UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

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

For the transition period from                      to                     

FIRST BANCORP.

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

(787) 729-8200

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes o No þ

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

Common stock: 92,542,722 outstanding as of July 31, 2010.

 

 

FIRST BANCORP.
INDEX PAGE

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of June 30, 2010 and December 31, 2009			5
Consolidated Statements of Loss (Unaudited) — Quarters ended June 30, 2010 and June 30, 2009 and six-month periods ended June 30, 2010 and June 30, 2009			6
Consolidated Statements of Cash Flows (Unaudited) — Six-month periods ended June 30, 2010 and June 30, 2009			7
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) — Six-month periods ended June 30, 2010 and June 30, 2009			8
Consolidated Statements of Comprehensive Loss (Unaudited) — Quarters ended June 30, 2010 and June 30, 2009 and six-month periods ended June 30, 2010 and June 30, 2009			9
Notes to Consolidated Financial Statements (Unaudited)			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			49
Item 3. Quantitative and Qualitative Disclosures About Market Risk			98
Item 4. Controls and Procedures			98
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			99
Item 1A. Risk Factors			99
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			109
Item 3. Defaults Upon Senior Securities			109
Item 4. Reserved			109
Item 5. Other Information			109
Item 6. Exhibits			110
SIGNATURES
EX-12.1
EX-12.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Forward Looking Statements

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

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

	•		uncertainty about whether the Corporation will be able to fully comply with the written agreement dated June 3, 2010 (the “Agreement”) that the Corporation entered into with the Federal Reserve Bank of New York (the “FED”) and the order dated June 2, 2010 (the “Order” and collectively with the Agreement, the “Agreements”) that the Corporation’s banking subsidiary, FirstBank Puerto Rico (“FirstBank” or “the Bank”) entered into with the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico (“OCIF”) that, among other things, require the Bank to attain certain capital levels and reduce its special mention, classified, delinquent and non-accrual assets;
	•		uncertainty as to whether the Corporation will be able to meet the conditions necessary to compel the United States Department of the Treasury (the “U.S. Treasury”) to convert into Common Stock the shares of the Corporation’s preferred stock that the Corporation issued to the U.S. Treasury;
	•		uncertainty as to whether the Corporation will be able to complete future capital-raising efforts;
	•		the risk of being subject to possible additional regulatory action, including as a result of an inability to implement the capital plans submitted in accordance with the Agreements;
	•		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 the Corporation’s loans and other assets, including the construction and commercial real estate loan portfolios, which have contributed and may continue to contribute to, among other things, the increase in the levels of non-performing assets, charge-offs and the provision expense;
	•		adverse changes in general economic conditions in the United States and in Puerto Rico, including the interest rate scenario, market liquidity, housing absorption rates, real estate prices and disruptions in the U.S. capital markets, which may reduce interest margins, impact funding sources and affect demand for all of the Corporation’s products and services and the value of the Corporation’s assets;
	•		the Corporation’s reliance on brokered certificates of deposit and its ability to obtain, on a periodic basis, approval to issue brokered certificates of deposit to fund operations and provide liquidity in accordance with the terms of the Order;
	•		an adverse change in the Corporation’s ability to attract new clients and retain existing ones;
	•		a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico, the recently announced consolidation of the banking industry in Puerto Rico and the current fiscal problems and budget deficit of the Puerto Rico government;
	•		a need to recognize additional impairments of financial instruments or goodwill relating to acquisitions;
	•		uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the United States and the U.S. and British Virgin Islands, which could affect the Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results;
	•		uncertainty about the effectiveness of the various actions undertaken to stimulate the U.S. economy and stabilize the U.S. financial markets, and the impact such actions may have on the Corporation’s business, financial condition and results of operations;

	•		changes in the fiscal and monetary policies and regulations of the federal government, including those determined by the FED, the FDIC, government-sponsored housing agencies and local regulators in Puerto Rico and the U.S. and British Virgin Islands;
	•		the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in the Corporation’s non-interest expense;
	•		risks of not being able to generate sufficient income to realize the benefit of the deferred tax asset;
	•		risks of not being able to recover the assets pledged to Lehman Brothers Special Financing, Inc.;
	•		changes in the Corporation’s expenses associated with acquisitions and dispositions;
	•		developments in technology;
	•		the impact of Doral Financial Corporation’s financial condition on the repayment of its outstanding secured loans to the Corporation;
	•		risks associated with further downgrades in the credit ratings of the Corporation’s securities;
	•		general competitive factors and industry consolidation; and
	•		the possible future dilution to holders of the Corporation’s Common Stock resulting from additional issuances of Common Stock or securities convertible into Common Stock.

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

     Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 as well as “Part II, Item 1A, Risk Factors,” in this Quarterly Report on Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

FIRST BANCORP

(In thousands, except for share information)		June 30, 2010				December 31, 2009
ASSETS
Cash and due from banks		$	523,047			$	679,798
Money market investments:
Federal funds sold and securities purchased under agreements to resell			5,066				1,140
Time deposits with other financial institutions			1,588				600
Other short-term investments			15,390				22,546
Total money market investments			22,044				24,286
Investment securities available for sale, at fair value:
Securities pledged that can be repledged			2,342,398				3,021,028
Other investment securities			1,612,512				1,149,754
Total investment securities available for sale			3,954,910				4,170,782
Investment securities held to maturity, at amortized cost:
Securities pledged that can be repledged			333,581				400,925
Other investment securities			199,721				200,694
Total investment securities held to maturity, fair value of $562,334 (December 31, 2009 — $621,584)			533,302				601,619
Other equity securities			69,843				69,930
Loans, net of allowance for loan and lease losses of $604,304 (December 31, 2009 — $528,120)			11,898,808				13,400,331
Loans held for sale, at lower of cost or market			100,626				20,775
Total loans, net			11,999,434				13,421,106
Premises and equipment, net			207,440				197,965
Other real estate owned			72,358				69,304
Accrued interest receivable on loans and investments			66,390				79,867
Due from customers on acceptances			1,036				954
Accounts receivable from investment sales			319,459				—
Other assets			346,760				312,837
Total assets		$	18,116,023			$	19,628,448
LIABILITIES
Deposits:
Non-interest-bearing deposits		$	715,166			$	697,022
Interest-bearing deposits			12,012,409				11,972,025
Total deposits			12,727,575				12,669,047
Loans payable			—				900,000
Securities sold under agreements to repurchase			2,584,438				3,076,631
Advances from the Federal Home Loan Bank (FHLB)			940,440				978,440
Notes payable (including $10,504 and $13,361 measured at fair value as of June 30, 2010 and December 31, 2009, respectively)			24,059				27,117
Other borrowings			231,959				231,959
Bank acceptances outstanding			1,036				954
Accounts payable from investment purchases			8,475				—
Accounts payable and other liabilities			159,752				145,237
Total liabilities			16,677,734				18,029,385
STOCKHOLDERS’ EQUITY
Preferred stock, authorized 50,000,000 shares: issued and outstanding 22,404,000 shares at an aggregate liquidation value of $950,100			930,830				928,508
Common stock, $1 par value, authorized 750,000,000 shares; issued 102,440,522			102,440				102,440
Less: Treasury stock (at cost)			(9,898	)			(9,898	)
Common stock outstanding, 92,542,722 shares outstanding			92,542				92,542
Additional paid-in capital			134,270				134,223
Legal surplus			299,006				299,006
(Accumulated deficit) retained earnings			(81,670	)			118,291
Accumulated other comprehensive income, net of tax expense of $11,755 (December 31, 2009 — $4,628)			63,311				26,493
Total stockholders’equity			1,438,289				1,599,063
Total liabilities and stockholders’equity		$	18,116,023			$	19,628,448

The accompanying notes are an integral part of these statements.

FIRST BANCORP

CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)

		Quarter Ended								Six-Month Period Ended
		June 30,				June 30,				June 30,				June 30,
(In thousands, except per share information)		2010				2009				2010				2009
Interest income:
Loans		$	175,070			$	185,318			$	352,503			$	373,263
Investment securities			39,170				67,345				82,289				137,632
Money market investments			624				117				1,060				208
Total interest income			214,864				252,780				435,852				511,103
Interest expense:
Deposits			63,766				79,458				129,732				174,768
Loans payable			1,265				614				3,442				960
Federal funds purchased and securities sold under agreements to repurchase			25,035				29,015				50,317				59,160
Advances from FHLB			7,587				8,317				15,281				16,609
Notes payable and other borrowings			(1,851	)			4,362				1,155				6,994
Total interest expense			95,802				121,766				199,927				258,491
Net interest income			119,062				131,014				235,925				252,612
Provision for loan and lease losses			146,793				235,152				317,758				294,581
Net interest loss after provision for loan and lease losses			(27,731	)			(104,138	)			(81,833	)			(41,969	)
Non-interest income:
Other service charges on loans			1,486				1,523				3,242				3,052
Service charges on deposit accounts			3,501				3,327				6,969				6,492
Mortgage banking activities			2,140				2,373				4,640				3,179
Net gain on sale of investments			24,240				10,305				55,604				28,143
Other-than-temporary impairment losses on investment securities:
Total other-than-temporary impairment losses			(3	)			(32,541	)			(603	)			(32,929	)
Noncredit-related impairment portion on debt securities not expected to be sold (recognized in other comprehensive income)			—				31,480				—				31,480
Net impairment losses on investment securities			(3	)			(1,061	)			(603	)			(1,449	)
Rental income			—				407				—				856
Other non-interest income			8,161				6,541				14,999				13,195
Total non-interest income			39,525				23,415				84,851				53,468
Non-interest expenses:
Employees’ compensation and benefits			30,958				34,472				62,686				68,714
Occupancy and equipment			14,451				17,448				29,302				32,222
Business promotion			3,340				3,836				5,545				6,952
Professional fees			5,604				3,342				10,891				6,528
Taxes, other than income taxes			3,817				4,017				7,638				8,018
Insurance and supervisory fees			16,606				16,622				35,124				23,294
Net loss on real estate owned (REO) operations			10,816				6,626				14,509				12,001
Other non-interest expenses			13,019				9,625				24,278				22,787
Total non-interest expenses			98,611				95,988				189,973				180,516
Loss before income taxes			(86,817	)			(176,711	)			(186,955	)			(169,017	)
Income tax (expense) benefit			(3,823	)			98,053				(10,684	)			112,250
Net loss		$	(90,640	)		$	(78,658	)		$	(197,639	)		$	(56,767	)
Net loss attributable to common stockholders		$	(96,810	)		$	(94,825	)		$	(209,961	)		$	(88,051	)
Net loss per common share:
Basic		$	(1.05	)		$	(1.03	)		$	(2.27	)		$	(0.95	)
Diluted		$	(1.05	)		$	(1.03	)		$	(2.27	)		$	(0.95	)
Dividends declared per common share		$	—			$	0.07			$	—			$	0.14

The accompanying notes are an integral part of these statements.

FIRST BANCORP

		Six-Month Period Ended
		June 30,				June 30,
(In thousands)		2010				2009
Cash flows from operating activities:
Net loss		$	(197,639	)		$	(56,767	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation			9,863				10,460
Amortization and impairment of core deposit intangible			1,297				5,856
Provision for loan and lease losses			317,758				294,581
Deferred income tax expense (benefit)			5,047				(94,057	)
Stock-based compensation recognized			47				52
Gain on sale of investments, net			(55,604	)			(28,143	)
Other-than-temporary impairments on investment securities			603				1,449
Derivatives instruments and hedging activities gain			(1,676	)			(16,302	)
Net gain on sale of loans and impairments			(526	)			(3,807	)
Net amortization of premiums and discounts and deferred loan fees and costs			802				549
Net increase in mortgage loans held for sale			(8,845	)			(27,691	)
Amortization of broker placement fees			10,787				12,146
Net amortization of premium and discounts on investment securities			3,293				5,341
Increase (decrease) in accrued income tax payable			909				(16,509	)
Decrease in accrued interest receivable			12,132				19,390
Decrease in accrued interest payable			(276	)			(19,193	)
(Increase) Decrease in other assets			(298	)			17,283
Increase in other liabilities			13,727				22,520
Total adjustments			309,040				183,925
Net cash provided by operating activities			111,401				127,158
Cash flows from investing activities:
Principal collected on loans			2,118,978				1,661,329
Loans originated			(1,141,868	)			(1,984,001	)
Purchases of loans			(87,436	)			(100,697	)
Proceeds from sale of loans			19,187				4,866
Proceeds from sale of repossessed assets			47,440				31,510
Proceeds from sale of available-for-sale securities			733,887				791,313
Purchases of securities available for sale			(1,921,842	)			(2,627,666	)
Proceeds from principal repayments and maturities of securities held to maturity			75,054				1,017,001
Proceeds from principal repayments of securities available for sale			1,278,313				511,713
Additions to premises and equipment			(19,338	)			(24,809	)
Proceeds from sale of other investment securities			10,668				—
Increase in other equity securities			(163	)			(19,285	)
Net cash provided by (used in) investing activities			1,112,880				(738,726	)
Cash flows from financing activities:
Net increase (decrease) in deposits			46,919				(1,015,725	)
Net (decrease) increase in loans payable			(900,000	)			135,000
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase			(492,193	)			709,050
Net FHLB advances (paid) taken			(38,000	)			265,000
Dividends paid			—				(39,710	)
Issuance of preferred stock and associated warrant			—				400,000
Other financing activities			—				8
Net cash (used in) provided by financing activities			(1,383,274	)			453,623
Net decrease in cash and cash equivalents			(158,993	)			(157,945	)
Cash and cash equivalents at beginning of period			704,084				405,733
Cash and cash equivalents at end of period		$	545,091			$	247,788
Cash and cash equivalents include:
Cash and due from banks		$	523,047			$	177,963
Money market instruments			22,044				69,825
		$	545,091			$	247,788

The accompanying notes are an integral part of these statements.

FIRST BANCORP

		Six-Month Period Ended
		June 30,				June 30,
(In thousands)		2010				2009
Preferred Stock:
Balance at beginning of period		$	928,508			$	550,100
Issuance of preferred stock — Series F			—				400,000
Preferred stock discount — Series F			—				(25,820	)
Accretion of preferred stock discount- Series F			2,322				1,979
Balance at end of period			930,830				926,259
Common Stock outstanding			92,542				92,546
Additional Paid-In-Capital:
Balance at beginning of period			134,223				108,299
Issuance of common stock warrants			—				25,820
Stock-based compensation recognized			47				52
Other			—				8
Balance at end of period			134,270				134,179
Legal Surplus			299,006				299,006
(Accumulated deficit) Retained Earnings:
Balance at beginning of period			118,291				440,777
Net loss			(197,639	)			(56,767	)
Cash dividends declared on common stock			—				(12,966	)
Cash dividends declared on preferred stock			—				(26,751	)
Accretion of preferred stock discount — Series F			(2,322	)			(1,979	)
Balance at end of period			(81,670	)			342,314
Accumulated Other Comprehensive Income, net of tax:
Balance at beginning of period			26,493				57,389
Other comprehensive income (loss), net of tax			36,818				(11,007	)
Balance at end of period			63,311				46,382
Total stockholders’equity		$	1,438,289			$	1,840,686

The accompanying notes are an integral part of these statements.

FIRST BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

		Quarter Ended								Six-Month Period Ended
		June 30,				June 30,				June 30,				June 30,
(In thousands)		2010				2009				2010				2009
Net loss		$	(90,640	)		$	(78,658	)		$	(197,639	)		$	(56,767	)
Unrealized losses on available-for-sale debt securities on which an other-than-temporary impairment has been recognized:
Noncredit-related impairment losses on debt securities not expected to be sold			—				(31,480	)			—				(31,480	)
Reclassification adjustment for other-than-temporary impairment on debt securities included in net income			—				1,061				—				1,061
All other unrealized gains and losses on available-for-sale securities:
All other unrealized holding gains arising during the period			70,999				6,565				88,528				49,869
Reclassification adjustments for net gain included in net income			(24,240	)			(10,305	)			(44,936	)			(28,143	)
Reclassification adjustments for other-than-temporary impairment on equity securities			3				—				353				388
Income tax expense related to items of other comprehensive income			(6,399	)			(2,210	)			(7,127	)			(2,702	)
Other comprehensive income (loss) for the period, net of tax			40,363				(36,369	)			36,818				(11,007	)
Total comprehensive loss		$	(50,277	)		$	(115,027	)		$	(160,821	)		$	(67,774	)

The accompanying notes are an integral part of these statements.

FIRST BANCORP

PART I —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

          The Consolidated Financial Statements (unaudited) have been prepared in conformity with the accounting policies stated in the Corporation’s Audited Consolidated Financial Statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these financial statements should be read in conjunction with the Audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2009, included in the Corporation’s 2009 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the statement of financial position, results of operations and cash flows for the interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation.

          The results of operations for the quarter and six-month period ended June 30, 2010 are not necessarily indicative of the results to be expected for the entire year.

Recent Developments

     Effective June 2, 2010, FirstBank, by and through its Board of Directors, entered into a Consent Order with the FDIC and the OCIF, a copy of which is attached as Exhibit 10.1 of the Form 8-K filed by the Corporation on June 4, 2010. This Order provides for various things, including (among other things) the following: (1) within 30 days of entering into the Order, the development by FirstBank of a capital plan to achieve over time a leverage ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 10% and a total risk-based capital ratio of at least 12%, (2) the preparation by FirstBank of strategic, liquidity and earnings plans and related projections within certain timetables set forth in the Order and on an ongoing basis, (3) the preparation by FirstBank of plans for reducing criticized assets and delinquent loans within timeframes set forth in the Order, (4) the requirement for First Bank board approval prior to the extension of credit to classified borrowers, (5) certain limitations with respect to brokered deposits, including the need for pre-approval by the FDIC of the issuance of brokered deposits, (6) the establishment by FirstBank of a comprehensive policy and methodology for determining the allowance for loan and lease losses and the review and revision of loan policies, including the non-accrual policy, and (7) the operation by FirstBank under adequate and effective programs of independent loan review and appraisal compliance and under an effective policy for managing sensitivity to interest rate risk. The foregoing summary is not complete and is qualified in all respects by reference to the actual language of the Order. Although all the regulatory capital ratios exceeded the established “well capitalized” levels at June 30, 2010, because of the Order with the FDIC, FirstBank cannot be treated as a “well capitalized” institution under regulatory guidance.

     Effective June 3, 2010, First BanCorp entered into the Agreement with the FED, a copy of which is attached as Exhibit 10.2 of the Form 8-K filed by the Corporation on June 4, 2010. The Agreement provides, among other things, that the holding company must serve as a source of strength to FirstBank, and that, except upon consent of the FED, the holding company may not pay dividends to stockholders or receive dividends from FirstBank, the holding company and its nonbank subsidiaries may not make payments on trust preferred securities or subordinated debt, and the holding company cannot incur, increase or guarantee debt or repurchase any capital securities. The Agreement also requires that the holding company submit a capital plan that reflects sufficient capital, which must be acceptable to the FED, and follow certain guidelines with respect to the appointment or change in responsibilities of senior officers. The foregoing summary is not complete and is qualified in all respects by reference to the actual language of the Agreement.

          The Order imposes no other restrictions on FirstBank’s products or services offered to customers, nor does it impose any type of penalties or fines upon FirstBank or the Corporation. The FDIC has granted FirstBank temporary waivers to enable it to continue accessing the brokered deposit market through September 30, 2010. FirstBank will request approvals for future periods.

          On July 7, 2010, the Corporation entered into an Exchange Agreement (the “Exchange Agreement”) with the U.S. Treasury pursuant to which the U.S. Treasury agreed, subject to the satisfaction or waiver of certain closing conditions, to exchange all 400,000 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series F, with a liquidation preference of $1,000 per share (the “Series F Preferred Stock”), beneficially owned and held by the Treasury, for 400,000 shares of a new series of preferred stock, Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series G (the “Series G Preferred Stock”), with a liquidation preference of $1,000 per share, plus additional shares of Series G Preferred Stock having a value equal to the accrued and unpaid dividends on the Series F Preferred Stock. The Corporation subsequently completed the transaction with the U.S. Treasury by issuing 424,174 shares of Series G Preferred Stock to the U.S. Treasury in exchange for the Series F Preferred Stock it previously held and

accrued dividends. The Series G Preferred Stock is convertible into approximately 380.2 million shares of the Corporation’s common stock by the Corporation upon the satisfaction of certain conditions and by the U.S. Treasury and successor holders anytime and will be mandatorily converted on the seventh year anniversary at the then market price if it is still outstanding.

Capital and Liquidity

          The Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. Sustained weak economic conditions that have severely affected Puerto Rico and the United States over the last several years have adversely impacted First BanCorp’s results of operations and capital levels. The net loss in 2009, primarily related to credit losses, the valuation allowance on deferred tax assets and an increase in the deposit insurance premium, reduced the Corporation’s capital levels during 2009. The net loss for the six-month period ended June 30, 2010 was primarily driven by credit losses. While regulatory capital ratios were not significantly impacted during the first half of 2010, the tangible common equity ratio, which is an important measure to investors and credit rating agencies, continued to decrease impacted by the net loss for the six-month period ended June 30, 2010. The tangible common equity ratio decreased from 3.20% as of December 31, 2009 to 2.57% as of June 30, 2010. The decrease in regulatory capital ratios during the six-month period ended June 30, 2010 was not significant since the net loss reported for the period was almost entirely offset by a decrease in risk-weighted assets, consistent with the Corporation’s decision to deleverage its balance sheet to preserve its capital position. As of June 30, 2010, the Corporation’s Total and Tier 1 capital ratios were 13.35% and 12.05%, respectively, compared to 13.44% and 12.16% as of December 31, 2009. Although all the regulatory capital ratios exceeded the established “well capitalized” levels at June 30, 2010, due to the Order discussed above, FirstBank cannot be treated as a “well capitalized” institution under regulatory guidance.

          The Corporation submitted capital plans to the FED and the FDIC setting forth how the Corporation and FirstBank plan to improve their capital positions to comply with the above mentioned Agreements over time. Specifically, FirstBank’s Capital Plan details how it will achieve over time a leverage ratio of at least 8%, a Tier 1 capital to risk-weighted assets ratio of at least 10% and a Total capital to risk-weighted assets ratio of at least 12%.

          The Corporation already announced that it has commenced an offer to exchange (the “Exchange Offer”) up to 256,401,610 newly issued shares of its common stock for any and all of the issued and outstanding shares of Noncumulative Perpetual Monthly Income Preferred Stock, Series A through E (the “Preferred Stock”). In addition to this exchange offer, the Corporation has been taking steps to implement strategies to increase tangible common equity and regulatory capital through (i) the issuance of approximately $500 million of equity in one or more public or private offerings (a “Capital Raise”), (ii) the conversion into common stock of the shares of Series G Preferred Stock that the Corporation issued to the U.S. Treasury on July 20, 2010 in exchange for the Series F Preferred Stock that the Corporation sold to it on January 16, 2009, and (iii) a rights offering to common stockholders. The Corporation may compel the conversion of the Series G Preferred Stock into common stock only if, among other things, by April 7, 2011, it issues common stock in the Exchange Offer for at least $385 million liquidation preference amount of the Preferred Stock and issues at least $500 million of equity in a Capital Raise. Also, the Corporation has continued to deleverage its balance sheet by reducing amounts of brokered certificates of deposit (“CDs”) and borrowings. Such reductions were partially offset by increases in retail and business deposits when comparing ending balances as of June 30, 2010 to balances as of December 31, 2009. Significant decreases in risk-weighted assets have been achieved mainly through the non-renewal of commercial loans with 100% risk weightings, such as temporary loan facilities to the Puerto Rico government and others, and through the charge-offs of portions of loans deemed uncollectible. Also, a reduced volume of loan originations contributed to partially offset the effect of net losses on capital ratios.

          Inability to complete the above mentioned Exchange Offer could hinder efforts to sell Common Stock in a Capital Raise. If holders of $385 million or approximately 70% of the liquidation preference of the Preferred Stock tender their shares of Preferred Stock in the Exchange Offer, the Corporation raises $500 million of additional capital, and the holders of the Corporation’s Common Stock approve amendments to the Articles of Incorporation, by April 7, 2011, the Corporation will meet the substantive conditions necessary to compel the U.S. Treasury to convert into Common Stock the shares of recently issued Series G Preferred Stock. Completing the Capital Plan initiatives would result in dilution to the Corporation’s current stockholders. If the Corporation needs to continue to recognize significant reserves and cannot complete a Capital Raise, the Corporation and FirstBank may not be able to comply with the minimum capital requirements included in the capital plans required by the Agreements. In that case, the Corporation would implement other capital preservation strategies, including among others, an accelerated deleverage strategy and the divesture of profitable businesses, which could allow us to meet the minimum capital requirements included in the capital plans required by the Agreements. The Corporation anticipates that it will need to continue to dedicate significant resources and efforts to comply with these Agreements, which may increase operational costs or adversely affect the amount of time management has to conduct operations.

          Both the Corporation and the Bank actively manage liquidity and cash flow needs. The Corporation does not have any unsecured debt maturing during the remaining of 2010; additionally, it suspended common and preferred dividends to stockholders effective August 2009. As of June 30, 2010, the holding company had $52.6 million of cash and cash equivalents. Cash and cash equivalents at the Bank as of June 30, 2010 were approximately $544.8 million. The Bank has $484.4 million in repurchase

agreements maturing over the next year, of which $184.4 million mature in the next 30 days, and $7.2 million in notes that mature prior to June 30, 2011. In addition, it had $7.1 billion in brokered deposits as of June 30, 2010 of which $3.5 billion mature over the next year. Liquidity at the bank level is highly dependent on bank deposits which fund 70.64% of the Bank’s assets (or 31.39% excluding brokered CDs). As of June 30, 2010, the Bank held approximately $1.1 billion of readily pledgeable or saleable investment securities.

          The Corporation’s credit as a long-term issuer is currently rated CCC+ by Standard & Poor’s (“S&P”) and B- by Fitch Ratings Limited (“Fitch”); both with negative outlook. At the FirstBank subsidiary level, long-term issuer rating is currently B3 by Moody’s Investor Service (“Moody’s”), six notches below their definition of investment grade; CCC+ by S&P seven notches below their definition of investment grade, and B- by Fitch, six notches below their definition of investment grade. The outlook on the Bank’s credit ratings from the three rating agencies is negative. During the second quarter of 2010, the Corporation and its subsidiary bank suffered credit rating downgrades from Moody’s (B1 to B3), S&P (B to CCC+), and Fitch (B to B-) rating services. Furthermore, on June 2010, Moody’s and Fitch placed the Corporation on “Credit Watch Negative” and S&P placed a “Negative Outlook”. The Corporation does not have any outstanding debt or derivative agreements that would be affected by the recent credit downgrades. Furthermore, given our non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume to credit ratings, the liquidity of the Corporation so far has also not been affected in any material way by the downgrades. The Corporation’s ability to access new non-deposit funding, however, could be adversely affected by these credit ratings and any additional downgrades.

          Based on current and expected liquidity needs and sources, management expects First BanCorp to be able to meet its obligations for a reasonable period of time. The Corporation has $3.5 billion of brokered CDs maturing within twelve months from June 30, 2010. Management anticipates it will continue to obtain waivers from the restrictions to issue brokered CDs under the Order to meet its obligations and execute its business plans. If unanticipated market factors emerge, or if the Corporation is unable to raise additional capital or complete the identified aforementioned capital preservation initiatives, successfully execute its plans, issue a sufficient amount of brokered deposits or comply with the Order, its banking regulators could take further action, which could include actions that may have a material adverse effect on the Corporation’s business, results of operations and financial position.

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

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

          In June 2009, the FASB amended the existing guidance on the accounting for transfers of financial assets, to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets, the effects of a transfer on its financial position, financial performance, and cash flows, and a transferor’s continuing involvement, if any, in transferred financial assets. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Subsequently in December 2009, the FASB amended the existing guidance issued in June 2009. Among the most significant changes and additions to this guidance are changes to the conditions for sales of a financial asset based on whether a transferor and its consolidated affiliates included in the financial statements have surrendered control over the transferred financial asset or third party beneficial interest; and the addition of the term participating interest, which represents a proportionate (pro rata) ownership interest in an entire financial asset. The Corporation adopted the guidance with no material impact on its financial statements.

          In June 2009, the FASB amended the existing guidance on the consolidation of variable interests to improve financial reporting by enterprises involved with variable interest entities and address (i) the effects of the elimination of the qualifying special-purpose entity concept in the accounting for transfer of financial assets guidance, and (ii) constituent concerns about the application of certain key provisions of the guidance, including those in which the accounting and disclosures do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Subsequently in December 2009, the FASB amended the existing guidance issued in June 2009. Among the most significant changes and additions to the guidance is the replacement of the quantitative based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity. The Corporation adopted the guidance with no material impact on its financial statements.

          In January 2010, the FASB updated the Accounting Standards Codification (“Codification”) to provide guidance to improve disclosure requirements related to fair value measurements and require reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements.

Currently, entities are only required to disclose activity in Level 3 measurements in the fair-value hierarchy on a net basis. The FASB also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. Entities are required to separately disclose significant transfers into and out of Level 1 and Level 2 measurements in the fair-value hierarchy and the reasons for the transfers. Significance will be determined based on earnings and total assets or total liabilities or, when changes in fair value are recognized in other comprehensive income, based on total equity. A reporting entity must disclose and consistently follow its policy for determining when transfers between levels are recognized. Acceptable methods for determining when to recognize transfers include: (i) actual date of the event or change in circumstances causing the transfer; (ii) beginning of the reporting period; and (iii) end of the reporting period. The guidance requires disclosure of fair-value measurements by “class” instead of “major category.” A class is generally a subset of assets and liabilities within a financial statement line item and is based on the specific nature and risks of the assets and liabilities and their classification in the fair-value hierarchy. When determining classes, reporting entities must also consider the level of disaggregated information required by other applicable GAAP. For fair-value measurements using significant observable inputs (Level 2) or significant unobservable inputs (Level 3), this guidance requires reporting entities to disclose the valuation technique and the inputs used in determining fair value for each class of assets and liabilities. If the valuation technique has changed in the reporting period (e.g., from a market approach to an income approach) or if an additional valuation technique is used, entities are required to disclose the change and the reason for making the change. Except for the detailed Level 3 roll forward disclosures, the guidance is effective for annual and interim reporting periods beginning after December 15, 2009 (first quarter of 2010 for public companies with calendar year-ends). The new disclosures about purchases, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010 (first quarter of 2011 for public companies with calendar year-ends). Early adoption is permitted. In the initial adoption period, entities are not required to include disclosures for previous comparative periods; however, they are required for periods ending after initial adoption. The Corporation adopted the guidance in the first quarter of 2010 and the required disclosures are presented in Note 19 — Fair Value.

          In February 2010, the FASB updated the Codification to provide guidance to improve disclosure requirements related to the recognition and disclosure of subsequent events. The amendment establishes that an entity that either (a) is an SEC filer or (b) is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets) is required to evaluate subsequent events through the date that the financial statements are issued. If an entity meets neither of those criteria, then it should evaluate subsequent events through the date the financial statements are available to be issued. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. Also, the scope of the reissuance disclosure requirements has been refined to include revised financial statements only. Revised financial statements include financial statements revised either as a result of the correction of an error or retrospective application of U.S. generally accepted accounting principles. The guidance in this update was effective on the date of issuance in February. The Corporation has adopted this guidance; refer to Note 24 — Subsequent events.

          In February 2010, the FASB updated the Codification to provide guidance on the deferral of consolidation requirements for a reporting entity’s interest in an entity (1) that has all the attributes of an investment company or (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. The deferral does not apply in situations in which a reporting entity has the explicit or implicit obligation to fund losses of an entity that could potentially be significant to the entity. The deferral also does not apply to interests in securitization entities, asset-backed financing entities, or entities formerly considered qualifying special purpose entities. In addition, the deferral applies to a reporting entity’s interest in an entity that is required to comply or operate in accordance with requirements similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. An entity that qualifies for the deferral will continue to be assessed under the overall guidance on the consolidation of variable interest entities. The guidance also clarifies that for entities that do not qualify for the deferral, related parties should be considered for determining whether a decision maker or service provider fee represents a variable interest. In addition, the requirements for evaluating whether a decision maker’s or service provider’s fee is a variable interest are modified to clarify the FASB’s intention that a quantitative calculation should not be the sole basis for this evaluation. The guidance was effective for interim and annual reporting periods beginning after November 15, 2009. The adoption of this guidance did not have an impact in the Corporation’s consolidated financial statements.

          In March 2010, the FASB updated the Codification to provide clarification on the scope exception related to embedded credit derivatives related to the transfer of credit risk in the form of subordination of one financial instrument to another. The transfer of credit risk that is only in the form of subordination of one financial instrument to another (thereby redistributing credit risk) is an embedded derivative feature that should not be subject to potential bifurcation and separate accounting. The amendments address how to determine which embedded credit derivative features, including those in collateralized debt obligations and synthetic collateralized debt obligations, are considered to be embedded derivatives that should not be analyzed under this guidance. The Corporation may elect the fair value option for any investment in a beneficial interest in a securitized financial asset. The guidance is effective for the first fiscal quarter beginning after June 15, 2010. The Corporation is currently evaluating the impact, if any, of the adoption of this guidance on its financial statements.

          In April 2010, the FASB updated the codification to provide guidance on the effects of a loan modification when a loan is part of a pool that is accounted for as a single asset. Modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt

restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments in this Update are effective for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively and early application is permitted. The Corporation is currently evaluating the impact, if any, of the adoption of this guidance on its financial statements.

          In July 2010, the FASB updated the codification to expand the disclosure requirements regarding credit quality of financing receivables and the allowance for credit losses. The objectives of the enhanced disclosures are to provide information that will enable readers of financial statements to understand the nature of credit risk in a company’s financing receivables, how that risk is analyzed in determining the related allowance for credit losses and changes to the allowance during the reporting period. An entity should provide disclosures on a disaggregated basis defined as a portfolio segment and class of financing receivable. The amendments in this Update are effective for both interim and annual reporting period ending after December 15, 2010. The Corporation is currently evaluating the impact of the adoption of this guidance on its financial statements.

     2 — EARNINGS PER COMMON SHARE

          The calculations of earnings per common share for the quarters and six-month periods ended on June 30, 2010 and 2009 are as follows:

		Quarter Ended								Six-Month Period Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
		(In thousands, except per share information)
Net Loss:
Net loss		$	(90,640	)		$	(78,658	)		$	(197,639	)		$	(56,767	)
Less: Preferred stock dividends (1)			(5,000	)			(15,069	)			(10,000	)			(29,305	)
Less: Preferred stock discount accretion			(1,170	)			(1,097	)			(2,322	)			(1,979	)
Net loss attributable to common stockholders		$	(96,810	)		$	(94,824	)		$	(209,961	)		$	(88,051	)
Weighted-Average Shares:
Basic weighted-average common shares outstanding			92,521				92,511				92,521				92,511
Average potential common shares			—				—				—				—
Diluted weighted-average number of common shares outstanding			92,521				92,511				92,521				92,511
Loss per common share:
Basic		$	(1.05	)		$	(1.03	)		$	(2.27	)		$	(0.95	)
Diluted		$	(1.05	)		$	(1.03	)		$	(2.27	)		$	(0.95	)

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

          Potential common shares consist of common stock issuable under the assumed exercise of stock options, unvested shares of restricted stock, and outstanding warrants using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from the exercise, in addition to the amount of compensation cost attributable to future services, are used to purchase common stock at the exercise date. The difference between the number of potential shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Stock options, unvested shares of restricted stock, and outstanding warrants that result in lower potential shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect on earnings per share. For the quarter and six-month periods ended June 30, 2010 and 2009, there were 2,073,200 and 3,910,910, respectively, outstanding stock options, as well as warrants outstanding to purchase 5,842,259 shares of common stock related to the TARP Capital Purchase Program that were excluded from the computation of diluted earnings per common share because the Corporation reported a net loss attributable to common stockholders for the periods and their inclusion would have an antidilutive effect. Approximately 21,477 and 36,243 unvested shares of restricted stock outstanding as of June 30, 2010 and 2009 were excluded from the computation of earnings per share.

3 — STOCK OPTION PLAN

          Between 1997 and January 2007, the Corporation had a stock option plan (“the 1997 stock option plan”) that authorized the granting of up to 8,696,112 options on shares of the Corporation’s common stock to eligible employees. The options granted under the plan could not exceed 20% of the number of common shares outstanding. Each option provides for the purchase of one share of common stock at a price not less than the fair market value of the stock on the date the option was granted. Stock options were fully vested upon grant. The maximum term to exercise the options is ten years. The stock option plan provides for a proportionate adjustment in the exercise price and the number of shares that can be purchased in the event of a stock dividend, stock split, reclassification of stock, merger or reorganization and certain other issuances and distributions such as stock appreciation rights.

          Under the 1997 stock option plan, the Compensation and Benefits Committee (the “Compensation Committee”) had the authority to grant stock appreciation rights at any time subsequent to the grant of an option. Pursuant to stock appreciation rights, the optionee surrenders the right to exercise an option granted under the plan in consideration for payment by the Corporation of an amount equal to the excess of the fair market value of the shares of common stock subject to such option surrendered over the total option price of such shares. Any option surrendered is cancelled by the Corporation and the shares subject to the option are not eligible for further grants under the option plan. On January 21, 2007, the 1997 stock option plan expired; all outstanding awards granted under this plan continue in full force and effect, subject to their original terms. No awards for shares could be granted under the 1997 stock option plan as of its expiration.

          On April 29, 2008, the Corporation’s stockholders approved the First BanCorp 2008 Omnibus Incentive Plan (the “Omnibus Plan”). The Omnibus Plan provides for equity-based compensation incentives (the “awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other stock-based awards. This plan allows the issuance of up to 3,800,000 shares of common stock, subject to adjustments for stock splits, reorganization and other similar events. The Corporation’s Board of Directors, upon receiving the relevant recommendation of the Compensation Committee, has the power and authority to determine those eligible to receive awards and to establish the terms and conditions of any awards subject to various limits and vesting restrictions that apply to individual and aggregate awards. Shares delivered pursuant to an award may consist, in whole or in part, of authorized and unissued shares of Common Stock or shares of Common Stock acquired by the Corporation. During the fourth quarter of 2008, the Corporation granted 36,243 shares of restricted stock with a fair value of $8.69 under the Omnibus Plan to the Corporation’s independent directors, of which 4,027 were forfeited in the second half of 2009 and 10,739 have vested.

          For the quarter and six-month period ended June 30, 2010, the Corporation recognized $23,333 and $46,666, respectively, of stock-based compensation expense related to the aforementioned restricted stock awards. The total unrecognized compensation cost related to the non-vested restricted shares was $167,223 as of June 30, 2010 and is expected to be recognized over the next 1.4 years.

          There were no stock options granted during 2010 and 2009, therefore, no compensation associated with stock options was recorded in those years.

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

The activity of stock options for the six-month periods ended June 30, 2010 is set forth below:

		Six month period ended
		June 30, 2010
										Weighted-Average
										Remaining				Aggregate
		Number of				Weighted-Average				Contractual Term				Intrinsic Value
		Options				Exercise Price				(Years)				(In thousands)
Beginning of period			2,481,310			$	13.46
Options cancelled			(408,110	)			14.61
End of period outstanding and exercisable			2,073,200			$	13.24				4.8			$	—

No stock options were exercised during the first half of 2010 or 2009.

4 — INVESTMENT SECURITIES

Investment Securities Available for Sale

          The amortized cost, non-credit loss component of other-than-temporary impairment (“OTTI”) on securities recorded in other comprehensive income (“OCI”), gross unrealized gains and losses recorded in OCI, approximate fair value, weighted-average yield and contractual maturities of investment securities available for sale as of June 30, 2010 and December 31, 2009 were as follows:

		June 30, 2010																								December 31, 2009
						Non-Credit																								Non-Credit
						Loss Component				Gross												Weighted								Loss Component				Gross												Weighted
		Amortized				of OTTI				Unrealized								Fair				average				Amortized				of OTTI				Unrealized								Fair				average
		cost				Recorded in OCI				gains				losses				value				yield%				cost				Recorded in OCI				gains				losses				value				yield%
		(Dollars in thousands)
U.S. Treasury securities:
After 1 to 5 years		$	599,929			$	—			$	8,444			$	—			$	608,373				1.34			$	—			$	—			$	—			$	—			$	—				—
Obligations of U.S. Government sponsored agencies:
After 1 to 5 years			685,921				—				4,573								690,494				1.73				1,139,577				—				5,562				—				1,145,139				2.12
Puerto Rico Government obligations:
Due within one year			12,032				—				—				30				12,002				1.78				12,016				—				1				28				11,989				1.82
After 1 to 5 years			113,302				—				411				—				113,713				5.40				113,232				—				302				47				113,487				5.40
After 5 to 10 years			7,115				—				344				—				7,459				5.88				6,992				—				328				90				7,230				5.88
After 10 years			5,164				—				99				—				5,263				6.24				3,529				—				91				—				3,620				5.42
United States and Puerto Rico Government obligations			1,423,463				—				13,871				30				1,437,304				1.90				1,275,346				—				6,284				165				1,281,465				2.44
Mortgage-backed securities:
FHLMC certificates:
Due within one year			3				—				—				—				3				4.14				—				—				—				—				—				—
After 1 to 5 years			—				—				—				—				—				—				30				—				—				—				30				5.54
After 10 years			322,882				—				10,535				—				333,417				3.94				705,818				—				18,388				1,987				722,219				4.66
			322,885				—				10,535				—				333,420				3.94				705,848				—				18,388				1,987				722,249				4.66
GNMA certificates:
After 1 to 5 years			52				—				—				—				52				6.55				69				—				3				—				72				6.56
After 5 to 10 years			1,516				—				85				—				1,601				4.81				808				—				39				—				847				5.47
After 10 years			886,183				—				34,505				—				920,688				4.51				407,565				—				10,808				980				417,393				5.12
			887,751				—				34,590				—				922,341				4.51				408,442				—				10,850				980				418,312				5.12
FNMA certificates:
After 5 to 10 years			88,424				—				5,161				—				93,585				4.51				101,781				—				3,716				91				105,406				4.55
After 10 years			921,990				—				38,188				—				960,178				4.14				1,374,533				—				30,629				2,776				1,402,386				4.51
			1,010,414				—				43,349				—				1,053,763				4.16				1,476,314				—				34,345				2,867				1,507,792				4.51
Collateralized Mortgage Obligations issued or guaranteed by FHLMC, FNMA and GNMA:
After 10 years			125,522				—				1,598				—				127,120				1.08				156,086				—				633				412				156,307				0.99
Other mortgage pass-through trust certificates:
After 10 years			109,732				28,875				1				—				80,858				2.51				117,198				32,846				2				—				84,354				2.30
Total mortgage-backed securities			2,456,304				28,875				90,073				—				2,517,502				4.03				2,863,888				32,846				64,218				6,246				2,889,014				4.35
Equity securities (without contractual maturity) (1)			77				—				27				—				104				—				427				—				81				205				303				—
Total investment securities available for sale		$	3,879,844			$	28,875			$	103,971			$	30			$	3,954,910				3.25			$	4,139,661			$	32,846			$	70,583			$	6,616			$	4,170,782				3.76

          Maturities of mortgage-backed securities are based on contractual terms assuming no prepayments. Expected maturities of investments might differ from contractual maturities because they may be subject to prepayments and/or call options as was the case with approximately $951 million of investment securities (mainly U.S. agency debt securities) called during 2010. The weighted-average yield on investment securities available for sale is based on amortized cost and, therefore, does not give effect to changes in fair value. The net unrealized gain or loss on securities available for sale and the non-credit loss component of OTTI are presented as part of OCI.

          The following tables show the Corporation’s available-for-sale investments’ fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2010 and December 31, 2009. It also includes debt securities for which an OTTI was recognized and only the amount related to a credit loss was recognized in earnings:

		As of June 30, 2010
		Less than 12 months								12 months or more								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
Debt securities
Puerto Rico Government obligations		$	11,952			$	30			$	—			$	—			$	11,952			$	30
Mortgage-backed securities
GNMA			52				—				—				—				52				—
Other mortgage pass-through trust certificates			—				—				80,628				28,875				80,628				28,875
		$	12,004			$	30			$	80,628			$	28,875			$	92,632			$	28,905

		As of December 31, 2009
		Less than 12 months								12 months or more								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
Debt securities
Puerto Rico Government obligations		$	14,760			$	118			$	9,113			$	47			$	23,873			$	165
Mortgage-backed securities
FHLMC			236,925				1,987				—				—				236,925				1,987
GNMA			72,178				980				—				—				72,178				980
FNMA			415,601				2,867				—				—				415,601				2,867
Collateralized mortgage obligations issued or guaranteed by FHLMC, FNMA and GNMA			105,075				412				—				—				105,075				412
Other mortgage pass-through trust certificates			—				—				84,105				32,846				84,105				32,846
Equity securities			90				205				—				—				90				205
		$	844,629			$	6,569			$	93,218			$	32,893			$	937,847			$	39,462