be issued in connection with the Exchange Offer assuming
that the Relevant Price is based on the Minimum Share Price of
$1.18 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
securities
|
|
|
Number of
securities
|
|
|
|
|
|
|
issuable
(assuming
|
|
|
issuable
(assuming
|
|
|
|
|
|
|
50% participation
in
|
|
|
90% participation
in
|
|
Transaction
|
|
Security
|
|
|
Exchange
Offer)(1)(2)
|
|
|
Exchange
Offer)(1)(2)
|
|
|
|
|
Exchange
Offer(1)
|
|
|
Common Stock
|
|
|
|
128.2 million
|
|
|
|
230.8 million
|
|
|
|
|
(1) |
|
As of August 13, 2010, 92,542,722 shares of our
Common Stock were outstanding. |
|
|
|
(2) |
|
128.2 million shares will be issued assuming 50%
participation in Exchange Offer and 230.8 million shares
will be issued assuming 90% participation in Exchange Offer,
assuming, in each case, a $1.18 Relevant Price. |
SUBSEQUENT
REPURCHASES
Following completion of the Exchange Offer, subject to receipt
of Fed approval, we may repurchase additional shares of
Preferred Stock that remain outstanding in the open market, in
privately negotiated transactions or otherwise. Future purchases
of shares of Preferred Stock that remain outstanding after the
Exchange Offer may be on terms that are more or less favorable
than the Exchange Offer. However, Exchange Act
Rules 13e-4
and 14e-5
generally prohibit us and our affiliates from purchasing any
shares of Preferred Stock other than pursuant to the Exchange
Offer until 10 business days after the expiration date, although
there are some exceptions. Future repurchases, if any, will
depend on many factors, including market conditions and the
condition of our business.
76
The Exchange
Offer
SOLICITING DEALER
FEE
With respect to any tender of a series of shares of Preferred
Stock, we will pay the relevant soliciting dealer a fee not to
exceed 0.50% of the aggregate liquidation preference or
liquidation amount, as applicable, of all securities accepted
for exchange (the Soliciting Dealer Fee). In order
to be eligible to receive the Soliciting Dealer Fee, a properly
completed soliciting dealer form must be delivered by the
relevant soliciting dealer to the Exchange Agent on or prior to
the expiration date. We will, in our sole discretion, determine
whether a broker has satisfied the criteria for receiving a
Soliciting Dealer Fee (including, without limitation, the
submission of the appropriate documentation without defects or
irregularities and in respect of bona fide tenders). Other than
the foregoing, no fees or commissions have been or will be paid
by us to any broker, dealer or other person, other than the
Dealer Manager, the Information Agent and the Exchange Agent, in
connection with the Exchange Offer.
A soliciting dealer is a retail broker designated in the
soliciting dealer form and is:
|
|
Ø
|
a broker or dealer in securities which is a member of any
national securities exchange in the United States or of
FINRA; or
|
|
Ø
|
a bank or trust company located in the United States.
|
Soliciting dealers will include any of the organizations
described above even when the activities of such organization in
connection with the Exchange Offer consist solely of forwarding
to clients materials relating to the Exchange Offer and
tendering shares of Preferred Stock as directed by beneficial
owners thereof. Each soliciting dealer will confirm that each
holder of shares of Preferred Stock that it solicits has
received a copy of this prospectus or concurrently with such
solicitation provide the holder with a copy of this prospectus.
No soliciting dealer is required to make any recommendation to
holders of shares of Preferred Stock as to whether to tender or
refrain from tendering in the Exchange Offer. No assumption is
made, in making payment to any soliciting dealer, that its
activities in connection with the Exchange Offer included any
activities other than those described in this paragraph. For all
purposes noted in materials relating to the Exchange Offer, the
term solicit shall be deemed to mean no more than
processing shares of Preferred Stock tendered or
forwarding to customers material regarding the Exchange
Offer.
Soliciting dealers are not entitled to a Soliciting Dealer Fee
with respect to shares of Preferred Stock beneficially owned by
such soliciting dealer or with respect to any shares of
Preferred Stock that are registered in the name of a soliciting
dealer unless such shares of Preferred Stock are held by such
soliciting dealer as nominee and are tendered for the beneficial
owner of such shares of Preferred Stock.
Soliciting dealers should take care to ensure that proper
records are kept to document their entitlement to any Soliciting
Dealer Fee. We and the Exchange Agent reserve the right to
require additional information at our discretion, as deemed
warranted.
EXCHANGE
AGENT
BNY Mellon Shareowner Services is the Exchange Agent for the
Exchange Offer. References to the Exchange Agent
shall be deemed to refer to BNY Mellon Shareowner Services.
Letters of transmittal and all correspondence in connection with
the Exchange Offer should be sent or delivered by each holder of
shares of Preferred Stock, or a beneficial owners broker,
securities dealer, custodian, commercial bank, trust company or
other nominee to the Exchange Agent at the address listed on the
back cover page of this prospectus. We will pay the Exchange
Agent reasonable and customary fees for its services and will
reimburse it for its reasonable
out-of-pocket
expenses.
INFORMATION
AGENT
BNY Mellon Shareowner Services is the Information Agent for the
Exchange Offer. References to the Information Agent
shall be deemed to refer to BNY Mellon Shareowner Services.
Questions
77
The Exchange
Offer
concerning the terms of the Exchange Offer or tender procedures
and requests for additional copies of this prospectus or the
accompanying letter of transmittal should be directed to the
Information Agent at the address and telephone number on the
back cover page of this prospectus. Holders of shares of
Preferred Stock may also contact their broker, securities
dealer, custodian, commercial bank, trust company or other
nominee concerning the Exchange Offer. We will pay the
Information Agent reasonable and customary fees for its services
and will reimburse it for its reasonable
out-of-pocket
expenses.
DEALER
MANAGER
The Dealer Manager for the Exchange Offer is UBS Securities LLC.
As Dealer Manager for the Exchange Offer, it will perform
services customarily provided by investment banking firms acting
as dealer manager of exchange offers of a like nature,
including, but not limited to, soliciting tenders of shares of
Preferred Stock pursuant to the Exchange Offer and communicating
generally regarding the Exchange Offer with brokers, securities
dealers, custodians, commercial bank, trust companies, nominees
and other persons, including the holders of the shares of
Preferred Stock. We will pay the Dealer Manager reasonable and
customary fees for its services, will reimburse the Dealer
Manager for its reasonable
out-of-pocket
expenses, and indemnify the Dealer Manager against certain
liabilities in connection with the Exchange Offer, including
certain liabilities under Federal securities laws.
TRANSFER
TAXES
We will pay all transfer taxes, if any, imposed by the United
States and Puerto Rico or any jurisdiction therein with respect
to the exchange of shares of Preferred Stock pursuant to the
Exchange Offer (for the avoidance of doubt, transfer taxes do
not include income or
back-up
withholding taxes). If a transfer tax is imposed for any reason
other than the exchange of shares of Preferred Stock pursuant to
the Exchange Offer or by any jurisdiction outside the United
States or Puerto Rico, then the amount of any such transfer tax
(whether imposed on the registered holder or any other person)
will be payable by the tendering holder.
BROKERAGE
COMMISSIONS
Holders that tender their shares of Preferred Stock to the
Exchange Agent do not have to pay a brokerage fee or commission
to us or the Exchange Agent. However, if a tendering holder
handles the transaction through its broker, securities dealer,
custodian, commercial bank, trust company or other nominee, that
holder may be required to pay brokerage fees or commissions to
its broker, securities dealer, custodian, commercial bank, trust
company or other nominee.
FEES AND
EXPENSES
We will bear the expenses of soliciting tenders of the shares of
Preferred Stock. The principal solicitation is being made by
mail. Additional solicitation may, however, be made by
e-mail,
facsimile transmission, and telephone or in person by our
officers and other employees and those of our affiliates and
others acting on our behalf.
FAIRNESS
OPINION
We are not making a recommendation as to whether you should
exchange your shares of Preferred Stock in the Exchange Offer.
We have not retained, and do not intend to retain, any
unaffiliated representative to act solely on behalf of the
holders of the shares of Preferred Stock for purposes of
negotiating the Exchange Offer or preparing a report concerning
the fairness of the Exchange Offer. The value of the Common
Stock to be issued in the Exchange Offer may not equal or exceed
the value
78
The Exchange
Offer
of the shares of Preferred Stock tendered. You must make your
own independent decision regarding your participation in the
Exchange Offer.
CERTAIN MATTERS
RELATING TO
NON-U.S.
JURISDICTIONS
Although First BanCorp will mail this prospectus to holders of
the shares of Preferred Stock to the extent required by
U.S. law, this prospectus is not an offer to sell or
exchange and it is not a solicitation of an offer to buy
securities in any jurisdiction in which such offer, sale or
exchange is not permitted. Countries outside the United States
generally have their own legal requirements that govern
securities offerings made to persons resident in those countries
and often impose stringent requirements about the form and
content of offers made to the general public. First BanCorp has
not taken any action under those
non-U.S. regulations
to facilitate a public offer to exchange outside the United
States. Therefore, the ability of any
non-U.S. person
to tender shares of Preferred Stock in the Exchange Offer will
depend on whether there is an exemption available under the laws
of such persons home country that would permit the person
to participate in the Exchange Offer without the need for First
BanCorp to take any action to facilitate a public offering in
that country or otherwise. For example, some countries exempt
transactions from the rules governing public offerings if they
involve persons who meet certain eligibility requirements
relating to their status as sophisticated or professional
investors.
Non-U.S. holders
should consult their advisors in considering whether they may
participate in the Exchange Offer in accordance with the laws of
their home countries and, if they do participate, whether there
are any restrictions or limitations on transactions in the
Common Stock that may apply in their home countries. First
BanCorp and the Dealer Manager cannot provide any assurance
about whether such limitations may exist.
79
Agreement with the
U.S. Treasury
On July 7, 2010, we entered into an agreement with the
U.S. Treasury regarding the exchange of our shares of
Series F Preferred Stock, which had a liquidation
preference of $400 million, and accrued and unpaid
dividends on the Series F Preferred Stock, for shares of a
new series of Fixed Rate Cumulative Mandatorily Convertible
Preferred Stock, Series G. Based on accrued and unpaid
dividends of $24.2 million as of July 20, 2010, we
issued 424,174 shares of Series G Preferred Stock to
the U.S. Treasury on July 20, 2010. Notice was sent to
our stockholders on July 9, 2010 that we obtained an
exception from the shareholder approval policy set forth in
Section 312.03 of the New York Stock Exchange Listed
Company Manual to issue the securities to the U.S. Treasury.
The Series G Preferred Stock has terms similar to the
Series F Preferred Stock (including the same $1,000
liquidation preference per share), but is convertible, as
discussed below, into shares of Common Stock based on an initial
conversion rate of 896.3045 shares of Common Stock for each
share of Series G Preferred Stock (calculated by dividing
$650, or a discount of 35% from the $1,000 liquidation
preference per share of Series G Preferred Stock, by the
initial conversion price of $0.7252 per share, which is subject
to adjustment). Based on the initial conversion rate, the
424,174 shares of Series G Preferred Stock is
convertible into approximately 380.2 million shares of
Common Stock.
The conversion price of the Series G Preferred Stock is
subject to adjustment, including if the shares of Common Stock
issued in a Capital Raise are priced below 90% of the market
price per share of Common Stock on the trading day immediately
preceding the pricing date of a Capital Raise, or if shares of
Common Stock are otherwise issued, except in certain
circumstances, including the Exchange Offer, at a price below
the then conversion price of the Series G Preferred Stock.
We cannot compel conversion of the Series G Preferred Stock
into Common Stock unless, within nine months from the date of
the agreement, (a) at least $385 million of the
liquidation preference of our Series A through E Preferred
Stock are tendered in the Exchange Offer, (b) we raise
$500 million of additional capital, subject to terms, other
than the price per share, reasonably acceptable to the
U.S. Treasury in its sole discretion, (c) we obtain
the approval of the holders of our Common Stock of an amendment
to our Restated Articles of Incorporation to increase the number
of authorized shares of Common Stock from 750,000,000 to at
least 1,200,000,000 and to reduce the par value of a share of
Common Stock from $1.00 to $0.10, (d) we have requested and
received from the appropriate banking regulators all requisite
approvals (which we expect to receive), (e) we have made
any applicable anti-dilution adjustments and (f) none of
the Corporation or any of its subsidiaries has dissolved or
became subject to insolvency or similar proceedings, or has
become subject to other materially adverse regulatory or other
actions. No assurance can be given that we will able to meet
these conditions for the conversion of the Series G
Preferred Stock, including the requirement to raise additional
capital. The U.S. Treasury, and any subsequent holder of
the Series G Preferred Stock, will have the right to
convert the Series G Preferred Stock at any time. Unless
earlier converted by the holder or the Corporation, the
Series G Preferred Stock will automatically convert into
shares of Common Stock on the seventh anniversary of the
issuance of the Series G Preferred Stock at the then
current market price of the Common Stock. The conversion of the
Series G Preferred Stock would significantly increase our
tangible common equity ratio.
In January 2009, in connection with our issuance of
Series F Preferred Stock to the U.S. Treasury, we also
issued to the U.S. Treasury a warrant to purchase
5,842,259 shares of Common Stock at an exercise price of
$10.27 per share. The warrant had a
10-year term
and was exercisable at any time. At the time we exchanged the
Series F Preferred Stock for Series G Preferred Stock,
we issued to the U.S. Treasury an amended and restated
warrant having a 10-year term and exercisable at an initial
exercise price of $0.7252 per share to replace the original
warrant. Like the original warrant, the amended and restated
warrant has an anti-dilution right that requires an adjustment
to the exercise
80
price of, and the number of shares underlying, the warrant. This
adjustment will be necessary under various circumstances,
including if we issue shares of Common Stock for consideration
per share that is lower than the initial conversion price of the
Series G Preferred Stock, or $0.7252. Depending upon the
market price of the Preferred Stock at the time we issue shares
of Common Stock in the Exchange Offer, the amended and restated
warrant may require adjustment to the exercise price of the
warrant to equal the consideration per share received by us in
the Exchange Offer and the number of shares underlying the
amended and restated warrant would be increased by the number
obtained by multiplying the initial number by a fraction equal
to the number of shares of Common Stock being issued in the
Exchange Offer over the consideration per share we received in
the Exchange Offer.
The agreement with the U.S. Treasury includes various other
provisions. Included among these provisions are the
U.S. Treasurys agreement to vote, or cause to be
voted, any shares of Common Stock that it acquires pursuant to
the terms of the Series G Preferred Stock or the amended
and restated warrant, except with respect to certain matters, in
the same proportion as the votes on all other outstanding shares
of Common Stock. The U.S. Treasury will retain
discretionary authority to vote on the election and removal of
directors, the approval of any business combination or sale of
substantially all of the assets or property of the Corporation,
the approval of any dissolution of the Corporation, the approval
of any issuance of any securities of the Corporation on which
holders of Common Stock are entitled to vote and on any other
matters reasonably incidental to those matters, as determined by
the U.S. Treasury.
The agreement with the U.S. Treasury, the form of
Certificate of Designations, and the form of the Amended and
Restated Warrant are exhibits to this registration statement of
which this prospectus is a part. We urge you to read these
documents for a more complete understanding of the Series G
Preferred Stock.
81
Agreement with The
Bank of Nova Scotia
As of August 13, 2010, BNS, a large financial institution
with international operations, is the beneficial owner of
9,250,450 shares of our Common Stock, or approximately 10%.
In connection with our sale in 2007 of these shares of Common
Stock to BNS at a price of $10.25 per share, we and BNS entered
into the Stockholder Agreement.
Pursuant to the terms of the Stockholder Agreement, for as long
as BNS beneficially owns at least 5% of our outstanding Common
Stock, BNS has an anti-dilution right and a right of first
refusal, except in connection with acquisitions, exchange offers
and other transactions covered by Rule 145 under the
Securities Act and certain other issuances of Common Stock. In
addition, under the Stockholder Agreement, BNS is entitled to
designate an observer who may attend all meetings of our and our
material subsidiaries boards of directors and receive all
of the information provided to the members of those boards of
directors, except information relating to specified matters that
could be of competitive benefit to BNSs banking
operations. Pursuant to the Federal Reserves Order
approving BNSs acquisition of our Common Stock in 2007,
BNS is required to file an application and receive the Federal
Reserves approval before it may directly or indirectly
acquire additional shares of First BanCorp or attempt to
exercise a controlling influence over First BanCorp. As a
result, if BNS desires to exercise its anti-dilution right or
right of first refusal or otherwise purchase additional shares
of our Common Stock, BNS will be required to obtain the consent
of the Federal Reserve.
If we were to issue 256,401,610 shares of Common Stock in
the Exchange Offer, BNS would be entitled under the
anti-dilution right to acquire up to 28,476,121 additional
shares of our Common Stock at a price equal to the price per
share at which the shares of our Common Stock were issued in the
Exchange Offer, subject to the consent of the Federal Reserve.
If BNS declined to exercise its anti-dilution right and we
issued all of the offered shares in the Exchange Offer,
BNSs beneficial ownership would be reduced to
approximately 2.65%. BNS has waived its right of first refusal
with respect to a Capital Raise. We believe that BNS has no
right of first refusal in connection with the Exchange Offer or
any issuance of shares to the U.S. Treasury. We have been
discussing with BNS an amendment to the Stockholder Agreement
pursuant to which BNS would have the ability to decide whether
to exercise its anti-dilution right after we have issued shares
of Common Stock in the Exchange Offer, any Capital Raise and the
conversion of the Series G Preferred Stock rather than in
connection with the issuance of shares of Common Stock in each
of those transactions. If BNS agrees, its anti-dilution right
will entitle it to acquire as a result of the conversion of the
Series G Preferred Stock up to the number of shares of our
Common Stock that would enable it to maintain its percentage
interest in the Corporation after the conversion at a price
equal to the price per share at which the Series G
Preferred Stock is converted into Common Stock. If BNS declines
to exercise its anti-dilution right, BNSs beneficial
ownership would be reduced by the issuance of the additional
shares.
Any sale of additional shares of our Common Stock to BNS
pursuant to its anti-dilution right, right of first refusal or
otherwise requires the prior approval of our stockholders under
the listing requirements of the NYSE unless the sale is at a
price in cash at least as great as the higher of the book or
market value of our Common Stock, provided that the number of
shares to be issued does not exceed 5% of the number of our
shares of Common Stock before the issuance. We plan to seek
stockholder approval of the possible issuance of shares of our
Common Stock to BNS in connection with the Exchange Offer at the
special meeting in August 2010 at which we will solicit
stockholder approval of the issuance of Common Stock in the
Exchange Offer. In addition, if we reach any agreements relating
to the issuance of Common Stock, we will seek stockholder
approval of any issuance to BNS in connection with such
transactions. If stockholders do not approve such issuances of
shares of Common Stock to BNS, we will not sell shares to BNS,
notwithstanding the terms of the Stockholder Agreement.
82
Regulatory Agreements
The Agreements require that we develop written capital plans for
the Corporation and FirstBank that must be submitted for
approval to the Fed and the FDIC within certain timeframes. On
July 2, 2010, we submitted capital plans to our regulators
regarding how we plan to raise capital. In addition, under the
Order, FirstBank has agreed to address specific areas through
the adoption and implementation, within certain timeframes and
subject to the approval of the FDIC, of procedures, plans and
policies designed to improve the safety and soundness of the
Bank. These actions include, among others, that FirstBank will:
|
|
Ø
|
have and retain qualified management and have active Board
participation in the Banks affairs;
|
|
Ø
|
reduce the level of special mention and classified assets within
specified timeframes and reduce delinquent and non-accrual loans;
|
|
Ø
|
develop a liquidity and funds management plan that includes a
reduction in brokered deposits;
|
|
Ø
|
develop a strategy that includes strategies for pricing policies
and asset/liability management and financial goals for asset
growth, capital adequacy and earnings;
|
|
Ø
|
obtain approval prior to the issuance, increase, renewal or
rollover of brokered deposits; and
|
|
Ø
|
review policies and procedures relating to:
|
|
|
|
|
-
|
its lending activities,
|
|
|
-
|
its allowance for loan and lease losses,
|
|
|
-
|
an independent loan review,
|
|
|
-
|
obtaining and the use of appraisals, and
|
|
|
-
|
interest rate risk.
|
The Agreement, which is designed to enhance the
Corporations ability to act as a source of strength to the
Bank, requires, among other things, the approval of the Fed
prior to:
|
|
Ø
|
the payment of dividends by the Corporation, the receipt of
dividends by the Corporation from FirstBank or the distribution
of interest, principal or other sums on subordinated debentures
or trust preferred securities by the Corporation or any of its
nonbank subsidiaries;
|
|
Ø
|
the incurrence, increase or guarantee of any debt or the
purchase or redemption of any shares of Common Stock by the
Corporation; and
|
|
Ø
|
the purchase or redemption by the Corporation of any of its
shares of stock.
|
In addition, the Agreement requires the Corporation to comply
with certain notice provisions prior to the appointment of new
directors or senior executive officers and comply with certain
restrictions on indemnification and severance payments.
The Corporation and FirstBank must furnish periodic progress
reports to the Fed and the FDIC regarding compliance with the
Agreements.
Concurrent with the issuance by the FDIC of its Order, the FDIC
granted FirstBank a temporary waiver through June 30, 2010
to enable it to continue accessing the brokered deposit market.
FirstBank has obtained an additional waiver through
September 30, 2010. FirstBank will request waivers for
future periods. No assurance can be given that the FDIC will
continue to issue waivers or that such waivers will enable us to
issue brokered CDs in amounts that meet our funding needs. Any
failure to obtain a future waiver would have a significantly
adverse effect on FirstBank, which has relied on brokered
deposits to fund a major part of its operations and had, as of
June 30, 2010, $7.1 billion in brokered deposits
outstanding, representing approximately 56% of our total
deposits.
83
Market Price,
Dividend and Distribution Information
MARKET PRICE OF
AND DIVIDENDS ON THE COMMON STOCK
Our Common Stock is currently listed on the NYSE under the
symbol FBP. As of August 13, 2010, we had
92,542,722 shares of our Common Stock outstanding, held by
approximately 533 holders of record.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of the Common Stock and the
cash dividends declared per share of the Common Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
prices
|
|
|
Cash dividends
|
|
|
|
High
|
|
|
Low
|
|
|
declared per
share
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter (through August 17, 2010)
|
|
$
|
0.92
|
|
|
$
|
0.37
|
|
|
$
|
0.00
|
*
|
Second Quarter ended June 30, 2010
|
|
|
3.69
|
|
|
|
0.53
|
|
|
|
0.00
|
*
|
First Quarter ended March 31, 2010
|
|
|
2.90
|
|
|
|
1.89
|
|
|
|
0.00
|
*
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2009
|
|
$
|
3.03
|
|
|
$
|
1.47
|
|
|
$
|
0.00
|
*
|
Third Quarter ended September 30, 2009
|
|
|
4.31
|
|
|
|
2.81
|
|
|
|
0.00
|
*
|
Second Quarter ended June 30, 2009
|
|
|
7.64
|
|
|
|
3.94
|
|
|
|
0.07
|
|
First Quarter ended March 31, 2009
|
|
|
11.20
|
|
|
|
3.43
|
|
|
|
0.07
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2008
|
|
$
|
12.17
|
|
|
$
|
7.57
|
|
|
$
|
0.07
|
|
Third Quarter ended September 30, 2008
|
|
|
14.00
|
|
|
|
5.62
|
|
|
|
0.07
|
|
Second Quarter ended June 30, 2008
|
|
|
11.29
|
|
|
|
6.28
|
|
|
|
0.07
|
|
First Quarter ended March 31, 2008
|
|
|
11.11
|
|
|
|
7.26
|
|
|
|
0.07
|
|
|
|
|
* |
|
Cash dividends on the Common Stock have been suspended since
August 2009. |
On August 17, 2010, the closing sales price of our Common
Stock on the NYSE was $0.52 per share.
MARKET PRICE OF
AND DIVIDENDS ON PREFERRED STOCK
First BanCorp
7.125% Noncumulative Perpetual Monthly Income Preferred Stock,
Series A
Our Series A Preferred Stock is currently listed on the
NYSE under the symbol FBP-PA. As of August 13,
2010, we had 3,600,000 shares of Series A Preferred
Stock outstanding, held by 12 holders of record.
84
Market Price,
Dividend and Distribution Information
The following table sets forth, for the periods indicated, the
high and low sales prices per share of the Series A
Preferred Stock and the cash dividends declared per share of the
Series A Preferred Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
prices
|
|
|
Cash dividends
|
|
|
|
High
|
|
|
Low
|
|
|
declared per
share
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter (through August 17, 2010)
|
|
$
|
6.15
|
|
|
$
|
1.62
|
|
|
$
|
0.00
|
*
|
Second Quarter ended June 30, 2010
|
|
|
16.30
|
|
|
|
2.49
|
|
|
|
0.00
|
*
|
First Quarter ended March 31, 2010
|
|
|
15.40
|
|
|
|
11.92
|
|
|
|
0.00
|
*
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2009
|
|
$
|
12.48
|
|
|
$
|
7.90
|
|
|
$
|
0.000
|
*
|
Third Quarter ended September 30, 2009
|
|
|
14.20
|
|
|
|
4.95
|
|
|
|
0.000
|
*
|
Second Quarter ended June 30, 2009
|
|
|
16.50
|
|
|
|
12.80
|
|
|
|
0.594
|
|
First Quarter ended March 31, 2009
|
|
|
17.98
|
|
|
|
7.64
|
|
|
|
0.445
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2008
|
|
$
|
21.00
|
|
|
$
|
15.76
|
|
|
$
|
0.445
|
|
Third Quarter ended September 30, 2008
|
|
|
22.68
|
|
|
|
17.21
|
|
|
|
0.445
|
|
Second Quarter ended June 30, 2008
|
|
|
24.65
|
|
|
|
22.00
|
|
|
|
0.445
|
|
First Quarter ended March 31, 2008
|
|
|
24.80
|
|
|
|
21.95
|
|
|
|
0.445
|
|
|
|
|
* |
|
Cash dividends on the Series A Preferred Stock have been
suspended since August 2009. |
On August 17, 2010, the closing sales price of a share of
our Series A Preferred Stock on the NYSE was $4.05 per
share.
First BanCorp
8.35% Noncumulative Perpetual Monthly Income Preferred Stock,
Series B
Our Series B Preferred Stock is currently listed on the
NYSE under the symbol FBP-PB. As of August 13,
2010, we had 3,000,000 shares of Series B Preferred
Stock outstanding, held by 3 holders of record.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of the Series B
Preferred Stock and the cash dividends declared per share of the
Series B Preferred Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
prices
|
|
|
Cash dividends
|
|
|
|
High
|
|
|
Low
|
|
|
declared per
share
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter (through August 17, 2010)
|
|
$
|
6.27
|
|
|
$
|
2.00
|
|
|
$
|
0.00
|
*
|
Second Quarter ended June 30, 2010
|
|
|
16.69
|
|
|
|
2.70
|
|
|
|
0.00
|
*
|
First Quarter ended March 31, 2010
|
|
|
15.50
|
|
|
|
11.95
|
|
|
|
0.00
|
*
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2009
|
|
$
|
13.24
|
|
|
$
|
7.96
|
|
|
$
|
0.000
|
*
|
Third Quarter ended September 30, 2009
|
|
|
17.00
|
|
|
|
5.55
|
|
|
|
0.000
|
*
|
Second Quarter ended June 30, 2009
|
|
|
20.85
|
|
|
|
16.36
|
|
|
|
0.696
|
|
First Quarter ended March 31, 2009
|
|
|
20.84
|
|
|
|
7.02
|
|
|
|
0.522
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2008
|
|
$
|
25.70
|
|
|
$
|
16.24
|
|
|
$
|
0.522
|
|
Third Quarter ended September 30, 2008
|
|
|
25.70
|
|
|
|
23.50
|
|
|
|
0.522
|
|
Second Quarter ended June 30, 2008
|
|
|
25.75
|
|
|
|
24.67
|
|
|
|
0.522
|
|
First Quarter ended March 31, 2008
|
|
|
25.83
|
|
|
|
23.60
|
|
|
|
0.522
|
|
|
|
|
* |
|
Cash dividends on the Series B Prefe |