First Bancorp: Form 10-K for the period ended Dec 31, 2023

Business

GENERAL

First BanCorp. is a publicly owned financial holding company that is subject to regulation, supervision and examination by the

Federal Reserve Board. The Corporation was incorporated under the laws of the Commonwealth of Puerto Rico in 1948 to serve as the

bank holding company for FirstBank. Through its subsidiaries, including FirstBank, the Corporation provides full-service commercial

and consumer banking services, mortgage banking services, automobile financing, insurance agency services, and other financial

products and services in Puerto Rico, the U.S., the USVI and the BVI. As of December 31, 2023, the Corporation had total assets of

$18.9 billion, including loans of $12.2 billion, total deposits of $16.6 billion, and total stockholders’ equity of $1.5 billion.

The Corporation has two wholly-owned subsidiaries: FirstBank and FirstBank Insurance Agency, Inc. (“FirstBank Insurance

Agency”). FirstBank is a Puerto Rico-chartered commercial bank, and FirstBank Insurance Agency is a Puerto Rico-chartered

insurance agency.

FirstBank is subject to the supervision, examination and regulation of both the Office of the Commissioner of Financial Institutions

of Puerto Rico (“OCIF”) and the FDIC. Deposits are insured through the FDIC Deposit Insurance Fund (the “DIF”). In addition,

within FirstBank, the Bank’s USVI operations are subject to regulation and examination by the USVI Division of Banking Insurance,

and Financial Regulation; its BVI operations are subject to regulation by the BVI Financial Services Commission; and its operations

in the state of Florida are subject to regulation and examination by the Florida Office of Financial Regulation. The Consumer

Financial Protection Bureau (“CFPB”) regulates FirstBank’s consumer financial products and services. FirstBank Insurance Agency

is subject to the supervision, examination and regulation of the Office of the Insurance Commissioner of the Commonwealth of Puerto

Rico (the “Insurance Commissioner of Puerto Rico”) and the Division of Banking, Insurance and Financial Regulation in the USVI.

FirstBank conducts its business through its main office located in San Juan, Puerto Rico, 58 banking branches in Puerto Rico, eight

banking branches in the USVI and the BVI, and eight banking branches in the state of Florida. FirstBank has six wholly-owned

subsidiaries with operations in Puerto Rico: First Federal Finance Corp. (d/b/a Money Express La Financiera), a finance company

specializing in the origination of small loans with 25 offices in Puerto Rico; First Management of Puerto Rico, a Puerto Rico

corporation, which holds tax-exempt assets; FirstBank Overseas Corporation, an international banking entity (an “IBE”) organized

under the International Banking Entity Act of Puerto Rico; two companies engaged in the operation of certain real estate owned

(“OREO”) properties and limited liability corporation organized in 2022 under the laws of the Commonwealth of Puerto Rico and

Puerto Rico Tax Incentive Code (“Act 60 of 2019”), which commenced operations in 2023 and engages in qualified investing and

lending transactions.

For a discussion of certain significant events that have occurred in the year ended December 31, 2023, please refer to “Significant

Events” included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this

Form 10-K.

BUSINESS SEGMENTS

The Corporation has six reportable segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking;

Treasury and Investments; United States Operations; and Virgin Islands Operations. These segments are described below, as well as in

Note 27 – “Segment Information” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Commercial and Corporate Banking

The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers

represented by specialized and middle-market clients and the government sector in the Puerto Rico region. The Commercial and

Corporate Banking segment offers commercial loans, including commercial real estate and construction loans, as well as other

products, such as cash management and business management services. A substantial portion of the commercial and corporate

banking portfolio is secured by the underlying real estate collateral and the personal guarantees of the borrowers.

Mortgage Banking

The Mortgage Banking segment consists of the origination, sale and servicing of a variety of residential mortgage loan products and

related hedging activities in the Puerto Rico region. Originations are sourced through different channels, such as FirstBank branches

and purchases from mortgage bankers, and in association with new project developers. The Mortgage Banking segment focuses on

originating residential real estate loans, some of which conform to the U.S. Federal Housing Administration (the “FHA”), the U.S.

Veterans Administration (the “VA”) and the U.S. Department of Agriculture Rural Development (the “RD”) standards. Originated loans that meet the FHA’s standards qualify for the FHA’s insurance program whereas loans that meet the standards of the VA or the

RD are guaranteed by those respective federal agencies.

Mortgage loans that do not qualify under the FHA, the VA or the RD programs are referred to as conventional loans. Conventional

real estate loans can be conforming or non-conforming. Conforming loans are residential real estate loans that meet the standards for

sale under the U.S. Federal National Mortgage Association (“FNMA”) and the U.S. Federal Home Loan Mortgage Corporation

(“FHLMC”) programs. Loans that do not meet FNMA or FHLMC standards are referred to as non-conforming residential real estate

loans. The Mortgage Banking segment also acquires and sells mortgages in the secondary markets. Residential real estate conforming

loans are sold to investors like FNMA and FHLMC. Most of the Corporation’s residential mortgage loan portfolio consists of fixed-

rate, fully amortizing, full documentation loans. The Corporation has commitment authority to issue Government National Mortgage

Association (“GNMA”) mortgage-backed securities (“MBS”). Under this program, the Corporation has been selling FHA/VA

mortgage loans into the secondary market since 2009.

Consumer (Retail) Banking

The Consumer (Retail) Banking segment consists of the Corporation’s consumer lending and deposit-taking activities conducted

mainly through FirstBank’s branch network , ATMs and online banking in the Puerto Rico region. Loans to consumers include auto

loans, finance leases, boat and personal loans, credit card loans, and lines of credit. Deposit products include interest-bearing and non-

interest-bearing checking and savings accounts, Individual Retirement Accounts (“IRAs”) and retail certificates of deposit (“retail

CDs”). Retail deposits gathered through each branch of FirstBank’s retail network serve as one of the funding sources for its lending

and investment activities. This segment also includes the Corporation’s insurance agency activities in the Puerto Rico region through

FirstBank Insurance Agency.

Treasury and Investments

The Treasury and Investments segment is responsible for the Corporation’s treasury and investment management functions. The

treasury function, which includes funding and liquidity management, lends funds to the Commercial and Corporate Banking, the

Mortgage Banking, the Consumer (Retail) Banking and the United States Operations segments to finance their respective lending

activities and borrows from those segments. The Treasury and Investments segment also obtains funding through brokered deposits,

advances from the FHLB, and repurchase agreements involving investment securities, among other possible funding sources.

United States Operations

The United States Operations segment consists of all banking activities conducted by FirstBank on the U.S. mainland. FirstBank

provides a wide range of banking services to individual and corporate customers, primarily in southern Florida through eight banking

branches. The United States Operations segment offers an array of both consumer and commercial banking products and services.

Consumer banking products include checking, savings and money market accounts, retail CDs, internet banking services, residential

mortgages, home equity loans, and lines of credit. Retail deposits, as well as FHLB advances and brokered CDs assigned to this

segment, serve as funding sources for its lending activities.

Commercial banking services include checking, savings and money market accounts, retail CDs, internet banking services, cash

management services, remote deposit capture, and automated clearing house (“ACH”) transactions. Loan products include the

traditional commercial and industrial (“C&I”) and commercial real estate products, such as lines of credit, term loans and construction

loans.

Virgin Islands Operations

The Virgin Islands Operations segment consists of all banking activities conducted by FirstBank in the USVI and the BVI regions,

including consumer and commercial banking services, with a total of eight banking branches serving the islands of St. Thomas, St.

Croix, and St. John in the USVI, and the island of Tortola in the BVI. The Virgin Islands Operations segment is driven by its

consumer, commercial lending and deposit -taking activities.

Loans to consumers include auto loans, lines of credit, and personal and residential mortgage loans. Deposit products include

interest-bearing and non-interest-bearing checking and savings accounts, IRAs, and retail CDs. Retail deposits gathered through each

branch serve as the funding sources for its own lending activities.

CORPORATE SUSTAINABILITY PROGRAM OVERVIEW

The Corporation is committed to supporting our clients, employees, shareholders and communities in which we serve. Our

Corporate Sustainability program, which includes environmental, social and governance (“ESG”) matters, builds on the Corporation’s

core values, including being a socially responsible company. The Corporation sees effective ESG management as a critical step

towards a sustainable, inclusive and successful future.

During 2021, the Corporation adopted an ESG framework through which it established and communicated its corporate

sustainability strategy and overarching governance policy. In 2023, the Corporation continued evolving its Corporate Sustainability

program, including the publication of its annual First BanCorp. Corporate Sustainability Report for 2022 (the “2022 Report”). The

2022 Report disclosed information on a wide range of ESG topics, including governance and oversight; business ethics and

compliance; responsible marketing and sales practices; ESG integration in credit analysis; data security and cyber management;

people and culture; community impact; and environmental stewardship.

ESG Governance

The Corporation’s Board of Directors and executive leadership team share responsibilities relating to oversight of our ESG policies

and practices. In February 2022, the Corporate Governance and Nominating Committee of the Board of Directors amended its charter

to include oversight responsibility of ESG matters, and it has primary oversight of ESG policies, practices and disclosures.

Nonetheless, other committees of the Corporation’s Board of Directors also play a role in ESG oversight in matters related to risk and

cybersecurity management, human capital management, investment management and credit risk management.

As part of the ESG governance structure set forth in FirstBanCorp.’s Sustainability Policy, which was approved by the

Corporation’s Board of Directors in 2022, the responsibility of day-to-day management of our ESG framework and strategy has been

delegated to a management-level ESG Committee, comprised of leaders from different areas, such as Human Resources, Enterprise

Risk Management, Strategic Planning and Investor Relations, Legal and Corporate Affairs, Marketing, Compliance, Finance, and

Corporate Internal Audit. The ESG Committee is tasked with aligning priorities and initiatives for the year, setting and monitoring

long-term objectives and goals, and leading the annual reporting process on ESG related topics. The ESG Committee reports to the

Corporate Governance and Nominating Committee of the Board of Directors.

HUMAN CAPITAL MANAGEMENT

First BanCorp. strives to be recognized as a leading and diversified financial institution, offering superior experience to our clients

and employees. We believe that the key to our success is caring about our team as much as we care about our customers. Our goal is to

be an employer of choice within our primary operating regions, which we believe is achieved and sustained by adding value to our

employees’ lives and providing satisfying and evolving work experience. The core of our employer value proposition, “The

Experience of Being 1,” is our commitment to our employees’ well-being, success, professional development, and work environment.

Employees

As of December 31, 2023, the Corporation and its subsidiaries had 3,168 regular employees representing a 1% increase in overall

headcount from December 31, 2022. The Corporation had 2,797 employees in the Puerto Rico region, 209 employees in the Florida

region, and 162 employees in the Virgin Islands region. As of December 31, 2023, approximately 67% of the total employee

population and 57% of management positions were women.

Oversight

Our Human Resources Division reports directly to the Corporation’s Chief Risk Officer and manages all elements of the

Corporation’s human capital programs and strategies, including talent management, talent acquisition, engagement, learning and

development, compensation and benefits.

The Human Resources Division’s efforts are also overseen by the Corporation’s Chief Executive Officer (CEO) and the executive

management team through regular work-related interactions. Our leaders focus on strengthening employee management and

engagement and maximizing collaboration between departments and talents by promoting an open-door culture that stimulates

frequent communication between employees and management. This provides more opportunities to identify employees' needs, obtain

feedback about their work-life experience, and act upon such feedback to improve employee engagement. In addition, the

Corporation’s Board of Directors and its Compensation and Benefits Committee monitor and are regularly updated on the

Corporation’s human capital management strategies.

Talent Management

First BanCorp. is an equal opportunity employer which considers qualified candidates for employment to fill its open positions. We

focus our efforts on attracting and retaining the best talent for the Corporation, including college graduates, and promoting internal

mobility. The attraction and selection process includes:

Promoting and posting our vacant positions internally and externally;

Building our employer brand by participating in professional events and job fairs and maintaining relationships with

universities through internship programs and career forums;

Collaboration with hiring managers to ensure an accurate match between roles and candidates to accelerate the recruitment

process and secure top candidates;

A robust management information system to enhance the effectiveness of the recruitment process and provide candidates with

a unique experience; and

A robust on-boarding process to engage and support new employees

induction process, including assignment of a “FirstPal”

from day one to help with the organizational culture transition and learning process.

We believe that financial security is critical for our employees. Our goal is to maintain compensation levels that are competitive

with the market and comparable job categories in similar organizations. Our salary administration program is designed to provide a

compensation structure that is consistent with our employees’ level of responsibilities to attract the best talent for each job and

commensurately pay for performance.

In addition to base salaries, some job positions are eligible to participate in variable pay programs. The Corporation has incentive

programs for revenue generation and sales support business units. The incentive programs are reviewed annually to align them to

business strategies and ensure sound risk management. Further, the Corporation’s Management Award Program recognizes and

rewards outstanding performance for exempt employees who do not participate in other variable pay programs. The Corporation also

has a long-term incentive plan for top-performing leaders and employees with high potential. These programs provide awards based

upon the Corporation’s and individual’s performance and are key for the attraction and engagement of the best talent. The

Corporation’s investment in its employees has resulted in a stable-tenured workforce, with an average tenure of 10 years of service as

of December 31, 2023, and a voluntary turnover rate of 10.97%, mostly related to hourly employees in call centers, collections centers

and branches. The Corporation measures turnover among high performers ; such employees’ turnover rate was 2.8% for 2023.

Talent Development and Engagement

We believe that a culture of learning and development maximizes the talent of human capital and is the foundation for sustained

business success. Our commitment to employee engagement continues throughout employees’ time with the Corporation.

Our learning and development program strives to reflect both employees’ and the organization’s needs. The Corporation offers

more than 8,000 training opportunities through online courses and in-person or virtual classes, as well as development activities,

special projects, and partial tuition reimbursement to complete a bachelor’s or master's degree to eligible employees. Training is

offered on various subjects within five areas: fundamentals, compliance and corporate governance, specialized technical subjects, soft

skills-professional development, and leadership skills.

In 2023 we provided over 92 training topics through virtual and in-person modalities allowing our employees to continue learning

and complete development plans. In 2023, we delivered more than 98,000 hours of training and each employee completed an average

of 31 training hours.

Every year around 100 new and existing supervisors and managers receive training specialized in supervision and talent

management. In addition, our leadership curriculum also has a program to strengthen skills of supervisors that includes several days of

training and encourages managers to review their leadership skills after feedback received by co-workers. For new supervisors, we

offer a program intended to train in basic supervision, leadership and communication skills, and our human resources policies and

practices. In addition, our program for active supervisors and managers encourages leaders to review their leadership skills with

feedback received from instructors and co-workers. The program has been delivered to 61% of our current leaders since its launch,

accounting for over 22,000 training hours.

In addition to these training opportunities, we have processes to promote professional development and career growth, including the

promotion of internal career opportunities, performance management processes, annual talent review, and robust succession planning.

We also encourage employees to participate in our commitment to our communities through our volunteer and community reinvestment programs. In 2023, our employees supported 32 organizations with more than 2,154 hours of volunteer work. The Bank also encourages its employees to serve on non-profit organizations’ boards of directors. In 2023, First BanCorp employees were members of the board of directors for 30 non-profit organizations across the Puerto Rico, Florida, and Virgin Islands regions and offered approximately 2,276 hours of service.

Health & Wellness

Health and well-being programs are a strong component of the benefits we provide to our employees. First BanCorp. provides

competitive benefits programs to address even the most pressing needs of our employees and their families to promote occupational,

physical, emotional, and financial health. Our comprehensive wellness package includes health, dental and vision insurance offered

through different insurance company options that enable employees to choose those that best accommodate their and their families’

needs. We also offer life insurance and disability plans, as well as a defined contribution retirement plan option where both employee

and employer contribute. In addition, the Corporation offers a fitness facility in its main offices which allows employees to participate

in fitness activities including instructor-led wellness sessions.

To promote work-life balance, we grant a variety of paid time off for vacation, sick, maternity and paternity leave, bereavement

leave, marriage and personal days, in-house health services, and a complete wellness program, including nutrition, fitness, health fairs,

personal finance education, and preventive healthcare activities, nursing services, among others. The Corporation subsidizes a

substantial portion of the cost of these benefits. Also, more flexible work arrangements were implemented across the organization,

including hybrid work for the Florida region and certain groups in Puerto Rico, such as Internal Audit and Enterprise Risk

Management. Flexible programs are constantly under review for expansion and amendment according to business demands and

employees’ needs.

MARKET AREA AND COMPETITION

The Corporation operates in highly competitive markets and is subject to significant business, economic and competitive

uncertainties and contingencies. In particular, the banking market is highly competitive in Puerto Rico, the main geographic service

area of the Corporation. As of December 31, 2023, the Corporation also had presence in the state of Florida and in the USVI and the

BVI. Puerto Rico banks are subject to the same federal laws, regulations and supervision that apply to similar institutions on the

United States mainland.

Competitors include other banks, insurance companies, mortgage banking companies, small loan companies, automobile financing

companies, leasing companies, brokerage firms with retail operations, credit unions and certain retailers that operate in Puerto Rico,

the USVI, the BVI, and the state of Florida, as well as financial technology (“fintech”) companies and emerging competition from

digital platforms. The Corporation’s businesses compete with these other firms with respect to the range of products and services

offered and the types of clients, customers and industries served.

See Part I, Item 1A, “Risk Factors” for further discussion of risks related to competition.

SUPERVISION AND REGULATION

The Corporation and FirstBank, its bank subsidiary, are subject to comprehensive federal and Puerto Rican supervision and

regulation. These supervisory and regulatory requirements apply to all aspects of the Corporation’s and the Bank’s activities,

including commercial and consumer lending, deposit taking, management, governance and other activities. As part of this regulatory

framework, the Corporation and the Bank are subject to extensive consumer financial regulatory legal and supervisory requirements.

Further, U.S. financial supervision and regulation is dynamic in nature, and supervisory and regulatory requirements are subject to

change as new legislative and regulatory actions are taken. See Part I, Item 1, “Business–General” above for additional regulatory

oversight and supervision of FirstBank Insurance Agency. Future legislation may increase the regulation and oversight of the

Corporation and the Bank. Any change in applicable laws or regulations, however, may have a material adverse effect on the business

of commercial banks and bank holding companies, including the Bank and the Corporation.

The Corporation is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the

Securities Exchange Act of 1934, as amended, both as administered by the SEC, as well as the rules applicable to companies with

securities listed on the New York Stock Exchange.

The following discussion summarizes certain laws, regulations and policies to which the Company is subject. It does not address all

applicable laws, regulations and policies that affect the Company currently or might affect it in the future. This discussion is qualified

in its entirety by reference to the full texts of the laws, regulations and policies described.

Bank Holding Company Activities and Other Limitations

The Corporation is registered under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), and

is subject to ongoing supervision, regulation and examination by the Federal Reserve Board. The Corporation is required to file with

the Federal Reserve Board periodic and annual reports and other information concerning its own business operations and those of its

subsidiaries.

The Bank Holding Company Act also permits a bank holding company to elect to become a financial holding company and engage

in a broader range of financial activities. The Corporation has elected to be a financial holding company under the Bank Holding

Company Act. Financial holding companies may engage, directly or indirectly, in any activity that is determined to be (i) financial in

nature, (ii) incidental to such financial activity, or (iii) complementary to a financial activity and does not pose a substantial risk to the

safety and soundness of depository institutions or the financial system generally. The Bank Holding Company Act specifically

provides that the following activities have been determined to be “financial in nature”: (i) lending, trust and other banking activities;

(ii) insurance activities; (iii) financial or economic advice or services; (iv) pooled investments; (v) securities underwriting and dealing;

(vi) domestic activities permitted for an existing bank holding company; (vii) foreign activities permitted for an existing bank holding

company; and (viii) merchant banking activities.

A financial holding company that ceases to meet certain standards is subject to a variety of restrictions, depending on the

circumstances, including precluding the undertaking of new financial activities or the acquisition of shares or control of other

companies. Until compliance is restored, the Federal Reserve Board has broad discretion to impose appropriate limitations on the

financial holding company’s activities. The Corporation and FirstBank must be “well-capitalized” and “well-managed” for regulatory

purposes, and FirstBank must earn “satisfactory” or better ratings on its periodic Community Reinvestment Act (“CRA”)

examinations for the Corporation to preserve its financial holding company status.

Under federal law and Federal Reserve Board policy, a bank holding company such as the Corporation is expected to act as a

source of strength to its banking subsidiaries and to commit required levels of support to them. This support may be required at times

when, absent such policy, the bank holding company might not otherwise provide such support. In the event of a bank holding

company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain capital of a

subsidiary bank will be assumed by the bankruptcy trustee and be entitled to a priority of payment. In addition, any capital loans by a

bank holding company to any of its subsidiary banks must be subordinated in right of payment to deposits and to certain other

indebtedness of such subsidiary bank. As of December 31, 2023, and the date hereof, FirstBank was and is the only banking

subsidiary of the Corporation.

State-Chartered Non-Member Bank and Banking Laws and Regulations

in General

FirstBank is subject to regulation and examination by the OCIF, the CFPB and the FDIC, and is subject to comprehensive federal

and state (including, for this purpose, the Commonwealth of Puerto Rico) regulations that regulate, among other things, the scope of

its businesses, its investments, its reserves against deposits, the timing and availability of deposited funds, and the nature and amount

of collateral for certain loans.

The OCIF, the CFPB and the FDIC periodically examine FirstBank to test the Bank’s conformance to safe and sound banking

practices and compliance with various statutory and regulatory requirements. This oversight establishes a comprehensive framework

of permissible activities, and the supervision by the FDIC is also intended for the protection of the FDIC’s insurance fund and

depositors. These regulatory authorities have discretion in connection with their supervisory and enforcement activities and

examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves

for regulatory purposes. Their enforcement authority includes, among other things, the ability to assess civil monetary penalties, issue

cease-and-desist or removal orders, and initiate injunctive actions against banking organizations and institution-affiliated parties. In

general, these enforcement actions may be initiated for violations of laws and regulations and for engaging in unsafe or unsound

practices. In addition, certain bank actions are required by statute and implementing regulations. Other actions or failure to act may

provide the basis for enforcement action, including the filing of misleading or untimely reports with regulatory authorities.

Regulatory Capital Requirements

The federal banking agencies have implemented rules for U.S. banks that establish minimum regulatory capital requirements, the

components of regulatory capital, and the risk-based capital treatment of bank assets and off-balance sheet exposures. These rules

currently apply to the Corporation and FirstBank, and generally are intended to align U.S. regulatory capital requirements with

international regulatory capital standards adopted by the Basel Committee on Banking Supervision (“Basel Committee”), in particular,

the international capital accord known as “Basel III.” The current rules require a minimum common equity capital requirement and an

additional common equity Tier 1 capital conservation buffer.

Under the fully phased-in Basel III rules, in order to be considered adequately capitalized and not subject to the above-described

limitations, the Corporation is required to maintain: (i) a minimum common equity Tier 1 Capital (“CET1”) 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.

Further, as part of its response to the impact of COVID-19, on March 31, 2020, federal banking agencies issued an interim final

rule that provided the option to temporarily delay the effects of current expected credit losses (“CECL”) on regulatory capital for two

years, followed by a three-year transition period. The interim final rule provides that, at the election of a qualified banking

organization, the initial impact of the adoption of CECL on retained earnings plus 25% of the change in the ACL (excluding

purchased credit deteriorated (“PCD”) loans) from January 1, 2020 to December 31, 2021 will be delayed for two years and phased-in

at 25% per year beginning on January 1, 2022 over a three-year period, resulting in a total transition period of five years. The

Corporation and the Bank elected to phase in the full effect of CECL on regulatory capital over the five-year transition period.

The Corporation and the Bank compute risk-weighted assets using the Standardized Approach required by the Basel III rules. The

Standardized Approach expands the risk-weighting categories from the four major categories under the previous regulatory capital

rules (0%, 20%, 50%, and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets.

Specific changes to the risk-weightings of assets included, among other things: (i) applying a 150% risk weight instead of a 100% risk

weight for high volatility commercial real estate acquisition, development and construction loans, (ii) assigning a 150% risk weight to

exposures that are 90 days past due (other than qualifying residential mortgage exposures, which remain at an assigned risk-weighting

of 100%), (iii) establishing a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one

year or less that is not unconditionally cancellable, in contrast to the 0% risk-weighting under the prior rules and (iv) requiring capital

to be maintained against on-balance-sheet and off-balance-sheet exposures that result from certain cleared transactions, guarantees and

credit derivatives, and collateralized transactions (such as repurchase agreement transactions).

In addition, the Collins Amendment to the Dodd-Frank Act, among other things, eliminates certain trust-preferred securities

(“TRuPs”) from Tier 1 capital. Preferred securities issued under the U.S. Treasury’s Troubled Asset Relief Program (“TARP”) are

exempt from this change. Bank holding companies, such as the Corporation, were required to fully phase out these instruments from

Tier 1 capital by January 1, 2016; however, these instruments may remain in Tier 2 capital until the instruments are redeemed or

matured. As of December 31, 2023, the Corporation had $156.9 million in TRuPs that were subject to a full phase-out from Tier 1

capital under the final regulatory capital rules discussed above.

Set forth below are the Corporation's and FirstBank's capital ratios as of December 31, 2023 based on Federal Reserve and FDIC

guidelines:

Banking Subsidiary

First BanCorp.

FirstBank

Well-Capitalized

Minimum

As of December 31, 2023

Total capital (Total capital to risk-weighted assets)

18.57%

18.36%

10.00%

CET1 Capital (CET1 capital to risk-weighted assets)

16.10%

16.33%

6.50%

Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)

16.10%

17.11%

8.00%

Leverage ratio

(1)

10.78%

11.45%

5.00%

(1) Tier 1 capital to average assets.

Stress-Testing and Capital Planning Requirements

Federal regulations currently do not impose formal stress-testing requirements on banking organizations with total assets of less

than $100 billion, such as the Corporation and FirstBank. The federal banking agencies have indicated through interagency guidance

that the capital planning and risk management practices of institutions with total assets of less than $100 billion will continue to be

reviewed through the regular supervisory process. Notwithstanding, the Corporation monitors its capital consistent with the safety and

soundness expectations of the federal regulators and continues to perform internal stress testing as part of its annual capital planning

process.

Dividend Restrictions

The Federal Reserve Board has a policy that, as a matter of prudent banking, a bank holding company should generally not pay

cash dividends unless its net income available to common shareholders for the past four quarters, net of dividends previously paid

during that period, has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be

consistent with the organization’s capital needs, asset quality, and overall current and prospective financial condition. Furthermore, the

Federal Reserve Board’s regulatory capital rule (Regulation Q) limits the amount of capital a bank holding company may distribute

under certain circumstances. A banking organization must maintain a capital conservation buffer of CET1 capital in an amount greater

than 2.5% of total risk weighted assets to avoid being subject to limitations on capital distributions. The Corporation is also subject to

certain restrictions generally imposed on Puerto Rico corporations with respect to the declaration and payment of dividends (i.e., that

dividends may be paid out only from the Corporation’s capital surplus or, in the absence of such excess, from the Corporation’s net

earnings for such fiscal year and/or the preceding fiscal year).

The principal source of funds for the Corporation, as a parent holding company, is dividends declared and paid by its subsidiary,

FirstBank. The ability of FirstBank to declare and pay dividends on its capital stock is regulated by the Puerto Rico Banking Law of

1933, as amended (the “Puerto Rico Banking Law”), the Federal Deposit Insurance Act (the “FDIA”), and FDIC regulations. In

general terms, the Puerto Rico Banking Law provides that when the expenditures of a bank are greater than receipts, the excess of

expenditures over receipts shall be charged against undistributed profits of the bank and the balance, if any, shall be charged against

the required reserve fund of the bank. If the reserve fund is not sufficient to cover such balance in whole or in part, the outstanding

amount must be charged against the bank’s capital account. The Puerto Rico Banking Law provides that, until said capital has been

restored to its original amount and the reserve fund to 20% of the original capital, the bank may not declare any dividends. In general,

regulations of the FDIA and the FDIC restrict the payment of dividends when a bank is undercapitalized (as discussed in Prompt

Corrective Action below), when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns

regarding such bank.

Refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities” of this Form 10-K for further information on the Corporation ’s distribution of dividends and repurchases of common stock.

Consumer Financial Protection Bureau

The CFPB has primary examination and enforcement authority over FirstBank and other banks with over $10 billion in assets with

respect to consumer financial products and services.

The CFPB’s primary functions include the supervision of “covered persons” (broadly defined to include any person offering or

providing a consumer financial product or service and any affiliated service provider) for compliance with federal consumer financial

laws. It implements amendments to and has primary authority to enforce the federal consumer financial laws, including the Equal

Credit Opportunity Act, the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”), among others.

The CFPB also has broad powers to prescribe rules applicable to a covered person or service provider in connection with any

transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.

Among other actions, the CFPB has issued regulations setting forth mortgage servicing rules that apply to the Bank, which affect

consumer notices regarding delinquency, foreclosure alternatives, modification applications, interest rate adjustments and options for

avoiding “force-placed” insurance. Further, the CFPB has adopted rules and forms that combine certain disclosures that consumers

receive in connection with applying for and closing on a mortgage loan under the TILA and the RESPA.

The Volcker Rule

Section 13 of the Bank Holding Company Act (commonly known as the Volcker Rule), generally prohibits a banking entity such as

the Corporation or the Bank from acquiring or retaining any ownership in, or acting as sponsor to, a hedge fund or private equity fund

(“covered fund”). The Volcker Rule also prohibits these entities from engaging, for their own account, in short-term proprietary

trading of certain securities, derivatives, commodity futures and options on these instruments.

The Corporation and the Bank are not engaged in “proprietary trading” as defined in the Volcker Rule. In addition, the Corporation

has reviewed its investments and concluded that they are not considered covered funds under the Volcker Rule.

Community Reinvestment Act and Home Mortgage Disclosure Act Regulations

The CRA encourages banks to help meet the credit needs of the local communities in which they offer services, including low- and

moderate-income individuals, consistent with the safe and sound operation of the bank.

The CRA requires the federal supervisory agencies, as part of the general examination of supervised banks, to assess a bank’s

record of meeting the credit needs of its community, assign a performance rating, and take such record and rating into account in their

evaluation of certain applications by such bank, such as an application for approval of a merger or the establishment of a branch. A

rating of less than “satisfactory” could result in the denial of such applications. The CRA also requires all institutions to make public

disclosure of their CRA ratings. FirstBank received a “satisfactory” CRA rating in its most recent examination by the FDIC.

In October 2023, the U.S. federal banking regulatory agencies issued a final rule to strengthen and modernize their regulations

implementing the CRA. The final rule, among other things, revises the CRA regulations to better achieve the CRA’s core purpose of

encouraging banks to help meet the credit needs of their local communities; provides greater clarity and consistency in the application

of CRA regulations; tailors performance standards, data collection, and reporting requirements to account for differences in bank size,

business model, and local conditions; and promotes a consistent regulatory approach that applies to banks regulated by the OCC, the

Federal Reserve Board and the FDIC. The final rule takes effect on April 1, 2024, with staggered compliance dates of January 1, 2026,

and January 1, 2027.

USA PATRIOT Act and Other Anti-Money Laundering Requirements

As a regulated depository institution, FirstBank is subject to the Bank Secrecy Act, which imposes a variety of reporting and other

requirements, including the requirement to file suspicious activity and currency transaction reports that are designed to assist in the

detection and prevention of money laundering, terrorist financing and other criminal activities. In addition, under Title III of the USA

PATRIOT Act of 2001, all financial institutions are required to identify their customers, adopt formal and comprehensive anti-money

laundering programs, scrutinize or prohibit certain transactions of special concern, and be prepared to respond to inquiries from U.S.

law enforcement agencies concerning their customers and their transactions.

In January 2021, major legislative amendments to U.S. anti-money laundering requirements became effective through the

enactment of Division F of the National Defense Authorization Act for fiscal year 2021, otherwise known as the Anti-Money

Laundering Act of 2020 (the “AML Act”). The AML Act includes a variety of provisions designed to modernize the anti-money

laundering regulatory regime and remediate gaps in the U.S.’s approach to anti-money laundering and countering the financing of

terrorism, including the creation of a national database of absence corporate beneficial ownership along with significantly enhanced

reporting requirements, increased penalties for Bank Secrecy Act violations, clarification of Suspicious Activity Report filing and

sharing requirements, and provisions addressing the adverse consequences of “de-risking,” namely, the practice of financial

institutions’ termination or limitation of business relationships with clients or classes of clients in order to manage the risks associated

with such clients.

Regulations implementing the Bank Secrecy Act and the USA PATRIOT Act are published and primarily enforced by the Financial

Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Treasury. Failure of a financial institution, such as the Corporation or

the Bank, to comply with the requirements of the Bank Secrecy Act or the USA PATRIOT Act could have serious legal and

reputational consequences for the institution, including the possibility of regulatory enforcement or other legal actions, such as

significant civil monetary penalties. The Corporation is also required to comply with federal economic and trade sanctions

requirements enforced by the Office of Foreign Assets Control (“OFAC”), a bureau of the U.S. Treasury.

The Corporation believes it has adopted appropriate policies, procedures and controls to address compliance with the Bank Secrecy

Act, USA PATRIOT Act and economic/trade sanctions requirements, and to implement banking agency, FinCEN, OFAC and other

U.S. Treasury regulations.

Financial Privacy and Cybersecurity

The Gramm-Leach-Bliley Act limits the ability of financial institutions to disclose non-public information about consumers to non-

affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow

consumers to prevent disclosure of certain personal information to a non-affiliated third party.

The federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management

standards among financial institutions. A financial institution is expected to establish multiple lines of defense and to ensure their risk

management processes address the risk posed by potential threats to the institution. A financial institution’s management is expected to maintain sufficient processes to effectively respond and recover the institution’s operations after a cyber-attack. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service provider of the institution falls victim to this type of a cyber-attack. Our Corporate Information Security Program (“CISP”) reflects these requirements and outlines our overall vision, direction, and governance efforts to protect the confidentiality, integrity, and availability of customer information and prevent access by unauthorized personnel.

In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to

disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. The new

rules require registrants to disclose on the new Item 1.05 of Form 8-K any cybersecurity incident they determine to be material

generally within four business days of such determination and to describe the material aspects of the incident’s nature, scope, and

timing, as well as its material impact or reasonably likely material impact on the registrant. The new rule also added Regulation S-K

Risk Factors

Below is a discussion about material risks and uncertainties that could impact the Corporation’s businesses, results of operations

and financial condition, including by causing the Corporation’s actual results to differ materially from those projected in any forward-

looking statements. Other risks and uncertainties, including those not currently known to the Corporation or its management and those

that the Corporation or its management currently deems to be immaterial, could also materially adversely affect the Corporation in

future periods. Thus, the following should not be considered a complete discussion of all of the risks and uncertainties the Corporation

may face. See the discussion under “Forward-Looking Statements,” in this Form 10-K.

RISKS RELATING TO THE BUSINESS ENVIRONMENT AND OUR INDUSTRY

The effect of the current interest rate environment or changes in interest rates or the level or composition of the Corporation’s

assets and liabilities may impact the Corporation’s net interest income, net interest margin, loan originations, deposit attrition,

overall results of operations, and its liquidity position.

Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us

on our interest-bearing liabilities. Differences in the re-pricing structure of our assets and liabilities may result in changes in our

profits when interest rates change. For instance, higher interest rates increase the cost of mortgage and other loans to consumers and

businesses and may reduce future demand for such loans, which may negatively impact our profits by reducing the amount of loan

interest income due to declines in volume. Interest rates are highly sensitive to many factors that are beyond our control, including

general economic conditions, inflationary trends, changes in government spending and debt issuances and policies of various

governmental and regulatory agencies, in particular, the Federal Reserve Board.

Additionally, basis risk is the risk of adverse consequences resulting from unequal changes in the difference, also referred to as the

“spread” or basis, between the rates for two or more different instruments with the same maturity and 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. For

example, the interest expense for liability instruments might not change by the same amount as interest income received from loans or

investments. To the extent that the interest rates on loans and borrowings change at different rates and by different amounts, the

margin between our variable rate-based assets and the cost of the interest-bearing liabilities might be compressed and adversely affect

net interest income.

Also, changes in interest rates may impact demand for new loan originations, affect the composition of the Corporation’s interest-

earning assets, and may impact the extent of any re-shifting between non-interest-bearing and interest-bearing liabilities. Further,

changes in interest rates impact the value of our fixed-rate securities. Any unrealized gains or losses from these portfolios impact other

comprehensive income, stockholders’ equity, and the tangible common equity ratio. Any realized gains or losses from these portfolios

impact regulatory capital ratios.

Changes in prepayments may adversely affect net interest income.

Net interest income could also be affected by prepayments of MBS. Generally, when rates rise, prepayments of principal and

interest will decrease, and the duration of MBS securities will increase. Conversely, when rates fall, prepayments of principal and

interest will increase, and the duration of mortgage-backed securities will decrease. Such acceleration in the prepayments of MBS

would lower yields on these securities, as the amortization of premiums paid upon the acquisition of these securities would accelerate.

Conversely, acceleration in the prepayments of MBS would increase yields on securities purchased at a discount, as the accretion of

the discount would accelerate. Also, net interest income in future periods might be affected by our investment in callable securities

because decreases in interest rates might prompt the early redemption of such securities.

The volatility in the financial services industry, including failures or rumored failures of other depository institutions, and

actions taken by governmental agencies to stabilize the financial system, could result in, among other things, bank deposit runoffs,

liquidity constraints, and increased regulatory requirements and costs.

The closure and placement into receivership with the FDIC of certain large U.S. regional banks with assets over $100 billion in

March and May 2023, and adverse developments affecting other banks, resulted in heightened levels of market volatility and

consequently negatively impacted customer confidence in the safety and soundness of financial institutions. These developments

resulted in certain regional banks experiencing higher than normal deposit outflows and an elevated level of competition for available

deposits in the market. The impact of market volatility from the adverse developments in the banking industry, along with continued

elevated interest rates on our business and related financial results, will depend on future developments, which are highly uncertain

and difficult to predict.

In the aftermath of these bank failures, the banking agencies have increased regulatory requirements and costs that may impact

capital ratios or the FDIC deposit insurance premium. For example, in November 2023, the FDIC approved a final rule to implement a

special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closure of Silicon

Valley Bank and Signature Bank during the first half of 2023. Under the final rule, the FDIC will collect the special assessment at a

quarterly rate of 3.36 basis points beginning with the first quarterly assessment period of 2024 (i.e, January 1 through March 31, 2024)

with an initial invoice payment date of June 28, 2024, and will continue to collect special assessments for an anticipated total of eight

quarterly assessment periods. The base for the special assessment is equal to the estimated uninsured deposits reported for the

December 31, 2022 reporting period, adjusted to exclude the first $5 billion of such amount. In association with this final rule, during

the fourth quarter of 2023, the Corporation recorded a charge of $6.3 million in the consolidated statements of income as part of

“FDIC deposit insurance expenses,” which reflects the expected total payment to be made to the FDIC as of December 31, 2023. The

FDIC retains the ability to cease collection early, extend the special assessment collection period beyond the eight-quarter collection

period, or impose an additional shortfall special assessment on a one-time basis after the receiverships for the two banks are

terminated.

Difficult market and general economic conditions have affected the financial industry and could adversely affect us in the

future.

Given that most of our business is in Puerto Rico and the U.S. and given the degree of interrelation between Puerto Rico’s economy

and that of the U.S., we are exposed to downturns in the U.S. economy, including factors such as employment levels in the U.S. and

real estate valuations. The deterioration of these conditions has adversely affected us in the past and in the future could adversely

affect the credit performance of mortgage loans, and result in significant write-downs of asset values by financial institutions,

including U.S. government-sponsored entities (“GSEs”) as well as major commercial banks and investment banks.

In particular, we may face the following risks:

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.

The models used to estimate losses inherent in the credit exposure, particularly those under CECL, 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 accurately estimated and which may, in

turn, impact the reliability of the models.

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 GSEs and repurchase agreements) on favorable terms, or at all, could be

adversely affected by further disruptions in the capital or credit markets or other events, including deteriorating investor

expectations.

Competitive dynamics in the industry could change as a result of strategic growth opportunities in connection with current

market conditions.

Expected future regulation of our industry may increase our compliance costs and limit our ability to pursue business

opportunities.

There may be downward pressure on our stock price.

Any deterioration of economic conditions in the U.S. and disruptions in the financial markets could adversely affect our ability to

access capital, our business, financial condition, and results of operations. Unfavorable or uncertain economic and market conditions

have been and could cause declines in economic growth, business activity or investor or business confidence; limitations on the

availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters;

epidemics and pandemics; or a combination of these or other factors.

Additionally, the residential mortgage loan origination business is impacted by home values and has historically been cyclical,

enjoying periods of strong growth and profitability followed by periods of shrinking volumes and industry-wide losses. During periods

of rising interest rates, including the series of interest rate increases that have occurred, the refinancing of many mortgage products

tends to decrease as the economic incentives for borrowers to refinance their existing mortgage loans are reduced.

Any sustained period of increased delinquencies, foreclosures, or losses could adversely affect our ability to sell loans, the prices

we receive for loans, the values of mortgage loans held for sale, or residual interests in securitizations, which could adversely affect

our financial condition and results of operations. In addition, any additional material decline in real estate values would further

weaken the loan-to-value ratios and increase the possibility of loss if a borrower defaults. In such event, we will be subject to the risk

of loss on such real estate arising from borrower defaults to the extent not covered by third-party credit enhancements.

We operate in a highly competitive industry and market area.

We face substantial competition in all areas of our operations from a variety of different competitors, including other banks,

insurance companies, mortgage banking companies, small loan companies, automobile financing companies, leasing companies,

brokerage firms with retail operations, credit unions, certain retailers, fintech companies and digital platforms. The Corporation’s

ability to compete effectively depends on the relative performance of its products, the degree to which the features of its products

appeal to customers, and the extent to which the Corporation meets clients’ needs and expectations. The Corporation’s ability to

compete also depends on its ability to attract and retain professional and other personnel, and on its reputation.

The Corporation encounters intense competition in attracting and retaining deposits and in its consumer and commercial lending

activities. The Corporation competes for loans with other financial institutions. The Corporation’s ability to originate loans depends

primarily on the rates and fees charged and the service it provides to its borrowers in making prompt credit decisions. There can be no

assurance that in the future the Corporation will be able to increase its deposit base, originate loans in the manner or on the terms on

which it has done so in the past, or otherwise compete effectively.

The Corporation’s credit quality and the value of the portfolio of Puerto Rico government securities has been, and in the future

may be, adversely affected by Puerto Rico’s economic condition, and may be affected by actions taken by the Puerto Rico

government or the PROMESA oversight board to address the ongoing fiscal and economic challenges in Puerto Rico.

A significant portion of the Corporation’s business activities and credit exposure is concentrated in the Commonwealth of Puerto

Rico, which has undergone significant economic challenges and debt reforms over the last decade.

On June 15, 2023, the Puerto Rico Planning Board (“PRPB”) presented the updated Economic Report to the Governor, which

provides an analysis of Puerto Rico’s economy during fiscal year 2022 and a short-term forecast for fiscal years 2023 and 2024.

According to the PRPB, Puerto Rico’s real gross national product (“GNP”) expanded by 3.7% in fiscal year 2022, which was the

highest annual real GNP growth registered in Puerto Rico since fiscal year 1999. The growth was primarily driven by a sharp increase

in personal consumption expenditures reflecting an increase of approximately 8.5% when compared to fiscal year 2021, increase in

exports of 4.8%, and growth in fixed capital investments of 12.6%, partially offset by an increase in imports of 10.3%.

The 2023 Fiscal Plan prioritizes resource allocation across three major pillars: (i) entrenching a legacy of strong financial

management through the implementation of a comprehensive financial management agenda, (ii) instilling a culture of public -sector

performance and excellence to properly delivery quality public services, and (iii) investing for economic growth to ensure sufficient

revenues are generated to support the delivery of services. According to the Transformation Plan, the fiscal and economic turnaround

of Puerto Rico cannot be accomplished without the implementation of structural economic reforms that promote sustainable economic

development. These reforms include power/energy sector reform to improve availability, reliability and affordability of energy,

education reform to expand opportunity and prepare the workforce to compete for jobs of the future, and an infrastructure reform

aimed at improving the efficiency of the economy and facilitating investment. The 2023 Fiscal Plan projects that these reforms, if

implemented successfully, will contribute 0.75% in GNP growth by fiscal year 2026. Additionally, the 2023 Fiscal Plan provides a

roadmap for a tax reform directed towards establishing a tax regime that is more competitive for investors and more equitable for

individuals.

The 2023 Fiscal Plan notes that Puerto Rico has had a strong recovery in the aftermath of the COVID-19 pandemic crisis with

labor participation trending positively and unemployment at historically low levels. However, it recognizes that such recovery has

been primarily fueled by the unprecedented influx of federal funds which have an outsized and temporary impact that may mask

underlying structural weaknesses in the economy. As such, the 2023 Fiscal Plan projects a 0.7% decline in real GNP for the current

fiscal year 2023, followed by a period of near-zero real growth in fiscal years 2024 through 2026. Also, the fiscal plan projects that

Puerto Rico’s population will continue the long-term trend of steady decline. Notwithstanding, the Transformation Plan depicts that, if

managed properly, these non-recurring federal funds can be leveraged into sustainable longer-term growth and opportunity.

The 2023 Fiscal Plan projects that approximately $81 billion in total disaster relief funding, from federal and private sources, will

be disbursed as part of the reconstruction efforts over a span of 18 years (fiscal years 2018 through 2035). These funds will benefit

individuals, the public (e.g., reconstruction of major infrastructure, roads, and schools), and will cover part of Puerto Rico’s share of

the cost of disaster relief funding. Also, the 2023 Fiscal Plan projects the $9.3 billion in remaining COVID-19 relief funds to be

deployed in fiscal years 2023 through 2025, compared to $4.5 billion projected in the previous fiscal plan. Additionally, the 2023

Fiscal Plan continues to account for $2.3 billion in federal funds to Puerto Rico from the Bipartisan Infrastructure Law directed

towards improving Puerto Rico’s infrastructure over fiscal years 2022 through 2026.

As of December 31, 2023, the Corporation had $297.9 million of direct exposure to the Puerto Rico government, its municipalities

and public corporations. As of December 31, 2023, approximately $189.0 million of the exposure consisted of loans and obligations of

municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit

and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $59.4 million consisted of loans

and obligations which are supported by one or more specific sources of municipal revenues. The municipalities are required by law to

levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and

notes. In addition to municipalities, the total direct exposure also included $8.9 million in loans to an affiliate of PREPA, $37.4

million in loans to an agency of the Puerto Rico government, and obligations of the Puerto Rico government, specifically a residential

pass-through MBS issued by the PR Housing Finance Authority (“PRHFA”), at an amortized cost of $3.2 million as part of its

available-for-sale debt securities portfolio (fair value of $1.4 million as of December 31, 2023).

In addition, as of December 31, 2023, the Corporation had $77.7 million in exposure to residential mortgage loans that are

guaranteed by the PRHFA. Residential mortgage loans guaranteed by the PRHFA are secured by the underlying properties and the

guarantees serve to cover shortfalls in collateral in the event of a borrower default. The regulations adopted by the PRHFA require the

establishment of adequate reserves to guarantee the solvency of its mortgage loans insurance program . As of June 30, 2022, the most

recent date as of which information is available, the PRHFA had a liability of approximately $1 million as an estimate of the losses

inherent in the portfolio.

As of December 31, 2023, the Corporation had $2.7 billion of public sector deposits in Puerto Rico, which are fully collateralized.

Approximately 20% of the public sector deposits as of December 31, 2023 were from municipalities and municipal agencies in Puerto

Rico and 80% were from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies

in Puerto Rico.

Instability in economic conditions, delays in the receipt of disaster relief funds allocated to Puerto Rico, and the potential impact on

asset values resulting from past or future natural disaster events, when added to Puerto Rico’s ongoing fiscal challenges, could

materially adversely affect our business, financial condition, liquidity, results of operations and capital position.

A deterioration in economic conditions in the U.S. Virgin Islands and British Virgin Islands could harm our results of

operations.

For many years, the USVI has been experiencing several fiscal and economic challenges that have deteriorated the overall financial

and economic conditions in the area. However, on May 22, 2023, the United States Bureau of Economic Analysis (the “BEA”)

released its estimates of real gross domestic product (“GDP”) for 2021. According to the BEA, the USVI’s real GDP increased 2.8%

in 2021 after decreasing 1.9% in 2020. The increase in real GDP reflected increases in exports and personal consumption

expenditures. These increases were partly offset by decreases in private inventory investment, private fixed investment, and

government spending. Imports, a subtraction item in the calculation of GDP, also decreased.

Over the past three years, the USVI has been recovering from the adverse impact caused by COVID-19 and has continued to make

progress on its rebuilding efforts related to Hurricanes Irma and Maria, which occurred in 2017. According to data published by the

government, over $5.0 billion in disaster recovery funds were disbursed as of November 2023 and $6.2 billion were remaining

obligated funds waiting to be disbursed. On the fiscal front, revenues have trended positively and the USVI government successfully

completed the restructuring of the government employee retirement system. Moreover, labor market trends remain stable with payroll

employment for the month of December 2023 up 0.3% when compared to December 2022.

Finally, PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of

the debts of the USVI and its public corporations and instrumentalities. To the extent that the fiscal condition of the USVI government

deteriorates again, the U.S. Congress or the government of the USVI may enact legislation allowing for the restructuring of the

financial obligations of the USVI government entities or imposing a stay on creditor remedies, including by making PROMESA

applicable to the USVI.

As of December 31, 2023, the Corporation had $90.5 million in loans to USVI public corporations, compared to $38.0 million as of

December 31, 2022. As of December 31, 2023, all loans were currently performing and up to date on principal and interest payments.

We are subject to ESG risks that could adversely affect our reputation and the market price of our securities.

There is an increased focus from certain government regulators, investors, customers, business partners and other stakeholders

concerning ESG matters, and the expectations related to ESG matters are rapidly evolving. The increased focus by investors and other

stakeholders on the ESG practices of publicly traded companies, like us, has included or may in the future include expanding

mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk

oversight, and could expand the nature, scope, and complexity of matters that we are required to control, assess and report. These

requirements would likely result in increased ESG-related compliance costs, which could result in increases to our overall operational

costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could

negatively impact our reputation, ability to do business with certain partners, and our stock price.

For example, we may be exposed to negative publicity based on the identity and activities of those to whom we lend and with

which we otherwise do business and the public’s view of the approach and performance of our customers and business partners with

respect to ESG matters. Any such negative publicity could arise from adverse news coverage in traditional media and could also

spread through the use of social media platforms. The Corporation’s relationships and reputation with its existing and prospective

customers and third parties with which we do business could be damaged if we were to become the subject of any such negative

publicity. This, in turn, could have an adverse effect on our ability to attract and retain customers and employees and could have a

negative impact on our business, financial condition and results of operations. In addition, we could be criticized by ESG detractors

for the scope or nature of our ESG initiatives or policies or for any revisions to these policies. We could also be subjected to negative

responses by governmental actors (such as anti-ESG legislation or retaliatory legislative treatment) or consumers (such as boycotts or

negative publicity campaigns) that could adversely affect our reputation, results of operations and financial condition.

Our results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global

climate patterns or other catastrophic events.

Natural disasters, whose nature and severity may be impacted by climate change, such as hurricanes, floods, extreme cold events

and other adverse weather conditions; public health crises; political crises, such as terrorist attacks, war, labor unrest, other political

instability, trade policies and sanctions, including the repercussions of the ongoing conflict in Ukraine, the conflict between Israel and

Hamas, and the possible expansion of such conflicts to surrounding areas and potential geopolitical consequences; negative global

climate patterns, especially in water stressed regions; or other catastrophic events, such as fires or other disasters occurring at our

locations, whether occurring in Puerto Rico, the U.S., or internationally, could cause a significant adverse effect on the economy and

disrupt our operations. Certain areas in which our business is concentrated, including Puerto Rico and the USVI, are particularly

susceptible to earthquakes, hurricanes, and major storms. Further, climate change may increase both the frequency and severity of

extreme weather conditions and natural disasters, which may affect our business operations, either in a particular region or globally, as

well as the activities of our customers. The Corporation is also not able to predict the positive or negative effects that future events or

changes to the U.S. or global economy, financial markets, or regulatory and business environment could have on our operations.

Climate change, and efforts to mitigate its long-term effects, may materially adversely affect the Corporation's business and

results of operations.

Concerns over the long-term effects of climate change have led and will continue to lead to governmental efforts around the world

to mitigate those impacts. Consumers and businesses also may voluntarily change their behavior as a result of these concerns. The

Corporation and its customers will need to respond to new laws and regulations as well as consumer and business preferences

resulting from climate change concerns. The Corporation and its customers may face cost increases, asset value reductions and

operating process changes. The impact on our customers will likely vary depending on their specific attributes, including reliance on

our role in fossil fuel activities. Among the impacts to the Corporation, we could face reductions in creditworthiness on the part of

some customers or in the value of assets securing loans. The Corporation’s efforts to take these risks into account in making lending

and other decisions, including increasing our business with climate-responsible companies, may not be effective in protecting the

Corporation from the negative impact of new laws and regulations or changes in consumer or business behavior.

Deterioration in collateral values may result in additional losses.

Our business is affected by the value of the assets securing our loans or underlying our investments.

We had a commercial and construction loan portfolio held for investment in the amount of $5.7 billion as of December 31, 2023.

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. Furthermore, in the case of a

slowdown in the real estate market, it may be difficult to dispose of the properties securing these loans upon any foreclosure of the

properties. We may incur losses over the near term, either because of continued deterioration in the quality of loans or because of sales

of problem loans, which would likely accelerate the recognition of losses. Any such losses could adversely impact our overall

financial performance and results of operations.

Deterioration of the value of real estate collateral securing our construction and commercial loan portfolios, whether located in

Puerto Rico or elsewhere, would result in increased credit losses. Whether the collateral that underlies our loans is located in Puerto

Rico, the USVI, the BVI, 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. As of December 31, 2023, $2.5

billion, or 21% of the total loan portfolio held for investment, of our commercial and construction loan portfolio held for investment

consisted of commercial mortgage and construction loans , of which $1.8 billion was in the Puerto Rico region.

We measure credit losses for collateral dependent loans based on the fair value of the collateral, which is generally obtained from

appraisals, adjusted for undiscounted selling costs as appropriate. Updated appraisals are obtained when we determine that loans are

collateral dependent and are updated annually thereafter. In addition, appraisals are also obtained for certain residential mortgage

loans on a spot basis based on specific characteristics, such as delinquency levels, and age of the appraisal. The appraised value of the

collateral may decrease, or we may not be able to recover collateral at its appraised value. A significant decline in collateral valuations

for collateral dependent loans has required and, in the future, may require, increases in our credit loss expense on loans. Any such

increase would have an adverse effect on our future financial condition and results of operations.

Labor shortages and constraints in the supply chain could adversely affect our clients’ operations as well as our operations.

Many sectors in Puerto Rico, the United States, the Virgin Islands and around the world are experiencing a shortage of workers.

Many of our commercial clients have been impacted by this shortage along with disruptions and constraints in the supply chain, which

could adversely impact their operations and could lead to reduced cash flow and difficulty in making loan repayments. The

Corporation’s industry has also been affected by the shortage of workers, as well as increasing wages for entry level and certain

professional roles. This may lead to open positions remaining unfilled for longer periods of time, which may affect the level of service

provided by the Corporation, or a need to increase wages to attract workers.

The failure of other financial institutions could adversely affect us.

Our ability to engage in routine financing transactions could be adversely affected by future failures of financial institutions and the

actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing,

counterparty and other relationships. We have exposure to different industries and counterparties and routinely execute transactions

with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, investment

companies and other institutional clients. In certain of these transactions, we are required to post collateral to secure the obligations to

the counterparties. In the event of a bankruptcy or insolvency proceeding involving one of such counterparties, we may experience

delays in recovering the assets posted as collateral, or we may incur a loss to the extent that the counterparty was holding collateral in

excess of the obligation to such counterparty or under other circumstances.

In addition, many of these transactions expose us to credit risk in the event of a default by our counterparty or client. 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. Any losses resulting from our routine funding transactions may materially and adversely

affect our financial condition and results of operations.

RISKS RELATING TO THE CORPORATION’S BUSINESS

Certain funding sources may not be available to us, and our funding sources may prove insufficient and/or costly to replace.

FirstBank relies primarily on customer deposits, the issuance of brokered CDs, and advances from the FHLB of New York to

maintain its lending activities and to replace certain maturing liabilities. As of December 31, 2023, we had $783.3 million in brokered

CDs outstanding, representing approximately 5% of our total deposits. Approximately $700.9 million, or 89% in brokered CDs mature

over the twelve months ending December 31, 2024, and the average remaining term to maturity of the brokered CDs outstanding as of

December 31, 2023 was approximately 11 months. None of these brokered CDs are callable at the Corporation’s option. In addition,

the Corporation had $500.0 million of long-term FHLB advances outstanding as of December 31, 2023, which mature over one to five

years.

Although FirstBank has historically been able to replace maturing deposits and advances, we may not be able to replace these funds

in the future if our financial condition or general market conditions change. If we are unable to maintain access to funding sources, our

results of operations and liquidity would be adversely affected.

Alternate sources of funding may carry higher costs than sources currently utilized. If we are required to rely heavily on more

expensive funding sources, profitability would be adversely affected.

We may determine to seek debt financing in the future to achieve our long-term business objectives. Additional borrowings, if

sought, may not be available to us, or if available, may not be on acceptable terms. The availability of additional financing will depend

on a variety of factors, such as market conditions, the general availability of credit, our credit ratings and our credit capacity. In

addition, FirstBank may seek to sell loans as an additional source of liquidity. If additional financing sources are unavailable or are not

available on acceptable terms, our profitability and future prospects could be adversely affected.

Downgrades in our credit ratings could further increase the cost of borrowing funds.

The Corporation’s ability to access new non-deposit sources of funding could be adversely affected by downgrades in our credit

ratings. The Corporation’s liquidity is to a certain extent contingent upon its ability to obtain external sources of funding to finance its

operations. The Corporation’s current credit ratings and any downgrades in such credit ratings can hinder the Corporation’s access to

new forms of external funding and/or cause external funding to be more expensive, which could in turn adversely affect results of

operations.

We depend on cash dividends from FirstBank to meet our cash obligations.

As a holding company, dividends from FirstBank, our banking subsidiary, have provided a substantial portion of our cash flow used

to service the interest payments on our TRuPs and other obligations. FirstBank is limited by law in its ability to make dividend

payments and other distributions to us based on its earnings and capital position. A failure by FirstBank to generate sufficient cash

flow to make dividend payments to us may have a negative impact on our results of operations and financial condition.

Our level of non-performing assets may adversely affect our future results of operations.

Although non-performing assets decreased by $3.3 million to $125.9 million as of December 31, 2023, or 3%, from $129.2 million

as of December 31, 2022, we continue to have a relevant amount of nonaccrual loans. If we are unable to effectively maintain the

quality of our loan portfolio, our financial condition and results of operations may be materially and adversely affected.

Our ACL may not be adequate to cover actual losses, and we may be required to materially increase our ACL, which may

adversely affect our capital ratios, financial condition and results of operations.

We are subject, among other things, to the risk of loss from loan defaults and foreclosures with respect to the loans we originate and

purchase. We recognize periodic credit loss expenses on loans, which leads to reductions in our income from operations, in order to

maintain our ACL on loans at a level that our management deems to be appropriate based upon an assessment of the quality of the

loan and lease portfolios. Management may fail to accurately estimate the level of credit losses or may have to increase our credit loss

expense on loans in the future as a result of new information regarding existing loans, future increases in nonaccrual loans beyond

what was forecasted, foreclosure actions and loan modifications, changes in current and expected economic and other conditions

affecting borrowers or for other reasons beyond our control. In addition, the bank regulatory agencies periodically review the

adequacy of our ACL on loans and may require an increase in the credit loss expense on loans or the recognition of additional

classified loans and loan charge-offs, based on judgments that differ from those of management.

The level of the ACL reflects management’s estimates based upon various assumptions and judgments as to specific credit risks;

evaluation of industry concentrations; loan loss experience; current loan portfolio quality; present economic, political and regulatory

conditions; unidentified losses inherent in the current loan portfolio and reasonable and supportable forecasts. The determination of

the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires management to make

significant estimates and judgments regarding current credit risks and future trends, all of which may undergo material changes. If our

estimates prove to be incorrect, our ACL on loans may not be sufficient to cover losses in our loan portfolio and our credit loss

expense on loans could increase substantially.

In addition, any increases in our credit loss expense on loans or any loan losses in excess of our ACL on loans could have a material

adverse effect on our future capital ratios, financial condition and results of operations.

The Corporation’s force-placed insurance policies could be disputed by the customer.

The Corporation maintains force-placed insurance policies that have been put into place when a borrower’s insurance policy on a

property has been canceled, lapsed or was deemed insufficient and the borrower did not secure a replacement policy. A borrower may

make a claim against the Corporation under such force-placed insurance policy, and the failure of the Corporation to resolve such a

claim to the borrower’s satisfaction may result in a dispute between the borrower and the Corporation, which if not adequately

resolved, could have an adverse effect on the Corporation.

Defective and repurchased loans may harm our business and financial condition.

In connection with the sale and securitization of loans, we are required to make a variety of customary representations and

warranties relating to the loans sold or securitized. Our obligations with respect to these representations and warranties are generally

outstanding for the life of the loan, and relate to, among other things, the following: (i) compliance with laws and regulations; (ii)

underwriting standards; (iii) the accuracy of information in the loan documents and loan files; and (iv) the characteristics and

enforceability of the loan.

A loan that does not comply with the representations and warranties made may take longer to sell, may impact our ability to obtain

third-party financing for the loan, and may not be saleable or may be saleable only at a significant discount. If such a loan is sold

before we detect non-compliance, we may be obligated to repurchase the loan and bear any associated loss directly, or we may be

obligated to indemnify the purchaser against any loss, either of which could reduce our cash available for operations and liquidity.

Management believes that it has established controls to ensure that loans are originated in accordance with the secondary market’s

requirements, but certain employees may make mistakes or may deliberately violate our lending policies.

Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate and

operational risks could adversely affect our consolidated results of operations.

We may fail to identify and manage risks related to a variety of aspects of our business, including, but not limited to, liquidity risk;

interest rate risk; market risk; credit risk; operational risk; legal, regulatory and compliance risk; reputational risk; model risk; capital

risk; strategic risk; and information technology and cybersecurity risk. We have adopted and periodically improve various controls,

procedures, policies and systems to monitor and manage risk. Any improvements to our controls, procedures, policies and systems,

however, may not be adequate to identify and manage the risks in our various businesses. 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, such as natural disasters and cyber-attacks, 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.

Our failure to attract and retain a qualified workforce could harm our overall business and results of operations.

The Corporation’s success depends, in large part, on its ability to attract and retain skilled, experienced personnel. Competition for

qualified candidates in the activities and markets that the Corporation and FirstBank serves is intense, and while the Corporation

invests significantly in the training and development of its employees, it may not be able to hire people or to retain them. In addition,

high inflation has impacted both cost structure and employee demand for wage growth, which may lead to sustained higher turnover

rates. If the Corporation is unable to retain its most qualified employees, its performance and competitive positioning could be

materially adversely affected.

Our businesses may be adversely affected by litigation.

We have, in the past, been party to claims and legal actions by our customers, or subject to regulatory supervisory actions by the

government on behalf of customers, relating to our performance of fiduciary or contractual responsibilities. In the past, we have also

been subject to securities class action litigation by our shareholders and we have also faced employment lawsuits and other legal

claims. In any future claims or actions, demands for substantial monetary damages may be asserted against us, resulting in financial

liability or an adverse effect on our reputation among investors or on customer demand for our products and services. A securities

class action suit against us in the future could result in substantial costs, potential liabilities and the diversion of management’s

attention and resources. 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, reserves we establish to cover any settlements or judgments may not be sufficient

to cover our actual financial exposure, which has occurred in the past and may occur in the future, resulting in a material adverse

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.

The resolution of legal actions or regulatory matters, when unfavorable, has had, and could in the future 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 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, including

FirstBank as our banking subsidiary, could materially and adversely affect our reputation, or our ability to attract and retain customers

or obtain 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 we fail to promptly address matters that bear on our reputation, our reputation may be materially adversely affected

and our business may suffer.

Any impairment of our goodwill or other intangible assets may adversely affect our operating results.

If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings.

Goodwill is tested for impairment on an annual basis, and more frequently if events or circumstances lead management to believe

the values of goodwill may be impaired. Other intangible assets are amortized over the projected useful lives of the related intangible

asset, generally on a straight-line basis, and these assets are reviewed periodically for impairment when events or changes in

circumstances indicate that the fair value may not exceed their carrying amount. 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 includes

reduced future cash flow estimates, decreases in the current market price of our common shares, negative information concerning the

terminal value of similarly situated insured depository institutions, and slower growth rates in the industry.

The goodwill annual impairment evaluation process includes a qualitative assessment of events and circumstances that may affect

each relevant reporting unit's fair value to determine whether it was more likely than not that the fair value of any reporting unit was

less than its carrying amount, including goodwill. If the result of the qualitative assessment indicates that it is more likely than not that

the carrying value of goodwill exceeds its fair value, a quantitative analysis is made to determine the amount of goodwill impairment.

Analyzing goodwill includes consideration of various factors that continue to rapidly evolve and for which significant uncertainty

remains. Weakening in the economic environment, which could in turn cause a decline in the performance of the reporting units, could

cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in a goodwill impairment charge.

Actual values may differ significantly from this assessment. Such differences could result in future impairment of goodwill that

would, in turn, negatively impact our results of operations and the reporting unit to which the goodwill relates. During the fourth

quarter of 2023, management performed a qualitative analysis of the carrying amount of each relevant reporting unit’s goodwill and

concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. Therefore, no

quantitative analysis was required.

As of December 31, 2023, the book value of our goodwill was $38.6 million, which was recorded at FirstBank. If an impairment

determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the

impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common stock, or our

regulatory capital levels, but such an impairment loss could significantly reduce FirstBank’s earnings and thereby restrict FirstBank’s

ability to make dividend payments to us without prior regulatory approval, because Federal Reserve policy states that the bank holding

company dividends should be paid from current earnings.

Recognition of deferred tax assets is dependent upon the generation of future taxable income by the Bank.

As of December 31, 2023, the Corporation had a deferred tax asset of $150.1 million (net of a valuation allowance of $ $139.2

million, including a valuation allowance of $111.4 million against the deferred tax assets of FirstBank). Under the PR Tax Code, the

Corporation and its subsidiaries, including FirstBank, are treated as separate taxable entities and are not entitled to file consolidated

tax returns. Accordingly, in order to obtain a tax benefit from a NOL, a particular subsidiary must be able to demonstrate sufficient

taxable income within the applicable NOL carry-forward period. Pursuant to the PR Tax Code, the carry-forward period for NOLs

incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is 12 years; for NOLs

incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. Accounting for income taxes

requires that companies assess whether a valuation allowance should be recorded against their deferred tax asset based on an

assessment of the amount of the deferred tax asset that is more likely than not to be realized. Due to significant estimates utilized in

determining the valuation allowance and the potential for changes in facts and circumstances in the future, the Corporation may not be

able to reverse the remaining valuation allowance or may need to increase its current deferred tax asset valuation allowance.

The Corporation’s judgments regarding tax accounting policies and the resolution of tax disputes may impact the Corporation’s

earnings and cash flow, and changes in the tax laws of multiple jurisdictions can materially affect our operations, tax obligations,

and effective tax rate.

Significant judgment is required in determining the Corporation’s effective tax rate and in evaluating its tax positions. The

Corporation provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement

criteria prescribed by applicable generally accepted accounting principles in the United States (“GAAP”).

Fluctuations in federal, state, local, and foreign taxes or a change to uncertain tax positions, including related interest and penalties,

may impact the Corporation’s effective tax rate. When particular tax matters arise, a number of years may elapse before such matters

are audited and finally resolved. In addition, the Puerto Rico Department of Treasury (“PRTD”), the U.S. Internal Revenue Service

(“IRS”), and the tax authorities in the jurisdictions in which we operate may challenge our tax positions and we may estimate and

provide for potential liabilities that may arise out of tax audits to the extent that uncertain tax positions fail to meet the recognition

standard under applicable GAAP. Unfavorable resolution of any tax matter could increase the effective tax rate and could result in a

material increase in our tax expense. Resolution of a tax issue may require the use of cash in the year of resolution.

First BanCorp. is subject to Puerto Rico income tax on its income from all sources. FirstBank is treated as a foreign corporation for

U.S. and USVI income tax purposes and is generally subject to U.S. and USVI income tax only on its income from sources within the

U.S. and USVI or income effectively connected with the conduct of a trade or business in those regions. The USVI jurisdiction

imposes income taxes based on the U.S. Internal Revenue Code under the “mirror system” established by the Naval Service

Appropriations Act of 1922. However, the USVI jurisdiction also imposes an additional 10% surtax on the USVI tax liability, if any.

These tax laws are complex and subject to different interpretations. We must make judgments and interpretations about the

application of these inherently complex tax laws when determining our provision for income taxes, our deferred tax assets and

liabilities, and our valuation allowance. In addition, legislative changes, particularly changes in tax laws, could adversely impact our

results of operations.

Changes in applicable tax laws in Puerto Rico, the U.S., or other jurisdictions or tax authorities’ new interpretations could result in

increases in our overall taxes and the Corporation’s financial condition or results of operations may be adversely impacted.

Our ability to use our NOL carryforwards may be limited.

The Corporation has U.S. and USVI sourced NOL carryforwards. Section 382 of the U.S. Internal Revenue Code (“Section 382”)

limits the ability to utilize U.S. and USVI NOLs for income tax purposes, respectively, at such jurisdictions following an event of an

ownership change. Generally, an “ownership change” occurs when certain shareholders increase their aggregate ownership by more

than 50 percentage points over their lowest ownership percentage over a three-year testing period. Section 1034.04(u) of the PR Tax

Code is significantly similar to Section 382. However, Ac No. 60 of 2019 amended the PR Tax Code to repeal the corporate NOL

carryover limitations upon change in control for taxable years beginning after December 31, 2018.

Upon the occurrence of a Section 382 ownership change, the use of NOLs attributable to the period prior to the ownership change is

subject to limitations and only a portion of the U.S. and USVI NOLs, as applicable, may be used by the Corporation to offset the

annual U.S. and USVI taxable income, if any. In 2017, the Corporation completed a formal ownership change analysis within the

meaning of Section 382 covering a comprehensive period, and concluded that an ownership change, for U.S. and USVI purposes only,

had occurred during such period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities than we

would have incurred in the absence of such limitation.

It is possible that the utilization of our U.S. and USVI NOLs could be further limited due to future changes in our stock ownership,

as a result of either sales of our outstanding shares or issuances of new shares that could separately or cumulatively trigger an

ownership change and, consequently, a Section 382 limitation. Any further Section 382 limitations may result in greater U.S. and

USVI tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our

earnings and cash flow. We may be able to mitigate the adverse effects associated with a Section 382 limitation in the U.S. and USVI

to the extent that we could credit any resulting additional U.S. and USVI tax liability against our tax liability in Puerto Rico. However,

our ability to reduce our Puerto Rico tax liability through such a credit or deduction will depend on our tax profile at each annual

taxable period, which is dependent on various factors.

RISKS RELATING TO CYBERSECURITY AND TECHNOLOGY

Cyber-attacks, system risks and data protection breaches to our computer systems and networks or those of third-party service

providers could adversely affect our ability to conduct business, manage our exposure to risk or expand our business, result in the

disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and

security systems and infrastructure, and present significant reputational, legal and regulatory costs.

Our business is highly dependent on the security, controls and efficacy of our infrastructure, computer and data management

systems, as well as those of our customers, suppliers, and other third parties. To access our network, products and services, our

employees, customers, suppliers, and other third parties, including downstream service providers, the financial services industry and

financial data aggregators, with whom we interact, on whom we rely or who have access to our customers’ personal or account

information, increasingly use personal mobile devices or computing devices that are outside of our network and control environments

and are subject to their own cybersecurity risks. Our business relies on effective access management and the secure collection,

processing, transmission, storage and retrieval of confidential, proprietary, personal and other information in our computer and data

management systems and networks, and in the computer and data management systems and networks of third parties.

Information security risks for financial institutions have significantly increased in recent years, especially given the increasing

sophistication and activities of organized computer criminals, hackers, and terrorists and our expansion of online and digital customer

services to better meet our customer’s needs. These threats may derive from fraud or malice on the part of our employees or third-

party providers or may result from human error or accidental technological failure. These threats include cyber-attacks, such as

computer viruses, malicious or destructive code, phishing attacks, denial of service attacks, or other security breach tactics that could

result in the unauthorized release, gathering, monitoring, misuse, loss, destruction, or theft of confidential, proprietary, and other

information, including intellectual property, of ours, our employees, our customers, or third parties, damages to systems, or otherwise

material disruption to our or our customers’ or other third parties’ network access or business operations, both domestically and

internationally.

While we maintain an Information Security Program that continuously monitors cyber-related risks and ultimately ensures

protection for the processing, transmission, and storage of confidential, proprietary, and other information in our computer systems

and networks, as well as a vendor management program to oversee third party and vendor risks, there is no guarantee that we will not

be exposed to or be affected by a cybersecurity incident. For example, as previously disclosed, one of our third-party vendors was the

victim of a security incident in April 2023 involving a set of data that included some information on FirstBank’s mortgage loan

business. In response to learning of the incident, we promptly launched our own internal investigation, which confirmed that our own

systems were not compromised, and any operational and financial impact was minimal. Our vendor has indicated (and we have no

evidence to the contrary) that to date there is no evidence that there has been any actual or attempted misuse of information. The

Corporation has not incurred any material expenses related to the incident and does not expect any future impact.

Cyber threats are rapidly changing, and future attacks or breaches could lead to other security breaches of the networks, systems, or

devices that our customers use to access our integrated products and services, which, in turn, could result in unauthorized disclosure,

release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary, and other information (including account data

information) or data security compromises. As cyber threats continue to evolve, we may be required to expend significant additional

resources to modify or enhance our protective measures, investigate, and remediate any information security vulnerabilities or

incidents and develop our capabilities to respond and recover. The full extent of a particular cyberattack, and the steps that the

Corporation may need to take to investigate such attack, may not be immediately clear, and it could take considerable additional time

for us to determine the complete scope of information compromised, at which time the impact on the Corporation and measures to

recover and restore to a business-as-usual state may be difficult to assess. These factors may also inhibit our ability to provide full and

reliable information about the cyberattack to our customers, third-party vendors, regulators, and the public.

A successful penetration or circumvention of our system security, or the systems of our customers, suppliers, and other third parties,

could cause us serious negative consequences, including significant operational, reputational, legal, and regulatory costs and concerns.

Any of these adverse consequences could adversely impact our results of operations, liquidity, and financial condition. In addition,

our insurance policies may not be adequate to compensate us for the potential costs and other losses arising from cyber-attacks,

failures of information technology systems, or security breaches, and such insurance policies may not be available to us in the future

on economically reasonable terms, or at all. Insurers may also deny us coverage as to any future claim. Any of these results could

harm our growth prospects, financial condition, business, and reputation.

Our operational or security systems or infrastructure, or those of third parties, could fail or be breached. Any such future

incidents could potentially disrupt our business and adversely impact our results of operations, liquidity, and financial condition,

as well as cause legal or reputational harm.

The potential for operational risk exposure exists throughout our business and, as a result of our interactions with, and reliance on,

third parties, is not limited to our own internal operational functions. Our operational and security systems and infrastructure,

including our computer systems, data management, and internal processes, as well as those of third parties that perform key aspects of

our business operations, such as data processing, information security, recording and monitoring transactions, online banking

interfaces and services, internet connections, and network access are integral to our performance. We rely on our employees and third

parties in our day-to-day and ongoing operations, who may, because of human error, misconduct, malfeasance, failure, or breach of

our or of third-party systems or infrastructure, expose us to risk.

Our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with respect

to our own systems. In addition, our financial, accounting, data processing, backup, or other operating or security systems and

infrastructure may fail to operate properly or become disabled, damaged, or otherwise compromised as a result of a number of factors,

including events that are wholly or partially beyond our control. We may need to take our systems offline if they become infected

with malware or a computer virus or because of another form of cyberattack. If backup systems are utilized, they may not process data

as quickly as our primary systems and some data might not have been saved to backup systems, potentially resulting in a temporary or

permanent loss of such data.

We frequently update our systems to support our operations and growth and to remain compliant with applicable laws, rules, and

regulations. In addition, we review and strengthen our security systems in response to any cyber incident. Such strengthening entails

significant costs and risks associated with implementing new systems and integrating them with existing ones, including potential

business interruptions and the risk that this strengthening may not be entirely effective. Implementation and testing of controls related

to our computer systems, security monitoring, and retaining and training personnel required to operate our systems also entail

significant costs. Such operational risk exposures could adversely impact our operations, liquidity, and financial condition, as well as

cause reputational harm. In addition, we may not have adequate insurance coverage to compensate for losses from a major

interruption.

We must respond to rapid technological changes, and these changes may be more difficult or expensive than anticipated. We

may also be negatively affected if we fail to identify and address operational risks associated with the introduction of or changes to

products and services, or if we fail to respond to emerging technologies that seek to displace traditional financial services.

Like most financial institutions, FirstBank significantly depends on technology to deliver its products and other services and to

otherwise conduct business. To remain technologically competitive and operationally efficient, FirstBank invests in system upgrades,

new technological solutions, and other technology initiatives. If competitors introduce new products and services embodying new

technologies, or if new industry standards and practices emerge, our existing product and service offerings, technology and systems

may become obsolete. Furthermore, if we fail to adopt or develop new technologies or to adapt our products and services to emerging

industry standards, we may lose current and future customers, which could have a material adverse effect on our business, financial

condition and results of operations. The financial services industry is changing rapidly and, in order to remain competitive, we must

continue to enhance and improve the functionality and features of our products, services and technologies. These changes may be

more difficult or expensive to implement than we anticipate.

When we launch a new product or service, introduce a new platform for the delivery or distribution of products or services

(including mobile connectivity and cloud computing), or make changes to an existing product or service, we may not fully appreciate

or identify new operational risks that may arise from those changes, or we may fail to implement adequate controls to mitigate the

risks associated with those changes. Significant failure in this regard could diminish our ability to operate our business or result in

potential liability to our customers and third parties, increased operating expenses, weaker competitive standing, and significant

reputational, legal and regulatory costs.

Additionally, some recent innovations may trend toward replacing traditional banks as financial service providers rather than

merely augmenting those services. For example, companies which claim to offer applications and services based on artificial

intelligence are beginning to compete much more directly with traditional financial services companies in areas involving personal

advice, including high-margin services such as financial planning and wealth management. The low-cost, high-speed nature of these

“robo-advisor” services can be especially attractive to younger, less-affluent clients and potential clients, as well as persons interested

in “self-service” investment management. Similarly, inventions based on blockchain technology eventually may be the foundation for

greatly enhancing transactional security throughout the banking industry, but also eventually may reduce the need for banks as secure

deposit-keepers and intermediaries. Any of the foregoing consequences could materially and adversely affect our businesses and

results of operations.

The Corporation is subject to stringent and changing privacy laws, regulations, and standards as well as policies, contracts, and

other obligations related to data privacy and security. Our failure to comply with privacy laws and regulations, as well as other

legal obligations, could have a material adverse effect on our business.

State, federal, and foreign governments are increasingly enacting laws and regulations governing the collection, use, retention,

sharing, transfer, and security of personally identifiable information and data. A variety of federal, state, local, and foreign laws and

regulations, orders, rules, codes, regulatory guidance, and certain industry standards regarding privacy, data protection, consumer

protection, information security, and the processing of personal information and other data apply to our business. State laws are

changing rapidly, and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose,

additional obligations on companies that process confidential, sensitive and personal information, and will continue to shape the data

privacy environment nationally. The U.S. federal government is also focused on privacy matters. Any failure by us or any of our

business partners to comply with applicable laws, rules, and regulations may result in investigations or actions against us by

governmental entities, private claims and litigation, fines, penalties or other liabilities. Such events may increase our expenses, expose

us to liabilities, and impair our reputation, which could have a material adverse effect on our business. While we aim to comply with

applicable data protection laws and obligations in all material respects, there is no assurance that we will not be subject to claims that

we have violated such laws and obligations, will be able to successfully defend against such claims, or will not be subject to

significant fines and penalties in the event of non-compliance. Additionally, to the extent multiple state-level laws are introduced in

the U.S. with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could

be difficult and costly, or impossible, to achieve, and we could be subject to fines and penalties in the event of non-compliance.

RISK RELATING TO THE REGULATION OF OUR INDUSTRY

We are subject to certain regulatory restrictions that may adversely affect our operations.

We are subject to supervision and regulation by the Federal Reserve Board and the FDIC. We are a bank holding company and a

financial holding company under the Bank Holding Company Act of 1956, as amended. The Bank is also subject to supervision and

regulation by OCIF.

Under federal law, financial holding companies are permitted to engage in a broader range of “financial” activities than those

permitted to bank holding companies that are not financial holding companies. A financial holding company that ceases to meet

certain standards is subject to a variety of restrictions, depending on the circumstances, including the prohibition from undertaking

new activities or acquiring shares or control of other companies. If we fail to comply with the requirements from our regulators, we

may become subject to regulatory enforcement action and other adverse regulatory actions that might have a material and adverse

effect on our operations.

The FDIC insures deposits at FDIC-insured depository institutions up to certain limits (currently, $250,000 per depositor account).

The FDIC charges insured depository institutions premiums to maintain the DIF. In the event of a bank failure, the FDIC takes control

of a failed bank and, if necessary, pays all insured deposits up to the statutory deposit insurance limits 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. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the FDIC to

increase the DIF’s reserves against future losses, which will require institutions with assets greater than $10 billion, such as FirstBank,

to bear an increased responsibility for funding the prescribed reserve to support the DIF.

The FDIC may further increase FirstBank’s premiums or impose additional assessments or prepayment requirements in the future.

The Dodd-Frank Act removed the statutory cap for the reserve ratio, leaving the FDIC free to set this cap going forward.

Our compensation practices are subject to oversight by the Federal Reserve Board and the FDIC. Any deficiencies in our

compensation practices may be incorporated into our supervisory ratings, which can affect our ability to make acquisitions or

perform other actions.

Our compensation practices are subject to oversight by the Federal Reserve Board and the FDIC. As discussed in Part I, Item 1,

“Business” of this Form 10-K, the Corporation currently is subject to the interagency guidance governing the incentive compensation

activities of regulated banks and bank holding companies, and other financial regulators have also implemented regulations regarding

compensation practices. Our failure to satisfy these restrictions and guidelines could expose us to adverse regulatory criticism,

lowered supervisory ratings, and restrictions on our operations and acquisition activities.

We are subject to regulatory capital adequacy guidelines, and, if we fail to meet these guidelines, our business and financial

condition will be adversely affected.

We are subject to stringent regulatory capital requirements. Although the Corporation and FirstBank met general well-capitalized

capital ratios as of December 31, 2023, and we expect both companies will continue to exceed the minimum risk-based and leverage

capital ratio requirements for well-capitalized status under the current capital rules, we cannot assure that we will remain at such

levels. 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 certain capital levels or are deemed not well managed under regulatory

exam procedures, or if we experience certain regulatory violations, our status as a financial holding company, and our ability to offer

certain financial products will be compromised and our financial condition and results of operations could be adversely affected.

Monetary policies and regulations of the Federal Reserve Board 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 Board. An important function of the Federal Reserve Board is to regulate the money supply and credit conditions. Among the

instruments used by the Federal Reserve Board to implement these objectives are open market operations in U.S. government

securities, adjustments of the discount rate and changes in reserve requirements for 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.

The monetary policies and regulations of the Federal Reserve Board, which include d, but were not limited to, multiple increases in

the federal funds rate to reduce inflation, have had a significant effect on the operating results of commercial banks 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 have

been adverse in the past and may be adverse in the future.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending

laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and

regulations impose nondiscriminatory lending requirements on financial institutions. The U.S. Department of Justice and other federal

agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution's performance

under the Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act or any of the other fair lending laws

and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions

on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines. Private parties may also

have the ability to challenge an institution's performance under fair lending laws in private class action litigation. Such actions could

have a material adverse effect on our business, financial condition and results of operations.

We face a risk of noncompliance and enforcement action related to the Bank Secrecy Act and other anti-money laundering

statutes and regulations.

The Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions to institute and

maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate,

among other duties. The Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for

violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking

regulators, as well as the U.S. Department of Justice’s Drug Enforcement Administration. We are also subject to increased scrutiny of

our compliance with trade and economic sanctions requirements and rules enforced by OFAC. If our policies, procedures and systems

are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our

ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including

our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could

also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial

condition and results of operations.

Cybersecurity Risk Management and Strategy

The Corporation recognizes the significance of cybersecurity in the financial industry and the potential risks associated, such as the

risks arising from the loss of confidentiality, integrity, or availability of information systems. The Corporation’s processes to identify,

assess, and monitor material risks from cybersecurity threats are part of its Enterprise Risk Management (“ERM”) Program, which is

documented as part of the Corporate Incident Response Program and under which the Corporation has implemented a comprehensive

Corporate Information Security Program (“CISP”). Cybersecurity risk is managed as part of the overall information technology risk,

under the direction of the Corporate Security Office (“CSO”) led by the Corporate Security Officer (“CSO Officer”), who directly

reports to the Chief Operations Officer. The CSO Officer also serves as Chief Information Security Officer (“CISO”).

The CISP outlines the Corporation’s overall vision, direction, and governance to protect the confidentiality, integrity, and

availability of customer information and seeks to prevent unauthorized access as required by regulatory guidelines and industry

security best practices. The CISP is based on well-renowned frameworks such as the International Organizational Standard ISO 27000

series and the NIST Cybersecurity Framework. As such, it serves as a guide for the implementation of security safeguards across the

Corporation and its subsidiaries. The CISP also addresses cybersecurity breaches and procedures for appropriate response efforts,

including any required notification, depending on the severity of the specific security incident. In addition, the CISP incorporates a

risk-based approach to ensure that risk is treated in a consistent and effective matter and is designed to protect classified information

to prevent disclosure to unauthorized individuals; prioritize the use of information security resources by concentrating on critical

business applications; develop quality, cost-effective, and reliable systems; ensure the proper and secure disposal of sensitive

information; and implement adequate processes to ensure compliance.

The ERM Program includes a risk-based escalation process to manage corporate incidents, including cybersecurity incidents, and

notify the Risk Committee of the Board of Directors and applicable stakeholders as appropriate. The Corporation incorporates the

ERM Department, which is comprised of several members such as the ERM Director who is part of senior management, as well as

external expertise, in the review of its processes, including an independent third-party assessment of cybersecurity measures and

controls. The Corporation also invests in threat intelligence, vulnerability management, and incident response drills. Furthermore, all

of the Corporation’s employees and consultants with access to the Corporation’s network are required to complete a comprehensive

cybersecurity awareness program on an annual basis. Additionally, awareness and training on information technology and

cybersecurity risk is provided to the Board on a regular basis.

The Corporation has a Vendor Management Program and a Third-Party Risk Management function to manage the cybersecurity

risks associated with conducting business with third-party vendors, which includes the requirement for third-party vendors to

implement appropriate measures to ascertain security and confidentiality of the Corporation’s resources. The Corporation places

vendors into tiers based on the inherent risk due to the nature of the relationship with that vendor to determine any additional security

requirements commensurate to such level of risk.

The Corporation does not believe that risks from cybersecurity threats or attacks, including as a result of any previous cybersecurity

incidents, have materially affected the Corporation ’s business strategy, results of operations or financial condition as of December 31,

2023. While the Corporation continues to closely monitor cyber risk and has implemented processes that are intended to assess,

identify, and manage material risks from cybersecurity threats, security controls, no matter how well designed or implemented, may

only partially mitigate and not fully eliminate these risks. Events, when detected by security tools or third parties, may not always be

immediately understood or acted upon. See Item 1A, “Risk Factors – Risks Relating to Cybersecurity and Technology” for more

information on how cybersecurity risk could adversely affect the Corporation, which should be read in conjunction with this Item 1C.

Governance

Responsibility for risk oversight and management generally lies with the Corporation’s Board of Directors. To effectively manage

oversight of the CISP’s governance and cybersecurity risk management, the Board has delegated such responsibility to the Risk

Committee. As part of its oversight, the Risk Committee receives reports from the Executive Risk Management Committee and

Information Technology (“IT”) Steering Committee, which are committees at the management level, on the Corporation’s

cybersecurity processes. The Corporate Internal Audit Department performs periodic audits of the Corporation’s information security

practices and presents them to the Audit Committee of the Board. The scope of testing is in accordance with applicable regulatory

guidance and prudent business practices. The periodicity of testing is determined by the Corporate Internal Audit Department based on

their risk assessment. Findings from internal audit procedures are reported to Management and the Audit Committee of the Board of

Directors. In addition, the Vendor Management Committee periodically reports to the Risk Committee about the Vendor Management

program status. The Risk Committee provides the Board with updated information on the matters discussed in the Risk Committee

meetings as it relates to the CISP and the overall information security strategic direction and evaluates and approves (if necessary)

reports presented by executive management related to the information security strategic direction of the Corporation.

The CSO, led by the CSO Officer, oversees the CISP, its development, and any applicable updates in response to changes in

operations and other circumstances, and reports on a quarterly basis to the IT Steering Committee and to the Board’s Risk Committee.

The CSO Officer, who has been in charge since 2016, has over 20 years of experience in functional expertise concerning all aspects of

information security, integrity and privacy of systems, and data resources, and holds several relevant licenses and/or certifications.

Also, certain topics related to information security are presented on an ad hoc basis to the Executive Risk Management Committee.

The CSO provides the Board’s Risk Committee regular reports and engages in discussions on the effectiveness of the CISP, including

risk mitigation strategy and progress. The Board’s Risk Committee reviews and approves the CISP annually and receives a report on

the security safeguards annually.

See “Risk Management – Risk Governance” for more information on the Corporation’s risk governance structure.

As of December 31, 2023, First BanCorp. has ownership in the following principal buildings:

Headquarters – Located at First Federal Building, 1519 Ponce de León Avenue, San Juan, Puerto Rico. Approximately 51%

of this 16-story office building is owned by the Corporation.

Service Center – Located at 1130 Muñoz Rivera Avenue, San Juan, Puerto Rico. This facility, which is fully occupied by the

Corporation, houses over 1,000 employees from Human Resources, Data processing and operations, Administrative

Operation, Mortgage operations, collections, and Loss Mitigation, and certain other departments.

Consumer Lending Center – Located at 876 Muñoz Rivera Avenue, San Juan, Puerto Rico. This three-story facility is fully

occupied by the Corporation and accommodates a retail branch, Money Express Headquarters, Auto Wholesale and Retail

Financing, and Leasing Financing, among others.

The Corporation owns 18 retail branches and 10 office centers, other facilities, and/or parking lots. It leases 88 branch premises,

loan and office centers and other facilities. In certain situations, financial services such as mortgage and insurance businesses and

commercial banking services are in the same building or branch. All of these premises are in Puerto Rico, Florida, the USVI and the

BVI. Management believes that the Corporation’s properties are well maintained and are suitable for the Corporation’s business as

presently conducted.

Reference is made to Note 29 – “Regulatory Matters, Commitments and Contingencies” to the audited consolidated financial

statements included in Part II, Item 8 of this Form 10-K, which is incorporated herein by reference.

OPERATIONS (“MD&A”)

The following MD&A relates to the accompanying audited consolidated financial statements of First BanCorp. (the “Corporation,”

“we,” “us,” “our,” or “First BanCorp.”) and should be read in conjunction with such financial statements and the notes thereto. This

section also presents certain financial measures that are not based on generally accepted accounting principles in the United States of

America (“GAAP”). See “Non-GAAP Financial Measures and Reconciliations” below for information about why non-GAAP

financial measures are presented, reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures,

and references to non-GAAP financial measures reconciliations presented in other sections.

The detailed financial discussion that follows focuses on 2023 results compared to 2022. For a discussion of 2022 results compared

to 2021, see Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the

Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 28, 2023.

In this discussion and analysis of our financial condition and results of operations, we have included information that may

constitute “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act and

Section 21E of the Exchange Act. Forward-looking statements are not historical facts or statements of current conditions, but instead

represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. By

identifying these statements for you in this manner, we are alerting you to the possibility that our actual results, financial condition,

liquidity and capital actions may differ materially from the anticipated results, financial condition, liquidity and capital actions in these

forward-looking statements. Important factors that could cause our results, financial condition, liquidity and capital actions to differ

from those in these statements include, among others, those described in “Risk Factors” in Part I, Item 1A of this Form 10-K.

EXECUTIVE SUMMARY

First BanCorp. is a diversified financial holding company headquartered in San Juan, Puerto Rico offering a full range of financial

products to consumers and commercial customers through various subsidiaries. First BanCorp. is the holding company of FirstBank

Puerto Rico (“FirstBank” or the “Bank”) and FirstBank Insurance Agency. Through its wholly -owned subsidiaries, the Corporation

operates in Puerto Rico, the United States Virgin Islands (“USVI”), the British Virgin Islands (“BVI”), and the state of Florida,

concentrating on commercial banking, residential mortgage loans, credit cards, personal loans, small loans, auto loans and leases, and

insurance agency activities.

Significant Events

Economy and Market Volatility

The Federal Reserve Board has implemented monetary policies designed to curb inflation. On January 11, 2024 the Federal

Reserve Board published the core Personal Consumption Expenditures Price Index over the last 12 months, which showed that the all

items index increased 2.9 percent before seasonal adjustment. Other recent indicators suggest that economic activity has been

expanding. For 2023 as a whole, GDP has expanded at 3.1%. Although still strong, the labor market remains tight as payroll job gains

have been well below those seen in 2022. In January 2024, the national unemployment rate was 3.7% for the third month in a row.

Following its January 31, 2024 meeting, the Federal Reserve Board announced its decision to leave the federal funds rate

unchanged, at a target rate of 5.25% to 5.50%. The Federal Reserve Board commentary suggested that its policy rate is likely at its

peak and that, if the economy continues to evolve as expected, it will likely be dialing back policy restraint at some point this year.

Notwithstanding, it does not expect to reach such level of confidence by the time of the March 2024 meeting.

The Corporation closed an unprecedented and challenging year for the banking industry with strong financial performance and solid

loan growth. Core deposits, other than government and brokered, contracted due to the use of excess liquidity across all market

segments. Although the Corporation is seeing an expected correction in the credit cycle of the consumer lending business driven by

lower levels of excess liquidity and inflationary pressures, the Corporation expects its ample reserve coverage levels and risk

management framework to withstand the impact of any additional credit deterioration during 2024.

For 2024, the Corporation expects a reduction in the overall average cost of its deposits as interest rates start to decrease but expects

to continue to be impacted by the shift from non-interest-bearing deposits to interest-bearing deposits, though at a lower degree. Also,

the Corporation expects some reductions in deposit balances due to the customers’ use of their excess liquidity, which could be

replaced with wholesale funding sources. Assuming no meaningful changes to deposit balances, the Corporation expects net interest

income to improve in 2024 since approximately $1 billion in expected cash inflows from the repayments and maturities of the

investment portfolio, which is yielding less than 1.5%, will fund loan growth or be reinvested in higher yielding securities.

The Corporation remains confident that the economic prospects of Puerto Rico, its primary market, driven by a strong labor market

and an unprecedented level of federal support, will support the Corporation in continuing to have a strong financial performance,

sustainable levels of loan growth, and any additional credit deterioration contained.

Return of Capital to Shareholders and Dividend Payment Increase

In 2023, the Corporation returned approximately $300 million, or close to 100% of 2023 earnings, to its shareholders through $200

million in repurchases of common stock and the payment of approximately $100 million in common stock dividends.

For the year ended December 31, 2023, the Corporation repurchased 14.1 million shares of its common stock for a total cost of

$200 million. Of this total, $75 million of common stock, representing 5.1 million common shares at a weighted-average price of

$14.76, were repurchased under the $225 million stock repurchase program announced on July 24, 2023 (the “2023 Repurchase

Plan”). As of February 21, 2024, the Corporation has repurchased approximately 7.1 million shares of common stock totaling $107.9

million through open market purchases under the 2023 Repurchase Plan. With the additional purchases, the Corporation has $117.1

million remaining for share repurchases under the 2023 Repurchase Plan, which it expects to execute through the end of the third

quarter of 2024.

On February 8, 2024, the Corporation’s Board of Directors declared a quarterly cash dividend of $0.16 per common share, which

represents an increase of $0.02 per common share, or a 14% increase, compared to its most recent quarterly dividend paid in

December 2023. The dividend is payable on March 8, 2024, to shareholders of record at the close of business on February 23, 2024.

The increased quarterly dividend level equates to an annualized dividend of $0.64 per common share.

Legislative and Regulatory

A comprehensive discussion of legislative and regulatory matters affecting us can be found in Part I, Item 1, “Business –

Supervision and Regulation” of this Form 10-K.

Overview of Results of Operations

The Corporation’s results of operations depend primarily on its net interest income, which is the difference between the interest

income earned on its interest-earning assets, including investment securities and loans, and the interest expense incurred on its

interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by various factors, including the

following: (i) the interest rate environment; (ii) the volumes, mix, and composition of interest-earning assets, and interest-bearing

liabilities; and (iii) the repricing characteristics of these assets and liabilities. The Corporation ’s results of operations also depend on

the provision for credit losses, non-interest expenses (such as personnel, occupancy, professional service fees, the FDIC insurance

premium, and other costs), non-interest income (mainly service charges and fees on deposits, cards and processing income, and

insurance income), gains (losses) on mortgage banking activities, and income taxes.

The Corporation had net income of $302.9 million, or $1.71 per diluted common share, for the year ended December 31, 2023,

compared to $305.1 million, or $1.59 per diluted common share, for the year ended December 31, 2022. Other relevant selected

financial indicators for the periods presented are included below:

Year Ended December 31,

2023

2022

2021

Key Performance Indicator:

(1)

Return on Average Assets

(2)

1.62

1.57

1.38

Return on Average Common Equity

(3)

21.86

18.66

12.56

Efficiency Ratio

(4)

50.70

48.25

57.45

(1)

These financial ratios are used by management to monitor the Corporation’s financial performance and whether it is using its assets efficiently.

(2)

Indicates how profitable the Corporation is in relation to its total assets and is calculated by dividing net income by its average total assets.

(3)

Measures the Corporation’s performance based on its average common stockholders’ equity and is calculated by dividing net income by its average total common stockholders’ equity.

(4)

Measures how much the Corporation incurred to generate a dollar of revenue and is calculated by dividing non-interest expenses by total revenue.

The key drivers of the Corporation’s GAAP financial results for the year ended December 31, 2023, compared to the year ended

December 31, 2022, include the following:

Net interest income for the year ended December 31, 2023 increased to $797.1 million, compared to $795.3 million for the

year ended December 31, 2022. The increase in net interest income reflects a 10 basis points increase in net interest margin to

4.22%, which was mainly associated with the effect of both a higher interest rate environment, driving an increase in loan

and investment security yields, and the growth in the consumer loan portfolio, partially offset by higher rates paid on deposits

coupled with a change in the mix of deposit and borrowing composition. See "Net Interest Income" below for additional

information.

The provision for credit losses on loans, finance leases, unfunded loan commitments and debt securities for the year ended

December 31, 2023 was $60.9 million, compared to $27.7 million for the year ended December 31, 2022. The increase was

mainly driven by a combination of loan growth, higher delinquency and historical charge-off levels in the consumer loan and

finance lease portfolios, and the effect in 2022 of reductions in qualitative reserves associated with reduced uncertainty

around the economic impact of the COVID-19 pandemic, particularly on loans in the hotel, transportation and entertainment

industries.

Net charge-offs totaled $67.4 million for the year ended December 31, 2023, or 0.58% of average loans, compared to $34.2

million, or 0.31% of average loans, for the year ended December 31, 2022, mainly driven by a $29.1 million increase in

consumer loans and finance leases net charge-offs. See “Provision for Credit Losses” and “Risk Management” below for the

analysis of the allowance for credit losses (“ACL”) and non-performing assets and related ratios.

The Corporation recorded non-interest income of $132.7 million for the year ended December 31, 2023, compared to $123.1

million for the year ended December 31, 2022. The increase of $9.6 million in non-interest income was mainly driven by a

$3.6 million gain recognized from a legal settlement, a $3.5 million increase in card and processing income, and a $3.0

million gain related to the sale of banking premise in the Florida region, partially offset by lower revenues from mortgage

banking activities. See “Non-Interest Income” below for additional information.

The Corporation recorded non-interest expenses of $471.4 million for the year ended December 31, 2023, compared to

$443.1 million for the year ended December 31, 2022. The increase of $28.3 million in non-interest expenses mainly reflects

a $16.8 million increase in employees’ compensation and benefits expenses, mostly driven by annual salary merit increases

and minimum wage adjustments, and a FDIC special assessment expense of $6.3 million. The efficiency ratio for the year

ended December 31, 2023 was 50.70%, compared to 48.25% for the year ended December 31, 2022. See “Non-Interest

Expenses” below for additional information.

Income tax expense decreased to $94.6 million for the year ended December 31, 2023, compared to $142.5 million for 2022

driven by a lower effective tax rate and lower pre-tax income. The Corporation’s annual effective tax rate, excluding entities

with pre-tax losses from which a tax benefit cannot be recognized and discrete items, decreased to 23.5% for the year ended

December 31, 2023, compared to 31.2% for 2022. See “Income Taxes” below and Note 22 – “Income Taxes ” to the audited

consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.

As of December 31, 2023, total assets were approximately $18.9 billion, an increase of $275.1 million from December 31,

2022, primarily reflecting a $627.7 million increase in the total loan portfolio before the ACL and a $182.7 million increase

in cash and cash equivalents, partially offset by a $452.4 million decrease in total investment securities net of a $165.4

million increase in the fair value of available-for-sale debt securities.

As of December 31, 2023, total liabilities were $17.4 billion, an increase of $103.0 million from December 31, 2022, driven

by a $412.5 million increase in total deposits, which includes a $677.5 million increase in brokered certificates of deposit

(“CDs”), partially offset by a $272.2 million decrease in borrowings, primarily in short-term borrowings. See “Liquidity Risk

Management” below for additional information about the Corporation’s funding sources and strategy.

The Bank’s primary sources of funding are consumer and commercial core deposits, which exclude government deposits and

brokered CDs. As of December 31, 2023, these core deposits, amounting to $12.6 billion, funded 66.64% of total assets.

Excluding fully collateralized government deposits, estimated uninsured deposits amounted to $4.4 billion as of December

31, 2023. In addition to approximately $2.8 billion in cash and free high-quality liquid assets, the Bank maintains borrowing

capacity at the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank of New York ’s (the “FED”) Discount

Window. As of December 31, 2023, the Corporation had approximately $1.5 billion available for funding under the FED’s

Discount Window and $924.2 million available for additional borrowing capacity on FHLB lines of credit based on collateral

pledged at these entities. On a combined basis, as of December 31, 2023, the Corporation had $5.2 billion, or 118% of

estimated uninsured deposits, available to meet liquidity needs. See “Liquidity Risk Management” below for additional

information about the Corporation’s funding sources and strategy.

As of December 31, 2023, the Corporation’s total stockholders’ equity was $1.5 billion, an increase of $172.1 million from

December 31, 2022, mainly driven by a $165.4 million increase in the fair value of available-for-sale debt securities recorded

as part of accumulated other comprehensive loss and net income generated in 2023, partially offset by $200.0 million in

repurchases of common stock and $99.6 million in dividends declared in 2023. The Corporation’s CET1 capital, tier 1

capital, total capital, and leverage ratios were 16.10%, 16.10%, 18.57%, and 10.78%, respectively, as of December 31, 2023,

compared to CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.53%, 16.53%, 19.21%, and 10.70%,

respectively, as of December 31, 2022. See “Risk Management – Capital” below for additional information.

Total loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving

commitments, decreased by $230.8 million to $5.1 billion for the year ended December 31, 2023. See “Financial Condition

and Operating Data Analysis” below for additional information.

Total non-performing assets were $125.9 million as of December 31, 2023, a decrease of $3.3 million, from December 31,

2022, primarily related to a decrease of $10.6 million in nonaccrual residential mortgage loans, partially offset by a $7.6

million increase in nonaccrual consumer loans, mainly in the auto loan and finance lease portfolios. See “Risk Management –

Nonaccrual Loans and Non-Performing Assets” below for additional information.

Adversely classified commercial and construction loans decreased by $26.1 million to $67.5 million as of December 31,

2023, compared to December 31, 2022, mainly driven by the payoff of a $24.3 million commercial and industrial (“C&I”)

participated loan in the Florida region.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation has included in this Form 10-K the following financial measures that are not recognized under GAAP, which are

referred to as non-GAAP financial measures:

Net Interest Income, Interest Rate Spread, and Net Interest Margin, Excluding Valuations , and on a Tax -Equivalent Basis

Net interest income, interest rate spread, and net interest margin, excluding the changes in the fair value of derivative instruments

and on a tax-equivalent basis, are reported in order to provide to investors additional information about the Corporation’s net interest

income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the

fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning

assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable

and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount

equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a

standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-

equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis

that facilitates comparison of results to the results of peers.

See “Result of Operations – Net Interest Income” below, for the table that reconciles net interest income in accordance with GAAP

to the non-GAAP financial measure of net interest income, excluding valuations, and on a tax-equivalent basis for the indicated

periods. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations, and

on a tax-equivalent basis.

Tangible Common Equity Ratio and Tangible Book Value Per Common Share

The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management

believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity

less goodwill and other intangibles. Similarly, tangible assets are total assets less goodwill and other 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 method of accounting for mergers and acquisitions. Accordingly,

the Corporation believes that disclosures of these financial measures may be useful to investors. Neither tangible common equity nor

tangible assets, or the 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.

See “Risk Management – Capital” below for the table that reconciles the Corporation’s total equity and total assets in accordance

with GAAP to the tangible common equity and tangible assets figures used to calculate the non-GAAP financial measures of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income, Adjusted Non-Interest Income and Adjusted Non-Interest Expenses

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that

investors benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income, non-interest income and

non-interest expenses to exclude items that management believes are not reflective of core operating performance (“Special Items”).

The financial results for the year ended December 31, 2022 did not include any significant Special Items. The financial results for the

years ended December 31, 2023 and 2021 included the following Special Items:

Year Ended December 31, 2023

A $6.3 million ($3.9 million after-tax) FDIC special assessment expense recognized as a result of the final rule approved by

the FDIC Board of Directors on November 16, 2023 to recover the loss to the Deposit Insurance Fund associated with

protecting uninsured deposits following certain financial institution failures during the first half of 2023 by means of a

quarterly special assessment rate of 3.36 basis points to be applied to the special assessment base during an eight-quarter

collection period. The special assessment base is equal to estimated uninsured deposits reported as of December 31, 2022,

adjusted to exclude the first $5 billion of such deposits. The FDIC special assessment is reflected in the consolidated

statements of income as part of “FDIC deposit insurance” expenses, which reflects the expected total payment to be made to

the FDIC as of December 31, 2023.

A $3.6 million ($2.3 million after-tax) gain recognized from a legal settlement reflected in the consolidated statements of

income as part of “Other non-interest income.”

A $1.6 million gain on the repurchase of $21.4 million in junior subordinated debentures reflected in the consolidated

statements of income as “Gain on early extinguishment of debt.” The junior subordinated debentures are reflected in the

consolidated statements of financial condition as “Other long-term borrowings.” The purchase price equated to 92.5% of the

$21.4 million par value of the trust-preferred securities (“TRuPs”). The 7.5% discount resulted in the gain of $1.6 million.

The gain, realized at the holding company level, had no effect on the income tax expense recorded in 2023.

Year Ended December 31, 2021

Merger and restructuring costs of $26.4 million ($16.5 million after-tax) in connection with the Banco Santander Puerto Rico

(“BSPR”) acquisition integration process and related restructuring initiatives. Merger and restructuring costs included

approximately $6.5 million related to a Voluntary Employee Separation Program (the “VSP”) as well as involuntary

separation actions implemented in the Puerto Rico region. In addition, merger and restructuring costs included costs related

to system conversions, accelerated depreciation charges related to planned closures and consolidation of branches in

accordance with the Corporation’s integration and restructuring plan, and other integration related efforts.

Costs of $3.0 million ($1.9 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to

additional cleaning, safety materials, and security measures.

Adjusted Net Income – The following table reconciles for the years ended December 31, 2023 and 2021, the reported net income to

adjusted net income, a non-GAAP financial measure that excludes the Special Items identified above, and shows the net income

reported for the year ended December 31, 2022.

Year Ended December 31,

2023

2022

2021

(In thousands)

Net income, as reported (GAAP)

302,864

305,072

281,025

Adjustments:

Merger and restructuring costs

26,435

FDIC special assessment expense

6,311

COVID-19 pandemic-related expenses

2,958

Gain recognized from a legal settlement

(3,600)

Gain on early extinguishment of debt

(1,605)

Income tax impact of adjustments

(1)

(1,017)

(11,023)

Adjusted net income (Non-GAAP)

302,953

305,072

299,395

(1)

See "Adjusted Net Income, Adjusted Non-Interest Income and Adjusted Non-Interest Expenses" above for the individual tax impact related to the above adjustments, which were based on

the Puerto Rico statutory tax rate of 37.5%, as applicable.

Adjusted non-interest expenses – Non-interest expenses for the year ended December 31, 2023 were adjusted for the

aforementioned $6.3 million FDIC special assessment expense reflected in the consolidated statements of income as part of “FDIC

deposit insurance” expenses.

The following table reconciles for the year ended December 31, 2021 the non-interest expenses to adjusted non-interest expenses,

which is a non-GAAP financial measure that excludes the relevant Special Items identified above:

2021

Non-Interest Expenses

(GAAP)

Merger and

Restructuring Costs

COVID 19 Pandemic-

Related Expenses

Adjusted (Non-GAAP)

(In thousands)

Non-interest expenses

488,974

26,435

2,958

459,581

Employees' compensation and benefits

200,457

67

200,390

Occupancy and equipment

93,253

2,601

90,652

Business promotion

15,359

22

15,337

Professional service fees

59,956

59,956

Taxes, other than income taxes

22,151

261

21,890

FDIC deposit insurance

6,544

6,544

Net gain on OREO operations

(2,160)

(2,160)

Credit and debit card processing expenses

22,169

22,169

Communications

9,387

9,387

Merger and restructuring costs

26,435

26,435

Other non-interest expenses

35,423

35,416

CRITICAL ACCOUNTING ESTIMATES

The accounting principles of the Corporation and the methods of applying these principles conform to GAAP. In preparing the

consolidated financial statements, management is required to make estimates, assumptions, and judgments that affect the amounts

recorded for assets, liabilities and contingent liabilities as of the date of the financial statements and the reported amounts of revenues

and expenses during the reporting periods. Accounting estimates require assumptions and judgments about uncertain matters that

could have a material effect on the consolidated financial statements. The Corporation’s critical accounting estimates that are

particularly susceptible to significant changes include the following: (i) the ACL; (ii) valuation of financial instruments; and (iii)

income taxes. Actual results could differ from estimates and assumptions if different outcomes or conditions prevail.

Allowance for Credit Losses

The Corporation maintains an ACL for loans and finance leases based upon management’s estimate of the lifetime expected credit

losses in the loan portfolio, as of the balance sheet date, excluding loans held for sale. Additionally, the Corporation maintains an ACL

for held-to-maturity and available-for-sale debt securities, and other off-balance sheet credit exposures (

e.g.

, unfunded loan

commitments). For loans and finance leases, unfunded loan commitments, and held-to-maturity debt securities, the estimate of lifetime

credit losses includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over

the contractual lives of the portfolios, adjusted, as appropriate, for prepayments and permitted extension options using historical

experience. For purposes of the ACL for lending commitments, such allowance is determined using the same methodology as the

ACL for loans, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are

cancellable by us. The ACL for available-for-sale debt securities is measured using a risk-adjusted discounted cash flow approach that

also considers relevant current and forward-looking economic variables and the ACL is limited to the difference between the fair

value of the security and its amortized cost. Judgment is specifically applied in the determination of economic assumptions, the length

of the initial loss forecast period, the reversion of losses beyond the initial forecast period, historical loss expectations, usage of

macroeconomic scenarios, and qualitative factors, which may not be adequately captured in the loss model, as further discussed

below.

The macroeconomic scenarios utilized by the Corporation include variables that have historically been key drivers of increases and

decreases in credit losses. These variables include, but are not limited to, unemployment rates, housing and commercial real estate

prices, gross domestic product levels, retail sales, interest rate forecasts, corporate bond spreads, and changes in equity market prices.

The Corporation derives the economic forecasts it uses in its ACL model from Moody's Analytics. The latter has a large team of

economists, database managers and operational engineers with a history of producing monthly economic forecasts for over 25 years.

The Corporation has currently set an initial forecast period (“reasonable and supportable period”) of two years and a reversion

period of up to three years, utilizing a straight-line approach and reverting back to the historical macroeconomic mean for Puerto Rico

and the Virgin Islands regions. For the Florida region, the methodology considers a reasonable and supportable forecast period and an

implicit reversion towards the historical trend that varies for each macroeconomic variable. After the reversion period, a historical loss

forecast period covering the remaining contractual life, adjusted for prepayments, is used based on the change in key historical

economic variables during representative historical expansionary and recessionary periods. Changes in economic forecasts impact the

probability of default (“PD”), loss-given default (“LGD”), and exposure at default (“EAD”) for each instrument, and therefore

influence the amount of future cash flows for each instrument that the Corporation does not expect to collect.

Further, the Corporation periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be

related to and include, but not be limited to, factors such as the following: (i) management’s assessment of economic forecasts used in

the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii)

organization specific risks such as credit concentrations, collateral specific risks, nature, and size of the portfolio and external factors

that may ultimately impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan

resolution strategies, among others. The qualitative factors applied at December 31, 2023, and the importance and levels of the

qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of

economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes,

compared to the amount of ACL calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires

significant management judgment.

The ACL can also be impacted by factors outside the Corporation’s control, which include unanticipated changes in asset quality of

the portfolio, such as deterioration in borrower delinquencies, or credit scores in our residential real estate and consumer portfolio.

Further, the current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be

collateral dependent.

Our process for determining the ACL is further discussed in Note 1 – “Nature of Business and Summary of Significant Accounting

Policies” included in Part II, Item 8 of this Form 10-K. Also, see “Allowance for Credit Losses for Loans and Finance Leases” below

for additional information on the weighting of economic scenarios to estimate the ACL, changes in key economic variables, and the

ACL sensitivity analysis performed as of December 31, 2023.

Valuation of financial instruments

The measurement of fair value is fundamental to the Corporation’s presentation of its financial condition and results of operations.

The Corporation holds debt and equity securities, derivatives, and other financial instruments at fair value. The Corporation’s

significant assets reflected at fair value on a recurring basis on the Corporation’s financial statements consisted of available-for-sale

debt securities amounting to $5.2 billion as of December 31, 2023. In addition, fair value is also used on a non-recurring basis for

measuring the fair value of assets such as collateral dependent loans, other real estate owned (“OREO”) properties, and loans held for

sale.

Assets and liabilities carried at fair value inherently include subjectivity and may require the use of significant assumptions,

adjustments and judgment including, among others, discount rates, cash flows, default rates, and loss rates. A significant change in

assumptions may result in a significant change in fair value, which in turn, may result in a higher degree of financial statement

volatility and could result in significant impact on our results of operations, financial condition or disclosures of fair value

information.

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. The Corporation categorizes the fair value of its available-

for-sale debt securities using a three-level hierarchy for fair value measurements that distinguishes between market participant

assumptions developed based on market data obtained from sources independent of the Corporation (observable inputs) and the

Corporation’s own assumptions about market participant assumptions developed based on the best information available in the

circumstances (unobservable inputs). The hierarchy of inputs used in determining the fair value maximizes the use of observable

inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. The hierarchy level

assigned to each security in the Corporation’s investment portfolio was based on management’s assessment of the transparency and

reliability of the inputs used to estimate the fair values at the measurement date.

The fair value of U.S. Treasury securities included as part of the available-for-sale debt securities portfolio and equity securities

with readily determinable fair values was based on unadjusted quoted market prices (Level 1). If quoted market prices are unavailable,

the fair value is based on market prices for comparable assets (as is the case with mortgage-backed securities (“MBS”) and U.S.

agency debt securities) that are based on observable market parameters, including benchmark yields, reported trades, quotes from

brokers or dealers, issuer spreads, bids, offers, and reference data, including market research operations, when available (Level 2).

Observable prices in the market already consider the risk of nonperformance. If listed prices or quotes are not available, fair value is

based upon discounted cash flow models that use unobservable inputs due to the limited market activity of the instrument, as is the

case with private label MBS held by the Corporation (Level 3). Assets are classified in their entirety based on the lowest level of input

that is significant to their fair value measurement.

Private label MBS are collateralized by fixed-rate mortgages on single-family residential properties in the U.S. with original FICO

scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels. The interest rate on these

securities is variable, tied to 3-month CME Term Secured Overnight Financing Rate (“SOFR”) plus a tenor spread adjustment of

0.26161% and the original spread limited to the weighted-average coupon of the underlying collateral. The market valuation

represents the estimated net cash flows over the projected life of the pool of underlying assets applying a discount rate that reflects

market observed floating spreads over SOFR, with a widening spread based on a nonrated security. The market valuation is derived

from a model that utilizes relevant assumptions such as the prepayment rate, default rate, and loss severity on a loan level basis. The

Corporation modeled the cash flow from the fixed-rate mortgage collateral using a static cash flow analysis according to collateral

attributes of the underlying mortgage pool (

i.e.

, loan term, current balance, note rate, rate adjustment type, rate adjustment frequency,

rate caps, and others) in combination with prepayment forecasts based on historical portfolio performance. The Corporation models

the variable cash flow of the security using the 3-month CME Term SOFR forward curve.

Declines in fair value that are credit-related are recorded on the balance sheet through an ACL with a corresponding adjustment to

provision for credit losses and declines that are non-credit-related are recognized through other comprehensive income (loss).

If the Corporation intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the

Corporation will be required to sell a debt security before it recovers its amortized cost basis, the debt security is written down to fair

value through earnings. As of December 31, 2023, the Corporation did not intend to sell any debt securities in an unrealized loss

position and it is not more likely than not that the Corporation will be required to sell any debt securities before recovery of their

amortized cost basis.

For debt securities in an unrealized loss position for which the Corporation does not intend to sell the debt security and it is not

more likely than not that the Corporation will be required to sell the debt security, the Corporation determines whether the loss is due

to credit-related factors or non-credit-related factors. For debt securities in an unrealized loss position for which the losses are

determined to be the result of both credit-related and non-credit-related factors, the credit loss is determined as the difference between

the present value of the cash flows expected to be collected, and the amortized cost basis of the debt security.

Available-for-sale debt securities held by the Corporation at year-end primarily consisted of securities issued by U.S. government-

sponsored entities (“GSEs”), and the aforementioned private label MBS. Given the explicit and implicit guarantees provided by the

U.S. federal government, the Corporation believes the credit risk in securities issued by the GSEs is low. For the year ended December

31, 2023, the Corporation determined the credit losses for private label MBS based on a risk-adjusted discounted cash flow

methodology that considers qualitative and quantitative factors specific to the instruments, including PDs and LGDs that considered,

among other things, historical payment performance, loan-to-value attributes, and relevant current and forward-looking

macroeconomic variables, such as regional unemployment rates and the housing price index. Under this approach, expected cash

flows (interest and principal) were discounted at the U.S. Treasury yield curve as of the reporting date.

See Note 25 – “Fair Value” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K, for

additional information.

Income Taxes

The Corporation is required to estimate income taxes in preparing its consolidated financial statements. This involves the estimation

of current income tax expense together with an assessment of temporary differences between the carrying amounts of assets and

liabilities for financial reporting purposes and the amounts used for income tax purposes. The determination of current income tax

expense involves estimates and assumptions that require the Corporation to assume certain positions based on its interpretation of

current tax regulations. Management assesses the relative benefits and risks of the appropriate tax treatment of transactions, taking into

account statutory, judicial and regulatory guidance, and recognizes tax benefits only when deemed probable. Changes in assumptions

affecting estimates may be required in the future and estimated tax liabilities may need to be increased or decreased accordingly. The

Corporation adjusts the accrual of tax contingencies in light of changing facts and circumstances, such as the progress of tax audits,

case law and emerging legislation. The Corporation’s effective tax rate includes the impact of tax contingencies and changes to such

accruals, as considered appropriate by management. When particular tax matters arise, a number of years may elapse before such

matters are audited by the taxing authorities and finally resolved. Favorable resolution of such matters or the expiration of the statute

of limitations may result in the release of tax contingencies that the Corporation recognizes as a reduction to its effective tax rate in the

year of resolution. Unfavorable settlement of any particular issue could increase the effective tax rate and may require the use of cash

in the year of resolution.

As of December 31, 2023, we had $150.1 million of deferred tax assets, net of a related valuation allowance of $139.2 million. The

determination of deferred tax expense or benefit is based on changes in the carrying amounts of assets and liabilities that generate

temporary differences and recognizes enacted changes in tax rates and laws in the period in which they occur. The carrying value of

the Corporation’s net deferred tax asset assumes that the Corporation will be able to generate sufficient future taxable income based on

estimates and assumptions. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is

more likely than not to be realized. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject

to considerable judgment and requires the evaluation of positive and negative evidence that can be objectively verified. Positive

evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character

within the carryforward periods is available under the tax law. Consideration must be given to all sources of taxable income including,

as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of

temporary differences and carryforwards, and tax planning strategies. When negative evidence (e.g., cumulative losses in recent years,

history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be

necessary. The Corporation has concluded that based on the level of positive evidence, it is more likely than not that the deferred tax

asset will be realized, net of the existing valuation allowances at December 31, 2023 and 2022. However, there is no guarantee that the

tax benefits associated with the deferred tax assets will be fully realized. The positive evidence considered by management in arriving

at its conclusion included factors such as the following: FirstBank’s three-year cumulative income position; and sustained periods of

profitability; management’s proven ability to forecast future income accurately and execute tax strategies. The negative evidence

considered by management included the following: uncertainties about the state of the Puerto Rico economy, including considerations relating to the pandemic recovery funds together with Puerto Rico government debt restructuring and the ultimate sustainability of the latest fiscal plan certified by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) oversight board.

See Note 22

Income Taxes ” to the audited consolidated financial statements included in Part II, Item 8 on Form 10-K for further

information related to income taxes.

OTHER ESTIMATES

In addition to the critical accounting estimates we make in connection with the ACL, fair value measurements, and the accounting

for income taxes, the use of estimates and assumptions is also important in determining the accounting for goodwill and identifiable

intangible assets, pension and postretirement benefit obligations, and provisions for losses that may arise from litigation and

regulatory proceedings (including governmental investigations).

Goodwill is assessed for impairment at least annually and more frequently if circumstances exist that indicate a possible reduction

in the fair value of a reporting unit below its carrying value. When assessing goodwill for impairment, first, a qualitative assessment

can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated

carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Estimating the

fair value of our reporting units requires judgment. Critical inputs to the fair value estimates may include projected earnings,

macroeconomic conditions, interest rate levels, and peers performance. See Note 1 – “Nature of Business and Summary of Significant

Accounting Policies” and Note 9 – “Goodwill and Other Intangibles” to the audited consolidated financial statements included in Part

II, Item 8 of this Form 10-K for further information about goodwill and identifiable intangible assets. Based on our annual impairment

qualitative analysis of goodwill conducted in the fourth quarter of 2023, it was determined that it is more-likely-than-not that the fair

value of the reporting units exceeded their carrying value; therefore, goodwill is considered not impaired.

Identifiable intangible assets are tested for impairment when events or changes in circumstances suggest that an asset’s or asset

group’s carrying value may not be fully recoverable. Judgment is required to evaluate whether indications of potential impairment

have occurred, and to test intangible assets for impairment, if required. An impairment is recognized if the estimated undiscounted

cash flows relating to the asset or asset group is less than the corresponding carrying value. The amortization of identified intangible

assets is based upon the estimated economic benefits to be received over their economic life, which is also subjective. Customer

attrition rates that are based on historical experience are used to determine the estimated economic life of intangibles assets.

The Corporation maintains two frozen qualified noncontributory defined benefit pension plans, and a related complementary

postretirement benefits plan covering medical benefits and life insurance after retirement. Calculation of the obligations and related

expenses under these plans requires the use of actuarial valuation methods and assumptions, which are subject to management

judgment and may differ if different assumptions are used. The discount rate assumption used to measure the postretirement benefit

obligation is estimated as the single equivalent rate such that the present value of the plan’s projected benefit obligation cash flows

using the single rate equals the present value of those cash flows using the above mean actuarial yield curves. See Note 19 –

“Employee Benefit Plans” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K, for

disclosures related to the benefit plans.

As necessary, we also estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the

extent that such losses are probable and can be reasonably estimated. Judgment is required in making these estimates and our final

liabilities may ultimately be materially different. Our total estimated liability with respect to litigation and regulatory proceedings is

determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress

of each case, our experience and the experience of others in similar cases, proceedings or investigations, and the opinions and views of

legal counsel. The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to

determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may

be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess

of the established accrual or the range of reasonably possible loss. See Note 29 – “Regulatory Matters, Commitments and

Contingencies” to the audited consolidated financial statements included in Part II, Item 8 of this Form 10-K.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the excess of interest earned by First BanCorp. on its interest-earning assets over the interest incurred on its

interest-bearing liabilities. First BanCorp.’s net interest income is subject to interest rate risk due to the repricing and maturity

mismatch of the Corporation’s assets and liabilities. In addition, variable sources of interest income, such as loan fees, periodic

dividends, and collection of interest in nonaccrual loans, can fluctuate from period to period. Net interest income for the year ended

December 31, 2023 was $797.1 million, compared to $795.3 million for the year ended December 31, 2022. On a tax-equivalent basis

and excluding the changes in the fair value of derivative instruments, net interest income for the year ended December 31, 2023 was

$818.0 million, compared to $828.4 million for the year ended December 31, 2022.

The following tables include a detailed analysis of net interest income for the indicated periods. Part I presents average volumes

(based on the average daily balance) and rates on an adjusted tax-equivalent basis and Part II presents, also on an adjusted tax-

equivalent basis, the extent to which changes in interest rates and changes in the volume of interest-related assets and liabilities have

affected the Corporation’s net interest income. For each category of interest-earning assets and interest-bearing liabilities, the tables

provide information on changes in (i) volume (changes in volume multiplied by prior period rates), and (ii) rate (changes in rate

multiplied by prior period volumes). The Corporation has allocated rate-volume variances (changes in rate multiplied by changes in

volume) to either the changes in volume or the changes in rate based upon the effect of each factor on the combined totals.

Net interest income on an adjusted tax equivalent basis and excluding the change in the fair value of derivative instruments is a

non-GAAP financial measure. For the definition of this non-GAAP financial measure, refer to the discussion in “Non-GAAP

Financial Measures and Reconciliations” above.

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Year Ended December 31,

2023

2022

2021

2023

2022

2021

2023

2022

2021

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

584,083

1,156,127

2,012,617

30,419

11,791

2,662

5.21

1.02

0.13

Government obligations

(2)

2,843,284

2,870,889

2,065,522

40,314

39,033

27,058

1.42

1.36

1.31

MBS

3,702,908

4,052,660

4,064,343

67,641

85,090

57,159

1.83

2.10

1.41

FHLB stock

36,606

20,419

28,208

2,799

1,114

1,394

7.65

5.46

4.94

Other investments

14,167

12,747

10,254

490

126

61

3.46

0.99

0.59

Total investments

(3)

7,181,048

8,112,842

8,180,944

141,663

137,154

88,334

1.97

1.69

1.08

Residential mortgage loans

2,814,102

2,886,594

3,277,087

160,009

160,359

177,747

5.69

5.56

5.42

Construction loans

172,952

121,642

181,470

14,811

7,350

12,766

8.56

6.04

7.03

C&I and commercial mortgage loans

5,244,503

5,092,638

5,228,150

365,185

281,486

261,333

6.96

5.53

5.00

Finance leases

789,870

636,507

518,757

60,909

46,842

38,532

7.71

7.36

7.43

Consumer loans

2,704,877

2,461,632

2,207,685

301,756

262,542

239,725

11.16

10.67

10.86

Total loans

(4)(5)

11,726,304

11,199,013

11,413,149

902,670

758,579

730,103

7.70

6.77

6.40

Total interest-earning assets

18,907,352

19,311,855

19,594,093

1,044,333

895,733

818,437

5.52

4.64

4.18

Interest-bearing liabilities:

Time deposits

2,590,313

2,213,145

2,636,303

68,605

18,102

26,138

2.65

0.82

0.99

Brokered CDs

348,829

69,694

141,959

16,630

1,500

2,982

4.77

2.15

2.10

Other interest-bearing deposits

7,664,793

8,279,320

8,162,280

100,226

26,759

12,362

1.31

0.32

0.15

Securities sold under agreements to repurchase

54,570

194,948

300,482

2,769

7,555

9,963

5.07

3.88

3.32

Advances from the FHLB

541,000

179,452

354,055

24,608

5,136

8,199

4.55

2.86

2.32

Other borrowings

171,184

184,173

183,762

13,538

8,269

5,135

7.91

4.49

2.79

Total interest-bearing liabilities

11,370,689

11,120,732

11,778,841

226,376

67,321

64,779

1.99

0.61

0.55

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

817,957

828,412

753,658

Interest rate spread

3.53

4.03

3.63

Net interest margin

4.33

4.29

3.85

(1)

On an adjusted tax-equivalent basis. The Corporation estimated the adjusted tax-equivalent yield by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of

37.5% and adding to it the cost of interest-bearing liabilities. The tax-equivalent adjustment recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes

that it is a standard practice in the banking industry to present net interest income, interest rate spread and net interest margin on a fully tax-equivalent basis. Therefore, management believes these

measures provide useful information to investors by allowing them to make peer comparisons. The Corporation excludes changes in the fair value of derivatives from interest income because the

changes in valuation do not affect interest received. See "Non-GAAP Financial Measures and Reconciliations" above.

(2)

Government obligations include debt issued by government-sponsored agencies.

(3)

Unrealized gains and losses on available-for-sale debt securities are excluded from the average volumes.

(4)

Average loan balances include the average of nonaccrual loans.

(5)

Interest income on loans includes $11.9 million, $11.2 million and $10.5 million for the years ended December 31, 2023, 2022 and 2021, respectively, of income from prepayment penalties and late

fees related to the Corporation’s loan portfolio.

Part II

Year Ended December 31,

2023 Compared to 2022

2022 Compared to 2021

Variance due to:

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

(In thousands)

Interest income on interest-earning assets:

Money market and other short-term investments

(17,813)

36,441

18,628

(4,934)

14,063

9,129

Government obligations

(382)

1,663

1,281

10,914

1,061

11,975

MBS

(6,963)

(10,486)

(17,449)

(205)

28,136

27,931

FHLB stock

1,118

567

1,685

(405)

125

(280)

Other investments

16

348

364

17

48

65

Total investments

(24,024)

28,533

4,509

5,387

43,433

48,820

Residential mortgage loans

(4,075)

3,725

(350)

(21,437)

4,049

(17,388)

Construction loans

3,751

3,710

7,461

(3,793)

(1,623)

(5,416)

C&I and commercial mortgage loans

8,618

75,081

83,699

(7,132)

27,285

20,153

Finance leases

11,737

2,330

14,067

8,706

(396)

8,310

Consumer loans

26,758

12,456

39,214

27,330

(4,513)

22,817

Total loans

46,789

97,302

144,091

3,674

24,802

28,476

Total interest income

22,765

125,835

148,600

9,061

68,235

77,296

Interest expense on interest-bearing liabilities:

Time deposits

3,574

46,929

50,503

(3,844)

(4,192)

(8,036)

Brokered CDs

11,608

3,522

15,130

(1,537)

55

(1,482)

Other interest-bearing deposits

(5,011)

78,478

73,467

180

14,217

14,397

Securities sold under agreements to repurchase

(6,282)

1,496

(4,786)

(3,795)

1,387

(2,408)

Advances from the FHLB

15,066

4,406

19,472

(4,520)

1,457

(3,063)

Other borrowings

(805)

6,074

5,269

9

3,125

3,134

Total interest expense

18,150

140,905

159,055

(13,507)

16,049

2,542

Change in net interest income

4,615

(15,070)

(10,455)

22,568

52,186

74,754

Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and

GSEs, generate interest that is exempt from income tax, principally in Puerto Rico. Also, interest and gains on sales of investments

held by the Corporation’s international banking entities (“IBEs”) are tax-exempt under Puerto Rico tax law (see Note 22 – “Income

Taxes” to the audited consolidated financial statements herein for additional information). Management believes that the presentation

of interest income on an adjusted tax-equivalent basis facilitates the comparison of all interest data related to these assets. The

Corporation estimated the tax equivalent yield by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory

tax rate (37.5%) and adding to it the average cost of interest-bearing liabilities. The computation considers the interest expense

disallowance required by Puerto Rico tax law.

Management believes that the presentation of net interest income, excluding the effects of the changes in the fair value of the

derivative instruments (“valuations”), provides additional information about the Corporation’s net interest income and facilitates

comparability and analysis from period to period. The changes in the fair value of the derivative instruments have no effect on interest

earned on interest-earning assets.

The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net

interest income on an adjusted tax-equivalent basis for the indicated periods. The table also reconciles net interest spread and net

interest margin on a GAAP basis to these items excluding valuations, and on an adjusted tax-equivalent basis:

Year Ended December 31,

2023

2022

2021

(Dollars in thousands)

Interest income - GAAP

1,023,486

862,614

794,708

Unrealized loss (gain) on derivative instruments

8

(30)

(24)

Interest income excluding valuations - non-GAAP

1,023,494

862,584

794,684

Tax-equivalent adjustment

20,839

33,149

23,753

Interest income on a tax-equivalent basis and excluding valuations - non-GAAP

1,044,333

895,733

818,437

Interest expense - GAAP

226,376

67,321

64,779

Net interest income - GAAP

797,110

795,293

729,929

Net interest income excluding valuations - non-GAAP

797,118

795,263

729,905

Net interest income on a tax-equivalent basis and excluding valuations - non-GAAP

817,957

828,412

753,658

Average Balances

Loans and leases

11,726,304

11,199,013

11,413,149

Total securities, other short-term investments and interest-bearing cash balances

7,181,048

8,112,842

8,180,944

Average Interest-Earning Assets

18,907,352

19,311,855

19,594,093

Average Interest-Bearing Liabilities

11,370,689

11,120,732

11,778,841

Average Assets

18,706,423

19,378,649

20,303,033

Average Non-Interest-Bearing Deposits

5,741,345

6,391,171

6,063,715

Average Yield/Rate

Average yield on interest-earning assets - GAAP

5.41%

4.47%

4.06%

Average rate on interest-bearing liabilities - GAAP

1.99%

0.61%

0.55%

Net interest spread - GAAP

3.42%

3.86%

3.51%

Net interest margin - GAAP

4.22%

4.12%

3.73%

Average yield on interest-earning assets excluding valuations - non-GAAP

5.41%

4.47%

4.06%

Average rate on interest-bearing liabilities

1.99%

0.61%

0.55%

Net interest spread excluding valuations - non-GAAP

3.42%

3.86%

3.51%

Net interest margin excluding valuations - non-GAAP

4.22%

4.12%

3.73%

Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations

non-GAAP

5.52%

4.64%

4.18%

Average rate on interest-bearing liabilities

1.99%

0.61%

0.55%

Net interest spread on a tax-equivalent basis and excluding valuations - non-GAAP

3.53%

4.03%

3.63%

Net interest margin on a tax-equivalent basis and excluding valuations - non-GAAP

4.33%

4.29%

3.85%

Net interest income amounted to $797.1 million for the year ended December 31, 2023, an increase of $1.8 million, when compared

to $795.3 million for same period in 2022. The $1.8 million increase in net interest income was primarily due to:

A $142.7 million increase in interest income on loans consisting of:

An $89.0 million increase in interest income on commercial and construction loans, driven by the effect of higher market

interest rates on the upward repricing of variable-rate loans and on new loan originations and, to a lesser extent, an

increase of $259.0 million in the average balance of this portfolio (excluding Small Business Administration Paycheck

Protection Program (“SBA PPP”) loans). These variances were partially offset by a $7.6 million reduction in interest

income from SBA PPP loans.

As of December 31, 2023, the interest rate on approximately 55% of the Corporation’s commercial and construction

loans was tied to variable rates, with 33% based upon SOFR of 3 months or less, 13% based upon the Prime rate index,

and 9% based on other indexes. For the year ended December 31, 2023, the average one-month SOFR increased 321

basis points, the average three-month SOFR increased 298 basis points, and the average Prime rate increased 333 basis

points, compared to the average rates for such indexes for the year ended December 31, 2022.

A $53.3 million increase in interest income on consumer loans and finance leases, driven by an increase of $396.6

million in the average balance of this portfolio and, to a lesser extent, the upward repricing of the credit cards portfolio.

A

$0.4 million increase in interest income on residential mortgage loans, driven by the positive effect of new loan

originations at higher current market interest rates, partially offset by a decline of $72.5 million in the average balance of

this portfolio.

An $18.2 million increase in interest income from interest-bearing cash balances and investment securities, consisting of:

An $18.6 million increase in interest income from interest-bearing cash balances, which consisted primarily of cash

balances deposited at the FED, mainly associated with the effect of higher market interest rates, partially offset by a

decline of $572.0 million in the average balance.

A $2.1 million increase in dividend income on equity securities, of which $1.7 million was associated with income from

FHLB stock.

Partially offset by:

A $2.5 million net decrease in interest income on debt securities, including a net decrease of $4.5 million on U.S.

government and agencies debt securities and MBS driven by a net decline of $343.1 million in the average balance,

partially offset by an increase of $2.0 million in interest income on Puerto Rico municipal bonds that was mainly

attributable to the upward repricing of variable-rate bonds.

Partially offset by:

A $139.1 million increase in interest expense on interest-bearing deposits, consisting of:

A $73.5 million increase in interest expense on interest-bearing checking and saving accounts, mainly driven by a $76.5

million increase associated with higher interest rates paid in 2023 as a result of the overall higher interest rate

environment, partially offset by a $2.9 million decrease resulting from a $614.5 million decline in the average balance of

these deposits. The average cost of interest-bearing checking and saving accounts increased by 99 basis points to 1.31%

for 2023 as compared to 0.32 % for 2022, mostly driven by government deposits in the Puerto Rico region. Excluding

government deposits, the average cost of interest-bearing checking and savings accounts for 2023 was 0.68%, compared

to 0.26% for 2022.

A $50.5 million increase in interest expense on time deposits, excluding brokered CDs, of which $46.9 million was

related to higher rates paid in 2023 on new issuances and renewals also associated with the higher interest rate

environment. The average cost of time deposits for 2023, excluding brokered CDs, increased 183 basis points to 2.65%

when compared to 2022. Excluding public sector time deposits, the average cost of non-brokered time deposits for 2023

increased 177 basis points to 2.61% when compared to 2022, reflecting the effect of customers allocating more cash into

higher yielding alternatives.

A $15.1 million increase in interest expense on brokered CDs, driven by the increase of $279.1 million increase in the

average balance.

A $20.0 million net increase in interest expense on borrowings, consisting of:

A $19.5 million increase in interest expense on advances from the FHLB, associated with a $361.5 million increase in

the average balance.

A $5.3 million increase in interest expense on other borrowings, mainly driven by the upward repricing of junior

subordinated debentures, partially offset by a reduction in the average balance.

Partially offset by:

A $4.8 million decrease in interest expense on repurchase agreements, driven by a $6.3 million decrease associated with

a $140.4 million decline in the average balance, partially offset by a $1.5 million increase associated with new short-term

repurchase agreements entered into during 2023 at higher interest rates.

Net interest margin increased by 10 basis points to 4.22% for 2023, compared to 4.12% for 2022. The net interest margin increase

primarily reflects the higher interest rate environment, driving the upward repricing of variable-rate commercial loans, and higher

yields earned on new loan originations. The net interest margin also benefited from an improved earnings -asset mix reflected in the

growth of higher yielding commercial and consumer loans. These factors were partially offset by an increase in the average cost of

interest-bearing liabilities, mainly reflecting the effect of higher rates paid on deposits, and a continued migration from non-interest-

bearing and other low-cost deposits to higher-cost deposits.

Provision for Credit Losses

The provision for credit losses for loans and finance leases was $66.6 million for the year ended December 31, 2023, compared to

$25.7 million for the year ended December 31, 2022. The variances by major portfolio category were as follows:

Provision for credit losses for the consumer loan and finance lease portfolios was an expense of $67.8 million for the year

ended December 31, 2023, compared to an expense of $57.5 million for the year ended December 31, 2022. The increase

primarily reflects the increases in the size of the consumer loan portfolios coupled with higher delinquency and historical

charge-off levels in all major portfolio classes, partially offset by improvements in the forecasted macroeconomic variables

such as the regional unemployment rate and retail sales in the case of credit cards.

Provision for credit losses for the commercial and construction loan portfolios was an expense of $5.7 million for the year

ended December 31, 2023, compared to a net benefit of $23.1 million for year ended December 31, 2022. The expense

recognized during 2023 was mainly due to the increase in the size of the commercial and construction loan portfoli os, a $6.0

million charge associated with a nonaccrual C&I participated loan in the Florida region in the power generation industry, a

$1.7 million incremental reserve recorded during 2023 associated with the inflow to nonaccrual status of a $9.5 million C&I

loan in the Puerto Rico region, and a $1.0 million charge-off recorded on a nonaccrual commercial mortgage loan transferred

to OREO during 2023, partially offset by an improvement on the economic outlook of certain macroeconomic variables, such

as the unemployment rate. Meanwhile, the net benefit recorded during 2022 mainly reflects reductions in qualitative reserves

associated with reduced COVID-19 uncertainties, partially offset by loan growth and a less favorable economic outlook of

certain macroeconomic variables, such as the CRE price index.

Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $6.9 million for the year ended

December 31, 2023, compared to a net benefit of $8.7 million for the year ended December 31, 2022. The net benefit

recorded during 2023 was primarily related to updated macroeconomic variables, such as the Regional Home Price Index and

the unemployment rate, partially offset by newly originated loans which have a longer life.

Provision for credit losses for unfunded loan commitments

The provision for credit losses for unfunded commercial and construction loan commitments and standby letters of credit was an

expense of $0.4 million for the year ended December 31, 2023, compared to $2.7 million for year ended December 31, 2022. The

expense recorded during 2022 was mainly driven by an increase in unfunded loan commitments principally due to then newly

originated facilities which remained undrawn as of December 31, 2022.

Provision for credit losses for held-to-maturity and available-for-sale debt securities

The provision for credit losses for held-to-maturity debt securities was a net benefit of $6.1 million for the year ended December

31, 2023, compared to a net benefit of $0.3 million for year ended December 31, 2022. The net benefit recorded during 2023 was

mostly driven by the refinancing of a $46.5 million municipal bond into a shorter-term commercial loan structure and, to a lesser

extent, a reduction in qualitative reserves driven by updated financial information of certain bond issuers received during 2023.

The provision for credit losses for available-for-sale debt securities was an expense of $20 thousand for the year ended December

31, 2023, compared to a net benefit of $0.4 million for the year ended December 31, 2022.

Non-Interest Income

Non-interest income for the year ended December 31, 2023 amounted to $132.7 million, compared to $123.1 million for the same

period in 2022. Non-interest income for the year ended December 31, 2023 includes the $3.6 million gain recognized from a legal

settlement, included as part of “Other non-interest income,” and the $1.6 million gain on the repurchase of $21.4 million in junior

subordinated debentures, reported as “Gain on early extinguishment of debt.” See “Non-GAAP Financial Measures and

Reconciliations” above for additional information. On a non-GAAP basis, excluding the effect of these Special Items, adjusted non-

interest income increased by $4.4 million primarily due to:

A

$6.3 million net increase in adjusted other non-interest income including: (i) a $2.6 million increase in net gains from

sales of fixed assets, of which $3.0 million was related to the sale of a banking premise in the Florida region; (ii) a $1.4

million increase related to higher benefit recognized in relation to purchased income tax credits realized; (iii) $0.8 million

in debit card incentives collected during 2023; (iv) a $0.5 million decrease in unrealized losses on marketable equity

securities; (v) a $0. 4 million increase related to higher unused loan commitment fees; and (vi) $0.4 million in insurance

proceeds received during 2023.

A $3.5 million increase in card and processing income mainly in interchange income related to higher transactional

volumes.

Partially offset by:

A $4.7 million decrease in revenues from mortgage banking activities, mainly driven by a decrease in the net realized gain

on sales of residential mortgage loans in the secondary market due to a lower volume of sales and lower margins. During

2023 and 2022, net gains of $3.3 million and $8.4 million, respectively, were recognized as a result of GNMA

securitization transactions and whole loan sales to U.S. GSEs amounting to $155.2 million and $238.3 million,

respectively.

A $0.9 million decrease in insurance commission income.

Non-Interest Expenses

Non-interest expenses for the year ended December 31, 2023 amounted to $471.4 million, compared to $443.1 million for the same

period in 2022. The efficiency ratio for the year ended December 31, 2023 was 50.70%, compared to 48.25% for the year ended

December 31, 2022. Non-interest expenses for the year ended December 31, 2023 include the FDIC special assessment expense of

$6.3 million. See “Non-GAAP Financial Measures and Reconciliations” above for additional information. On a non-GAAP basis,

excluding the effect of this Special Item, adjusted non-interest expenses increased by $22.0 million primarily due to:

A

$16.8 million increase in employees’ compensation and benefits expenses, mainly driven by annual salary merit

increases and minimum wage adjustments, and increases in bonuses accruals, medical insurance premium costs, and stock-

based compensation expense; partially offset by higher deferral of loan origination costs.

A

$3.3 million increase in credit and debit card processing expenses, mainly driven by higher transactional volumes.

A $3.0 million increase in other non-interest expenses, mainly due to an increase of $1.8 million in net periodic cost of

pension plans and a $0.8 million increase in charges for legal and operational reserves.

A

$2.4 million increase in the adjusted FDIC deposit insurance expense, driven by the two basis points increase on the

initial base deposit insurance assessment rate that came into effect during the first quarter of 2023.

A $1.4 million increase in business promotion expenses, mainly as a result of a $0.9 million increase in sponsorship and

public relations activities and a $0.7 million increase in marketing and advertising expenses.

A

$1.0 million increase in taxes, other than income taxes, primarily related to higher municipal license taxes and sales and

use taxes.

Partially offset by:

A

$2.4 million decrease in occupancy and equipment expenses, primarily reflecting reductions in depreciation charges,

rental expenses, and energy costs, partially offset by an increase in maintenance charges and property taxes.

A

$2.0 million decrease in professional service fees, in part due to a reduction of $0.8 million in collections, appraisals,

and other credit-related fees.

A

$1.3 million increase in net gains on OREO operations, mainly driven by a $0.9 million decrease in property values

write-downs and a $0.7 million increase in net realized gains on sales of OREO properties , primarily residential properties

in the Puerto Rico region.

Income Taxes

For the year ended December 31, 2023, the Corporation recorded an income tax expense of $94.6 million, compared to $142.5

million for the same period in 2022. The decrease in income tax expense for 2023, as compared to the same period in 2022, was

mainly driven by a lower effective tax rate and lower pre-tax income. The reduction in the effective tax rate was due to increased

business activities with preferential tax treatment under the Puerto Rico tax code, which resulted in additional deductions in the

banking subsidiary, as well as a higher proportion of exempt income to taxable income.

The Corporation’s annual effective tax rate for the year ended December 31, 2023, excluding entities from which a tax benefit

cannot be recognized and discrete items, was 23.5%, compared to 31.2% for 2022. The effective tax rate of the Corporation is

impacted by, among other things, the composition and source of its taxable income. Based on current strategies, we expect that the

effective tax rate for 2024 will be around the same levels of 2023. See Note 22 - Income Taxes, to the audited consolidated financial

statements included in Part II, Item 8 of this Form 10-K, for additional information .

As of December 31, 2023, the Corporation had a deferred tax asset of $150.1 million, net of a valuation allowance of $139.2

million against the deferred tax asset, compared to a deferred tax asset of $155.6 million, net of a valuation allowance of $185.5

million, as of December 31, 2022. The reduction in the valuation allowance was related primarily to changes in the market value of

available-for-sale debt securities and the expiration of capital losses, both which resulted in an equal change in the deferred tax asset

without impacting earnings. Income tax paid for the year ended December 31, 2023 amounted to $109.5 million, compared to $51.8

million in 2022. The increase is related to the full utilization during 2022 of certain deferred tax assets related to NOLs that were

available for regular income tax which decreased the amount due for income taxes.

OPERATING SEGMENTS

Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer and

management of the Corporation, the operating segments are based primarily on the Corporation’s lines of business for its operations in

Puerto Rico, the Corporation’s principal market, and by geographic areas for its operations outside of Puerto Rico. As of December

31, 2023, the Corporation had six reportable segments: Commercial and Corporate Banking; Consumer (Retail) Banking; Mortgage

Banking; Treasury and Investments; United States Operations; and Virgin Islands Operations. Management determined the reportable

segments based on the internal structure used to evaluate performance and to assess where to allocate resources. Other factors, such as

the Corporation’s organizational chart, nature of the products, distribution channels, and the economic characteristics of the products,

were also considered in the determination of the reportable segments. For additional information regarding First BanCorp.’s reportable

segments, please refer to Note 27, “Segment Information” to the audited consolidated financial statements included in Item 8 of this

Form 10-K.

The accounting policies of the segments are the same as those described in Note 1, “Nature of Business and Summary of

Significant Accounting Policies” to the audited consolidated financial statements included in Item 8 of this Form 10-K. The

Corporation evaluates the performance of the segments based on net interest income, the provision for credit losses, non-interest

income, and direct non-interest expenses. The segments are also evaluated based on the average volume of their interest-earning

assets, less the ACL. For the years ended December 31, 2023 and 2022, other operating expenses not allocated to a particular segment

amounted to $168.7 million and $155.3 million, respectively. Expenses pertaining to corporate administrative functions that support

the operating segment but are not specifically attributable to or managed by any segment, are not included in the reported financial

results of the operating segments. The unallocated corporate expenses include certain general and administrative expenses and related

depreciation and amortization expenses.

The Treasury and Investments segment lends funds to the Consumer (Retail) Banking, Mortgage Banking, Commercial and

Corporate Banking and United States Operations segments to finance their lending activities and borrows from those segments. The

Consumer (Retail) Banking segment also lends funds to other segments. The Corporation allocates the interest rates charged or

credited by the Treasury and Investment and the Consumer (Retail) Banking segments based on market rates. The difference between

the allocated interest income or expense and the Corporation’s actual net interest income from centralized management of funding

costs is reported in the Treasury and Investments segment .

Commercial and Corporate Banking

The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers

represented by specialized and middle-market clients and the public sector. The Commercial and Corporate Banking segment offers

commercial loans, including commercial real estate and construction loans, as well as other products, such as cash management and

business management services. A substantial portion of the commercial and corporate banking portfolio is secured by the underlying

real estate collateral and the personal guarantees of the borrowers. Since commercial loans involve greater credit risk than a typical

residential mortgage loan because they are larger in size and more risk is concentrated in a single borrower, the Corporation has and

maintains a credit risk management infrastructure designed to mitigate potential losses associated with commercial lending, including

underwriting and loan review functions, sales of loan participations, and continuous monitoring of concentrations within portfolios.

Segment income before taxes for the year ended December 31, 2023 decreased to $42.4 million, compared to $111.1 million for

2022. The highlights of the Commercial and Corporate Banking segment’s financial results for the years ended December 31, 2023

and 2022 include the following:

Net interest income for the year ended December 31, 2023 was $54.7 million, compared to $109.8 million for 2022. The

decrease in net interest income was primarily attributable to an increase in the cost of funds charged to this segment,

resulting from higher market interest rates, that exceeded the effect of the upward repricing of variable-rate commercial

and construction loans and higher average loan balances.

For 2023, the provision for credit losses was a net benefit of $6.2 million, compared to a net benefit of $20.2 million for

2022. The net benefit recorded during 2023 mainly reflects a more favorable economic outlook in the projection of

certain macroeconomic variables such as the unemployment rate, partially offset by a $1.7 million incremental reserve

recorded during 2023 associated with the inflow to nonaccrual status of a $9.5 million C&I loan and a $1.0 million

charge-off recorded on a nonaccrual commercial mortgage loan transferred to OREO during 2023. Meanwhile, the net

benefit recorded in 2022 mainly reflects reductions in qualitative reserves associated with reduced uncertainties

regarding the economic impact of the COVID-19 pandemic, particularly on loans in the hotel, transportation and

entertainment industries, partially offset by loan growth and a less favorable economic outlook in the projection of

certain forecasted macroeconomic variables, such as the CRE price index.

Total non-interest income for the year ended December 31, 2023 amounted to $21.3 million compared to $18.2 million

for 2022. The increase in non-interest income was mainly related to the aforementioned $3.6 million gain recognized

from a legal settlement related to a commercial relationship which was settled and collected in 2023.

Direct non-interest expenses for the year ended December 31, 2023 were $39.7 million, compared to $37.1 million for

2022. The increase is due to a $2.9 million increase in the FDIC deposit insurance expense allocated to this segment

driven by the aforementioned FDIC special assessment expense and the two basis points increase on the initial base

deposit insurance assessment rate that came into effect during the first quarter of 2023; a $0.6 million increase in taxes,

other than income taxes, primarily related to higher municipal license taxes; and a $0.4 million increase in business

promotion expenses mainly in sponsorship activities. These variances were partially offset by a $0.6 million decrease in

occupancy and equipment expenses, primarily reflecting reductions in rental expenses and energy costs; and a $0.4

million increase in net gains on OREO properties, mainly driven by a decrease in property values write-downs.

Consumer (Retail) Banking

The Consumer (Retail) Banking segment consists of the Corporation’s consumer lending and deposit-taking activities conducted

mainly through FirstBank’s branch network and loan centers in Puerto Rico. Loans to consumers include auto loans and finance

leases, boat loans, personal loans, credit card loans, and lines of credit. Deposit products include interest-bearing and non-interest-

bearing checking and savings accounts, individual retirement accounts (“IRAs”), and retail CDs. Retail deposits gathered through each

branch of FirstBank’s retail network serve as one of the funding sources for the lending and investing activities.

Consumer lending historically has been mainly driven by auto loan and leases originations. The Corporation follows a strategy of

seeking to provide outstanding service to selected auto dealers that provide the channel for the bulk of the Corporation’s auto loan

originations.

Personal loans, credit cards, and, to a lesser extent, boat loans also contribute to interest income generated on consumer lending.

Management plans to continue to be active in the consumer loan market, applying the Corporation’s strict underwriting standards.

Other activities included in this segment are insurance activities in the Puerto Rico region.

Segment income before taxes for the year ended December 31, 2023 increased to $419.6 million, compared to $301.3 million for

2022. The highlights of the Consumer (Retail) Banking segment’s financial results for the years ended December 31, 2023 and 2022

include the following:

Net interest income for the year ended December 31, 2023 was $575.4 million, compared to $442.6 million for 2022.

The increase was mainly due to higher income from funds loaned to other business segments resulting from higher

market interest rates that exceeded the decrease in interest rate spreads resulting from the increase in interest rates paid

on retail deposits to customers.

The provision for credit losses for the year ended December 31, 2023 increased by $8.8 million to $65.9 million,

compared to $57.1 million for the year ended December 31, 2022. The increase primarily reflects the increases in the

size of the consumer loan portfolios and higher delinquency and historical charge-off levels in all major portfolio classes,

partially offset by improvements in the forecasted macroeconomic variables such as the regional unemployment rate and

retail sales in the case of credit cards.

Non-interest income for the year ended December 31, 2023 was $83.2 million, compared to $78.5 million for 2022. The

increase includes a $4.5 million increase in card and processing income driven by higher transactional volumes, a $1.4

million increase related to higher benefit recognized in relation to purchased income tax credits realized and a $0.8

million increase in debit card incentives collected during 2023. These variances were partially offset by decreases of $0.8

million in insurance commission income and $0.7 million in service charges and fees on deposit accounts.

Direct non-interest expenses for the year ended December 31, 2023 were $173.2 million, compared to $162.7 million for

2022. The increase was primarily related to a $4.5 million increase in employees’ compensation and benefits expenses,

mainly driven by annual salary merit increases and minimum wage adjustments and increases in medical insurance

premium costs, and stock-based compensation expense, partially offset by higher deferral of loan origination costs; a

$3.1 million increase in credit and debit card processing expenses, mainly driven by higher transactional volumes; a $2.7

million increase in the FDIC deposit insurance expense allocated to this segment due to the aforementioned FDIC special

assessment expense and the two basis points increase on the initial base deposit insurance assessment rate that came into

effect during the first quarter of 2023; and a $0.5 million increase in business promotion expenses. These variances were

partially offset by a $0.6 million decrease in occupancy and equipment expenses and a $0.3 million decrease in taxes,

other than income taxes.

Mortgage Banking

The Mortgage Banking segment conducts its operations mainly through FirstBank. The Mortgage Banking segment consists of the

origination, sale, and servicing of a variety of residential mortgage loan products. Originations are sourced through different channels,

such as FirstBank branches and purchases from mortgage bankers, and in association with new project developers. The mortgage

banking segment focuses on originating residential real estate loans, some of which conform to the Federal Housing Administration

(the “FHA”), the Veterans Administration (the “VA”), and U.S. Department of Agriculture Rural Development (“RD”) standards.

Loans originated that meet the FHA’s standards qualify for the FHA’s insurance program whereas loans that meet the standards of the

VA or the RD are guaranteed by their respective federal agencies.

Mortgage loans that do not qualify under the FHA, VA, or RD programs are referred to as conventional loans. Conventional real

estate loans can be conforming or non-conforming. Conforming loans are residential real estate loans that meet the standards for sale

under the U.S. Federal National Mortgage Association (“FNMA”) and the U.S. Federal Home Loan Mortgage Corporation

(“FHLMC”) programs. Loans that do not meet FNMA or FHLMC standards are referred to as non-conforming residential real estate

loans. The Mortgage Banking segment also acquires and sells mortgages in the secondary markets. Residential real estate conforming

loans are sold to investors like FNMA and FHLMC. The Corporation has commitment authority to issue GNMA MBS.

Segment income before taxes for the year ended December 31, 2023 decreased to $74.2 million, compared to $99.5 million for

2022. The highlights of the Mortgage Banking segment’s financial results for the years ended December 31, 2023 and 2022 include

the following:

Net interest income for the year ended December 31, 2023 was $78.7 million, compared to $98.9 million for 2022. The

decrease in net interest income was primarily attributable to an increase in the cost of funds charged to this segment,

resulting from higher market interest rates, as well as a decrease in average loan balances.

The provision for credit losses for 2023 was a net benefit of $7.5 million, compared to a net benefit of $7.6 million for

2022. The net benefit recorded during 2023 was primarily related to updated macroeconomic variables, such as the

Regional Home Price Index and the unemployment rate, partially offset by newly originated loans which have a longer

life. The net benefit recorded during 2022 reflects the effect of a decrease in the size of the loan portfolio as well as

reductions in qualitative reserves associated with reduced COVID-19 uncertainties.

Non-interest income for the year ended December 31, 2023 was $11.4 million, compared to $16.0 million for 2022. The

decrease was mainly driven by a $4.9 million decrease in the net realized gain on sales of residential mortgage loans in

the secondary market mainly due to a lower volume of sales and lower margins.

Direct non-interest expenses for the year ended December 31, 2023 were $23.5 million, compared to $23.0 million for

2022. The increase was mainly related to a $1.5 million increase in the FDIC deposit insurance expense allocated to this

segment due to the aforementioned FDIC special assessment expense and the two basis points increase on the initial base

deposit insurance assessment rate that came into effect during the first quarter of 2023. This variance was partially offset

by a $0.9 million increase in net gains on OREO operations mainly driven by a $0.4 million decrease in property values

write-downs and a $0.4 million increase in net realized gains on sales of OREO properties.

Treasury and Investments

The Treasury and Investments segment is responsible for the Corporation’s treasury and investment management functions. The

treasury function, which includes funding and liquidity management, lends funds to the Commercial and Corporate Banking segment,

the Mortgage Banking segment, the Consumer (Retail) Banking segment, and the United States Operations segment to finance their

respective lending activities and borrows from those segments. The Treasury function also obtains funds through brokered deposits,

advances from the FHLB, and repurchase agreements involving investment securities, among other possible funding sources.

The investment function is intended to implement a leverage strategy for the purposes of liquidity management, interest rate risk

management and earnings enhancement.

The interest rates charged or credited by Treasury and Investments are based on market rates.

Segment loss before taxes for the year ended December 31, 2023 was $15.7 million, compared to segment income before taxes of

$36.3 million for 2022. The highlights of the Treasury and Investments segment’s financial results for the years ended December 31,

2023 and 2022 include the following:

Net interest loss for the year ended December 31, 2023 was $13.9 million, compared to net interest income of $39.6

million for 2022. The decrease was mainly related to an increase in the net transfer pricing charge associated to the cost

of funds borrowed from the Consumer (Retail) Banking segment, resulting from higher market interest rates, coupled

with a reduced interest rate spread driven by a higher cost of funding.

Non-interest income for the year ended December 31, 2023 was $2.0 million, compared to non-interest loss of $0.1

million for 2022. The variance primarily reflects a $1.6 million gain recognized on the repurchase of $21.4 million in

junior subordinated debentures and a $0.5 million decrease in unrealized losses on marketable equity securities.

Direct non-interest expenses for 2023 were $3.8 million, compared to $3.7 million for 2022. The increase was primarily

reflected in employees’ compensation and benefits expenses.

United States Operations

The United States Operations segment consists of all banking activities conducted by FirstBank on the U.S. mainland. FirstBank

provides a wide range of banking services to individual and corporate customers primarily in southern Florida through eight banking

branches. The United States Operations segment offers an array of both consumer and commercial banking products and services.

Consumer banking products include checking, savings and money market accounts, retail CDs, internet banking services, residential

mortgages, and home equity loans and lines of credit. Retail deposits, as well as FHLB advances and brokered CDs, allocated to this

operation serve as funding sources for its lending activities.

Commercial banking services include checking, savings and money market accounts, retail CDs, internet banking services, cash

management services, remote data capture, and automated clearing house (“ACH”) transactions. Loan products include the traditional

C&I and commercial real estate products, such as lines of credit, term loans, and construction loans.

Segment income before taxes for the year ended December 31, 2023 decreased to $42.8 million, compared to $53.1 million for

2022. The highlights of the United States operations ’ segment’s financial results for the years ended December 31, 2023 and 2022,

include the following:

Net interest income for the year ended December 31, 2023 was $79.4 million, compared to $80.5 million for 2022. The

decrease was mainly due to an increase in the cost of funds charged to this segment, that exceeded the benefit from a

slight increase in interest rate spread driven by increases in yields and average balance of loans.

The Corporation recognized a provision for credit losses of $8.7 million for the year ended December 31, 2023,

compared to a net benefit of $3.1 million for the same period in 2022. The provision for credit losses for 2023 includes a

provision expense of $7.8 million for the commercial and construction loan portfolios mainly due to a $6.0 million

charge associated with a nonaccrual C&I participated loan in the power generation industry. Meanwhile, the net benefit

recorded during 2022 mainly reflects reductions in qualitative reserves associated with reduced COVID-19 uncertainties,

partially offset by loan growth.

Total non -interest income for the year ended December 31, 2023 amounted to $6.7 million, compared to $2.9 million for

2022. The increase was primarily related to a $3.2 million increase in net gains from sales of fixed assets, of which $3.0

million was related to the sale of a banking premise; a $0.3 million increase related to higher unused loan commitment

fees; and a $0.2 million increase in income from insurance commissions.

Direct non-interest expenses for the year ended December 31, 2023 were $34.7 million, compared to $33.4 million for

2022. The increase was mainly associated to a $1.0 million increase in the FDIC deposit insurance expense allocated to

this segment due to the aforementioned FDIC special assessment expense and the two basis points increase on the initial

base deposit insurance assessment rate that came into effect during the first quarter of 2023, and a $0.8 million increase

in employees’ compensation and benefits expenses. These variances were partially offset by a $0.3 million decrease in

occupancy and equipment expenses.

Virgin Islands Operations

The Virgin Islands Operations segment consists of all banking activities conducted by FirstBank in the USVI and BVI, including

consumer and commercial banking services, with a total of eight banking branches currently serving the islands in the USVI of St.

Thomas, St. Croix, and St. John, and the island of Tortola in the BVI. The Virgin Islands Operations segment is driven by its

consumer, commercial lending, and deposit -taking activities.

Loans to consumers include auto and boat loans, lines of credit, and personal and residential mortgage loans. Deposit products

include interest-bearing and non-interest-bearing checking and savings accounts, IRAs, and retail CDs. Retail deposits gathered

through each branch serve as the funding sources for its own lending activities.

Segment income before taxes for the year ended December 31, 2023 increased to $2.9 million, compared to $1.7 million for 2022.

The highlights of the Virgin Islands operations’ segment’s financial results for the years ended December 31, 2023 and 2022 include

the following:

Net interest income for the year ended December 31, 2023 was $22.8 million, compared to $23.8 million for the same

period in 2022. The decrease was mainly related to an increase in interest expense, particularly in time deposits due to

higher rates paid on new issuances and renewals, partially offset by an increase in interest income on commercial loans

driven by the upward repricing of commercial and construction variable-rate loans and on new loan originations as well

as higher average loan balances and an increase in interest income on consumer loans mainly related to higher average

loan balances and higher yields.

The provision for credit losses for the year ended December 31, 2023, was $0.1 million compared to $2.0 million in

2022. The decrease was driven by a more favorable economic outlook in the projection of certain macroeconomic

variables, such as the unemployment rate. Meanwhile, the provision recorded during 2022 was primarily related to

consumer loans reflecting the effects of loan growth, higher delinquency and charge-off levels, and a less favorable

outlook of certain macroeconomic variables.

Non-interest income for the year ended December 31, 2023 was $8.0 million, compared to $7.7 million for 2022. The

increase was primarily related to a $0.4 million increase in card and processing income and a $0.2 million increase

related to higher unused loan commitment fees, partially offset by a $0.3 million decrease in income from insurance

commissions.

Direct non-interest expenses for the year ended December 31, 2023 remained flat at $27.9 million compared to the same

period in 2022. Non-interest expenses include a $0.6 million increase in the FDIC deposit insurance expense allocated to

this segment due to the aforementioned FDIC special assessment expense and the two basis points increase on the initial

base deposit insurance assessment rate that came into effect during the first quarter of 2023 and a $0.2 million increase in

credit and debit card processing expenses, partially offset by a $0.9 million decrease in occupancy and equipment

expenses.

FINANCIAL CONDITION AND OPERATING DATA ANALYSIS

Financial Condition

The following table presents an average balance sheet of the Corporation for the following years:

December 31,

2023

2022

2021

(In thousands)

ASSETS

Interest-earning assets:

Money market and other short-term investments

584,083

1,156,127

2,012,617

U.S. and Puerto Rico government obligations

2,843,284

2,870,889

2,065,522

MBS

3,702,908

4,052,660

4,064,343

FHLB stock

36,606

20,419

28,208

Other investments

14,167

12,747

10,254

Total investments

7,181,048

8,112,842

8,180,944

Residential mortgage loans

2,814,102

2,886,594

3,277,087

Construction loans

172,952

121,642

181,470

Commercial loans

5,244,503

5,092,638

5,228,150

Finance leases

789,870

636,507

518,757

Consumer loans

2,704,877

2,461,632

2,207,685

Total loans

11,726,304

11,199,013

11,413,149

Total interest-earning assets, excluding valuation

allowances and ACL

18,907,352

19,311,855

19,594,093

Total non-interest-earning assets

573,010

603,728

720,240

Valuation allowances and ACL

(1)

(773,939)

(536,934)

(11,300)

Total assets

18,706,423

19,378,649

20,303,033

LIABILITIES

Interest-bearing liabilities:

Time deposits

2,590,313

2,213,145

2,636,303

Brokered CDs

348,829

69,694

141,959

Other interest-bearing deposits

7,664,793

8,279,320

8,162,280

Interest-bearing deposits

10,603,935

10,562,159

10,940,542

Securities sold under agreements to repurchase

54,570

194,948

300,482

Advances from the FHLB

541,000

179,452

354,055

Other long-term borrowings

171,184

184,173

183,762

Total interest-bearing liabilities

11,370,689

11,120,732

11,778,841

Total non-interest-bearing liabilities

(2)

5,950,495

6,622,638

6,285,942

Total liabilities

17,321,184

17,743,370

18,064,783

STOCKHOLDERS' EQUITY

Stockholders' equity:

Preferred stock

32,938

Common stockholders' equity

1,385,239

1,635,279

2,205,312

Stockholders' equity

1,385,239

1,635,279

2,238,250

Total liabilities and stockholders' equity

18,706,423

19,378,649

20,303,033

(1) Includes, among other things, the ACL on loans and finance leases and debt securities, as well as unrealized gains and losses on available-for-sale debt securities.

(2) Includes, among other things, non-interest-bearing deposits.

The Corporation’s total average assets were $18.7 billion for the year ended December 31, 2023, compared to $19.4 billion for the

year ended December 31, 2022, a net decrease of $672.2 million. The variance primarily reflects the following: (i) a decrease of

$572.0 million in the average balance of interest-bearing cash, which consisted primarily of deposits maintained at the Federal

Reserve Bank; (ii) a decrease of $377.4 million in debt securities, mainly due to principal repayments of U.S. agencies MBS; and (iii)

an increase of $239.0 million in unrealized losses on available-for-sale debt securities. These variances were partially offset by a

$527.3 million increase in the average balance of total loans, consisting of an increase of $396.6 million in consumer loans mainly in

the auto loan and finance lease portfolios, a $203.2 million increase in the commercial and construction loans, and a decrease of $72.5

million in residential mortgage loans.

The Corporation’s total average liabilities were $17.3 billion for the year ended December 31, 2023, a net decrease of $422.2

million compared to December 31, 2022. The net decrease was mainly related to a combined decrease of $1.3 billion in the average

balance of non-interest and interest-bearing demand deposits, checking, and savings accounts, primarily reflecting the effect of

customers allocating more cash into higher yielding alternatives. This variance was partially offset by increases of $377.2 million in

the average balance of non-brokered time deposits, $279.1 million in the average balance of brokered CDs, and $208.2 million in the

average balance of total borrowings, mainly associated with long-term FHLB advances.

Assets

The Corporation’s total assets were $18.9 billion as of December 31, 2023, an increase of $275.1 million from December 31, 2022,

primarily related to a $627.7 million increase in the total loan portfolio before the ACL, mainly in consumer and commercial and

construction loans, and a $182.7 million increase in cash and cash equivalents , mainly driven by the net effect of the end of period

overall increase in deposits, net of the decrease in borrowings, partially offset by a $452.4 million decrease in total investment

securities net of a $165.4 million increase in the fair value of available-for -sale debt securities.

Loans Receivable, including Loans Held for Sale

As of December 31, 2023, the Corporation’s total loan portfolio before the ACL amounted to $12.2 billion, an increase of $627.7

million compared to December 31, 2022. In terms of geography, the growth consisted of increases of $648.9 million and $44.9 million

in the Puerto Rico and Virgin Islands regions, respectively, partially offset by a $66.1 million decrease in the Florida region. On a

portfolio basis, the growth consisted of increases of $330.2 million in consumer loans, including a $276.8 million increase in auto

loans and finance leases, and $328.0 million in commercial and construction loans, partially offset by a $30.5 million decrease in

residential mortgage loans.

As of December 31, 2023, the Corporation’s loans held-for-investment portfolio was comprised of commercial and construction

loans (47%), residential real estate loans (23%), and consumer and finance leases (30%). Of the total gross loan portfolio held for

investment of $12.2 billion as of December 31, 2023, the Corporation had credit risk concentration of approximately 80% in the

Puerto Rico region, 17% in the United States region (mainly in the state of Florida), and 3% in the Virgin Islands region, as shown in

the following table:

As of December 31, 2023

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,187,875

168,131

465,720

2,821,726

Construction loans

111,664

3,737

99,376

214,777

Commercial mortgage loans

1,725,325

65,312

526,446

2,317,083

C&I loans

2,130,368

119,040

924,824

3,174,232

Total commercial loans

3,967,357

188,089

1,550,646

5,706,092

Consumer loans and finance leases

3,583,272

68,498

5,895

3,657,665

Total loans held for investment, gross

9,738,504

424,718

2,022,261

12,185,483

Loans held for sale

7,368

7,368

Total loans, gross

9,745,872

424,718

2,022,261

12,192,851

As of December 31, 2022

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,237,983

179,917

429,390

2,847,290

Construction loans

30,529

4,243

98,181

132,953

Commercial mortgage loans

1,768,890

65,314

524,647

2,358,851

C&I loans

1,791,235

68,874

1,026,154

2,886,263

Total commercial loans

3,590,654

138,431

1,648,982

5,378,067

Consumer loans and finance leases

3,256,070

61,419

9,979

3,327,468

Total loans held for investment, gross

9,084,707

379,767

2,088,351

11,552,825

Loans held for sale

12,306

12,306

Total loans, gross

9,097,013

379,767

2,088,351

11,565,131

First BanCorp. relies primarily on its retail network of branches to originate residential and consumer personal loans. The

Corporation manages its construction and commercial loan originations through centralized units and most of its originations come

from existing customers, as well as through referrals and direct solicitations. Auto loans and finance leases originations rely primarily

on relationships with auto dealers and dedicated sales professionals who serve selected locations in order facilitate originations.

The following table sets forth certain additional data (including loan production) related to the Corporation's loan portfolio net of the

ACL on loans and finance leases as of and for the indicated dates:

For the Year Ended December 31,

2023

2022

2021

(Dollars in thousands)

Beginning balance as of January 1

11,304,667

10,826,783

11,441,691

Residential real estate loans originated and purchased

424,641

468,599

623,290

Construction loans originated

154,720

112,640

102,538

C&I and commercial mortgage loans originated and purchased

2,750,817

2,950,904

2,994,893

Finance leases originated

327,528

308,811

240,419

Consumer loans originated

1,468,794

1,516,316

1,287,487

Total loans originated and purchased

5,126,500

5,357,270

5,248,627

Sales of loans

(155,733)

(293,213)

(620,227)

Repayments and other decreases

(1)

(4,344,426)

(4,586,173)

(5,243,308)

Net increase (decrease)

626,341

477,884

(614,908)

Ending balance as of December 31

11,931,008

11,304,667

10,826,783

Percentage increase (decrease)

5.54%

4.41%

-5.37%

(1)

Includes, among other things, the change in the ACL on loans and finance leases and cancellation of loans due to the repossession of the collateral and loans repurchased.

Residential Real Estate Loans

As of December 31, 2023, the Corporation’s total residential mortgage loan portfolio, including loans held for sale, decreased by

$30.5 million, as compared to the balance as of December 31, 2022. The decline in the residential mortgage loan portfolio reflects

decreases of $55.0 million in the Puerto Rico region and $11.8 million in the Virgin Islands region, partially offset by an increase of

$36.3 million in the Florida region. The decline was driven by repayments, foreclosures, and charge-offs, which more than offset the

volume of new loan originations kept on the balance sheet.

As of December 31, 2023, the majority of the Corporation’s outstanding balance of residential mortgage loans in the Puerto Rico

and the Virgin Islands regions consisted of fixed-rate loans that traditionally carry higher yields than residential mortgage loans in the

Florida region. In the Florida region, approximately 38% of the residential mortgage loan portfolio consisted of hybrid adjustable-rate

mortgages. In accordance with the Corporation’s underwriting guidelines, residential mortgage loans are primarily fully documented

loans, and the Corporation does not originate negative amortization loans.

Residential mortgage loan originations for the year ended December 31, 2023 amounted to $424.6 million, compared to $468.6

million for 2022. The decrease in residential mortgage loan originations of $44.0 million consisted of declines of $38.6 million in the

Puerto Rico region and $9.2 million in the Virgin Islands region, partially offset by a $3.8 million increase in the Florida region.

Approximately 46% of the $324.3 million residential mortgage loan originations in the Puerto Rico region during 2023 consisted of

conforming loans, compared to 54% of $363.0 million for 2022.

Commercial and Construction Loans

As of December 31, 2023, the Corporation’s commercial and construction loan portfolio increased by $328.0 million, as compared

to the balance as of December 31, 2022.

In the Puerto Rico region, commercial and construction loans increased by $376.7 million, as compared to the balance as of

December 31, 2022. This increase was driven by the origination of several term loans, including nine commercial relationships, each

in excess of $10 million, which increased the portfolio by $256.6 million, including a $150.0 million participation on a C&I loan

funded in connection with the financial closing of a public-private partnership (P3) for improvement of infrastructure for toll roads.

The increase also reflects the effect of higher utilization of lines of credit including an increase of $61.1 million associated with three

lines of credit; and a $73.3 million increase in the outstanding balance of floor plan lines of credit. The variance also reflects the

aforementioned refinancing of a $46.5 million municipal loan into a shorter commercial loan structure. These variances were partially

offset by multiple payoffs and paydowns, including four C&I relationships, each in excess of $10 million, totaling $89.3 million.

In the Virgin Islands region, commercial and construction loans increased by $49.6 million, as compared to the balance as of

December 31, 2022. The increase was driven by the utilization of $57.2 million of a new $100.0 million collateralized line of credit

facility extended to a government public corporation.

In the Florida region, commercial and construction loans decreased by $98.3 million, as compared to the balance as of December

31, 2022. This decrease reflects, among other things, the effect of $138.1 million in payoffs and paydowns of eight C&I relationships,

each in excess of $10 million, including the aforementioned payoff of a $24.3 million adversely classified C&I participated loan,

partially offset by the originations of five C&I term loans, each in excess of $10 million, which increased the portfolio amount by

$71.0 million.

As of December 31, 2023, the Corporation had $187.7 million outstanding in loans extended to the Puerto Rico government, its

municipalities, and public corporations, compared to $169.8 million as of December 31, 2022. See “Exposure to Puerto Rico

Government” below for additional information.

The Corporation also has credit exposure to USVI government entities. As of December 31, 2023, the Corporation had $90.5

million in loans to USVI government public corporations, compared to $38.0 million as of December 31, 2022.The increase in loans

to USVI government public corporations was driven by the aforementioned $57.2 million line of credit utilization. See “Exposure to

USVI Government” below for additional information.

As of December 31, 2023, the Corporation’s total commercial mortgage loan exposure amounted to $2.3 billion, or 19% of the

total loan portfolio. Relationships that have an exposure of at least $5 million amounted to $1.9 billion, or 84% of the total of such

portfolio, as of December 31, 2023. The $1.9 billion exposure consisted of $1.5 billion and $0.4 billion in the Puerto Rico and Florida

regions, respectively. The $1.5 billion exposure in the Puerto Rico region was comprised mainly of 44% in the retail industry, 24% in

office real estate, and 20% in the hotel industry. The $0.4 billion exposure in the Florida region was comprised mainly of 41% in the

hotel industry, 20% in the retail industry, and 8% in office real estate.

As of December 31, 2023, the Corporation’s total exposure to shared national credit (“SNC”) loans (including unused

commitments) amounted to $1.2 billion as of December 31, 2023 compared to $1.1 billion as of December 31, 2022. The increase was

primarily related to the aforementioned $150.0 million participation on a C&I loan origination. As of December 31, 2023,

approximately $389.8 million of the SNC exposure is related to the portfolio in the Puerto Rico region and $828.6 million is related to

the portfolio in the Florida region.

Commercial and construction loan originations (excluding government loans) for the year ended December 31, 2023 amounted to

$2.7 billion, compared to $3.0 billion for 2022. The decrease of $287.5 million consisted of a decrease of $305.1 million in the Florida

region, partially offset by increases of $17.3 million in the Puerto Rico region and $0.3 million in the Virgin Islands region.

Government loan originations for the year ended December 31, 2023 amounted to $180.7 million, compared to $51.1 million for

2022. Government loan originations for 2023 were mainly related to the aforementioned refinancing of a $46.5 million municipal loan

into a shorter commercial loan structure , the aforementioned $57.2 million cash collateralized line of credit utilization in the Virgin

Islands region, and a $12.8 million loan to an agency of the Puerto Rico government for a low-income housing project. On the other

hand, government loan originations for 2022 were mainly related to the renewal of a public corporation line of credit in the Virgin

Islands region, the renewal of a municipal loan in the Puerto Rico region, and the utilization of an arranged overdraft line of credit of a

government entity in the Virgin Islands region.

Consumer Loans and Finance Leases

As of December 31, 2023, the Corporation’s consumer loan and finance lease portfolio increased by $330.2 million to $3.7 billion,

as compared to the portfolio balance of $3.3 billion as of December 31, 2022. This increase was mainly related to increases of $138.6

million and $138.2 million in the finance leases and auto loans portfolios, respectively. The growth in consumer loans was mainly

reflected in the Puerto Rico region across all portfolio classes.

Originations of auto loans (including finance leases) for the year ended December 31, 2023 decreased by $31.3 million to $1.0

billion, as compared to the same period in 2022. The decrease consisted of a $34.3 million decrease in the Puerto Rico region, partially

offset by a $3.0 million increase in the Virgin Islands region. Other consumer loan originations, other than credit cards, for the year

ended December 31, 2023 amounted to $302.6 million, compared to $304.5 million for 2022. The utilization activity on the

outstanding credit card portfolio for the year ended December 31, 2023 amounted to $492.6 million, compared to $488.3 million for

Maturities of Loans Receivable

The following tables present the loans held for investment portfolio as of December 31, 2023 by remaining contractual maturities and

interest rate type:

After One Year

After Five Years

Total Portfolio

One Year or Less

Through Five Years

Through 15 Years

After 15 Years

(In thousands)

Residential mortgage

68,105

433,368

1,212,861

1,107,392

2,821,726

Construction loans

173,170

40,035

1,121

451

214,777

Commercial mortgage loans

1,007,107

1,137,810

168,208

3,958

2,317,083

C&I loans

1,274,423

1,535,068

362,088

2,653

3,174,232

Consumer loans

1,121,631

2,269,326

265,700

1,008

3,657,665

Total loans

(1)

3,644,436

5,415,607

2,009,978

1,115,462

12,185,483

Amount due in one year or less at:

Amount due after one year:

Total Portfolio

Fixed Interest Rates

Variable Interest

Rates

Fixed Interest Rates

Variable Interest

Rates

Residential mortgage

64,349

3,756

2,568,850

184,771

2,821,726

Construction loans

40,611

132,559

26,239

15,368

214,777

Commercial mortgage loans

798,063

209,044

887,301

422,675

2,317,083

C&I loans

290,933

983,490

524,848

1,374,961

3,174,232

Consumer loans

866,565

255,066

2,530,169

5,865

3,657,665

Total loans

(1)

2,060,521

1,583,915

6,537,407

2,003,640

12,185,483

(1)

Scheduled repayments are included in the maturity category in which the payment is due. The amounts provided do not reflect prepayment assumptions related to the loan portfolio.

Investment Activities

As part of its liquidity, revenue diversification, and interest rate risk management strategies, First BanCorp. maintains a debt

securities portfolio classified as available for sale or held to maturity.

The Corporation’s total available-for-sale debt securities portfolio as of December 31, 2023 amounted to $5.2 billion, a $369.5

million decrease from December 31, 2022. The decrease was mainly driven by repayments of approximately $396.4 million of U.S.

agencies MBS and debentures; and repayments of $137.0 million associated to matured securities, of which $129.0 million were U.S

agencies callable debentures; partially offset by a $165.4 million increase in fair value attributable to changes in market interest rates.

As of December 31, 2023, the Corporation had a net unrealized loss on available-for-sale debt securities of $632.8 million. This net

unrealized loss is attributable to instruments on books carrying a lower interest rate than market rates. The Corporation expects that

this unrealized loss will reverse over time and it is likely that it will not be required to sell the securities before their anticipated

recovery. The Corporation expects the portfolio will continue to decrease and the accumulated other comprehensive loss will decrease

accordingly, excluding the impact of market interest rates.

As of December 31, 2023, substantially all of the Corporation’s available-for-sale debt securities portfolio was invested in U.S.

government and agencies debentures and fixed-rate GSEs’ MBS. In addition, as of December 31, 2023, the Corporation held a bond

issued by the PRHFA, classified as available for sale, specifically a residential pass-through MBS in the aggregate amount of $3.2

million (fair value - $1.4 million). This residential pass-through MBS issued by the PRHFA is collateralized by certain second

mortgages originated under a program launched by the Puerto Rico government in 2010 and had an unrealized loss of $1.7 million as

of December 31, 2023, of which $0.4 million is due to credit deterioration. During 2021, the Corporation placed this instrument in

nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

As of December 31, 2023, the Corporation’s held-to-maturity debt securities portfolio, before the ACL, decreased to $354.2

million, compared to $437.5 million as of December 31, 2022, mainly due to the refinancing of a $46.5 million municipal bond into a

shorter-term commercial loan structure and $38.9 million in repayments. Held-to-maturity debt securities include fixed-rate GSEs’

MBS with a carrying value of $247.1 million (fair value of $235.2 million) as of December 31, 2023, compared to $271.8 million as

of December 31, 2022. Held-to-maturity debt securities also include financing arrangements with Puerto Rico municipalities issued in

bond form, which the Corporation accounts for as securities, but which were underwritten as loans with features that are typically

found in commercial loans. Puerto Rico municipal bonds typically are not issued in bearer form, are not registered with the SEC, and

are not rated by external credit agencies. These bonds have seniority to the payment of operating costs and expenses of the

municipality and, in most cases, are supported by assigned property tax revenues. As of December 31, 2023, approximately 54% of

the Corporation’s municipal bonds consisted of obligations issued by three of the largest municipalities in Puerto Rico. The

municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their

respective general obligation bonds and loans. Given the uncertainties as to the effects that the fiscal position of the Puerto Rico

central government, and the measures taken, or to be taken, by other government entities may have on municipalities, and the higher

interest rate environment, the Corporation cannot be certain whether future charges to the ACL on these securities will be required. As

of December 31, 2023, the ACL for held-to-maturity debt securities was $2.2 million, compared to $8.3 million as of December 31,

2022. The decrease in the ACL of held-to-maturity debt securities was mostly driven by the aforementioned refinancing of a $46.5

million municipal bond into a shorter-term commercial loan structure and, to a lesser extent, a reduction in qualitative reserves driven

by updated financial information of certain bond issuers received during 2023.

See “Risk Management – Exposure to Puerto Rico Government” below for information and details about the Corporation’s total

direct exposure to the Puerto Rico government, including municipalities , and “Credit Risk Management” below for the ACL of the

exposure to Puerto Rico municipal bonds.

The following table presents the carrying values of investments as of the indicated dates:

December 31, 2023

December 31, 2022

(In thousands)

Money market investments

1,239

2,025

Available-for-sale debt securities, at fair value:

U.S. government and agencies obligations

2,443,790

2,492,228

Puerto Rico government obligations

1,415

2,201

MBS:

Residential

2,633,161

2,941,458

Commercial

151,618

163,133

Other

500

Total available-for-sale debt securities, at fair value

5,229,984

5,599,520

Held-to-maturity debt securities, at amortized cost:

MBS:

Residential

146,468

166,739

Commercial

100,670

105,088

Puerto Rico municipal bonds

107,040

165,710

ACL for held-to-maturity Puerto Rico municipal bonds

(2,197)

(8,286)

Total held-to-maturity debt securities

351,981

429,251

Equity securities, including $34.6 million and $42.9 million of FHLB stock

as of December 31, 2023 and 2022, respectively

49,675

55,289

Total money market investments and investment securities

5,632,879

6,086,085

The carrying values of debt securities as of December 31, 2023 by contractual maturity (excluding MBS), are shown below:

Carrying Amount

Weighted-Average Yield %

(Dollars in thousands)

U.S. government and agencies obligations:

Due within one year

605,185

0.75

Due after one year through five years

1,821,545

0.86

Due after five years through ten years

8,163

2.64

Due after ten years

8,897

5.49

2,443,790

0.85

Puerto Rico government and municipalities obligations:

Due within one year

3,165

9.30

Due after one year through five years

51,230

7.78

Due after five years through ten years

36,050

7.13

Due after ten years

18,010

7.46

108,455

7.55

MBS

3,031,917

1.69

ACL on held-to-maturity debt securities

(2,197)

Total debt securities

5,581,965

1.45

Net interest income in future periods could be affected by prepayments of MBS. Any acceleration in the prepayments of MBS

purchased at a premium

would lower yields on these securities, since the amortization of premiums paid upon acquisition would

accelerate. Conversely, acceleration of the prepayments of MBS would increase yields on securities purchased at a discount, since the

amortization of the discount would accelerate. These risks are directly linked to future period market interest rate fluctuations. Net

interest income in future periods might also be affected by the Corporation’s investment in callable securities. As of December 31,

2023, the Corporation had approximately $1.9 billion in callable debt securities (U.S. agencies debt securities) with an average yield

of 0.79% of which approximately 62% were purchased at a discount and 3% at a premium. See “Risk Management” below for further

analysis of the effects of changing interest rates on the Corporation’s net interest income and the Corporation’s interest rate risk

management strategies. Also, refer to Note 3 – “Debt Securities” to the audited consolidated financial statements included in Part II,

The information required herein is incorporated by reference to the information included under the sub-caption “Interest Rate Risk

Management” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this

Form 10-K.

Disclosure Controls and Procedures

First BanCorp.’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of

First BanCorp.’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the

end of the period covered by this Form 10-K. Based on this evaluation as of the period covered by this Form 10-K, our CEO and CFO

concluded that the Corporation’s disclosure controls and procedures were effective and provide reasonable assurance that the

information required to be disclosed by the Corporation in reports that the Corporation files or submits under the Exchange Act is

recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and

reported to the Corporation’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required

disclosure.

Management’s Report on Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting is included in Part II, Item 8 of this Form 10-K and

incorporated herein by reference.

The effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023 has been audited by Crowe

LLP, an independent registered public accounting firm, as stated in their report included in Part II, Item 8 of this Annual Report on

Form 10-K.

Changes in Internal Control over Financial Reporting

There have been no changes to the Corporation’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-

15(f) under the Exchange Act) during our most recent quarter ended December 31, 2023 that have materially affected, or are

reasonably likely to materially affect, the Corporation’s internal control over financial reporting.