The Corporation is subject to various regulatory capital requirements imposed by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets and liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments and adjustment by the regulators with respect to minimum capital requirements, components, risk weightings, and other factors.

First BanCorp. is subject to a Written Agreement that the Corporation entered into with the New York FED on June 3, 2010. The Written Agreement provides, among other things, that the holding company must serve as a source of strength to FirstBank, and that, except with the consent generally of the New York FED and Federal Reserve Board, (1) the holding company may not pay dividends to stockholders or receive dividends from FirstBank, (2) the holding company and its nonbank subsidiaries may not make payments on trust-preferred securities or subordinated debt, and (3) the holding company cannot incur, increase, or guarantee debt or repurchase any capital securities. The Written Agreement also required that the holding company submit a capital plan acceptable to the New York FED that reflected sufficient capital at First BanCorp. on a consolidated basis 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 Written Agreement.

The Corporation submitted its Capital Plan setting forth its plans for how to improve its capital positions to comply with the Written Agreement over time. In addition to the Capital Plan, the Corporation submitted to its regulators a liquidity and brokered CD plan, including a contingency funding plan, a non-performing asset reduction plan, a budget and profit plan, a strategic plan, and a plan for the reduction of classified and special mention assets. As of March 31, 2016, the Corporation had completed all of the items included in the Capital Plan and is continuing to work on reducing non-performing loans. The Written Agreement also requires the submission to the regulators of quarterly progress reports.

Although the Corporation and FirstBank became subject to the U.S. Basel III capital rules (“Basel III rules”) beginning on January 1, 2015, certain requirements of the U.S. Basel III rules will be phased in over several years. The phase-in period for certain deductions and adjustments to regulatory capital (such as certain intangible assets and deferred tax assets that arise from net operating losses and tax credit carryforwards) will be completed on January 1, 2018. The Corporation and FirstBank compute risk-weighted assets using the Standardized Approach required by the Basel III rules.

The Basel III rules require the Corporation to maintain an additional capital conservation buffer of 2.5% to avoid limitations on both (i) capital distributions (e.g. repurchases of capital instruments or dividend or interest payments on capital instruments), and (ii) discretionary bonus payments to executive officers and heads of major business lines. The phase-in of the capital conservation buffer began on January 1, 2016 with a first year requirement of 0.625% of additional Common Equity Tier 1 Capital (“CET1”), which will be progressively increased over a four-year period, increasing by that same percentage amount on each subsequent January 1 until it reaches the fully phased-in 2.5% CET1 requirement on January 1, 2019.

Under the fully phased-in Basel III rules, the Corporation will be required to maintain: (i) a minimum CET1 capital to risk-weighted assets ratio of at least 4.5%, plus the 2.5% “capital conservation buffer,” resulting in a required minimum CET1 ratio of at least 7%, (ii) a minimum ratio of total Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum Tier 1 capital ratio of 8.5%, (iii) a minimum ratio of total Tier 1 plus Tier 2 capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum total capital ratio of 10.5%, and (iv) a required minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average on-balance sheet (non-risk adjusted) assets.

In addition, as required under the Basel III rules, the Corporation's trust preferred securities (“TRuPs”) were fully phased out from Tier 1 capital on January 1, 2016. However, the Corporation's TRuPs may continue to be included in Tier 2 capital until the instruments are redeemed or mature.

In March 2016, the FDIC adopted a final rule that will impose on banks with at least $10 billion in assets a deposit insurance assessment surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The final rule which becomes effective on July 1, 2016, will apply to FirstBank.

Please refer to the discussion in “Part I – Item 7 – Business – Supervision and Regulation” in the Corporation's 2015 Form 10-K for a more complete discussion of supervision and regulatory matters and activities that affect the Corporation and its subsidiaries. .

	The Corporation's and its banking subsidiary's regulatory capital positions as of March 31, 2016 and December 31, 2015 were as follows:

		Regulatory Requirements

		Actual			For Capital Adequacy Purposes			To be Well-Capitalized-Regular Thresholds
		Actual			For Capital Adequacy Purposes			To be Well-Capitalized-Regular Thresholds
		Amount		Ratio	Amount		Ratio	Amount		Ratio

		(Dollars in thousands)
As of March 31, 2016
Total Capital (to
Risk-Weighted Assets)
First BanCorp.		$	1,842,251	20.17%	$	730,576	8.0%		N/A	N/A
FirstBank		$	1,823,238	19.97%	$	730,277	8.0%	$	912,846	10.0%
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
First BanCorp.		$	1,516,041	16.60%	$	410,949	4.5%		N/A	N/A
FirstBank		$	1,474,364	16.15%	$	410,781	4.5%	$	593,350	6.5%
Tier I Capital (to
Risk-Weighted Assets)
First BanCorp.		$	1,516,041	16.60%	$	547,932	6.0%		N/A	N/A
FirstBank		$	1,706,771	18.70%	$	547,708	6.0%	$	730,277	8.0%
Leverage ratio
First BanCorp.		$	1,516,041	12.20%	$	497,157	4.0%		N/A	N/A
FirstBank		$	1,706,771	13.75%	$	496,530	4.0%	$	620,662	5.0%

As of December 31, 2015
Total Capital (to
Risk-Weighted Assets)
First BanCorp.		$	1,828,559	20.01%	$	731,164	8.0%		N/A	N/A
FirstBank		$	1,802,711	19.73%	$	730,824	8.0%	$	913,530	10.0%
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
First BanCorp.		$	1,546,678	16.92%	$	411,280	4.5%		N/A	N/A
FirstBank		$	1,493,478	16.35%	$	411,088	4.5%	$	593,794	6.5%
Tier I Capital (to
Risk-Weighted Assets)
First BanCorp.		$	1,546,678	16.92%	$	548,373	6.0%		N/A	N/A
FirstBank		$	1,685,656	18.45%	$	548,118	6.0%	$	730,824	8.0%
Leverage ratio
First BanCorp.		$	1,546,678	12.22%	$	506,322	4.0%		N/A	N/A
FirstBank		$	1,685,656	13.33%	$	505,648	4.0%	$	632,060	5.0%

The Corporation enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments may include commitments to extend credit and commitments to sell mortgage loans at fair value. As of March 31, 2016, commitments to extend credit amounted to approximately $1.2 billion, of which $644.2 million relates to credit card loans. Commercial and Financial standby letters of credit amounted to approximately $37.6 million. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since certain commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to additional disbursements. In the case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at any time and without cause. Generally, the does not enter into interest rate lock agreements with prospective borrowers in connection with its mortgage banking activities.

As of March 31, 2016, First BanCorp. and its subsidiaries were defendants in various legal proceedings arising in the ordinary course of business. Management believes that the final disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Corporation's financial position, results of operations or cash flows.