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As filed with the Securities and Exchange Commission on
May 24, 2010
Registration
No. 333-165252
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
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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CALCULATION
OF REGISTRATION FEE
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Proposed
maximum
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Title of each
class of securities
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Amount to be
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offering price
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Proposed maximum
aggregate
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Amount of
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to be
registered
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registered(1)
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per
share
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offering
price(2)(3)
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registration
fee(4)(5)
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Common Stock, par value $1.00
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192,535,000
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N/A
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$207,767,400.00
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$14,813.82
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(1)
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This Registration Statement
registers the maximum number of shares of the Registrants
common stock, par value $1.00 per share (our Common
Stock), that may be issued in connection with the exchange
offer (the Exchange Offer) by the Registrant for
(a) its shares of (i) 7.125% Noncumulative Perpetual
Monthly Income Preferred Stock, Series A
(Series A Preferred Stock), (ii) 8.35%
Noncumulative Perpetual Monthly Income Preferred Stock,
Series B (Series B Preferred Stock),
(iii) 7.40% Noncumulative Perpetual Monthly Income
Preferred Stock, Series C (Series C Preferred
Stock), (iv) 7.25% Noncumulative Perpetual Monthly
Income Preferred Stock, Series D (Series D
Preferred Stock) and (v) 7.00% Noncumulative
Perpetual Monthly Income Preferred Stock, Series E
(Series E Preferred Stock). The Series A
Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are collectively referred to as Preferred
Stock.
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(2)
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Represents the proposed maximum
aggregate offering price, estimated solely for purposes of
calculating the registration fee pursuant to Rule 457(c)
and 457(f)(1) under the Securities Act of 1933, as amended. The
amount was calculated based on the aggregate market value of
shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock that could be accepted
for exchange assuming 100% of the issued and outstanding shares
of Preferred Stock are tendered and accepted for exchange.
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(3)
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The proposed maximum aggregate
offering price was calculated in accordance with
Rule 457(c) under the Securities Act as follows: the sum of
(1) the product of (a) $9.49, the average of the high
and low sale prices per share of Series A Preferred Stock
on May 17, 2010 and (b) 3,600,000, the number of
outstanding shares of Series A Preferred Stock;
(2) the product of (a) $9.55, the average of the high
and low sale prices per share of Series B Preferred Stock
on May 17, 2010 and (b) 3,000,000, the number of
outstanding shares of Series B Preferred Stock;
(3) the product of (a) $9.13, the average of the high
and low sale prices per share of Series C Preferred Stock
on May 17, 2010 and (b) 4,140,000, the number of
outstanding shares of Series C Preferred Stock;
(4) the product of (a) $9.54, the average of the high
and low sale prices per share of Series D Preferred Stock
on May 17, 2010 and (b) 3,680,000, the number of
outstanding shares of Series D Preferred Stock; and
(5) the product of (a) $9.5, the average of the high
and low sale prices per share of Series E Preferred Stock
on May 17, 2010 and (b) 7,584,000, the number of
outstanding shares of Series E Preferred Stock.
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(4)
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Computed in accordance with
Section 6(b) of the Securities Act of 1933, as amended, by
multiplying .00007130 by the proposed maximum aggregate offering
price.
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(5)
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The Registrant previously paid a
registration fee in the amount of $21,248.10 on March 5,
2010 based on the average of the high and low sale prices per
share of each series of Preferred Stock as of March 1, 2010.
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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 May 24, 2010
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Offer to
Exchange
Up to
192,535,000 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 192,535,000 newly issued shares of our common
stock, par value $1.00 per share (our Common Stock),
which we refer to as the Maximum Exchange Amount,
for any and all of the issued and outstanding (subject to
proration as described below):
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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 ,
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 ,
2010, the closing sale price for our Common Stock on the NYSE
was $ 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 23 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 ,
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 ,
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 7 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
$ per share of our Common Stock.
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 $ per share,
the market value of our Common Stock to be received in the
Exchange Offer will be less than the applicable Exchange Value.
If the aggregate liquidation preference of all shares of
Preferred Stock tendered in the Exchange Offer would result in
the issuance, upon completion of the Exchange Offer, of a number
of shares of our Common Stock in excess of
192,535,000 shares, which we refer to as the Maximum
Exchange Amount, we will accept for tender only that number of
shares of Preferred Stock that will ensure that the Maximum
Exchange Amount is not exceeded in the Exchange Offer and we
will reduce (on a prorated basis) the number of shares of
Preferred Stock that we accept in the exchange offer to avoid
exceeding this limit.
The table below sets forth certain information regarding each
series of Preferred Stock that are the subject of the Exchange
Offer.
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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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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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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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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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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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The Exchange Offer will expire at 11:59 p.m., New York City
time,
on ,
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 192,535,000 shares of Common Stock upon the exchange
of Preferred Stock in the Exchange Offer and the possible
issuance of up to 19,245,547 additional shares of Common Stock
pursuant to an anti-dilution right held by a current stockholder
(as discussed in more detail herein), and (ii) 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 prior to the expiration date. 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 be made
by ,
2010 to ensure timely delivery of the documents 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.
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 our actions to improve the
Corporations capital structure will have their intended
effect;
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the risk of being subject to possible regulatory action;
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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, including the value of derivative instruments used for
protection from interest rate fluctuations;
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our reliance on brokered certificates of deposit and our ability
to continue to rely on the issuance of brokered certificates of
deposit to fund operations and provide liquidity;
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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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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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Forward-looking
Statements
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changes in the fiscal and monetary policies and regulations of
the federal government, including those determined by the
Federal Reserve System (the Federal Reserve), the
Federal Deposit Insurance Corporation (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 federal and state securities
laws.
You should carefully consider these factors and the risk factors
beginning on page 23 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, D.C. 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 Current Reports on
Form 8-K
filed with the SEC on February 3, 2010 (excluding
Items 2.02 and 9.01) and April 29, 2010 (excluding
Items 2.02 and 9.01, as amended by
Form 8-K/A
filed with the SEC on May 3, 2010);
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Our Quarterly Report on
Form 10-Q
filed with the SEC on May 10, 2010; and
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The sections entitled Description of Capital Stock
beginning on page 5 of our Prospectus dated
January 16, 2002, Summary of Certain Terms of
Series E Preferred Stock beginning on
page S-10
of our Prospectus Supplement dated September 25, 2003, and
Summary of Certain Terms of the Series D Preferred
Stock beginning on
page S-12
of our Prospectus Supplement dated January 30, 2002
(Registration Statement No.
333-75682).
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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 that will be 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 23 of
this prospectus. For further information about us, see
Where You Can Find More Information.
WHAT IS THE
PURPOSE OF THE EXCHANGE OFFER?
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. Although First BanCorp is well-capitalized under
regulatory standards based on ratios of Tier 1 capital to
risk-weighted assets of 11.98% and Total capital to
risk-weighted assets of 13.26%, each as of March 31, 2010,
we must increase our common equity to provide additional
protection from the possibility that, due to the current
economic situation in Puerto Rico that has impacted the
Corporations asset quality and earnings performance, the
Corporation may have to recognize additional loan loss reserves
against its loan portfolio and absorb the potential future
credit losses associated with the disposition of non-performing
assets. Total non-performing loans to total loans increased to
12.35% as of March 31, 2010 from 11.23% as of
December 31, 2009 and from 5.27% as of March 31, 2009.
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 or are considering strategies to increase
tangible common equity and regulatory capital through
(1) the issuance of approximately $500 million of
equity in one or more offerings (the Capital Raise),
(2) a rights offering to existing stockholders and
(3) the conversion into Common Stock of the shares of Fixed
Rate Cumulative Perpetual Preferred Stock, Series F, $1,000
liquidation preference per share (Series F Preferred
Stock), that we sold to the United States Treasury (the
U.S. Treasury) on January 16, 2009. With
respect to the conversion, the Corporation is currently
negotiating with the U.S. Treasury the exchange of its
Series F Preferred Stock for shares of Common Stock to be
accomplished in one or more transactions.
The restructuring of our equity components will strengthen the
quality of our regulatory capital position. 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 March 31, 2010, our
Tier 1 common equity ratio was 3.36% and our tangible
common equity ratio was 2.74%. If 75% 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 ratio as of March 31, 2010 on a pro forma basis
after giving effect to the Exchange Offer would have
been %
and %, respectively. 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).
5
Questions and
Answers about the Exchange Offer
We believe that the Exchange Offer and, to the extent completed,
the conversion of the U.S. Treasurys Series F
Preferred Stock into shares of Common Stock and the Capital
Raise, 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. Our
Tier 1 common equity would be strengthened by up to
approximately $ based on the High
Participation Scenario (as defined under Unaudited Pro
Forma Financial Information herein).
HOW DOES THE
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AFFECT EXISTING
HOLDERS OF OUR COMMON STOCK?
The resulting capital issuances in the Exchange Offer and any
additional Common Stock issuances, including in any future
offering of shares of our Common Stock, will likely be highly
dilutive to holders of our Common Stock and may adversely affect
the market price of our Common Stock.
WHAT ARE THE KEY
TERMS OF THE EXCHANGE OFFER?
We are offering to exchange up to 192,535,000 newly issued
shares of our Common Stock, which we refer to as the Maximum
Exchange Amount, 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 proration as described
herein).
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, up to the Maximum Exchange
Amount, having the Exchange Value set forth in the table below:
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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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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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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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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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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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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
$ per share, the market value of
our Common Stock to be received in the Exchange Offer will be
less than the applicable Exchange Value. Depending on the number
of shares of Preferred Stock tendered in the Exchange Offer and
the Exchange Value, we may need to prorate tendered shares of
Preferred Stock so that we do not exceed the Maximum Exchange
Amount.
See The Exchange OfferTerms of the Exchange
Offer.
6
Questions and
Answers about the Exchange Offer
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, up to the Maximum Exchange
Amount, having the aggregate dollar value (based on the Relevant
Price) equal to the applicable Exchange Value.
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 aggregate liquidation preference of all shares of
Preferred Stock tendered in the Exchange Offer would result in
the issuance, upon completion of the Exchange Offer, of a number
of shares of our Common Stock in excess of the Maximum Exchange
Amount, we will accept for tender only that number of shares of
Preferred Stock that will ensure the Maximum Exchange Amount is
not exceeded in the Exchange Offer, and we will have to reduce
(on a prorated basis) the number of shares of Preferred Stock
that we accept in the Exchange Offer to avoid exceeding this
limit. Proration for each holder validly tendering Preferred
Stock will be based on the proration factor of:
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(i) the aggregate liquidation preference of all five series
of Preferred Stock, treated together, tendered in the Exchange
Offer that would result in the issuance, upon completion of the
Exchange Offer, of a number of shares of Common Stock equal to
the Maximum Exchange Amount to
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(ii) the aggregate liquidation preference of all five
series of Preferred Stock, treated together, validly tendered by
holders.
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See The Exchange OfferProration.
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 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
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.
7
Questions and
Answers about the Exchange Offer
WILL ALL SHARES
OF PREFERRED STOCK THAT I TENDER BE ACCEPTED IN THE EXCHANGE
OFFER?
Not necessarily. We will issue no more than
192,535,000 shares of our Common Stock in the Exchange
Offer. Depending on the number of shares of Preferred Stock
tendered in the Exchange Offer and the exchange ratio determined
as described above, we may need to reduce (on a prorated basis)
the number of shares of Preferred Stock that we accept in the
Exchange Offer to avoid exceeding the Maximum Exchange Amount.
Any shares of Preferred Stock not accepted for exchange as a
result of proration will be promptly returned following the
expiration or termination, as applicable, of the Exchange Offer.
See The Exchange OfferProration.
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 for any 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.
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 KEY
TERMS APPLICABLE TO THE EXCHANGE OFFER?
The Exchange Offer will expire at 11:59 p.m., New York City
time
on ,
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.
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 192,535,000 shares of Common Stock upon the
exchange of Preferred Stock in the Exchange Offer and the
possible issuance of up to 19,245,547 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 Anti-Dilution Rights That May Be
Triggered by the Exchange Offer), and (ii) 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 ,
for the purpose of seeking approval of such holders to the
issuance of up to 192,535,000 shares of Common Stock upon the
exchange of Preferred Stock in the Exchange Offer and the
issuance of up to 19,245,547 additional shares of Common Stock
to BNS (if it exercises its anti-dilution right), in an amount
equal to a majority
8
Questions and
Answers about the Exchange Offer
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.
HOW DO I
PARTICIPATE IN 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.
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.
9
Questions and
Answers about the Exchange Offer
WHAT ARE THE
CONSEQUENCES OF NOT EXCHANGING MY PREFERRED STOCK OR MY
RETENTION OF PREFERRED STOCK DUE TO PRORATION?
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 or retained as a result of
proration. Therefore, if you do not exchange your Preferred
Stock in the Exchange Offer or you must retain Preferred Stock
as a result of proration, your shares of Preferred Stock may
become illiquid for an indefinite period of time.
WILL WE PAY
DIVIDENDS ON PREFERRED STOCK THAT REMAINS OUTSTANDING AFTER THE
COMPLETION OF THE EXCHANGE OFFER?
It is not our current intent to pay dividends on Preferred Stock
that remains outstanding after the completion of the Exchange
Offer. 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
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. Payment of dividends on our Preferred
Stock may require regulatory approval and 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 YOU 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.
10
Questions and
Answers about the Exchange Offer
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. If
we were to issue the Maximum Exchange Amount in the Exchange
Offer, BNS would be entitled under the anti-dilution right to
acquire up to 19,245,547 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 declines to exercise
any part of its anti-dilution right and we issue the Maximum
Exchange Amount in the Exchange Offer, BNSs beneficial
ownership would be reduced to approximately 3.2%.
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. If the
U.S. Treasurys anti-dilution right is triggered, we
will need to adjust the exercise price for and the number of
shares underlying the warrant.
See Anti-Dilution Rights That May Be Triggered by the
Exchange Offer.
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
Anti-Dilution Rights That May Be Triggered by the Exchange
Offer. However, the Exchange Offer will affect 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 SEEK STOCKHOLDER APPROVAL OF THE POSSIBLE ISSUANCE
OF SHARES OF OUR COMMON STOCK TO BNS IN CONNECTION WITH THE
EXCHANGE OFFER?
Yes. 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 will seek the
approval of the holders of our Common Stock at a special meeting
on
of the possible issuance of shares of our Common Stock to BNS in
connection with the Exchange Offer along with stockholder
approval of the issuance of the Maximum Exchange Amount in the
Exchange Offer. At this special meeting, we may also seek the
approval of the holders of our Common Stock of the issuance of
shares of Common Stock in the Capital Raise.
WILL THE
CORPORATION NEED TO RAISE ADDITIONAL CAPITAL AFTER THE
COMPLETION OF THE EXCHANGE OFFER?
We plan to conduct the Exchange Offer concurrently with our
efforts to raise $500 million of capital, given the
continuing difficult economic conditions in Puerto Rico and the
other markets in which we
11
Questions and
Answers about the Exchange Offer
operate and the potential for future credit losses. The
Corporation expects to undertake additional efforts to raise
capital through a sale of additional shares of Common Stock in
an offering later in 2010.
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.
Further, in order to issue additional shares of Common Stock
either in an offering or to BNS pursuant to its anti-dilution
right or right of first refusal with respect to such an offering
or otherwise, we may be required to seek approval of our
stockholders to an amendment to our Articles of Incorporation to
increase our authorized shares of Common Stock.
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.
12
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 23 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 three wholly-owned
subsidiaries: FirstBank, FirstBank Insurance Agency, Inc.
(FirstBank Insurance Agency) and Grupo Empresas de
Servicios Financieros (PR Finance Group), through
which we operate a total of 187 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, FirstBank Insurance Agency is a
Puerto Rico-chartered insurance agency and PR Finance Group is a
Puerto Rico corporation. 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 December 31, 2009, First BanCorp
had approximately $19.6 billion in assets,
$12.7 billion in deposits and $1.6 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.
THE EXCHANGE
OFFER
We are conducting the Exchange Offer, among other steps, to
improve our capital structure given the continuing difficult
economic conditions in the markets in which we operate and the
evolving regulatory environment. Although First BanCorp was
well-capitalized under regulatory standards as of March 31,
2010 based on ratios of Tier 1 capital to risk-weighted
assets of 11.98% and Total capital to risk-weighted assets of
13.26%, the restructuring of our equity components will
strengthen the quality of our regulatory capital position. In
addition, we must increase our common equity to provide
additional protection from the possibility that, due to the
current economic situation in Puerto Rico that has impacted the
Corporations asset quality and earnings performance, the
Corporation may have to recognize additional loan loss reserves
against its loan portfolio and absorb the potential future
credit losses associated with the disposition of non-performing
assets. Total non-performing loans to total loans increased to
12.35% as of March 31, 2010 from 11.23% as of
December 31, 2009 and from 5.27% as of March 31, 2009.
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 or are considering strategies to increase
tangible common equity and regulatory capital through:
(1) the Capital Raise, (2) a rights offering to
existing stockholders and (3) the conversion of the shares
of Series F Preferred Stock into Common Stock. With respect
to the conversion, the Corporation is currently negotiating with
the U.S. Treasury the exchange of its Series F
Preferred Stock for shares of Common Stock to be accomplished in
one or more transactions. 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 Anti-Dilution Rights That May
13
Be Triggered by the Exchange Offer. 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 March 31, 2010, were
3.36% and 2.74%, respectively. If 75% 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 March 31, 2010 on a pro forma basis
after giving effect to the Exchange Offer would have
been %
and %, respectively. 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.
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.
The following table sets forth our capital ratios as of
March 31, 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 March 31, 2010, which are
incorporated by reference into this prospectus. See also
Risk Factors.
REGULATORY AND
OTHER CAPITAL
RATIOS(1)
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As of
March 31, 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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13.26
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%
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13.26
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%
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13.26
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%
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Tier 1 capital ratio (Tier 1 capital to
risk-weighted assets)
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11.98
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11.98
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11.98
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Leverage (Tier 1 capital to average assets)
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8.37
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8.37
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8.37
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Tangible common equity (Tangible common equity to tangible
assets)
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2.74
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4.20
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5.37
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Tier 1 common (Tier 1 common equity to
risk-weighted assets)
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3.36
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5.41
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7.05
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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. Tier 1 common equity to
risk-weighted assets ratio 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). |
14
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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 shares
of our Common Stock, and (ii) a Relevant Price of
$ per share. |
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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 shares
of our Common Stock, and (ii) a Relevant Price of
$ 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 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, in general, so
long as any shares of Preferred Stock remain outstanding and
until we meet various federal regulatory considerations, 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 F
Preferred Stock, all accrued and unpaid dividends for all past
dividend periods, including the latest completed dividend
period, on all outstanding shares of Series F 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 19,245,547 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. 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. If the
U.S. Treasurys anti-dilution right is triggered, we
will need to adjust the exercise price for and the number of
shares underlying the warrant.
15
Summary Terms of the
Exchange Offer
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Exchange Offer |
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We are offering to issue up to 192,535,000 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,
subject to the Maximum Exchange Amount, which may result in
proration as described below, 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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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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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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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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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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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 |
16
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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. |
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Consideration Offered in the Exchange Offer |
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We are offering to exchange up to 192,535,000 newly issued
shares of our Common Stock for outstanding shares of Preferred
Stock (subject to proration, as described below), 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 May 18, 2010, we had approximately 92.5 million
shares of Common Stock outstanding. |
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We will accept validly tendered shares of Preferred Stock for
exchange (subject to proration, as described below) for the
Exchange Value, on the terms and subject to the conditions of
the Exchange Offer. We will promptly return any securities that
are not accepted for exchange following the expiration or
termination, as applicable, 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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The maximum number of shares of our Common Stock that we may
issue under the Exchange Offer is 192,535,000 shares. |
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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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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 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 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 |
17
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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 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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Proration |
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We will issue no more than 192,535,000 shares of Common
Stock, the Maximum Exchange Amount, in the Exchange Offer.
Depending on the number of shares of Preferred Stock tendered in
the Exchange Offer and the exchange ratio determined as
described above, we may need to prorate tendered shares of
Preferred Stock to avoid exceeding this limit. See The
Exchange OfferProration. |
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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 ,
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 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 192,535,000 shares of Common Stock
upon the exchange of Preferred Stock in the Exchange Offer and
the possible issuance of up to 19,245,547 additional shares of
Common Stock to BNS pursuant to its anti-dilution right, subject
to the consent of the Federal Reserve, if BNS exercises its
anti-dilution right, and (ii) 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 |
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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
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 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 |
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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 or
Retention of Shares as a Result of Proration |
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Shares of Preferred Stock not exchanged in the Exchange Offer or
retained as a result of proration 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, and 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
Comparison of Preferred Stock, Series F 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 ,
2010, the last trading day prior to the date of this prospectus,
was $ 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 |
21
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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. |
22
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
Regulatory
actions could have a material effect on our business,
operations, financial condition or results of operations or the
value of our Common Stock.
Although, as of March 31, 2010, the amounts of the
Corporations and its subsidiary banks capital
exceeded the minimum amounts required for them to qualify as
well capitalized for regulatory purposes, the
Corporation must increase its common equity to provide
additional protection from the possibility that, due to the
current economic situation in Puerto Rico that has impacted the
Corporations asset quality and earnings performance, First
BanCorp could have to recognize additional loan loss reserves
against its loan portfolio and absorb the potential future
credit losses associated with the disposition of our
non-performing assets. 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
require us to execute certain informal or formal written
regulatory agreements that could materially affect our business,
operations, financial condition, or results of operations or the
value of our Common Stock. The regulatory actions could require
us to raise capital within a specified time frame to maintain
the regulatory ratios at levels above the minimum amounts
required for well capitalized banks and require the
Corporation to seek a waiver to continue to issue brokered
certificates of deposit, even at a reduced level.
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 quarter of 2010, there is no
certainty that it will be sufficient to cover future credit
losses in the portfolio because of continued adverse changes in
the economy, market conditions or events negatively affecting
specific customers, industries or markets both in Puerto Rico
and Florida. 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 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 $1.46 billion as of March 31, 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
23
Risk
Factors
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 financial institutions.
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 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
24
Risk
Factors
quickly. This 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 may be affected by the
acceleration in prepayments of mortgage-backed securities.
Acceleration in the prepayments of mortgage-backed securities
would lower yields on securities purchased at a premium, 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.
Also, net interest income in future periods might be affected by
our investment in callable securities. Approximately
$275 million of U.S. agency debentures with an average
yield of 2.24% were called during the first quarter of 2010. As
of March 31, 2010, the Corporation has approximately
$915 million in U.S. agency debentures with embedded
calls having an average yield of 2.09% (mainly securities with
contractual maturities of 2 to 3 years acquired in 2009),
of which $525 million were called after the end of the
first quarter of 2010. The Corporation has been using proceeds
from called securities and deploying some of its liquidity to
purchase approximately $1.6 billion of investment
securities (approximately $550 million in 2, 3 and
4 year U.S. Treasury Notes with an average yield of 1.65%;
approximately $544 million in 2, 3 and 5 year U.S.
agency debt securities with an average yield of 1.57% and
approximately $514 million in 30 and 15 year GNMA
pools with an average yield of 3.85%). Of these investment
securities, approximately $578 million contain embedded
call options.
Decreases in interest rates may increase the probability that
embedded call options in investment securities are exercised.
Future net interest income could be affected by our holding of
callable securities. The recent drop in long-term interest rates
has the effect of increasing the probability of the exercise of
embedded calls in U.S. agency securities portfolio of
approximately $584 million as of April 30, 2010 that
if substituted with new lower-yield investments may negatively
impact our interest income.
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
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
25
Risk
Factors
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.
As of March 31, 2010, we recognized $1.7 million in
other than temporary impairments. To the extent that any portion
of the unrealized losses in its investment securities portfolio
is determined to be other than temporary, and 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.
As of March 31, 2010, we recognized
other-than-temporary
impairment on our private label MBS. 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.
Both First BanCorp and FirstBank suffered credit rating
downgrades in 2009. Fitch Ratings Ltd. (Fitch)
currently rates the First BanCorps long-term senior debt
B−, six notches below investment grade.
Standard and Poors (S&P) rates First
BanCorp B, or five notches below investment grade.
Moodys Investor Service (Moodys) rates
FirstBanks long-term senior debt B1, and
S&P rates it B. Furthermore, on April 27,
2010, S&P placed the Corporation 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. 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 is
significantly dependent on brokered deposits.
Our funding sources include core deposits, brokered deposits,
borrowings from the Federal Home Loan Bank, borrowings from the
Federal Reserve Bank and repurchase agreements with several
counterparties.
A large portion of our funding is retail brokered CDs issued by
FirstBank. As of March 31, 2010, we had $7.4 billion
in brokered deposits outstanding, representing approximately 57%
of our total
26
Risk
Factors
deposits, and a reduction from $8.4 billion at year end
2008. We issue brokered CDs to, among other things, pay
operating expenses, maintain our lending activities, replace
certain maturing liabilities, and control interest rate risk.
FDIC regulations govern the issuance of brokered deposit
instruments by banks. Well-capitalized institutions are not
subject to limitations on brokered deposits, while
adequately-capitalized institutions are able to accept, renew or
rollover brokered deposits only with a waiver from the FDIC and
subject to certain restrictions on the interest paid on such
deposits. Undercapitalized institutions are not permitted to
accept brokered deposits. As of March 31, 2010, we were a
well-capitalized institution and were therefore not subject to
these limitations on brokered deposits. If we become subject to
such restrictions on our brokered deposits, the availability of
such deposits would be limited and could, in turn, adversely
affect our results of operations and liquidity. The FDIC and
other bank regulators may also exercise regulatory discretion to
enforce limits on the acceptance of brokered deposits if they
have safety and soundness concerns as to an over reliance on
such funding. If we become subject to informal or formal written
regulatory agreements, these could require us to seek a waiver
to continue to issue brokered CDs, even at a reduced level. The
use of brokered CDs has been particularly important for our
growth.
The average term to maturity of the retail brokered CDs
outstanding as of March 31, 2010 was approximately
1.2 years. Approximately 3% of the principal value of these
certificates is callable at our option.
Another source of funding is Advances from the Discount Window
of the Federal Reserve Bank of New York. As of March 31,
2010, we had $600 million of borrowings outstanding with
the Federal Reserve Bank. As part of the mechanisms to ease the
liquidity crisis, during 2009, the Federal Reserve Bank
encouraged banks to utilize the Discount Window as a source of
funding. With the market conditions improving, the Federal
Reserve announced in early 2010 its intention to withdraw part
of the economic stimulus measures, including replacing
restrictions on the use of Discount Window borrowings, thereby
returning to its function as lender of last resort.
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
able to replace these funds in the future if our financial
condition or general market conditions were to change. 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 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 its operating
expenses, interest on its debt and dividends on its capital
stock, maintain its 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 and our
27
Risk
Factors
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 its 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 its 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 its 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 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.
Banking
regulators could take 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. To continue
to qualify as a financial holding corporation, each of our
banking subsidiaries must continue to qualify as
well-capitalized and well-managed. As of
March 31, 2010, First BanCorp and FirstBank continue to
satisfy all applicable capital guidelines. This, however, does
not prevent banking regulators from taking adverse actions
against us if they should conclude that such actions are
28
Risk
Factors
warranted. The FDIC and bank regulators may also exercise
regulatory discretion to enforce limits on the acceptance of
brokered deposits if they have safety and soundness concerns as
to an over-reliance on such funding. 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. FirstBank is subject to supervision and regulation by
the FDIC, which conducts annual inspections, and, in Puerto
Rico, the Office of the Commissioner of Financial Institutions.
Our primary regulators have significant discretion and power to
initiate enforcement actions for violations of laws and
regulations and unsafe or unsound practices in the performance
of their supervisory and enforcement duties and may do so even
if we continue to satisfy all capital requirements. Adverse
action against us by our primary regulators may affect our
business.
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
constitutes 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 December 31, 2009 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
December 31, 2009 amounted to approximately
$64.5 million.
We believe that the securities pledged as collateral should not
be part of the Lehman bankruptcy estate given that the posted
collateral constituted a performance guarantee under the swap
agreements and was not part of a financing agreement, and that
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
29
Risk
Factors
the securities, in 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 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 an 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 equity based causes of actions, upon which
the return of the investment securities are 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 for purposes of having the parties agree
to a discovery time table has been set for June 1, 2010.
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 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 classified 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
having 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.
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
30
Risk
Factors
compliance. Adverse publicity, regulatory actions, 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 interprets or seeks 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 and quarterly reports on
Form 10-K
and
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.
We may 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 quarter of
2010, we need to access the capital markets in order to raise
additional capital to absorb potential future credit losses due
to the distressed economic environment, maintain adequate
liquidity and capital resources or finance future growth,
investments or strategic acquisitions. 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,
we believe that it is likely that our regulators would require
us to execute certain informal or formal written regulatory
agreements that could have a material adverse effect on our
business, operations, financial condition or results of
operations or the value of our Common Stock and require us to
seek a waiver to continue to issue brokered CDs, even at a
reduced level. 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.
Unexpected 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 determining the
more-likely-than-not criterion, we evaluate all positive and
negative evidence as of the end of each reporting
31
Risk
Factors
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.
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. The 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.
32
Risk
Factors
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 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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We expect to face increased regulation of the financial industry
resulting from the recent instability in capital markets,
financial institutions and financial system in general.
Compliance with such regulation may increase our costs and limit
our ability to pursue business opportunities.
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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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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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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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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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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
material decline in real estate values would weaken the
collateral
loan-to-value
ratios and increase the
33
Risk
Factors
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.
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 showed that the economy of Puerto Rico
has been in recession during that period of time.
Construction remained weak during 2009 and the first quarter of
2010, as the Puerto Ricos fiscal situation and decreasing
public investment in construction projects affected the sector.
During the period from January to December 2009, cement sales,
an indicator of construction activity, declined by 29.6% as
compared to 2008. As of October 2009, exports decreased by 6.8%,
while imports decreased by 8.9%, a negative trade, which
continues since the first negative trade balance of the last
decade was registered in November 2006. Tourism activity also
declined during 2009. Total hotel registrations for January to
October 2009 declined 0.8% as compared to the same period for
2008. During January to September 2009, new vehicle sales
decreased by 23.7%. In 2009, unemployment in Puerto Rico reached
15.0%, up 3.5 points compared with 2008.
On January 14, 2010, the Puerto Rico Planning Board
announced the release of Puerto Ricos macroeconomic data
for fiscal year 2009, ended June 30, 2009, as well as
projected figures for 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 fiscal year of 2010 point toward a
positive growth of 0.7%. 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. Also, a potential reduction in consumer spending may
also impact growth in our other interest and non-interest
revenue sources.
On April 20, 2010, three banks in Puerto Rico, all
operating under consent orders, ceased operations by order of
the Commissioner of Financial Institutions in Puerto Rico. The
FDIC was appointed receiver for all three banks. The deposits
and assets of these three banks were acquired immediately from
the FDIC as receiver by three other local banks in Puerto Rico.
The combined assets of these three shuttered institutions
represented approximately one quarter of the total commercial
banking assets in Puerto Rico.
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.
34
Risk
Factors
Between May 2006 and mid-2009, the government of Puerto
Ricos bonds were downgraded as a result of factors such as
the 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.
In October and December 2009, both S&P and Moodys
confirmed the government of Puerto Ricos bond rating at
BBB- and Baa3, with stable outlook, respectively. At present,
both rating agencies maintain the stable outlooks for the
general obligation bonds. In May 2009, S&P and Moodys
upgraded the sales and use tax senior bonds from A+ to AA- and
from A1 to Aa3, respectively, due to a modification in its bond
resolution.
It is uncertain how the financial markets may react to any
potential future ratings downgrade in Puerto Ricos debt
obligations. However, the fallout from the recent budgetary
crisis and a possible ratings downgrade could adversely affect
the value of Puerto Ricos government obligations.
The failure of
other financial institutions could adversely affect
us.
Our ability to engage in routine funding transactions could be
adversely affected by 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 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
35
Risk
Factors
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. In January 2009, we
issued Series F Preferred Stock and a warrant to purchase
our Common Stock 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. Furthermore, as long as Series F Preferred Stock
issued to the U.S. Treasury is outstanding, dividend
payments and repurchases or redemptions relating to certain
equity securities, including our Common Stock, are prohibited
unless all accrued and unpaid dividends are paid on
Series F Preferred Stock, subject to certain limited
exceptions.
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. The aforementioned compensation requirements
and restrictions may adversely affect our ability to retain or
hire senior bank officers.
The U.S. House of Representatives approved a regulatory
reform package on December 11, 2009 (H.R. 4173). H.R. 4173
and legislation passed by the U.S. Senate on May 20,
2010 contains provisions, which would, among other things,
establish a Consumer Financial Protection Agency, establish a
systemic risk regulator, consolidate certain federal bank
regulators and give shareholders an advisory vote on executive
compensation.
The Senate also acted to limit interchange fees on debit cards,
bar banks from counting trust-preferred shares as Tier I
capital, and authorized a study of proprietary trading and
sponsoring of private funds by banks. The final Senate
legislation will need to be reconciled with H.R. 4173, and
it is uncertain which provisions the final reconciled version
will contain, and whether Congress will approve the final
legislation. 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, overdraft and mortgage lending
practices. Additional consumer protection legislation and
regulatory activity is anticipated in the near future.
36
Risk
Factors
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 Federal Reserve 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 Federal Reserve is
to regulate the money supply and credit conditions. Among the
instruments used by the Federal Reserve 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
Federal Reserve, 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 Federal Reserve
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.
We are subject to
regulatory capital adequacy guidelines, and if we fail to meet
these guidelines our business and financial condition may be
adversely affected.
Under regulatory capital adequacy guidelines, and other
regulatory requirements, we must meet guidelines that include
quantitative measures of assets, liabilities and certain
off-balance sheet items, subject to qualitative judgments by
regulators regarding components, risk weightings and other
factors.
37
Risk
Factors
If we fail to meet these minimum capital guidelines and other
regulatory requirements, our business and financial condition
will be materially and adversely affected. If we fail to
maintain well-capitalized status under the regulatory framework,
or are deemed to be not well-managed under regulatory exam
procedures, or if we experience certain regulatory violations,
our status as a financial holding company and our related
eligibility for a streamlined review process for acquisition
proposals, and our ability to offer certain financial products
will be compromised.
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 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 BNS and the U.S. Treasury, will
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, Inc. to find
purchasers for approximately $500 million of Common Stock.
The issuance of equity securities in the Capital Raise would
adversely affect the voting power, earnings per share and book
value per share of outstanding shares of Common Stock. If the
Capital Raise is completed prior to the completion of the
Exchange Offer, the Corporation may determine to amend this
registration statement to provide disclosure regarding the
transaction and may extend the Exchange Offer period as
appropriate.
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 and by any 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 has a
10-year term
and is exercisable at any time. The exercise price and the
number of shares issuable upon exercise of the warrant are
subject to an anti-dilution right. This right will be triggered
if either the value of the Preferred Stock exchanged for Common
Stock in the Exchange Offer, as determined by our board of
directors, or if the value of any Common Stock issued in the
Capital Raise is equal to less than 90% of the market value of
the Common Stock as determined pursuant to the terms of the
warrant. The possible future issuance of equity securities to
BNS and the U.S. Treasury could 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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38
Risk
Factors
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making the payment of dividends on Common Stock more expensive.
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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, and may adversely affect the
market price of our Common Stock.
If we do not complete the Capital Raise or otherwise improve our
financial condition in the near term, we believe that it is
likely that our regulators could require us to execute certain
informal or formal written regulatory agreements that would have
a material adverse effect on our business, operations, financial
condition or results or operations or the value of our Common
Stock and require us to seek a waiver to continue to issue
brokered CDs, even at a reduced level.
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 May 18, 2010, we had approximately 92.5 million
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 approximately 237.9 million 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 ,
2010 was $ 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 could
receive shares of our Common Stock with a value that may be
significantly less than the value of the shares you would
receive in the absence of that limitation.
Although the
number of shares of our Common Stock offered in the Exchange
Offer for each share of Preferred Stock 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 expiration date (subject to the Minimum Share Price of
$ 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 expiration date (subject to the Minimum
Share Price of $ per share) and
will not be adjusted 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.
39
Risk
Factors
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:
|
|
Ø |
changes or perceived changes in the condition, operations,
results or prospects of our businesses and market assessments of
these changes or perceived changes;
|
|
|
Ø |
announcements of strategic developments, acquisitions and other
material events by us or our competitors, including any future
failures of banks in Puerto Rico;
|
|
|
Ø |
our announcement of the sale of Common Stock at a particular
price per share;
|
|
|
Ø
|
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;
|
|
Ø
|
the continued decline, failure to stabilize or lack of
improvement in general market and economic conditions in our
principal markets;
|
|
Ø
|
the departure of key personnel;
|
|
Ø
|
changes in the credit, mortgage and real estate markets;
|
|
Ø
|
operating results that vary from the expectations of management,
securities analysts and investors;
|
|
Ø
|
operating and stock price performance of companies that
investors deem comparable to us; and
|
|
Ø
|
market assessments as to whether and when the Exchange Offer and
the acquisition of additional newly issued shares by BNS will be
consummated.
|
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 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 F Preferred
Stock. 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 six quarterly 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.
40
Risk
Factors
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 $
on ,
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.
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 any preferred stock
held by the U.S. Treasury after completion of the Exchange 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 or are retained by
holders as a result of proration. 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 resume 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.
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. In general, so long as any shares of preferred stock
remain outstanding and until we meet various federal regulatory
considerations, 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 F
Preferred Stock, unless all accrued and unpaid dividends for all
past dividend periods, including the latest completed dividend
period, on all outstanding shares have been declared and paid in
full. Furthermore, prior to January 16, 2012, unless we
have redeemed all of the shares of Series F Preferred Stock
(or any successor security) or the U.S. Treasury has
transferred all of Series F Preferred Stock (or any
successor security) 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
41
Risk
Factors
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 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 upon liquidation
and/or to preferred equity securities, which may be senior to
our Common Stock for purposes of dividend distributions or upon
liquidation, may adversely affect the market price of our Common
Stock.
We may attempt to increase our capital resources or, if our or
the capital ratios of our banking subsidiaries fall below the
required minimums, we or our banking subsidiaries 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 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
192,535,000 shares of Common Stock upon the exchange of
Preferred Stock in the Exchange Offer and the possible issuance
of 19,245,547 additional shares of Common Stock to BNS pursuant
to its anti-dilution right.
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
42
Risk
Factors
(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
192,535,000 shares of Common Stock may be issued upon the
exchange of Preferred Stock. Because the issuance of up to
192,535,000 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.
In addition, up to an additional 19,245,547 shares of
Common Stock may be issued to BNS pursuant to its anti-dilution
right, subject to the consent of the Federal Reserve. 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 NYSE
listing requirements 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. Because the issuance of up to
19,245,547 shares of Common Stock to BNS pursuant to its
anti-dilution right would exceed 5% of the number of our
outstanding shares, we will seek the approval of the holders of
our Common Stock at a special meeting
on of
the possible issuance of shares of our Common Stock to BNS in
connection with the Exchange Offer along with stockholder
approval of the issuance of the maximum number of shares being
offered in the Exchange Offer itself.
If stockholders do not approve the issuance of up to
192,535,000 shares of Common Stock in the Exchange Offer
and up to an additional 19,245,547 shares of Common Stock
to BNS, assuming it exercises its anti-dilution right, the
Corporation will not be able 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.
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.
An important goal of the Exchange Offer is to improve our
tangible common equity ratio and our Tier 1 common equity
ratio. 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. If the response to the
Exchange Offer is low, 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 raising capital privately or
publicly, which could further dilute the existing holders of our
Common Stock, including participants in the Exchange Offer. In
addition, 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
43
Risk
Factors
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.
Certain of our executive officers and directors own shares of
Preferred Stock and they have not informed us whether they will
participate 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
192,535,000 shares of Common Stock upon the exchange of
Preferred Stock in the Exchange Offer and the issuance of up to
19,245,547 additional shares of Common Stock to BNS if it
exercises its anti-dilution right, subject to the consent of the
Federal Reserve, and (ii) 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. 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.
|
We may not accept
all shares of Preferred Stock tendered in the Exchange
Offer.
We will issue no more than 192,535,000 shares of our Common
Stock in the Exchange Offer. Depending on the number of shares
of Preferred Stock tendered in the Exchange Offer, we may need
to prorate and limit the number of shares of Preferred Stock
that we accept in this Exchange Offer to avoid exceeding the
Maximum Exchange Amount. See The Exchange
OfferProration.
44
Risk
Factors
RISKS RELATED TO
NOT PARTICIPATING IN THE EXCHANGE OFFER OR RETAINING
SHARES AS A RESULT OF PRORATION
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
up to the Maximum Exchange Amount. Any shares of Preferred Stock
not exchanged in the Exchange Offer or retained as a result of
proration 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 and 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.
45
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 quarters ended March 31,
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, respectively, which are incorporated by reference into
this prospectus and from which this information is derived. For
more information, see Where You Can Find More
Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
|
Quarter ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Year ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(dollars in
thousands, except per share amounts)
|
|
|
Summary of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
220,988
|
|
|
$
|
258,323
|
|
|
$
|
996,574
|
|
|
$
|
1,126,897
|
|
|
$
|
1,189,247
|
|
|
$
|
1,288,813
|
|
|
$
|
1,067,590
|
|
Interest expense
|
|
|
104,125
|
|
|
|
136,725
|
|
|
|
477,532
|
|
|
|
599,016
|
|
|
|
738,231
|
|
|
|
845,119
|
|
|
|
635,271
|
|
Net interest income
|
|
|
116,863
|
|
|
|
121,598
|
|
|
|
519,042
|
|
|
|
527,881
|
|
|
|
451,016
|
|
|
|
443,694
|
|
|
|
432,319
|
|
Provision for loan losses
|
|
|
170,965
|
|
|
|
59,429
|
|
|
|
579,858
|
|
|
|
190,948
|
|
|
|
120,610
|
|
|
|
74,991
|
|
|
|
50,644
|
|
Net interest income after provision for loan losses
|
|
|
(54,102
|
)
|
|
|
62,169
|
|
|
|
(60,816
|
)
|
|
|
336,933
|
|
|
|
330,406
|
|
|
|
368,703
|
|
|
|
381,675
|
|
Non-interest income
|
|
|
45,326
|
|
|
|
30,053
|
|
|
|
142,264
|
|
|
|
74,643
|
|
|
|
67,156
|
|
|
|
31,336
|
|
|
|
63,077
|
|
Operating expenses
|
|
|
91,362
|
|
|
|
84,528
|
|
|
|
352,101
|
|
|
|
333,371
|
|
|
|
307,843
|
|
|
|
287,963
|
|
|
|
315,132
|
|
Income tax (expense) benefit
|
|
|
(6,861
|
)
|
|
|
14,197
|
|
|
|
(4,534
|
)
|
|
|
31,732
|
|
|
|
(21,583
|
)
|
|
|
(27,442
|
)
|
|
|
(15,016
|
)
|
Net (loss) income
|
|
|
(106,999
|
)
|
|
|
21,891
|
|
|
|
(275,187
|
)
|
|
|
109,937
|
|
|
|
68,136
|
|
|
|
84,634
|
|
|
|
114,604
|
|
Net (loss) income attributable to common stock
|
|
|
(113,151
|
)
|
|
|
6,773
|
|
|
|
(322,075
|
)
|
|
|
69,661
|
|
|
|
27,860
|
|
|
|
44,358
|
|
|
|
74,328
|
|
Selected Financial Data at Period-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
18,850,964
|
|
|
|
19,709,150
|
|
|
|
19,628,448
|
|
|
|
19,491,268
|
|
|
|
17,186,931
|
|
|
|
17,390,256
|
|
|
|
19,917,651
|
|
Total loans
|
|
|
13,293,494
|
|
|
|
13,533,087
|
|
|
|
13,949,226
|
|
|
|
13,088,292
|
|
|
|
11,799,746
|
|
|
|
11,263,980
|
|
|
|
12,685,929
|
|
Deposits
|
|
|
12,878,234
|
|
|
|
11,619,348
|
|
|
|
12,669,047
|
|
|
|
13,057,430
|
|
|
|
11,034,521
|
|
|
|
11,004,287
|
|
|
|
12,463,752
|
|
Stockholders equity
|
|
|
1,488,543
|
|
|
|
1,977,240
|
|
|
|
1,599,063
|
|
|
|
1,548,117
|
|
|
|
1,421,646
|
|
|
|
1,229,553
|
|
|
|
1,197,841
|
|
Performance Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
(2.25
|
)%
|
|
|
0.45
|
%
|
|
|
(1.39
|
)%
|
|
|
0.59
|
%
|
|
|
0.40
|
%
|
|
|
0.44
|
%
|
|
|
0.64
|
%
|
Return on average common equity
|
|
|
(68.06
|
)
|
|
|
2.65
|
|
|
|
(34.07
|
)
|
|
|
7.89
|
|
|
|
3.59
|
|
|
|
6.85
|
|
|
|
10.23
|
|
Net interest margin (taxable equivalent basis)
|
|
|
2.73
|
|
|
|
2.85
|
|
|
|
2.93
|
|
|
|
3.20
|
|
|
|
2.83
|
|
|
|
2.84
|
|
|
|
3.23
|
|
Capital Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital
|
|
|
11.98
|
%
|
|
|
14.03
|
%
|
|
|
12.16
|
%
|
|
|
11.55
|
%
|
|
|
12.61
|
%
|
|
|
11.06
|
%
|
|
|
9.71
|
%
|
Total risk-based capital
|
|
|
13.26
|
|
|
|
15.29
|
|
|
|
13.44
|
|
|
|
12.80
|
|
|
|
13.86
|
|
|
|
12.25
|
|
|
|
10.72
|
|
Tier 1 leverage ratio
|
|
|
8.37
|
|
|
|
10.38
|
|
|
|
8.91
|
|
|
|
8.30
|
|
|
|
9.29
|
|
|
|
7.82
|
|
|
|
6.72
|
|
Credit Quality Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans receivable
|
|
|
12.35
|
%
|
|
|
5.27
|
%
|
|
|
11.23
|
%
|
|
|
4.49
|
%
|
|
|
3.50
|
%
|
|
|
2.24
|
%
|
|
|
1.06
|
%
|
Net charge offs to average loans
held-in-portfolio
|
|
|
3.65
|
|
|
|
1.16
|
|
|
|
2.48
|
|
|
|
0.87
|
|
|
|
0.79
|
|
|
|
0.55
|
|
|
|
0.39
|
|
Allowance for loan losses to non-performing assets
|
|
|
35.09
|
|
|
|
42.49
|
|
|
|
33.77
|
|
|
|
47.95
|
|
|
|
46.04
|
|
|
|
62.79
|
|
|
|
110.18
|
|
Allowance for loan losses to year end loans
held-
in-portfolio
|
|
|
4.33
|
|
|
|
2.24
|
|
|
|
3.79
|
|
|
|
2.15
|
|
|
|
1.61
|
|
|
|
1.41
|
|
|
|
1.17
|
|
Book value per share
|
|
$
|
6.04
|
|
|
$
|
11.37
|
|
|
$
|
7.25
|
|
|
$
|
10.78
|
|
|
$
|
9.42
|
|
|
$
|
8.16
|
|
|
$
|
8.01
|
|
Ratio of earnings to fixed charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Interest on Deposits
|
|
|
(A
|
)
|
|
|
1.05
|
|
|
|
(A
|
)
|
|
|
1.13
|
|
|
|
1.12
|
|
|
|
1.14
|
|
|
|
1.23
|
|
Excluding Interest on Deposits
|
|
|
(A
|
)
|
|
|
1.18
|
|
|
|
(A
|
)
|
|
|
1.41
|
|
|
|
1.42
|
|
|
|
1.47
|
|
|
|
1.53
|
|
Ratio of earnings to fixed charges and 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)
46
Selected
Financial Data
|
|
|
(A) |
|
For the quarter ended March 31, 2010 and year ended
December 31, 2009, the ratio coverage was less than 1:1.
The Corporation would have to generate additional earnings of
$100.7 million and $270.7 million, respectively, to
cover fixed charges and achieve a ratio of 1:1.
|
|
|
|
(B) |
|
For the quarters ended March 31, 2010 and March 31,
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 $106.3 million,
$7.4 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 AGGREGATE LIQUIDATION PREFERENCE OF OUTSTANDING
PREFERRED STOCK
The principal balance of our long-term obligations (excluding
deposits) and the aggregate liquidation preference of our
outstanding preferred stock on a consolidated basis as of the
end of each of the five years ended December 31, 2009 and
the quarters ended March 31, 2010 and 2009 is set forth
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
Long-term obligations
|
|
$
|
3,100,712
|
|
|
$
|
3,514,970
|
|
|
$
|
3,312,516
|
|
|
$
|
3,821,128
|
|
|
$
|
2,730,860
|
|
|
$
|
2,042,047
|
|
|
$
|
3,849,275
|
|
Cumulative preferred stock
|
|
|
379,560
|
|
|
|
375,062
|
|
|
|
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 QUARTER ENDED MARCH 31, 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 for the quarter ended
March 31, 2010 and the year ended December 31, 2009
based on an assumed high and low participation rates in the
Exchange Offer. The data does not give
47
Selected
Financial Data
effect to the proposed transaction with the U.S. Treasury
relating to its Series F Preferred Stock or the Capital
Raise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
High
|
|
|
Low
|
|
|
Participation
|
|
|
Participation
|
|
|
|
Participation
|
|
|
Participation
|
|
|
Scenario
|
|
|
Scenario
|
|
|
|
Q1 2010
|
|
|
Q1 2010
|
|
|
FY 09
|
|
|
FY 09
|
|
|
|
|
Net loss per common share (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share attributable to common stockholders
(basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and 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 quarter ended March 31, 2010, the ratio coverage
was less than 1:1. The Corporation would have to generate
additional earnings of $270.7 million under both, the High
and Low Participation Scenarios, to achieve a ratio of 1:1 for
the quarter ended March 31, 2010. |
|
|
|
(B) |
|
For the quarter ended March 31, 2010, the ratio coverage
was less than 1:1. The Corporation would have to generate
additional earnings of $296.4 million under the High
Participation Scenario and of $305.8 million under the Low
Participation Scenario to achieve a ratio of 1:1 for the quarter
ended March 31, 2010. |
48
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 March 31, 2010, and also describes the impact
of the Exchange Offer on First BanCorps results of
operations for the fiscal year ended December 31, 2009 and
the quarter ended March 31, 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 proposed transaction with the
U.S. Treasury relating to its Series F Preferred Stock
or the 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 March 31,
2010 filed with the SEC, which are incorporated by reference
into this prospectus.
UNAUDITED PRO
FORMA BALANCE SHEETS
The unaudited pro forma consolidated balance sheets of First
BanCorp as of March 31, 2010 have 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 shares
of our Common Stock, and (ii) a Relevant Price of
$ 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 shares
of our Common Stock, and (ii) a Relevant Price of
$ per share.
If the Relevant Price is greater than the
$ 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.
49
Unaudited Pro
Forma Financial Information
HIGH
PARTICIPATION SCENARIO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
Actual
|
|
|
|
|
|
Pro forma
|
|
|
|
March 31,
|
|
|
Exchange of
|
|
|
March 31,
|
|
|
|
2010
|
|
|
Preferred
Stock
|
|
|
2010
|
|
|
|
|
|
(dollars in
thousands, except per share amounts)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
675,551
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
331,677
|
|
|
|
|
|
|
|
|
|
Time deposits with other financial institutions
|
|
|
600
|
|
|
|
|
|
|
|
|
|
Other short-term investments
|
|
|
322,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total money market investments
|
|
|
654,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value
|
|
|
3,470,988
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity, at amortized cost
|
|
|
564,931
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
|
69,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,105,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
12,698,264
|
|
|
|
|
|
|
|
|
|
Loans held for sale, at lower of cost or market
|
|
|
19,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
|
12,718,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
199,072
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
73,444
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable on loans and investments
|
|
|
70,955
|
|
|
|
|
|
|
|
|
|
Due from customers on acceptances
|
|
|
726
|
|
|
|
|
|
|
|
|
|
Accounts receivable from investment sales
|
|
|
62,575
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
290,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,850,964
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
$
|
703,394
|
|
|
$
|
|
|
|
$
|
|
|
Interestbearing deposits
|
|
|
12,174,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
12,878,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Reserve
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Home Loan Bank (FHLB)
|
|
|
960,440
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
28,313
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
231,959
|
|
|
|
|
|
|
|
|
|
Bank acceptances outstanding
|
|
|
726
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
162,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,362,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
929,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
102,440
|
|
|
|
|
|
|
|
|
|
Less: Treasury stock (at cost)
|
|
|
(9,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding
|
|
|
92,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
134,247
|
|
|
|
|
|
|
|
|
|
Legal surplus
|
|
|
299,006
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
10,140
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
22,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,488,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
18,850,964
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
6.04
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share
|
|
$
|
5.56
|
|
|
|
|
|
|
|
|
|
50
Unaudited Pro
Forma Financial Information
LOW PARTICIPATION
SCENARIO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
Actual
|
|
|
|
|
|
Pro forma
|
|
|
|
March 31,
|
|
|
Exchange of
|
|
|
March 31,
|
|
|
|
2010
|
|
|
Preferred
Stock
|
|
|
2010
|
|
|
|
|
|
(dollars in
thousands, except per share amounts)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
675,551
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
331,677
|
|
|
|
|
|
|
|
|
|
Time deposits with other financial institutions
|
|
|
600
|
|
|
|
|
|
|
|
|
|
Other short-term investments
|
|
|
322,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total money market investments
|
|
|
654,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value
|
|
|
3,470,988
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity, at amortized cost
|
|
|
564,931
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
|
69,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,105,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
12,698,264
|
|
|
|
|
|
|
|
|
|
Loans held for sale, at lower of cost or market
|
|
|
19,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
|
12,718,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
199,072
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
73,444
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable on loans and investments
|
|
|
70,955
|
|
|
|
|
|
|
|
|
|
Due from customers on acceptances
|
|
|
726
|
|
|
|
|
|
|
|
|
|
Accounts receivable from investment sales
|
|
|
62,575
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
290,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,850,964
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
$
|
703,394
|
|
|
$
|
|
|
|
$
|
|
|
Interestbearing deposits
|
|
|
12,174,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
12,878,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Reserve
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Home Loan Bank (FHLB)
|
|
|
960,440
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
28,313
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
231,959
|
|
|
|
|
|
|
|
|
|
Bank acceptances outstanding
|
|
|
726
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
162,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,362,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
929,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
102,440
|
|
|
|
|
|
|
|
|
|
Less: Treasury stock (at cost)
|
|
|
(9,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding
|
|
|
92,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
134,227
|
|
|
|
|
|
|
|
|
|
Legal surplus
|
|
|
299,006
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
10,140
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
22,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,488,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
18,850,964
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
6.04
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share
|
|
$
|
5.56
|
|
|
|
|
|
|
|
|
|
51
Unaudited Pro
Forma Financial Information
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 quarter ended March 31, 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
|
|
|
|
Q1 2010
|
|
|
Q1
2010
|
|
|
Q1 2010
|
|
|
FY
09
|
|
|
FY
09
|
|
|
FY
09
|
|
|
|
|
|
(dollars in
thousands, except per share amounts) (unaudited)
|
|
|
Interest income
|
|
|
220,988
|
|
|
|
220,988
|
|
|
|
220,988
|
|
|
|
996,574
|
|
|
|
996,574
|
|
|
|
996,574
|
|
Interest expense
|
|
|
104,125
|
|
|
|
104,125
|
|
|
|
104,125
|
|
|
|
477,532
|
|
|
|
477,532
|
|
|
|
477,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
116,863
|
|
|
|
116,863
|
|
|
|
116,863
|
|
|
|
519,042
|
|
|
|
519,042
|
|
|
|
519,042
|
|
Provision for loan losses
|
|
|
170,965
|
|
|
|
170,965
|
|
|
|
170,965
|
|
|
|
579,858
|
|
|
|
579,858
|
|
|
|
579,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income after provision for loan and lease
losses
|
|
|
(54,102
|
)
|
|
|
(54,102
|
)
|
|
|
(54,102
|
)
|
|
|
(60,816
|
)
|
|
|
(60,816
|
)
|
|
|
(60,816
|
)
|
Non-interest income
|
|
|
45,326
|
|
|
|
45,326
|
|
|
|
45,326
|
|
|
|
142,264
|
|
|
|
142,264
|
|
|
|
142,264
|
|
Non-interest expenses
|
|
|
91,362
|
|
|
|
91,362
|
|
|
|
91,362
|
|
|
|
352,101
|
|
|
|
352,101
|
|
|
|
352,101
|
|
Income tax expense
|
|
|
(6,861
|
)
|
|
|
(6,861
|
)
|
|
|
(6,861
|
)
|
|
|
(4,534
|
)
|
|
|
(4,534
|
)
|
|
|
(4,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(106,999
|
)
|
|
|
(106,999
|
)
|
|
|
(106,999
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to preferred stockholders(1)
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
42,661
|
|
|
|
21,516
|
|
|
|
30,914
|
|
Preferred stock discount accretion
|
|
|
1,152
|
|
|
|
1,152
|
|
|
|
1,152
|
|
|
|
4,227
|
|
|
|
4,227
|
|
|
|
4,227
|
|
Net (loss) income attributable to common stockholders
|
|
|
(113,151
|
)
|
|
|
(113,151
|
)
|
|
|
(113,151
|
)
|
|
|
(322,075
|
)
|
|
|
(300,930
|
)
|
|
|
(310,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income
|
|
|
(106,999
|
)
|
|
|
(106,999
|
)
|
|
|
(106,999
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
|
|
(275,187
|
)
|
Preferred stock dividends and accretion of discount
|
|
|
6,152
|
|
|
|
6,152
|
|
|
|
6,152
|
|
|
|
46,888
|
|
|
|
25,743
|
|
|
|
35,141
|
|
Pro forma net (loss) income attributable to common stockholders
|
|
|
(113,151
|
)
|
|
|
(113,151
|
)
|
|
|
(113,151
|
)
|
|
|
(322,075
|
)
|
|
|
(300,930
|
)
|
|
|
(310,328
|
)
|
Common shares used to calculate actual (loss) income per common
share
|
|
|
92,521
|
|
|
|
92,521
|
|
|
|
92,511
|
|
|
|
92,511
|
|
|
|
92,511
|
|
|
|
92,511
|
|
Common shares newly issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per common share (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the quarter ended March 31, 2010 and the year ended
December 31, 2009, represents Series F Preferred Stock
cumulative preferred dividends of $5.0 million and
$12.6 million, respectively not declared as of the end of
the periods 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. |
52
Use of Proceeds
We will not receive any cash proceeds from the Exchange Offer.
53
Regulatory and Other
Capital Ratios
The following table sets forth our capital ratios as of
March 31, 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 March 31, 2010, which are
incorporated by reference into this prospectus. See also
Risk Factors.
REGULATORY AND
OTHER CAPITAL RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 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)
|
|
|
13.26
|
%
|
|
|
13.26
|
%
|
|
|
13.26
|
%
|
Tier 1 capital ratio (Tier 1 capital to
risk-weighted assets)
|
|
|
11.98
|
|
|
|
11.98
|
|
|
|
11.98
|
|
Leverage (Tier 1 capital to average assets)
|
|
|
8.37
|
|
|
|
8.37
|
|
|
|
8.37
|
|
Tangible common equity (Tangible common equity to tangible
assets)
|
|
|
2.74
|
|
|
|
4.20
|
|
|
|
5.37
|
|
Tier 1 common (Tier 1 common equity to
risk-weighted assets)
|
|
|
3.36
|
|
|
|
5.41
|
|
|
|
7.05
|
|
|
|
|
(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 shares
of our Common Stock, and (ii) a Relevant Price of
$ 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 shares
of our Common Stock, and (ii) a Relevant Price of
$ per share. |
|
|
|
(3) |
|
If 75% 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
March 31, 2010 on a pro forma basis after giving effect to
the Exchange Offer would have
been %
and %, 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.
54
Regulatory and
Other Capital Ratios
The following table is a reconciliation of the
Corporations tangible common equity and tangible assets as
of March 31, 2010.
|
|
|
|
|
|
|
As of
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
|
|
|
(dollars in
thousands)
|
|
|
Tangible Equity:
|
|
|
|
|
Total equityGAAP
|
|
$
|
1,488,543
|
|
Preferred equity
|
|
|
(927,660
|
)
|
Goodwill
|
|
|
(28,098
|
)
|
Core deposit intangible
|
|
|
(15,934
|
)
|
|
|
|
|
|
Tangible common equity
|
|
$
|
514,851
|
|
|
|
|
|
|
Tangible Assets:
|
|
|
|
|
Total assetsGAAP
|
|
$
|
18,850,964
|
|
Goodwill
|
|
|
(28,098
|
)
|
Core deposit intangible
|
|
|
(15,934
|
)
|
|
|
|
|
|
Tangible assets
|
|
$
|
18,846,932
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
92,542
|
|
|
|
|
|
|
Tangible common equity ratio
|
|
|
2.74
|
%
|
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.
55
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 March 31, 2010:
|
|
|
|
|
|
|
As of
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
|
|
|
(dollars in
thousands)
|
|
|
Tier 1 Common Equity:
|
|
|
|
|
Total equityGAAP
|
|
$
|
1,488,543
|
|
Qualifying preferred stock
|
|
|
(927,660
|
)
|
Unrealized (gain) loss on
available-for-sale
securities(1)
|
|
|
(22,948
|
)
|
Disallowed deferred tax
asset(2)
|
|
|
(40,522
|
)
|
Goodwill
|
|
|
(28,098
|
)
|
Core deposit intangible
|
|
|
(15,934
|
)
|
Cumulative change gain in fair value of liabilities accounted
for under a fair value option
|
|
|
(951
|
)
|
Other disallowed assets
|
|
|
(24
|
)
|
|
|
|
|
|
Tier 1 common equity
|
|
$
|
450,406
|
|
|
|
|
|
|
Total risk-weighted assets
|
|
$
|
13,402,979
|
|
|
|
|
|
|
Tier 1 common equity to risk-weighted assets ratio
|
|
|
3.36
|
%
|
|
|
|
(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 $69 million of the Corporations
deferred tax assets at March 31, 2010 were included without
limitation in regulatory capital pursuant to the risk-based
capital guidelines, while approximately $41 million of such
assets at March 31, 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 $5 million of the
Corporations other net deferred tax liability at
March 31, 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. |
56
The Exchange Offer
PURPOSE AND
BACKGROUND OF THE TRANSACTIONS
Purpose of the
Exchange Offer
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. Although First BanCorp is well-capitalized under
regulatory standards based on ratios of Tier 1 capital to
risk-weighted assets of 11.98% and Total capital to
risk-weighted assets of 13.26%, each as of March 31, 2010,
we must increase our common equity to provide additional
protection from the possibility that, due to the current
economic situation in Puerto Rico that has impacted the
Corporations asset quality and earnings performance, the
Corporation may have to recognize additional loan loss reserves
against its loan portfolio and absorb the potential future
credit losses associated with the disposition of non-performing
assets. Total non-performing loans to total loans increased to
12.35% as of March 31, 2010 from 11.23% as of
December 31, 2009 and from 5.27% as of March 31, 2009.
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 or are considering strategies to increase
tangible common equity and regulatory capital through:
(1) the Capital Raise, (2) a rights offering to
existing stockholders and (3) the conversion of the shares
of Series F Preferred Stock into Common Stock. With respect
to the conversion, the Corporation is currently negotiating with
the U.S. Treasury the exchange of its Series F
Preferred Stock for shares of Common Stock to be accomplished in
one or more transactions.
The restructuring of our equity components 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 Anti-Dilution
Rights That May Be Triggered by the Exchange Offer.
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 March 31, 2010, our
Tier 1 common equity ratio was 3.36% and our tangible
common equity ratio was 2.74%. If 75% 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 March 31, 2010 on a pro forma basis
after giving effect to the Exchange Offer would have been% and%,
respectively. 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. Our Tier 1 common equity would be
strengthened by up to approximately
$ based on the High Participation
Scenario (as defined under Unaudited Pro Forma Financial
Information herein).
57
The Exchange
Offer
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. 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 satisfy any
additional government regulation that may be imposed. On
December 17, 2009, federal banking regulators released
their plans to strengthen capital, liquidity and risk management
standards. The proposals are intended to address what some view
as shortcomings in the currently implemented capital, liquidity
and risk management standards, which, in the view of the
regulators, did not require sufficient capital reserves for the
larger banks to withstand the recent financial crisis. The new
proposal would establish a global leverage ratio, a new
definition of core capital and new standards for measuring
liquidity risks for internationally active banks and ensure
sufficient liquidity in times of crisis. The proposals did not
cite specific numbers for the leverage ratio or the new core
capital requirements. These proposals are preliminary and are to
be finalized by year-end 2010, with a goal of phasing in new
requirements by the end of 2012. 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.
Impact of the
Issuance of Additional Shares of Common Stock on Existing
Holders of Common Stock
The resulting capital issuances in the Exchange Offer and any
additional Common Stock issuances, including, if completed,
issuances in the Capital Raise and any exchange with the U.S.
Treasury of its Series F Preferred Stock for Common Stock
and any issuance of additional shares of Common Stock 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.
TERMS OF THE
EXCHANGE OFFER
Generally
We are offering to issue up to 192,535,000 newly issued shares
of our Common Stock, which we refer to as the Maximum Exchange
Amount, in exchange for any and all issued and outstanding
shares of Preferred Stock (subject to proration, as described
below), 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, subject to
proration. 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
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
58
The Exchange
Offer
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
$ 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.
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 that we are offering in
exchange for each share of Preferred Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
|
318672300
|
|
|
8.35% Noncumulative Perpetual Monthly Income Preferred Stock,
Series B
|
|
|
$75,000,000
|
|
|
$
|
25
|
|
|
$
|
|
|
|
318672409
|
|
|
7.40% Noncumulative Perpetual Monthly Income Preferred Stock,
Series C
|
|
|
$103,500,000
|
|
|
$
|
25
|
|
|
$
|
|
|
|
318672508
|
|
|
7.25% Noncumulative Perpetual Monthly Income Preferred Stock,
Series D
|
|
|
$92,000,000
|
|
|
$
|
25
|
|
|
$
|
|
|
|
318672607
|
|
|
7.00% Noncumulative Perpetual Monthly Income Preferred Stock,
Series E
|
|
|
$189,600,000
|
|
|
$
|
25
|
|
|
$
|
|
|
If the aggregate liquidation preference of all shares of
Preferred Stock tendered in the Exchange Offer would result in
the issuance, upon completion of the Exchange Offer, of a number
of shares of our Common Stock in excess of the Maximum Exchange
Amount, we will accept for tender only that number of shares of
Preferred Stock that will ensure that the Maximum Exchange
Amount is not exceeded in the Exchange Offer and we will have to
reduce (on a prorated basis) the number of shares of Preferred
Stock that we accept in the exchange offer to remain within this
limit.
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 and
from the
59
The Exchange
Offer
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
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 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 .
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 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
60
The Exchange
Offer
in the Exchange Offer, if, in our reasonable judgment (as
applicable), any of the following conditions exist with respect
to the Exchange Offer prior to the expiration date:
|
|
Ø |
we do not receive the necessary stockholder approval of the
issuance of up to 192,535,000 shares of Common Stock upon
the exchange of Preferred Stock in the Exchange Offer and the
possible issuance of up to 19,245,547 additional shares of
Common Stock to BNS (if it exercises its anti-dilution right
under the Stockholder Agreement);
|
|
|
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);
|
|
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
61
The Exchange
Offer
which this prospectus forms a part remains 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,
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.
PRORATION
We will issue no more than the Maximum Exchange Amount in the
Exchange Offer. Depending on the number of shares of our
Preferred Stock tendered in the Exchange Offer, we may have to
prorate tendered shares of Preferred Stock to remain within this
limit. Proration for each holder validly tendering Preferred
Stock will be based on the proration factor of (i) the
aggregate liquidation preference of all five series of Preferred
Stock, treated together, tendered in the Exchange Offer that
would result in the issuance, upon completion of the Exchange
Offer, of a number of shares of Common Stock equal to the
Maximum Exchange Amount to (ii) the aggregate liquidation
preference of all five series of Preferred Stock, treated
together, validly tendered by all holders. The proration factor
will be applied to determine the total liquidation preference of
Preferred Stock that will be accepted for exchange from each
holder pursuant to the Exchange Offer. In the event that
proration of the Preferred Stock is required, we will determine
the final proration factor promptly after the expiration date
and such information will be available at and from the
Information Agent. Any Preferred Stock not accepted for exchange
as a result of proration will be promptly returned following the
expiration or termination, as applicable, of the Exchange Offer.
The following table shows the percentage of tendered Preferred
Stock that will be accepted at various assumed participation
levels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation
preference
|
|
Liquidation
preference of preferred stock tendered
|
|
Proration
factor%
|
|
|
accepted
|
|
|
|
|
|
(in
millions)
|
|
|
62
The Exchange
Offer
EXPIRATION DATE;
EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 11:59 p.m., New York City
time,
on ,
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.
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 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.
63
The Exchange
Offer
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 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).
64
The 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 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.
65
The Exchange
Offer
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 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 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 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.
66
The Exchange
Offer
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 sets forth certain information as of
May 18, 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
67
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
|
|
|
|
|
|
|
|
|
FMR LLC
|
|
|
7,300,000
|
(4)
|
|
|
7.89
|
%
|
82 Devonshire Street
Boston, MA 02109
|
|
|
|
|
|
|
|
|
Angel Alvarez-Pérez
|
|
|
6,360,518
|
(5)
|
|
|
6.87
|
%
|
Condominio Plaza Stella Apt.1504
Avenida Magdalena 1362
San Juan, Puerto Rico 00907
|
|
|
|
|
|
|
|
|
BlackRock, Inc.
|
|
|
6,220,207
|
(6)
|
|
|
6.72
|
%
|
40 East 52nd Street
New York, NY 10022
|
|
|
|
|
|
|
|
|
First Trust Portfolios L.P.
|
|
|
4,676,229
|
(7)
|
|
|
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 May 18, 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 13G/A filed with the SEC on
February 16, 2010 in which FMR LLC reported aggregate
beneficial ownership of 7,300,000 shares of the Corporation
as of December 31, 2009. FMR LLC reported that it possessed
sole power to dispose or to direct the disposition of
7,300,000 shares. FMR LLC reported that it did not possess
sole power to vote or direct the vote of any shares beneficially
owned. |
|
(5) |
|
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. |
(footnotes continued on
following page)
68
The Exchange
Offer
|
|
|
(6) |
|
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. |
|
(7) |
|
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. |
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
|
|
|
4,543,396
|
(4)
|
|
|
4.91
|
%
|
Frank Kolodziej
|
|
|
2,762,483
|
|
|
|
2.99
|
%
|
José F. Rodríguez
|
|
|
324,077
|
|
|
|
*
|
|
Luis
Beauchamp(5)
|
|
|
17,000
|
|
|
|
*
|
|
Named Executive Officers:
|
|
|
|
|
|
|
|
|
Orlando Berges
|
|
|
10,000
|
|
|
|
*
|
|
Lawrence Odell
|
|
|
225,000
|
|
|
|
*
|
|
Randolfo Rivera
|
|
|
406,450
|
|
|
|
*
|
|
Calixto García-Velez
|
|
|
|
|
|
|
*
|
|
Fernando
Scherrer(6)
|
|
|
47,500
|
|
|
|
*
|
|
All directors and executive officers as a group
(19 persons)
|
|
|
9,875,658
|
|
|
|
10.48
|
%
|
|
|
|
* |
|
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 May 18, 2010 or within 60 days after that date, as
follows: Mr. Alemán, 672,000; Mr. Odell, 175,000;
Mr. Rivera, 382,110; and 1,678,110 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, 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. |
(footnotes continued on
following page)
69
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 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. 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
|
|
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 parents over which
Mr. Nevares has voting and investment power as trustee. |
|
(2) |
|
This amount includes 20,000 shares owned by
Mr. Nevares parents over which he has voting and
investment power as attorney-in-fact. |
|
(3) |
|
This amount includes 6,400 shares owned by
Mr. Nevares parents over which he has voting and
investment power as attorney-in-fact. |
70
The Exchange
Offer
José Menéndez-Cortada, Jorge L. Díaz, Sharee Ann
Umpierre-Catinchi, Héctor M. Nevares and Dacio Pasarell
have not advised us whether they will participate in the
Exchange Offer.
CONSEQUENCES OF
NOT EXCHANGING SHARES OF PREFERRED STOCK OR RETENTION OF
SHARES OF PREFERRED STOCK AS A RESULT OF
PRORATION
Shares of Preferred Stock not exchanged in the Exchange Offer or
retained as a result of proration 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, and 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 $1.00 per share 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
$ per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
securities
|
|
|
Number of
securities
|
|
|
|
|
|
|
issuable
(assuming
|
|
|
issuable
(assuming
|
|
|
|
|
|
|
% participation
in
|
|
|
% participation
in
|
|
Transaction
|
|
Security
|
|
|
Exchange
Offer)(1)(2)
|
|
|
Exchange
Offer)(1)(2)
|
|
|
|
|
Exchange
Offer(1)
|
|
|
Common Stock
|
|
|
|
million
|
|
|
|
million
|
|
|
|
|
(1) |
|
As of May 18, 2010, 92,542,722 shares of our Common
Stock were outstanding. |
|
|
|
(2) |
|
million shares will be issued
assuming % participation in
Exchange Offer and million shares
will be issued assuming %
participation in Exchange Offer, assuming, in each case, a
$ Relevant Stock Price. |
SUBSEQUENT
REPURCHASES
Following completion of the Exchange Offer, 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
71
The Exchange
Offer
some exceptions. Future repurchases, if any, will depend on many
factors, including market conditions and the condition of our
business.
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 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.
72
The Exchange
Offer
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 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
73
The Exchange
Offer
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 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.
74
Anti-dilution Rights
That May Be Triggered by the Exchange Offer
Both BNS and the U.S. Treasury have anti-dilution rights.
As of May 18, 2010, BNS, a large financial institution with
international operations, is the beneficial owner of
9,250,450 shares, or approximately 10%, of our Common
Stock. 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. 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
Puerto Rico and British Virgin Islands 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 the Maximum Exchange Amount in the Exchange
Offer, BNS would be entitled under the anti-dilution right to
acquire up to 19,245,547 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 declines to exercise
its anti-dilution right and we issued the maximum number of
shares in the Exchange Offer, BNSs beneficial ownership
would be reduced to approximately 3.2%. BNS has not informed us
whether it will exercise its anti-dilution right under the
Stockholder Agreement.
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 along
with stockholder approval of the issuance of the maximum number
of shares of our Common Stock being offered in the Exchange
Offer.
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 the Corporations common stock at
an exercise price of $10.27 per share. The warrant has a
10-year term
and is exercisable at any time. The exercise price and the
number of shares issuable upon exercise of the warrant are
subject to an anti-dilution right. 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. If the
U.S. Treasurys anti-dilution right is triggered, the
Corporation will need to adjust the exercise price for and the
number of shares underlying the warrant. At this time, because
the terms of the Exchange Offer have not been determined, the
Corporation cannot determine whether it will need to adjust the
exercise price for and number of shares underlying the warrant
pursuant to the anti-dilution provision.
75
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 May 18, 2010, we had
92,542,722 shares of our Common Stock outstanding, held by
approximately 540 holders of record. On February 1, 2010,
the date we announced our intent to conduct the Exchange Offer,
the closing sales price of our Common Stock on the NYSE was
$2.37 per share.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter (through May 18, 2010)
|
|
$
|
3.69
|
*
|
|
$
|
1.64
|
*
|
|
$
|
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 ,
the closing sales price of our Common Stock on the NYSE was
$ 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 May 18,
2010, we had 3,600,000 shares of Series A Preferred
Stock outstanding, held by 12 holders of record. On
February 1, 2010, the date we announced our intent to
conduct the Exchange Offer, the closing sales price of our
Series A Preferred Stock was $13.00 per share.
76
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter (through May 18, 2010)
|
|
$
|
16.30
|
*
|
|
$
|
8.60
|
*
|
|
$
|
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 ,
the closing sales price of a share of our Series A
Preferred Stock on the NYSE was $
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 May 18,
2010, we had 3,000,000 shares of Series B Preferred
Stock outstanding, held by 11 holders of record. On
February 1, 2010, the date we announced our intent to
conduct the Exchange Offer, the closing sales price of our
Series B Preferred Stock was $12.47 per share.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter (through May 18, 2010)
|
|
$
|
16.69
|
*
|
|
$
|
8.75
|
*
|
|
$
|
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 Preferred Stock have been
suspended since August 2009. |
77
Market Price,
Dividend and Distribution Information
On ,
the closing sales price of a share of our Series B
Preferred Stock on the NYSE was $
per share.
First BanCorp
7.40% Noncumulative Perpetual Monthly Income Preferred Stock,
Series C
Our Series C Preferred Stock is currently listed on the
NYSE under the symbol FBP-PC. As of May 18,
2010, we had 4,140,000 shares of Series C Preferred
Stock outstanding, held by 7 holders of record. On
February 1, 2010, the date we announced our intent to
conduct the Exchange Offer, the closing sales price of our
Series C Preferred Stock was $13.25 per share.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of the Series C
Preferred Stock and the cash dividends declared per share of the
Series C Preferred Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
prices
|
|
|
Cash dividends
|
|
|
|
High
|
|
|
Low
|
|
|
declared per
share
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter (through May 18, 2010)
|
|
$
|
16.16
|
*
|
|
$
|
8.30
|
*
|
|
$
|
0.00
|
*
|
First Quarter ended March 31, 2010
|
|
|
15.50
|
|
|
|
12.00
|
|
|
|
0.00
|
*
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2009
|
|
$
|
13.01
|
|
|
$
|
8.15
|
|
|
$
|
0.00
|
*
|
Third Quarter ended September 30, 2009
|
|
|
14.88
|
|
|
|
4.71
|
|
|
|
0.00
|
*
|
Second Quarter ended June 30, 2009
|
|
|
17.96
|
|
|
|
13.65
|
|
|
|
0.617
|
|
First Quarter ended March 31, 2009
|
|
|
18.00
|
|
|
|
8.00
|
|
|
|
0.463
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2008
|
|
$
|
22.00
|
|
|
$
|
15.69
|
|
|
$
|
0.463
|
|
Third Quarter ended September 30, 2008
|
|
|
23.72
|
|
|
|
17.94
|
|
|
|
0.463
|
|
Second Quarter ended June 30, 2008
|
|
|
24.95
|
|
|
|
22.12
|
|
|
|
0.463
|
|
First Quarter ended March 31, 2008
|
|
|
25.14
|
|
|
|
22.41
|
|
|
|
0.463
|
|
|
|
|
* |
|
Cash dividends on the Series C Preferred Stock have been
suspended since August 2009. |
On ,
the closing sales price of a share of our Series C
Preferred Stock on the NYSE was $
per share.
78
Market Price,
Dividend and Distribution Information
First BanCorp
7.25% Noncumulative Perpetual Monthly Income Preferred Stock,
Series D
Our Series D Preferred Stock is currently listed on the
NYSE under the symbol FBP-PD. As of May 18,
2010, we had 3,680,000 shares of Series D Preferred
Stock outstanding, held by 9 holders of record. On
February 1, 2010, the date we announced our intent to
conduct the Exchange Offer, the closing sales price of our
Series D Preferred Stock was $13.25 per share.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of the Series D
Preferred Stock and the cash dividends declared per share of the
Series D Preferred Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
prices
|
|
|
Cash dividends
|
|
|
|
High
|
|
|
Low
|
|
|
declared per
share
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter (through May 18, 2010)
|
|
$
|
16.75
|
*
|
|
$
|
8.70
|
*
|
|
$
|
0.00
|
*
|
First Quarter ended March 31, 2010
|
|
|
15.50
|
|
|
|
12.00
|
|
|
|
0.00
|
*
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2009
|
|
$
|
12.70
|
|
|
$
|
8.07
|
|
|
$
|
0.00
|
*
|
Third Quarter ended September 30, 2009
|
|
|
14.56
|
|
|
|
5.00
|
|
|
|
0.00
|
*
|
Second Quarter ended June 30, 2009
|
|
|
17.50
|
|
|
|
13.60
|
|
|
|
0.604
|
|
First Quarter ended March 31, 2009
|
|
|
17.44
|
|
|
|
7.65
|
|
|
|
0.453
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2008
|
|
$
|
20.50
|
|
|
$
|
14.81
|
|
|
$
|
0.453
|
|
Third Quarter ended September 30, 2008
|
|
|
22.95
|
|
|
|
17.11
|
|
|
|
0.453
|
|
Second Quarter ended June 30, 2008
|
|
|
25.00
|
|
|
|
22.01
|
|
|
|
0.453
|
|
First Quarter ended March 31, 2008
|
|
|
25.10
|
|
|
|
23.15
|
|
|
|
0.453
|
|
|
|
|
* |
|
Cash dividends on the Series D Preferred Stock have been
suspended since August 2009. |
On ,
the closing sales price of a share of our Series D
Preferred Stock on the NYSE was $
per share.
79
Market Price,
Dividend and Distribution Information
First BanCorp
7.00% Noncumulative Perpetual Monthly Income Preferred Stock,
Series E
Our Series E Preferred Stock is currently listed on the
NYSE under the symbol FBP-PE. As of May 18,
2010, we had 7,584,000 shares of Series E Preferred
Stock outstanding, held by 12 holders of record. On
February 1, 2010, the date we announced our intent to
conduct the Exchange Offer, the closing sales price of our
Series E Preferred Stock was $12.75 per share.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of the Series E
Preferred Stock and the cash dividends declared per share of the
Series E Preferred Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
prices
|
|
|
Cash dividends
|
|
|
|
High
|
|
|
Low
|
|
|
declared per
share
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter (through May 18, 2010)
|
|
$
|
16.75
|
*
|
|
$
|
9.00
|
*
|
|
$
|
0.00
|
*
|
First Quarter ended March 31, 2010
|
|
|
15.00
|
|
|
|
12.00
|
|
|
|
0.00
|
*
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2009
|
|
$
|
12.55
|
|
|
$
|
8.00
|
|
|
$
|
0.00
|
*
|
Third Quarter ended September 30, 2009
|
|
|
14.00
|
|
|
|
4.89
|
|
|
|
0.00
|
*
|
Second Quarter ended June 30, 2009
|
|
|
15.65
|
|
|
|
12.25
|
|
|
|
0.5833
|
|
First Quarter ended March 31, 2009
|
|
|
16.50
|
|
|
|
6.70
|
|
|
|
0.437
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter ended December 31, 2008
|
|
$
|
19.75
|
|
|
$
|
14.50
|
|
|
$
|
0.437
|
|
Third Quarter ended September 30, 2008
|
|
|
22.10
|
|
|
|
17.26
|
|
|
|
0.437
|
|
Second Quarter ended June 30, 2008
|
|
|
25.00
|
|
|
|
21.00
|
|
|
|
0.437
|
|
First Quarter ended March 31, 2008
|
|
|
25.00
|
|
|
|
20.97
|
|
|
|
0.437
|
|
|
|
|
* |
|
Cash dividends on the Series E Preferred Stock have been
suspended since August 2009. |
On ,
the closing sales price of a share of our Series E
Preferred Stock on the NYSE was $
per share.
80
Description of
Capital Stock
The sections entitled Description of Capital Stock
beginning on page 5 of our Prospectus dated
January 16, 2002, Summary of Certain Terms of Series
E Preferred Stock beginning on
page S-10
of our Prospectus Supplement dated September 25, 2003, and
Summary of Certain Terms of the Series D Preferred
Stock beginning on
page S-12
of our Prospectus Supplement dated January 30, 2002
(Registration Statement
No. 333-75682)
are incorporated herein by reference.
81
Comparison of
Preferred Stock, Series F Preferred Stock and Common Stock
Rights
The following briefly summarizes the material differences
between the rights of holders of the shares of Preferred Stock,
the holder of Series F Preferred Stock and the holders of
the Common Stock to be issued in the Exchange Offer. The
discussion below is a summary and is qualified in its entirety
by reference to our Articles of Incorporation, including the
Certificates of Designation, and our by-laws (the
Bylaws), each of which is an exhibit to the
registration statement of which this prospectus is a part. We
urge you to read these documents for a more complete
understanding of the differences between the shares of Preferred
Stock and the Common Stock.
GOVERNING
DOCUMENTS
Shares of Preferred Stock: Holders of
shares of Preferred Stock and Series F Preferred Stock have
the rights set forth in our Articles of Incorporation, including
the applicable Certificate of Designation, the Bylaws and Puerto
Rico law.
Common Stock: Holders of shares of our
Common Stock have the rights set forth in the Articles of
Incorporation, the Bylaws and Puerto Rico law.
DIVIDENDS AND
DISTRIBUTIONS
Shares of Preferred Stock: The shares
of Preferred Stock, as well as Series F Preferred Stock,
rank senior to the Common Stock and any other stock that is
expressly junior to Preferred Stock and Series F Preferred
Stock as to payment of dividends. Dividends on shares of
Preferred Stock are payable monthly and are not mandatory or
cumulative. Series F Preferred Stock pay cumulative
compounding dividends quarterly in arrears of 5% per year until
the fifth anniversary of the issuance of Series F Preferred
Stock, and 9% thereafter. Holders of shares of preferred stock
are entitled to receive dividends, when, as, and if declared by
our board of directors, out of funds legally available for
dividends. On July 30, 2009, we announced the suspension of
dividends on each series of our Preferred Stock and our
Series F Preferred Stock effective with the preferred
dividend for August 2009.
Common Stock: Subject to the
preferential rights of any other class or series of capital
stock, including preferred stock, holders of our Common Stock
are entitled to receive, pro rata, dividends when and as
declared by our board of directors out of funds legally
available for the payment of dividends. In general, so long as
any shares of preferred stock remain outstanding and until we
meet various federal regulatory considerations, we cannot
declare, set apart or pay any dividends on shares of our Common
Stock unless all 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. In addition, i