8-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): June 2, 2010

First BanCorp.
__________________________________________
(Exact name of registrant as specified in its charter)

Puerto Rico	001-14793	66-0561882
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
1519 Ponce de Leon Ave., PO Box 9146, San Juan, Puerto Rico		00908-0146
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 787-729-8041

Not Applicable
______________________________________________
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 Other Events.

On June 4, 2010, First BanCorp. (the "Corporation") announced that its wholly-owned subsidiary bank, FirstBank Puerto Rico (the "Bank"), has agreed to a Consent Order (the "Order") with the Federal Deposit Insurance Corporation (the "FDIC") and the Office of the Commissioner of Financial Institutions of Puerto Rico (the "OCIF"). Pursuant to the Order, the Bank has agreed to take certain actions designed to improve the financial condition of the Bank. The Corporation also announced that it entered into a written agreement (the "Written Agreement" and collectively with the Order the "Agreements") with the Federal Reserve Bank of New York (the "FRB"). A copy of the press release issued by the Corporation relating to the Agreements is attached as Exhibit 99.1 to this Current Report on Form 8-K.

Management and the Board of Directors of the Corporation and the Bank have been working proactively over the past months to address many of the items that have been outlined in the Agreements which stem from the F DIC’s 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 maintain qualified management and continued active Board participation in the affairs of the Bank, develop and adopt a plan to attain certain levels of capital, reduce the level of classified and delinquent loans, develop a funds management plan which includes a reduction in the reliance on brokered deposits, and report quarterly on the Bank’s progress in meeting the requirements of the Order.

The Written Agreement is designed to enhance the Corporation’s ability to act as a source of strength to the Bank and requires that the Corporation obtain FRB approval before paying dividends, receiving dividends from the Bank, making payments on su bordinated 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 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 golden parachute payments and indemnification restrictions.

The Agreements impose no other restrictions on the Bank’s products or services offered to customers, nor do they impose any type of penalties or fines upon the Bank or the Corporation. Concurrent with the Agreements, the FDIC granted the Bank a temporary waiver to enable it to continue accessing the brokered deposit market. The Bank will request approvals for future periods.

The above description of the Agreements is only a summary and is qualified in its entirety by the full text of such documents, which are filed as Exhibit 10.1 and Exhibit 10.2 to this Cu rrent Report on Form 8-K and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d)Exhibits

Exhibit No. - Description

10.1 - Consent Order, dated June 2, 2010.

10.2 - Written Agreement, dated June 3, 2010.

99.1 - Press Release, dated June 4, 2010.

SIGNATURES

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

	First BanCorp.
June 4, 2010	By:	Orlando Berges
		Name: Orlando Berges
		Title: Executive Vice President and Chief Financial Officer

Exhibit Index

Exhibit No.	Description
10.1	Consent Order, dated June 2, 2010.
10.2	Written Agreement, dated June 3, 2010.
99.1	Press Release, dated June 4, 2010.

EX-10.1

FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.

In the Matter of	))))))))	CONSENT ORDER
FIRSTBANK OF PUERTO RICO		FDIC-10-068b
SANTURCE, PUERTO RICO
(INSURED STATE NONMEMBER BANK)

The Federal Deposit Insurance Corporation (“FDIC”) is the appropriate Federal banking agency for Firstbank of Puerto Rico, Santurce, Puerto Rico, (“Bank”), under 12 U.S.C. § 1813(q).

The Bank, by and through its duly elected and acting Board of Directors (“Board”), has executed a “Stipulation to the Issuance of a Consent Order” (“Stipulation”), dated June 1, 2010 that is accepted by the FDIC. With the Stipulation, the Bank has consented, without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulation relating to weaknesses in capital, asset quality, liquidity, management and Board oversight, earnings and sensitivity to market risk, to the issuance of this Consent Order (“Order”) by the FDIC.

Having determined that the requirements for issuance of an order under 12 U.S.C. § 1818(b) have been satisfied, the FDIC hereby orders that:

MANAGEMENT

(a) During the life of this ORDER, the Bank shall have and retain qualified management. Management shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on its ability to:

(i) comply with the requirements of this ORDER;

(ii) comply with applicable laws, rules, and regulations, and

(iii) restore all aspects of the Bank to a safe and sound condition, including capital adequacy, asset quality, management effectiveness, earnings, liquidity, and sensitivity to market risk.

(b) The Bank shall notify the Regional Director in writing of any additions, resignations or terminations of any members of its Board or any of its “senior executive officers” (as that term is defined in section 303.101(b) of the FDIC’ Rules and Regulations, 12 C.F.R. § 303.101(b)) within 10 days of the event. Any notification required by this subparagraph shall include a description of the background(s) and experience of any proposed replacement personnel and must be received at least 30 days prior to the individual(s) assuming the new position(s). The Bank shall also establish procedures to ensure compliance with section 32 of the Act, 12 U.S.C. § 1831i, and Subpart F of Part 303 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 303.

BOARD OF DIRECTORS

As of the effective date of this ORDER, the Board shall increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank’s activities, consistent with the role and expertise commonly expected for directors of Banks of comparable size. This participation shall include meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be reviewed and approved: reports of income and expenses; new, overdue, renewal, insider, charged off, and recovered loans, including a continuous assessment of any emerging problems in the Bank’s commercial, construction and commercial real estate (“CRE”) loan portfolios; investment activity; budget and liquidity management; adoption or modification of operating policies; individual committee reports; audit reports; internal control reviews including managements’ responses; reconciliation of general ledger accounts; and compliance with this ORDER. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.

CAPITAL

3. (a) Within 30 days from the effective date of this ORDER, the Board shall develop a written capital plan (“Capital Plan”), subject to review and approval of the Regional Director, that details the manner in which the Bank will achieve 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% (as defined in Part 325 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 325). At a minimum, the Capital Plan shall include specific benchmark leverage, Tier 1 risk-based capital and total risk-based capital ratios to be achieved at each calendar quarter end until the full achievement of the required capital levels. The Bank shall comply with the FDIC’s Statement of Policy on Risk-Based Capital found in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, App. A.

(b) In the event any capital ratio is or falls below the minimum required by the approved Capital Plan, the Bank shall immediately notify the Regional Director and

(i) within 45 days shall increase capital in an amount sufficient to comply with the ratios as set forth in the approved Capital Plan, or

(ii) within 45 days submit to the Regional Director a contingency plan for the sale, merger, or liquidation of the Bank in the event the primary sources of capital are not available.

(c) The Capital Plan required by this provision shall be submitted to the Regional

Director for non-objection. Within 30 days of receipt of any objections from the Regional Director, and after incorporation and adoption of all objections or comments, the Board shall approve the plan, which approval shall be recorded in the minutes of the meeting of the Board. Thereafter, the Bank shall implement and fully comply with the Capital Plan.

LOAN POLICY

4. (a) Within 90 days from the effective date of this ORDER, the Board shall review and revise the Bank’s written loan policies and procedures to address the comments and criticisms in the Report of Examination dated as of June 30, 2009 issued jointly by the FDIC and the Office of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico (“Report of Examination”) and abate any additional loan deterioration. The Bank’s revised loan policies and procedures shall be provided to the Regional Director for review and comment. Within 30 days of receipt of any comment from the Regional Director, and after consideration of any recommended changes, the Board shall approve the loan policies and procedures, which approval shall be recorded in the Board minutes. Thereafter, the Bank shall implement and fully comply with the revised loan policies. In the event the Bank considers making a loan that would not conform with the Bank’s loan policies, the loan shall receive prior review and approval by the Board. The reason for non-conformance and the Board’s prior review and approval shall be documented in the Board minutes and in the loan file for that loan.

(b) The initial revisions to the Bank’s loan policy required by this paragraph, at a

minimum, shall include provisions:

(i) requiring a non-accrual policy in accordance with the Federal FinancialInstitutions Examination Council’s (“FFIEC”) Instructions for the Consolidated Reports of Condition and Income; and

(ii) requiring the prudent use of interest reserves in accordance with Managing

Commercial Real Estate Concentrations in a Challenging Environment (FIL-22-2008, issued March 17, 2008).

INDEPENDENT LOAN REVIEW

5. (a) Within 30 days from the effective date of this ORDER, the Board shall ensure that the Bank operates under an adequate and effective program of independent loan review that will provide for a periodic review of the Bank’s loan portfolio and the identification and categorization of problem credits.

(b) At a minimum, the program shall provide for:

(i) prompt identification of loans with credit weaknesses that warrant the special attention of management, including the name of the borrower, amount of the loan, reason why the loan warrants special attention, and assessment of the degree of risk that the loan will not be fully repaid according to its terms;

(ii) prompt identification of all outstanding balances and commitments attributable to each obligor identified under the requirements of subparagraph (i), including outstanding balances and commitments attributable to related interests of such obligors, including the obligor of record, relationship to the primary obligor identified in subparagraph (i), and an assessment of the risk exposure from the aggregate relationship;

(iii) identification of trends affecting the quality of the loan portfolio and potential problem areas;

(iv) assessment of the overall quality of the loan portfolio;

(v) identification of credit and collateral documentation exceptions;

(vi) identification and status of violations of law, regulations, policies with respect to the lending function;

(vii) identification of loans that are not in conformance with the Bank’s lending

policy, including real estate loans that fall outside the Bank’s own internal loan-to-value limits in contravention of the Interagency Guidelines for Real Estate Lending Policies, as contained in Appendix A to Part 365, 12 C.F.R. Part 365, and ensuring that impaired loans are properly placed on non-accrual status;

(viii) identification of loans to directors, officers, principal shareholders, and

their related interests; and

(ix) a mechanism for reporting periodically, but in no event less than quarterly,

the information developed in (i) through (viii) above to the Board.

(c) A copy of the independent loan review program shall be submitted to the Regional Director for review and comment. Within 30 days of receipt of any comments from the Regional Director, the Board shall incorporate and adopt any changes required by the Regional Director. Thereafter the Bank shall implement and adhere to the program.

APPRAISAL COMPLIANCE PROGRAM

6. (a) Within 30 days from the effective date of this ORDER, the Board shall ensure that the Bank operates under an adequate and effective appraisal compliance program, including enhancing the Bank’s appraisal policy to capture risk management and internal controls that ensure that appraisals are obtained in a timely manner when required by law or regulation and that appraisals contain appropriate valuation approaches to support assigned values consistent with Part 323 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 323 and the Interagency Appraisal and Evaluation Guidelines (FIL-74-94, issued November 11, 1994).

(b) Within 90 days from the effective date of this ORDER, the Bank shall certify to the Regional Director that adequate training has been provided to account managers who are responsible for obtaining and reviewing appraisals to ensure that they include all necessary information, employ correct methodology, include reasonable assumptions and adequately support assigned values.

(c) A copy of the appraisal compliance program shall be submitted to the Regional Director for review and comment. Within 30 days of receipt of any comments from the Regional Director, the Board shall incorporate and adopt any changes required by the Regional Director. Thereafter the Bank shall implement and adhere to the program.

REDUCTION OF CLASSIFIED AND SPECIAL MENTION ASSETS

7. (a) Within 90 days from the effective date of this ORDER, the Bank shall adopt, implement, and adhere to a written plan to reduce the Bank’s risk position in each asset in excess of $5 million which is listed for Special Mention or classified “substandard” or “doubtful” in the Report of Examination. For purposes of this paragraph, “reduce” means to collect, charge off, or improve the quality of an asset so as to warrant its removal from adverse classification by the Regional Director.

(b) The plan shall include, but is not limited to, provisions which:

(i) prohibit an extension of credit for the payment of interest, unless the Board provides, in writing, a detailed explanation of why the extension is in the best interest of the Bank and how it improves the position of the Bank, including an appropriate workout plan that has been developed and will be implemented in conjunction with the additional credit to be extended;

(ii) provide for the review of the current financial condition of each Special Mention or classified borrower, including a review of borrower cash flow and collateral value;

(iii) delineate areas of responsibility for loan officers;

(iv) reduce Special Mention and classified assets to 100% of Tier 1 capital and ALLL, and 75% of Tier 1 capital and ALLL within 6 and 12 months, respectively, from the effective date of this ORDER; and

(v) provide for the submission of monthly written progress reports to the Board for review and notation in the Board minutes.

(c) The plan required by this paragraph shall submitted to the Regional Director for review and comment. Within 30 days of receipt of any objections from the Regional Director, the Board shall incorporate any changes required and thereafter adopt the plan. Thereafter, the Bank shall implement and fully adhere to the plan. While this ORDER is in effect, the plan shall be revised to include assets which become adversely classified after the effective date of this ORDER or are listed as Special Mention at any subsequent examination.

REDUCTION OF DELINQUENCIES AND NON-ACCRUAL ASSETS

8. (a) Within 45 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director for review and comment a reasonable and realistic written plan for the reduction and collection of delinquent and non-accrual loans. Such plan shall include, but not be limited to, provisions which:

(i) prohibit the extension of credit for the payment of interest, unless the Board adopts prior to such extension of credit a detailed written statement giving reasons why such extension of credit is in the best interests of the Bank and how it improves the position of the Bank, including an appropriate workout plan that has been developed and will be implemented in conjunction with the additional credit to be extended. Copies of the statement approved by the Board shall be made a part of the Board minutes and placed in the appropriate loan file and submitted to the Regional Director with the quarterly progress reports required pursuant to paragraph 17 of this ORDER;

(ii) delineate areas of responsibility for implementing and monitoring the Bank’s collection policies;

(iii) establish specific collection procedures to be instituted at various stages of a borrower’s delinquency;

(iv) establish dollar levels to which the Bank shall reduce delinquencies and non-accruals within 30 days from the effective date of this ORDER; and

(v) provide for the submission of monthly written progress reports to the Board for review and notation in the Board minutes.

(b) For purposes of the plan, “reduce” means to charge-off, collect or improve the quality of an asset as provided in the FFIEC Instructions for the Report of Condition and Income.

(c) Within 30 days after the Regional Director have responded to the plan, the Board shall adopt the plan as amended or modified by the Regional Director. The plan shall be implemented immediately to the extent that the provisions of the plan are not already in effect at the Bank.

RESTRICTION ON ADVANCES TO CLASSIFIED BORROWERS

9. (a) As of the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who is already obligated in any manner to the Bank on any extensions of credit (including any portion thereof) that has been charged off the books of the Bank or classified “loss” in the current Report of Examination or any future report of examination, so long as such credit remains uncollected.

(b) As of the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified “substandard,” “doubtful” or is listed for Special Mention in the Report of Examination or any future report of examination, and is uncollected.

(c) The provision of this ORDER restricting lending to a delinquent or classified borrower shall not apply if the Bank’s failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank. Prior to extending additional credit pursuant to this paragraph, whether in the form of a renewal, extension, or further advance of funds, such additional credit shall be approved by the Board, or a designated committee thereof, who shall determine that:

(i) the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank, with a written explanation of why the failure to extend such credit would be detrimental;

(ii) the extension of credit would improve the Bank’s position, with a written explanatory statement of how and why the Bank’s position would improve; and

(iii) an appropriate workout plan has been developed and will be implemented in conjunction with the additional credit to be extended. The Board’s determinations and approval shall be made a part of the minutes of the Board, or designated committee and copies shall be submitted to the Regional Director with the next quarterly submission, with a copy retained in the borrower’s credit file.

LIQUIDITY AND FUNDS MANAGEMENT POLICIES AND PLAN

10. (a) Within 30 days from the effective date of this ORDER, the Board shall ensure that the Bank operates under an adequate and effective Liquidity and Funds Management Plan. The Bank shall conform it funds management policies to the Liquidity and Funds Management Plan. At a minimum, the Liquidity and Funds Management Plan shall address all of the deficiencies and recommendations identified in the Report of Examination, as well as:

(i) identify personnel responsible for the funds management functions within the Bank;

(ii) provide a statement of the Bank’s long-term and short-term liquidity needs and plans for ensuring that such needs are met;

(iii) provide for a periodic review of the Bank’s deposit structure, including the volume and trend of total deposits and the volume and trend of the various types of deposits offered, the maturity distribution of time deposits, rates being paid on each type of deposit, rates being paid by trade area competition, caps on large time deposits, public funds, out-of-area deposits, and any other information needed;

(iv) establish a reasonable range for its net non-core funding ratio as computed in the Uniform Bank Performance Report and shall address the means by which the Bank will seek to reduce its reliance on non-core funding and high cost rate-sensitive deposits;

(v) identify the source and use of borrowed and/or volatile funds;

(vi) establish sufficient back-up lines of credit that would allow the Bank to borrow funds to meet depositor demands if the Bank’s other provisions for liquidity prove to be inadequate;

(vii) require the retention of securities and/or other identified categories of investments that can be liquidated within one day in amounts sufficient (as a percentage of the Bank’s total assets) to ensure the maintenance of the Bank’s liquidity posture at a level consistent with short and long term liquidity objectives;

(viii) establish a minimum liquidity ratio and define how the ratio is to be calculated;

(ix) establish contingency plans by identifying alternative courses of action designed to meet the Bank’s liquidity needs; and

(x) address the use of borrowings (i.e., seasonal credit needs, match funding mortgage loans, etc.) and provide for reasonable maturities commensurate with the use of the borrowed funds; address concentration of funding sources; and address pricing and collateral requirements with specific allowable funding channels (i.e., brokered deposits, internet deposits, Fed funds purchased and other correspondent borrowings).

(b) A copy of the Liquidity and Funds Management Plan shall be submitted to the Regional Director for review and comment. Within 30 days of receipt of any comments from the Regional Director, the Board shall incorporate and adopt any changes required by the Regional Director. Thereafter the Bank shall implement and adhere to the Liquidity and Funds Management Plan. Annually thereafter, while this ORDER is in effect, the Bank shall review the Liquidity and Funds Management Plan for adequacy and, based upon such review, shall make necessary revisions to the plan to strengthen funds management procedures and maintain adequate provisions to meet the Bank’s liquidity needs.

(c) Upon the issuance of this ORDER and so long as this ORDER is in effect, the Bank shall not accept, increase, renew, or rollover its brokered deposits without the prior written approval of the Regional Director. Within 30 days of the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director a written plan for reducing the Bank’s reliance on brokered deposits (“brokered deposit plan”). The brokered deposit plan shall detail the current composition of the Bank’s brokered deposits by maturity and explain the means by which such deposits will be paid. For purposes of this ORDER, brokered deposits are defined in section 337.6(a)(2) of the FDIC Rules and Regulations to include any deposits funded by third-party agents or nominees for depositors, including deposits managed by a trustee or custodian when each individual beneficial interest is entitled to or asserts a right to federal deposit insurance. Within 10 days of receipt of comments from the Regional Director, and after consideration of all such comments, the Board shall approve the brokered deposit plan, which approval shall be recorded in the Board minutes. Thereafter, the Bank shall implement and fully comply with the brokered deposit plan.

ALLOWANCE FOR LOAN AND LEASE LOSSES

11. (a) Within 60 days from the effective date of this ORDER, the Board shall establish a comprehensive policy and methodology for determining the ALLL. The policy shall provide for a review of the ALLL at least once each calendar quarter. Said review should be completed not later than 15 days subsequent to the end of each calendar quarter in order that the findings of the Bank may be properly reported in the Reports of Condition and Income. Such reviews shall, at a minimum, be made in accordance with Financial Accounting Standards Board (“FASB”) Statements Numbers 5 and 114, as codified by FASB under its Accounting Standards Codification effective after September 15, 2009 (established by FASB Statement Number 168) (“FASB 5 and 114”), the FFIEC Instructions for the Report of Condition and Income, the Interagency Statement of Policy on the Allowance for Loan and Lease Losses (FIL-105 -2006, issued December 13, 2006) and other applicable regulatory guidance that addresses the appropriateness of the Bank’s ALLL, and any analysis of the Bank’s ALLL provided by the FDIC.

(b) Such reviews shall include, at a minimum:

(i) the Bank’s loan loss experience;

(ii) an estimate of the potential loss exposure in the portfolio; and

(iii) trends of delinquent and non-accrual loans and prevailing and prospective economic conditions.

(c) The minutes of the Board meetings at which such reviews are undertaken shall include complete details of the reviews and the resulting recommended increases in the ALLL. The Board shall document in the Board minutes the basis for any determination not to require provisions for loan losses in accordance with the above-cited guidance.

(d) ALLL entries required by this paragraph shall be made prior to any capital determinations required by this ORDER. ALLL entries against current earnings must be booked in current calendar quarter before the Reports of Condition and Income is filed. A deficiency in the Bank’s ALLL shall be remedied in the calendar quarter in which it is discovered by a charge to current operating earnings prior to any Tier 1 capital determinations required by this ORDER and prior to the Bank’s submission of its Reports of Condition and Income. The Board shall thereafter maintain an appropriate ALLL.

(e) The Bank shall submit the policy to the Regional Director for non-objection. Within 30 days of receipt of any objections from the Regional Director and after incorporation and adoption of all objections or comments, the Board shall approve the policy, which approval shall be recorded in the minutes of the meeting of the Board. Thereafter, the Bank shall implement and fully comply with the policy.

INTEREST RATE RISK

12. (a) Within 30 days from the effective date of this ORDER, the Board shall ensure that the Bank operates under an adequate and effective policy for managing the Bank’s sensitivity to interest rate risk. At a minimum, this policy shall address the deficiencies and recommendations identified in the Report of Examination. In addition, the policy shall comply with the Joint Agency Statement of Policy on Interest Rate Risk (FIL-52-96, issued July 12, 1996).

(b) The policy revisions required by this paragraph shall be submitted to the Regional Director for review and comment. Within 30 days of receipt of any comments from the Regional Director, the Board shall incorporate any changes required and thereafter adopt, implement and adhere to the policy.

PROFIT AND BUDGET PLAN

13. (a) Within 60 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the Board shall develop and fully implement a written profit plan which shall include goals and strategies of the Bank, consistent with sound banking practices, and taking into account the Bank’s other written plans, policies, or other actions as required by this ORDER (“Profit Plan”). The Profit Plan shall include, at a minimum:

(i) a realistic budget with forecasts and assumptions that are consistent with actual Bank operation results;

(ii) specific goals to maintain appropriate provisions to the allowance for loan and lease losses;

(iii) realistic and comprehensive budgets for all categories of income and expense items, including an executive compensation plan addressing any and all salaries, bonuses and other benefits of every kind or nature whatsoever, both current and deferred, whether paid directly or indirectly, which plan incorporates qualitative as well as profitability performance standards for the Bank’s senior executive officers;

(iv) a description of the operating assumptions that form the basis for, and adequately support, material projected revenue and expense components;

(v) coordination of the Bank’s loan, investment, funds management, and operating policies; strategic plan; and an ALLL methodology with the profit and budget planning;

(vi) a budget review process to monitor the revenue and expenses of the Bank whereby actual performance is compared against budgetary projections not less than quarterly;

(vii) recording the results of the budget review and any actions taken by the Bank as a result of the budget review in the minutes of the board of directors; and

(viii) the individual(s) responsible for implementing each of the goals and strategies of the Profit Plan.

(b) Copies of the plans and budgets required by this paragraph shall be submitted to the Regional Director.

STRATEGIC PLAN

14. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate a realistic and comprehensive strategic plan. The plan required by this provision shall contain an assessment of the Bank’s current financial condition and market area, and a description of the operating assumptions that form the basis for major projected income and expense components. The written strategic plan shall address, at a minimum: (i) strategies for pricing policies and asset/liability management; and (ii) financial goals, including pro forma statements for asset growth, capital adequacy, and earnings.

(b) The strategic plan and any subsequent modification thereto, shall be submitted to the Regional Director for non-objection. Within 30 days of receipt of comments from the Regional Director, and after due consideration of any changes recommended, the Board shall approve the plan and record its approval in the minutes of the board meeting. Thereafter, the Bank shall implement and fully comply with the plan.

CORRECTION OF VIOLATIONS

15. (a) Within 60 days from the effective date of this ORDER, the Bank shall:

(i) consistent with safe and sound banking practices, eliminate or correct all violations of law, rules, and regulations cited in the current Report of Examination ;

(ii) consistent with safe and sound banking practices, eliminate or correct all contraventions of regulatory policies or guidelines cited in the current Report of Examination; and

(iii) adopt and implement appropriate procedures to ensure future compliance with all applicable laws, rules, regulations, and regulatory policies and guidelines.

(b) The Bank shall document each violation or contravention that cannot be eliminated or corrected, and why, for review by the Board. The Board’s review, discussion, and any action taken with respect to the uncorrected violations or contraventions shall be recorded in the Board minutes.

COMPLIANCE COMMITTEE

16. Within 30 days from the effective date of this ORDER, the Board shall establish a committee of the Board members charged with the responsibility of ensuring that the Bank complies with the provisions of this ORDER. At least 3 of the members of such committee shall be Board members not employed in any capacity by the Bank other than as a director. The committee shall report monthly to the full Board, and a copy of the report and any discussion relating to the report or the ORDER shall be noted in the Board minutes. The establishment of this committee shall not diminish the responsibility or liability of the entire Board to ensure compliance with the provisions of this ORDER.

PROGRESS REPORTS

17. Within 30 days from the end of each calendar quarter following the effective date of this ORDER, the Board shall furnish written progress reports to the Regional Director detailing the form, content, and manner of any actions taken to secure compliance with this ORDER.

SHAREHOLDERS

18. After the effective date of this ORDER, the Bank shall send a copy of this ORDER, or otherwise furnish a description of this ORDER, to its parent holding company in conjunction with the Bank’s next shareholder communication. The description shall fully describe the ORDER in all material aspects.

ORDER EFFECTIVE

19. This ORDER shall be effective on the date of issuance. The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof. The provisions of this ORDER shall remain effective and enforceable except to the extent that and until such time as any provision has been modified, terminated, suspended, or set aside by the FDIC.

OTHER ACTIONS

20. The provisions of this ORDER shall not bar, estop, or otherwise prevent the FDIC or any other federal or state agency or department from taking any other action against the Bank or any of the Bank’s current or former institution-affiliated parties.

Issued Pursuant to Delegated Authority

Dated: June 2, 2010
By:

/s/ Doreen R. Eberley
Doreen R. Eberley
Regional Director

New York Regional Office
Division of Supervision and Consumer Protection
Federal Deposit Insurance Corporation

UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOBERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, DC

Written Agreement by and between

Docket No. 121-WA/RB-HC

FIRST BANCORP
San Juan, Puerto Rico

and

FEDERAL RESERVE BANK OF
NEW YORK

WHEREAS, First BanCorp, San Juan, Puerto Rico (“FB”), a registered bank holding company, owns and controls FirstBank, Puerto Rico, San Juan, Puerto Rico (the “Bank”), a state chartered nonmember bank, and various nonbank subsidiaries;

WHEREAS, it is the common goal of FB and the Federal Reserve Bank of New York (the “Reserve Bank”) to maintain the financial soundness of FB so that FB may serve as a source of strength to the Bank;

WHEREAS, FB and the Reserve Bank have mutually agreed to enter into this Written Agreement (the “Agreement”); and

WHEREAS, on June 3, 2010, the board of directors of FB at a duly constituted meeting, adopted a resolution authorizing and directing Mr. Aurelio Alemán, CEO and President, to enter into this Agreement of behalf of FB, and consenting to compliance with each and every provision of this Agreement by FB and its institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. ) § §§1813(u) and 1818(b)(3)).

NOW, THEREFORE, FB and the Reserve bank agree as follows:

Source of Strength

1. The board of directors of FB shall take appropriate steps to fully utilize FB’s financial and managerial resources, pursuant to section 225.4(a) of Regulation Y of the Board of Governors of the Federal Reserve System (the “Board of Governors”) (12 C.F.R. §225.4(a)), to serve as a source of strength to the Bank, including, but not limited to, taking steps to ensure that the Bank complies with the consent order entered into with the Federal Deposit Insurance Corporation on June 1, 2010 and any other supervisory action taken by the Bank’s federal or state regulator.

Dividends and Distributions

2. (a) FB shall not declare or pay any dividends without the prior            written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation (the “Director”) of the Board of Governors of the Federal Reserve System (the “Board of Governors”).

(b) FB shall not directly or indirectly take dividends or any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank.

(c) FB and its nonbank subsidiaries shall not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director.

(d) All requests for prior approval shall be received by the Reserve Bank at least 30 days prior to the proposed dividend declaration date, proposed distribution on subordinated debentures, and required notice of deferral on trust preferred securities. All requests shall contain, at a minimum, current and projected information of FB’s capital, earnings, and cash flow; the Bank’s capital, asset quality, earnings, and allowance for loan and lease losses; and identification of the sources of funds for the proposed payment or distribution. For requests to declare or pay dividends, FB must also demonstrate that the requested declaration or payment of dividends is consistent with the Board of Governor’s Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 4-877 at page 4-323).

Debt and Stock Redemption

3. (a) FB and any nonbank subsidiary shall not, directly or            indirectly, incur, increase, or guarantee any debt without the prior written approval if the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of the cash flow resources available to meet such debt repayment.

(b) FB shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

Capital Plan

4. Within 30 days of this Agreement, FB shall submit to the Reserve Bank an acceptable written plan to maintain sufficient capital at FB on a consolidated basis. The plan shall, at a minimum, address, consider, and include:

(a) The consolidated organization’s and the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of regulation Y of the Board of Governors (12 C.F.R. Part 225, App. A and D) and the applicable capital adequacy guidelines for the Bank issued by the Bank’s federal regulator;

(b) The adequacy of the Bank’s capital, taking into account the volume of classified credits, concentrations of credit, allowance for loan and lease losses, current and projected asset growth, and projected retained earnings;

(c) The source and timing of additional funds necessary to fulfill the consolidated organization’s and the Bank’s future capital requirements;

(d) Supervisory requests for additional capital at the Bank or the requirements of any supervisory action imposed on the Bank by its federal regulators; and

(e) The requirements of section 225.4(a) of Regulation Y of the Board of Governors (12 C.F.R. § 225.4(a)) that FB serve as a source of strength to the Bank.

5. FB shall notify the Reserve Bank, in writing, no more than 30 days after the end of any quarter in which any of FB’s capital ratios fall below the approved plan’s minimum ratios. Together with the notification, FB shall submit an acceptable written plan that details the steps that FB will take to increase FB’s capital ratios to or above the approved plan’s minimums.

Compliance with Laws and Regulations

6. (a) In appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, FB shall comply with the notice provisions of section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. §§225.71 et seq.).

(b) FB shall comply with the restrictions on indemnification and severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part 359).

Progress Reports

7. Within 45 days after the end of each calendar quarter following the date of this Agreement, the board of directors shall submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with the provisions of this Agreement and the results thereof, and a parent company only balance sheet, income statement, and, as applicable, report of changes in stockholders’ equity.

Approval and Implementation of Plans

8. (a) FB shall submit a written capital plan that is acceptable to the Reserve Bank within the applicable time period set forth in paragraph 4 of this Agreement.

(b) Within 30 days of approval by the Reserve Bank, FB shall adopt the approved capital plan. Upon adoption, FB shall promptly implement the approved plan, and thereafter fully comply with it.

(c) During the term of this Agreement, the approved capital plan shall not be amended or rescinded without the prior written approval of the Reserve Bank.

9. All communications regarding this Agreement shall be sent to:

Mr. Meinrad Danzer
Examining Officer
Regional Team Leader
Federal Reserve Bank of New York
33 Liberty Street, Attention 33 ML, 20^th Floor
New York, New York 10045-0001

(a) Mr. Aurelio Alemán

President and Chief Executive Officer
First BanCorp
1519 Ponce de León Avenue
San Juan, Puerto Rico 00908-0146

Miscellaneous

10. Notwithstanding any provision of this Agreement, the Reserve Bank may, in its sole discretion, grant written extensions of time to FB to comply with any provision of this Agreement.

11. The provisions of this Agreement shall be binding upon FB and its institution-affiliated parties, in their capacities as such, and their successors and assigns.

12. Each provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended in writing by the Reserve Bank.

13. The provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, or any other federal or state agency from taking any other action affecting FB, the Bank, any nonbank subsidiary of FB, or any of their current or former institution-affiliated parties and their successors and assigns.

14.

Pursuant to section 50 of the FDI Act (12 U.S.C. § 1831 aa), this Agreement is enforceable by the Board of Governors under section 8 of the FDI Act (12 U.S.C. §1818).

IN WITNESS WHEREOF, the parties have caused this agreement to be executed as of the 3^rd day of June, 2010.

FIRST BANCORP FEDERAL RESERVE BAK

OF NEW YORK

By: /s/ Aurelio Alemán	By: /s/ John J. Ruocco
Aurelio Alemán President and Chief Executive	John J. Ruocco Assistant Vice President

Officer

First BanCorp Formalizes Agreements with Regulators

SAN JUAN, Puerto Rico – June 4, 2010 – First BanCorp (the “Corporation”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank”), announced today that FirstBank has agreed to a Consent Order with the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Commissioner of Financial Institutions of Puerto Rico (“OCIF”) and that the Corporation has agreed to enter into a written agreement with the Federal Reserve Bank of New York (collectively the “Agreements”). Pursuant to the Agreements, FirstBank and the Corporation have agreed to take certain actions intended to address various matters, including among others, the development and adoption of a plan to attain certain capital levels, and the reduction of non-performing and classified assets that have impacted FirstBank’s financial condition and performance. 

Management and the Board of Directors of the Corporation and FirstBank have been working proactively over the past months to address many of the items that have been outlined in the Agreements which stem from the FDIC’s examination as of the period ended June 30, 2009 conducted during the second half of 2009. In previous filings with the Securities and Exchange Commission, the Corporation had disclosed its capital and strategic plans, as well as specific actions underway intended to improve asset quality, deleverage the balance sheet, mitigate loan losses and diversify its funding sources. 

Aurelio Alemán, Chief Executive Officer of First BanCorp, said, “The prolonged economic recession in Puerto Rico and Florida has negatively affected real estate values, the construction industry and the financial condition of many of our customers. As we have reported in the past, the Corporation’s loan portfolio and financial performance have been adversely impacted by these matters.” 

“We are committed to continue to work expeditiously to resolve the items detailed in the Agreements and execute our strategies to strengthen our balance sheet and return FirstBank to its full earnings potential. We have been rigorously engaged in steps to improve the Corporation’s asset quality and capital levels, while at the same time, we continue to serve our customers with the high level of service and dedication for which our franchise is recognized in the market,” Mr. Alemán concluded. 

The Corporation confirmed that it currently meets the established minimum regulatory capital ratios for a well-capitalized bank and is working towards further strengthening its position by deploying its capital plan strategy.  To that effect, the Corporation is focusing its efforts in the execution of its capital initiatives which include efforts to: convert into common stock the $400 million of preferred stock sold to the United States Department of the Treasury (“U.S Treasury”) under the Capital Purchase Program (“CPP”); raise $500 million of equity; and issue shares of common stock in exchange for its non-cumulative preferred shares. In this regard, the Corporation filed with the Securities and Exchange Commission a registration statement for the exchange for its non-cumulative preferred stock and is currently in advanced discussions with the U.S Treasury to negotiate the exchange of the CPP preferred stock for shares of the Corporation’s common stock to be accomplished in one or more transactions.

The Agreements impose no restrictions on FirstBank’s products or services offered to customers, nor do they impose any type of penalties or fines upon FirstBank or the Corporation.  Concurrent with the Agreements, the FDIC granted FirstBank a temporary waiver to enable it to continue accessing the brokered deposit market. FirstBank will request approvals for future periods. 

Copies of these Agreements are included in a Current Report on Form 8-K filed today with the U.S. Securities and Exchange Commission (SEC). The 8-K can be accessed through the Corporation’s website at www.firstbankpr.com, Investor Relations section, or at the SEC website at www.second.gov.

About First BanCorp

First BanCorp is the parent corporation of FirstBank Puerto Rico, a state-chartered commercial bank with operations in Puerto Rico, the Virgin Islands and Florida, and of FirstBank Insurance Agency. First BanCorp and FirstBank Puerto Rico operate under U.S. banking laws and regulations. The Corporation operates a total of 175 branches, stand-alone offices and in-branch service centers throughout Puerto Rico, the U.S. and British Virgin Islands, and Florida. Among the subsidiaries of FirstBank Puerto Rico are First Federal Finance Corp., a small loan company; First Leasing and Rental Corp., a leasing company; FirstBank Puerto Rico Securities, a broker-dealer subsidiary; First Management of Puerto Rico; and FirstMortgage, Inc., a mortgage origination company. In the U.S. Virgin Islands, FirstBank operates First Insurance VI, an insurance agency, and First Express, a small loan company. First BanCorp’s common and publicly-held preferred shares trade on the New York Stock Exchange under the symbols FBP, FBPPrA, FBPPrB, FBPPrC, FBPPrD and FBPPrE. Additional information about First BanCorp may be found at www.firstbankpr.com.

Safe Harbor

This press release may contain “forward-looking statements” concerning the Corporation’s future economic performance. The words or phrases “expect,” “anticipate,” “look forward,” “should,” “believes” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbor created by such section. The Corporation wishes to caution readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and to advise readers that various factors, including, but not limited to, uncertainty about whether the Corporation’s actions to improve its capital structure will have their intended effect; the risk of being subject to additional regulatory action as a result of, among other things, failure to comply with the provisions of the Agreements, which require, among other requirements, that the Corporation maintain its regulatory capital ratios at levels that exceed the regulatory capital minimum requirements for a well-capitalized bank and reduce its non-performing and classified assets to levels specified in the Agreements within certain timeframes; the Corporation’s reliance on brokered certificates of deposit and its ability to continue to obtain the regulatory approval required by the Agreements to issue brokered certificates of deposit to fund operations and provide liquidity; the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and its impact on the credit quality of the Corporation’s loans and other assets, including the Corporation’s 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; additional 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 further, adversely impact current funding sources and adversely affect demand for all of the Corporation’s products and services and the value of the Corporation’s assets, including the value of derivative instruments used for protection from interest rate fluctuations; an adverse change in the Corporation’s ability to attract new clients and retain existing ones; a decrease in demand for the Corporation’s products and services and lower revenues and additional losses because of the continued recession and the recent and any future consolidation of the banking industry in Puerto Rico and the current fiscal problems and budget deficit of the Puerto Rico government; a need to recognize additional impairments on financial instruments or impairments of goodwill relating to acquisitions; 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 adversely affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; uncertainty about the effectiveness of the various actions undertaken to stimulate the United States economy and stabilize the United States financial markets, and the impact such actions may have on the Corporation’s business, financial condition and results of operations; changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the Federal Reserve System, the FDIC, government-sponsored housing agencies and local regulators in Puerto Rico and the U.S. and British Virgin Islands; 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; risks of not being able to generate sufficient income to realize the benefit of the deferred tax asset; risks of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.; changes in the Corporation’s expenses associated with acquisitions and dispositions; developments in technology; the impact of Doral Financial Corporation’s financial condition on the repayment of its outstanding secured loans to the Corporation; risks associated with further downgrades in the credit ratings of the Corporation’s securities; general competitive factors and industry consolidation;  and the possible future dilution to holders of common stock resulting from additional issuances of common stock or securities convertible into common stock. The Corporation does not undertake, and specifically disclaims any obligation, to update any “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.

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First BanCorp
Alan Cohen
Senior Vice President
Marketing and Public Relations
alan.cohen@firstbankpr.com
(787)729-8256