# First Bancorp: Form 10-Q for the period ended Mar 31, 2024 - Company: [First Bancorp](/companies/fbp.md) (CIK 1057706) - Form: 10-Q - Filed: 2024-05-09 - Accepted by EDGAR: May 9, 2024, 16:59 ET - Period: 2024-03-31 - Accession: 0001057706-24-000007 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1057706/000105770624000007/fbp-20240331.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1057706/000105770624000007/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-03-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2024-01-01 to 2024-03-31 | $230.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $72.0m | us-gaap:InterestExpense | | Income tax | 3 months, 2024-01-01 to 2024-03-31 | $24.0m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-01-01 to 2024-03-31 | $73.5m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.44 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.44 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 167,798,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $118.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $4.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $26.6m | us-gaap:PaymentsOfDividendsCommonStock | | Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $52.4m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Total assets | at 2024-03-31 | $18.89bn | us-gaap:Assets | | Total liabilities | at 2024-03-31 | $17.41bn | us-gaap:Liabilities | | Shareholders' equity | at 2024-03-31 | $1.48bn | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 165,576 characters. ### OPERATIONS (“MD&A”) The following MD&A relates to the accompanying unaudited 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, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report on Form 10- K”). 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. ### 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. ### Recent Developments #### Economy and Market Volatility The Corporation continued to successfully navigate the challenging interest rate cycle by delivering another quarter of strong operating results. Consistent with its guidance, the loan portfolio grew for the ninth consecutive quarter, expenses were prudently managed, profitability was sustained, and over 100% of earnings was returned to shareholders during the first quarter of 2024 in the form of buybacks and dividends. Core deposits, other than government and brokered, stabilized during the quarter although some migration of customers seeking higher yields in time deposits continued as expected. Early delinquency metrics improved and the Corporation took advantage of market opportunities to sell a portfolio of previously charged-off consumer loans which positively impacted the provision expense for the first quarter of 2024. Furthermore, the Corporation remains vigilant of the interest rate market environment. Following its May 1, 2024 meeting, the Federal Reserve announced its decision to leave the federal funds rate unchanged, at a target rate of 5.25% to 5.50%, and commented that it is prepared to maintain the current target range for the federal funds rate for longer. The Federal Reserve advised that it’s unlikely that the next move will be a rate hike even after indications that inflation continues to be more resilient than expected. Under a higher-for-longer interest rate environment, the Corporation expects to be margin accretive for the year and remains well- positioned to redeploy cash inflows from repayments of the investment securities portfolio , which are expected at approximately $900 million for the remainder of the year, into higher-yielding assets. Moreover, although the Corporation expects some further increases in time deposits, it expects other deposits to remain stable. Also, the Corporation expects to register mid-single-digit loan growth for its core business since it remains encouraged by commercial and auto loan activity and loan origination opportunities available within both Puerto Rico and the Florida region. #### Return of Capital to Shareholders In the first quarter of 2024, the Corporation returned approximately $76.6 million, or over 100% of first quarter 2024 earnings, to its shareholders through $50.0 million in repurchases of common stock and the payment of $26.6 million in common stock dividends, which reflects an increase in the common stock dividend of 14%, from $0.14 per share in the fourth quarter of 2023 to $0.16 per share in the first quarter of 2024. As of May 2, 2024, the Corporation has remaining authorization to repurchase approximately $95.1 million of common stock, which it expects to execute through the end of the third quarter of 2024. The Corporation expects to update its capital plan during the second quarter of 2024. #### Strategic Partnership with nCino In the first quarter of 2024, the Corporation partnered with nCino, a financial technology company that provides cloud banking solutions for the global financial services industry, to offer a more modern commercial banking experience for its customers as part of its digital transformation initiatives. These innovations, which represent an estimated investment of approximately $15 million, will enhance the customer experience by providing simplicity in online commercial operations and shortening loan cycle times, while also improving the lending and portfolio management capabilities for FirstBank Puerto Rico’s employees by simplifying the loan cycle and enhancing credit response times. ### CRITICAL ACCOUNTING POLICIES AND PRACTICES 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. Note 1 of the Notes to Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K, as supplemented by this Quarterly Report on Form 10-Q, including this MD&A, describes the significant accounting policies we used in our consolidated financial statements. Not all significant accounting policies require management to make difficult, subjective or complex judgments. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of uncertainty and have had or are reasonably likely to have a material impact on the Corporation’s financial condition and results of operations. The Corporation’s critical accounting estimates that are particularly susceptible to significant changes include, but are not limited to, the following: (i) the allowance for credit losses (“ACL”); (ii) valuation of financial instruments; and (iii) income taxes. For more information regarding valuation of financial instruments and income taxes policies, assumptions, and judgments, see “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),” in the 2023 Annual Report on Form 10-K. The “Risk Management – Credit Risk Management” section of this MD&A details the policies, assumptions, and judgments related to the ACL. Actual results could differ from estimates and assumptions if different outcomes or conditions prevail. ### 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 $73.5 million, or $0.44 per diluted common share, for the quarter ended March 31, 2024, compared to $70.7 million, or $0.39 per diluted common share, for the quarter ended March 31, 2023. Other relevant selected financial indicators for the periods presented are included below: ### Quarter Ended March 31, ### 2024 ### 2023 ### Key Performance Indicator: (1) Return on Average Assets (2) 1.56 1.55 Return on Average Common Equity (3) 19.56 21.00 Efficiency Ratio (4) 52.46 49.39 (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 on an annualized basis 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 on an annualized basis 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 quarter ended March 31, 2024, compared to the first quarter of 2023, include the following: Net interest income for the quarter ended March 31, 2024 decreased to $196.5 million, compared to $200.9 million for the first quarter of 2023, mainly driven by an increase in interest expense due to higher rates paid on interest-bearing deposits given the higher interest rate environment and a change in deposit mix, partially offset by the effect of higher market interest rates on the upward repricing of variable-rate commercial loans as well as the effect of higher average loan balances funded with cash flows from the lower-yielding investment securities portfolio . See “Results of Operations – Net Interest Income” below for additional information. The provision for credit losses on loans, finance leases, unfunded loan commitments and debt securities for the quarter ended March 31, 2024 was $12.2 million, compared to $15.5 million for the first quarter of 2023. The decrease in the provision expense was primarily related to the effect during the first quarter of 2024 of a $9.5 million recovery associated with a bulk sale of fully charged-off consumer loans and a $5.0 million recovery of a commercial and industrial (“C&I”) loan in the Puerto Rico region, partially offset by increases in charge -off levels in the consumer loans and finance leases portfolio. Net charge-offs totaled $11.2 million for the quarter ended March 31, 2024, or 0.37% of average loans on an annualized basis, compared to $13.3 million, or an annualized 0.46% of average loans, for the first quarter of 2023. The recovery associated with the aforementioned bulk sale of fully charged-off consumer loans reduced the ratio of total net charge-offs to average loans for the first quarter of 2024 by approximately 31 basis points (“bps”). See “Results of Operations – Provision for Credit Losses” and “Risk Management” below for analyses of the ACL and non-performing assets and related ratios. The Corporation recorded non-interest income of $34.0 million for the quarter ended March 31, 2024, compared to $32.5 million for the first quarter of 2023. See “Results of Operations – Non-Interest Income” below for additional information. Non-interest expenses for the quarter ended March 31, 2024 increased by $5.6 million to $120.9 million, of which $3.1 million was related to an increase in employees’ compensation and benefits expenses mainly driven by annual salary merit increases. The efficiency ratio for the first quarter of 2024 was 52.46%, compared to 49.39% for the same period in 2023. See “Results of Operations – Non-Interest Expenses” below for additional information. Income tax expense decreased to $23.9 million for the first quarter of 2024, compared to $31.9 million for the same period in 2023, driven by a lower estimated effective tax rate and, to a lesser extent, by lower pre-tax income. The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, decreased to 24.3% for the first quarter of 2024, compared to 31.2% for the first quarter of 2023. See “Income Taxes” below and Note 16 – “Income Taxes ,” to the unaudited consolidated financial statements herein for additional information. As of March 31, 2024, total assets were approximately $18.9 billion, a decrease of $18.6 million from December 31, 2023, primarily related to a $15.1 million decrease in the fair value of available-for-sale debt securities. Total assets were also impacted by repayments of investment securities, partially offset by an increase in total loans. As of March 31, 2024, total liabilities were $17.4 billion, a decrease of $0.7 million from December 31, 2023, which includes a $10.4 million decrease in total deposits. See “Risk Management – Liquidity Risk” 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 March 31, 2024, these core deposits, amounting to $12.6 billion, funded 66.57% of total assets. Excluding fully collateralized government deposits, estimated uninsured deposits amounted to $4.4 billion as of March 31, 2024\. In addition to approximately $2.0 billion in cash and free high-quality liquid assets, the Bank maintains borrowing capacity at the FHLB and the FED’s Discount Window. As of March 31, 2024, the Corporation had approximately $1.6 billion available for funding under the FED’s Discount Window and $972.5 million available for additional borrowing capacity on FHLB lines of credit based on collateral pledged at these entities. On a combined basis, as of March 31, 2024, the Corporation had $5.4 billion, or 121% of estimated uninsured deposits, available to meet liquidity needs. See “Risk Management – Liquidity Risk” below for additional information about the Corporation’s funding sources and strategy. As of March 31, 2024, the Corporation’s total stockholders’ equity was $1.5 billion, a decrease of $17.9 million from December 31, 2023. The decrease was driven by the repurchase of approximately 3.0 million shares of common stock for a total cost of $50.0 million, common stock dividends declared in the first quarter of 2024 totaling $26.9 million or $0.16 per common share, and a $15.1 million decrease in the fair value of available-for-sale debt securities recorded as part of accumulated other comprehensive loss in the consolidated statements of financial condition. These variances were partially offset by the net income generated in the first quarter of 2024. The Corporation’s CET1 capital, tier 1 capital, total capital, and leverage ratios were 15.90%, 15.90%, 18.36%, and 10.65%, respectively, as of March 31, 2024, compared to CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.10%, 16. 10%, 18.57%, and 10.78%, respectively, as of December 31, 2023. See “Risk Management – Capital” below for additional information. Total loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving commitments, increased by $8.6 million to $1.2 billion for the quarter ended March 31, 2024, as compared to the first quarter of 2023, driven by a higher volume of C&I loan originations. See “Results of Operations – Loan Production” below for additional information. Total non-performing assets were $129.6 million as of March 31, 2024, an increase of $3.7 million, from December 31, 2023, mainly driven by the inflow to nonaccrual status of a $10.5 million C&I loan in the Florida region in the power generation industry during the first quarter of 2024, partially offset by a $3.8 million decrease in the other real estate owned (“OREO”) portfolio balance and a $1.9 million decrease in other repossessed property. See “Risk Management – Nonaccrual Loans and Non-Performing Assets” below for additional information. Adversely classified commercial and construction loans increased by $9.0 million to $76.5 million as of March 31, 2024, compared to December 31, 2023, also driven by the aforementioned inflow to nonaccrual status of a $10.5 million C&I loan in the Florida region. ### NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS The Corporation has included in this Quarterly Report on Form 10-Q 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 “Results 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. Tangible common equity ratio is tangible common equity divided by tangible assets. Tangible book value per common share is tangible assets divided by the number of common shares outstanding. 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 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 and non-interest expenses to exclude items that management believes are not reflective of core operating performance (“Special Items”). The financial results for the quarter ended March 31, 2023 did not include any significant Special Items. The financial results for the quarter ended March 31, 2024 included the following Special Item: #### FDIC Special Assessment Expense On November 16, 2023, the FDIC approved a final rule to implement a special assessment 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. Under the final rule, the FDIC will collect the special assessment at a quarterly rate of 3.36 bps to be applied to the special assessment base during an eight-quarter collection period. 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. During the first quarter of 2024, the FDIC informed that the estimated loss attributable to the protection of uninsured depositors of the financial institution failures increased, when compared with the estimate described in the final rule. As such, the Corporation recorded a $0.9 million ($0.6 million after-tax, calculated based on the statutory tax rate of 37.5%) additional expense to increase the estimated FDIC special assessment to $7.3 million. The FDIC special assessment is reflected in the consolidated statements of income as part of “FDIC deposit insurance” expenses. Adjusted Net Income – The following table reconciles for the quarter ended March 31, 2024, net income to adjusted net income, a non-GAAP financial measure that excludes the Special Item identified above, and shows net income for the quarter ended March 31, 2023. ### Quarter Ended March 31, ### 2024 ### 2023 (In thousands) Net income, as reported (GAAP) 73,458 70,698 Adjustments: FDIC special assessment expense 947 Income tax impact of adjustment (355) Adjusted net income (Non-GAAP) 74,050 70,698 ### 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 quarter ended March 31, 2024 was $196.5 million, compared to $200.9 million for the comparable period in 2023. On a tax-equivalent basis and excluding the changes in the fair value of derivative instruments, net interest income for the quarter ended March 31, 2024 was $201.3 million, compared to $207.2 million for the comparable period in 2023. 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 changes 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) ### Quarter ended March 31, ### 2024 ### 2023 ### 2024 ### 2023 ### 2024 ### 2023 (Dollars in thousands) Interest-earning assets: Money market and other short-term investments 533,747 404,249 7,254 4,650 5.45 4.67 Government obligations (2) 2,684,169 2,909,976 9,053 10,765 1.35 1.50 MBS 3,451,293 3,864,145 15,238 19,396 1.77 2.04 FHLB stock 34,635 40,838 854 421 9.89 4.18 Other investments 16,551 13,139 66 139 1.60 4.29 Total investments (3) 6,720,395 7,232,347 32,465 35,371 1.94 1.98 Residential mortgage loans 2,810,304 2,835,240 40,473 39,794 5.78 5.69 Construction loans 218,854 146,041 4,537 2,676 8.32 7.43 C&I and commercial mortgage loans 5,504,782 5,167,727 99,074 85,885 7.22 6.74 Finance leases 863,685 735,500 17,127 13,809 7.95 7.61 Consumer loans 2,810,215 2,634,891 79,640 71,214 11.37 10.96 Total loans (4)(5) 12,207,840 11,519,399 240,851 213,378 7.91 7.51 Total interest-earning assets 18,928,235 18,751,746 273,316 248,749 5.79 5.38 Interest-bearing liabilities: Time deposits 2,892,355 2,342,360 24,410 10,782 3.39 1.87 Brokered certificates of deposit (“CDs”) 749,760 166,698 9,680 1,587 5.18 3.86 Other interest-bearing deposits 7,534,344 7,544,901 28,935 17,516 1.54 0.94 Securities sold under agreements to repurchase 91,004 1,069 4.76 Advances from the FHLB 500,000 629,167 5,610 7,176 4.50 4.63 Other borrowings 161,700 183,762 3,350 3,381 8.31 7.46 Total interest-bearing liabilities 11,838,159 10,957,892 71,985 41,511 2.44 1.54 Net interest income on a tax-equivalent basis and excluding valuations - non-GAAP 201,331 207,238 Interest rate spread 3.35 3.84 Net interest margin 4.27 4.48 (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 $3.2 million and $3.1 million for the quarters ended March 31, 2024 and 2023, respectively, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio. ### Part II ### Quarter Ended March 31, ### 2024 Compared to 2023 ### Variance due to: ### Volume ### Rate ### Total (In thousands) Interest income on interest-earning assets: Money market and other short-term investments 1,660 944 2,604 Government obligations (804) (908) (1,712) MBS (1,963) (2,195) (4,158) FHLB stock (108) 541 433 Other investments 25 (98) (73) Total investments (1,190) (1,716) (2,906) Residential mortgage loans (355) 1,034 679 Construction loans 1,465 396 1,861 C&I and commercial mortgage loans 5,860 7,329 13,189 Finance leases 2,498 820 3,318 Consumer loans 4,870 3,556 8,426 Total loans 14,338 13,135 27,473 Total interest income 13,148 11,419 24,567 Interest expense on interest-bearing liabilities: Time deposits 3,020 10,608 13,628 Brokered CDs 7,284 809 8,093 Other interest-bearing deposits (32) 11,451 11,419 Securities sold under agreements to repurchase (1,069) (1,069) Advances from the FHLB (1,440) (126) (1,566) Other borrowings (431) 400 (31) Total interest expense 7,332 23,142 30,474 Change in net interest income 5,816 (11,723) (5,907) Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and U.S. government-sponsored entities (“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 16 – “Income Taxes” to the unaudited 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: ### Quarter Ended ### March 31, ### 2024 ### 2023 (Dollars in thousands) Interest income - GAAP 268,505 242,396 Unrealized (gain) loss on derivative instruments (2) 6 Interest income excluding valuations - non-GAAP 268,503 242,402 Tax-equivalent adjustment 4,813 6,347 Interest income on a tax-equivalent basis and excluding valuations - non-GAAP 273,316 248,749 Interest expense - GAAP 71,985 41,511 Net interest income - GAAP 196,520 200,885 Net interest income excluding valuations - non-GAAP 196,518 200,891 Net interest income on a tax-equivalent basis and excluding valuations - non-GAAP 201,331 207,238 ### Average Balances Loans and leases 12,207,840 11,519,399 Total securities, other short-term investments and interest-bearing cash balances 6,720,395 7,232,347 Average Interest-Earning Assets 18,928,235 18,751,746 Average Interest-Bearing Liabilities 11,838,159 10,957,892 Average Assets (1) 18,858,299 18,557,156 Average Non-Interest-Bearing Deposits 5,308,531 5,999,066 ### Average Yield/Rate Average yield on interest-earning assets - GAAP 5.69% 5.24% Average rate on interest-bearing liabilities - GAAP 2.44% 1.54% Net interest spread - GAAP 3.25% 3.70% Net interest margin - GAAP 4.16% 4.34% Average yield on interest-earning assets excluding valuations - non-GAAP 5.69% 5.24% Average rate on interest-bearing liabilities 2.44% 1.54% Net interest spread excluding valuations - non-GAAP 3.25% 3.70% Net interest margin excluding valuations - non-GAAP 4.16% 4.34% Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations - non-GAAP 5.79% 5.38% Average rate on interest-bearing liabilities 2.44% 1.54% Net interest spread on a tax-equivalent basis and excluding valuations - non-GAAP 3.35% 3.84% Net interest margin on a tax-equivalent basis and excluding valuations - non-GAAP 4.27% 4.48% (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. Net interest income amounted to $196.5 million for the quarter ended March 31, 2024, a decrease of $4.4 million, when compared to $200.9 million for same period in 2023. The $4.4 million decrease in net interest income was primarily due to: A $33.1 million increase in interest expense on interest-bearing deposits, consisting of: A $13.6 million increase in interest expense on time deposits, excluding brokered CDs, of which $10.6 million was related to higher rates paid on new issuances and renewals given the overall higher interest rate environment. The average cost of time deposits in the first quarter of 2024, excluding brokered CDs, increased 152 bps to 3.39% when compared to the same period in 2023. Excluding public sector deposits, the average cost of time deposits in the first quarter of 2024, excluding brokered CDs, increased 140 bps to 3.29% when compared to the same period in 2023. An $11.4 million increase in interest expense on interest-bearing checking and saving accounts, driven by higher interest rates paid in the first quarter of 2024 also associated with the higher interest rate environment, primarily on public sector deposits. The average cost of interest-bearing checking and saving accounts increased by 60 bps to 1.54% in the first quarter of 2024 as compared to 0.94% in the same period in 2023. Excluding public sector deposits, the average cost of interest-bearing checking and saving accounts for the first quarter of 2024 was 0.75%, compared to 0.60% for the same period a year ago. An $8.1 million increase in interest expense on brokered CDs, mainly driven by a $583.1 million increase in the average balance. A $0.4 million decrease in interest income from interest-bearing cash balances and investment securities, consisting of: A $3.4 million decrease in interest income from debt securities, mainly driven by a $638.7 million decrease in the average balance. Partially offset by: A $2.6 million increase in interest income from interest-bearing cash balances, which consisted primarily of cash balances deposited at the FED, of which $1.7 million was driven by a $129.5 million increase in the average balance. A $0.4 million increase in dividend income on equity securities, associated with income from FHLB stock. Partially offset by: A $26.4 million increase in interest income on loans including: A $14.0 million increase in interest income on commercial and construction loans, driven by an $8.0 million increase associated with a $409.9 million increase in the average balance, and a $6.0 million increase related to the effect of higher market interest rates on the upward repricing of variable-rate loans and on new loan originations. As of March 31, 2024, 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 first quarter of 2024, the average one-month SOFR increased 71 bps, the average three-month SOFR increased 57 bps, and the average Prime rate increased 81 bps, compared to the average rates for such indexes during the first quarter of 2023. An $11.7 million increase in interest income on consumer loans and finance leases associated with a $303.5 million increase in the average balance of this portfolio, primarily in the auto loan and finance leases portfolios, under a higher interest rate environment. A $0.7 million increase in interest income on residential mortgage loans, mainly related to the positive effect of new loan originations at higher current market interest rates. A $2.7 million decrease in interest expense on borrowings, consisting of: A $1.6 million decrease in interest expense on advances from the FHLB, mainly driven by a $129.2 million decrease in the average balance. A $1.1 million decrease in interest expense on short-term repurchase agreements, as the Corporation did not use repurchase agreements as a funding source in the first quarter of 2024. Net interest margin for the first quarter of 2024 decreased to 4.16%, compared to 4.34% for the same period in 2023. The decrease in the net interest margin was driven by the higher cost of funds associated with the higher interest rate environment combined with a change in deposit mix reflecting a continued migration from non-interest-bearing and other low-cost deposits to higher-cost deposits. These variances were partially offset by the upward repricing of variable-rate commercial loans as well as the effect of higher average loan balances funded with cash flows from the lower-yielding investment securities portfolio. ### Provision for Credit Losses The provision for credit losses consists of provisions for credit losses on loans and finance leases, unfunded loan commitments, as well as the debt securities portfolio. The principal changes in the provision for credit losses by main categories follow: #### Provision for credit losses for loans and finance leases The provision for credit losses for loans and finance leases was $12.9 million for the first quarter of 2024, compared to $16.3 million for the first quarter of 2023. The variances by major portfolio category were as follows: Provision for credit losses for the consumer loans and finance leases portfolio was an expense of $16.2 million for the first quarter of 2024, compared to an expense of $15.7 million for the first quarter of 2023. The increase in provision expense was mainly due to increases in charge-off levels, mainly in credit cards, and increases in portfolio volume, partially offset by a $9.5 million recovery associated with the aforementioned bulk sale of fully charged-off loans during the first quarter of 2024 and updated macroeconomic variables, mainly in the projection of unemployment rates across all regions. Provision for credit losses for the commercial and construction loan portfolio was a net benefit of $2.8 million for the first quarter of 2024, compared to an expense of $0.5 million for the first quarter of 2023. The net benefit recorded during the first quarter of 2024 was driven by a $5.0 million recovery of a C&I loan in the Puerto Rico region, partially offset by increased volume. Meanwhile, the expense recorded during the first quarter of 2023 was impacted by reserve increases of $5.0 million related to the inflow to nonacccrual status of a C&I participated loan in the Florida region in the power generation industry, and $1.1 million due to a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the commercial real estate price index (“CRE price index”), partially offset by reserve releases of $6.1 million associated with improvements in the underlying updated financial information of certain borrowers. Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $0.5 million for the first quarter of 2024, compared to an expense of $0.1 million for the first quarter of 2023. The net benefit recorded during the first quarter of 2024 was mainly due to updated macroeconomic variables, partially offset by newly originated loans that 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 $0.3 million for the first quarter of 2024, compared to a net benefit of $0.1 million for the first quarter of 2023. #### 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 $1.0 million for the first quarter of 2024, compared to a net benefit of $0.6 million for the first quarter of 2023. The net benefit recorded during both periods was mostly driven by improvements in the underlying updated financial information of certain Puerto Rico municipal bond issuers. The provision for credit losses for available-for-sale debt securities was a net benefit of $69 thousand for the first quarter of 2024, compared to a net benefit of $9 thousand for the first quarter of 2023. ### Non-Interest Income Non-interest income amounted to $34.0 million for the first quarter of 2024, compared to $32.5 million for the same period in 2023. The $1.5 million increase in non-interest income was primarily due to: A $0.7 million increase in insurance commission income, mainly in seasonal contingent commissions. A $0.4 million increase in card and processing income mainly due to higher transactional volumes, partially offset by $0.3 million in merchant-related referral fees received during the first quarter of 2023. A $0.2 million increase in other non-interest income, mainly driven by $0.7 million in insurance proceeds collected during the first quarter of 2024 associated with property damage caused by Hurricane Fiona, partially offset by a $0.4 million decrease in unused loan commitment fees. ### Non-Interest Expenses Non-interest expenses for the quarter ended March 31, 2024 amounted to $120.9 million, compared to $115.3 million for the same period in 2023. The efficiency ratio for the first quarter of 2024 was 52.46%, compared to 49.39% for the first quarter of 2023. Non- interest expenses for the first quarter of 2024 include the $0.9 million additional FDIC special assessment expense. 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 $4.7 million primarily due to: A $3.1 million increase in employees’ compensation and benefits expenses, mainly driven by annual salary merit increases and increases in stock-based compensation expense of retirement-eligible employees and medical insurance premium costs. A $0.7 million increase in professional service fees, due to increases of $0.9 million in consulting fees mainly driven by information technology infrastructure enhancements and $0.5 million in collections, appraisals, and other credit-related fees, partially offset by a decrease of $0.7 million in outsourced technology service fees. A $0.5 million decrease in net gains on OREO operations, mainly driven by a decrease in net realized gains on sales of OREO properties, primarily residential properties in the Puerto Rico region. A $0.4 million increase in credit and debit card processing fees, mainly driven by higher transactional volumes. ### Income Taxes For the first quarter of 2024, the Corporation recorded an income tax expense of $23.9 million, compared to $31.9 million for the same period in 2023. The decrease in income tax expense was mainly driven by a lower estimated effective tax rate during the first quarter of 2024 and, to a lesser extent, by lower pre-tax income. During the fourth quarter of 2023, the Corporation engaged in certain business activities with preferential tax treatment under the PR Tax Code which resulted in a lower effective tax rate for the year 2023. The Corporation’s annual estimated effective tax rate for the quarter ended March 31, 2024, excluding entities from which a tax benefit cannot be recognized and discrete items, was 24.3%, compared to 31.2% for the first quarter of 2023. Based on current strategies, the Corporation expects that the effective tax rate for 2024 will be around the same levels of 2023. The estimated effective tax rate of the Corporation is impacted by, among other things, the composition and source of its taxable income. See Note 16 – “Income Taxes,” to the unaudited consolidated financial statements herein for additional information. As of March 31, 2024, the Corporation had a deferred tax asset of $147.7 million, net of a valuation allowance of $140.1 million against the deferred tax asset, compared to a deferred tax asset of $150.1 million, net of a valuation allowance of $139.2 million, as of December 31, 2023. ### Assets The Corporation’s total assets were $18.9 billion as of March 31, 2024, a decrease of $18.6 million from December 31, 2023, primarily related to a $15.1 million decrease in the fair value of available-for-sale debt securities. Total assets were also impacted by repayments of investment securities, partially offset by a $130.7 million increase in the total loan portfolio before the ACL, as further discussed below. ### Loans Receivable, including Loans Held for Sale As of March 31, 2024, the Corporation’s total loan portfolio before the ACL amounted to $12.3 billion, an increase of $130.7 million compared to December 31, 2023. In terms of geography, the growth consisted of increases of $80.9 million in the Florida region and $50.1 million in the Puerto Rico region, partially offset by a decrease of $0.3 million in the Virgin Islands region. On a portfolio basis, the growth consisted of increases of $123.9 million in commercial and construction loans and $22.2 million in consumer loans, primarily auto loans and finance leases, partially offset by a $15.4 million decrease in residential mortgage loans. As of March 31, 2024, the Corporation’s loans held-for-investment portfolio was comprised of commercial and construction loans (47%), consumer and finance leases (30%), and residential real estate loans (23%). Of the total gross loan portfolio held for investment of $12.3 billion as of March 31, 2024, 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 March 31,2024 ### Puerto Rico ### Virgin Islands ### United States ### Total (In thousands) Residential mortgage loans 2,164,347 162,893 474,347 2,801,587 Construction loans 144,094 3,530 89,664 237,288 Commercial mortgage loans 1,705,745 63,502 592,484 2,361,731 C&I loans 2,163,439 126,560 940,996 3,230,995 Total commercial loans 4,013,278 193,592 1,623,144 5,830,014 Consumer loans and finance leases 3,606,274 67,946 5,627 3,679,847 Total loans held for investment, gross 9,783,899 424,431 2,103,118 12,311,448 Loans held for sale 12,080 12,080 Total loans, gross 9,795,979 424,431 2,103,118 12,323,528 ### 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 #### Residential Real Estate Loans As of March 31, 2024, the Corporation’s total residential mortgage loan portfolio, including loans held for sale, decreased by $15.4 million, as compared to the balance as of December 31, 2023. The decline in the residential mortgage loan portfolio reflects decreases of $18.8 million in the Puerto Rico region and $5.2 million in the Virgin Islands region, partially offset by an increase of $8.6 million in the Florida region. The decline was driven by repayments, which more than offset the volume of new loan originations kept on the balance sheet. As of March 31, 2024, 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. #### Commercial and Construction Loans As of March 31, 2024, the Corporation’s commercial and construction loan portfolio increased by $123.9 million, as compared to the balance as of December 31, 2023. In the Florida region, commercial and construction loans increased by $72.5 million, as compared to the balance as of December 31, 2023. The increase reflects, among other things, the effect of the origination of three commercial mortgage relationships, each in excess of $10 million, with an aggregate balance of $52.3 million and higher utilization of C&I lines of credit. In the Puerto Rico region, commercial and construction loans increased by $45.9 million, as compared to the balance as of December 31, 2023. This increase was driven the effect of higher utilization of C&I lines of credit, a $32.4 million increase in construction loans, and the origination of a $13.6 million C&I loan to a municipality in Puerto Rico that is supported by assigned property tax revenues. These variances were partially offset by multiple payoffs and paydowns. In the Virgin Islands region, commercial and construction loans increased by $5.5 million, as compared to the balance as of December 31, 2023, mainly associated with loans to government entities. See “Risk Management – Exposure to Puerto Rico Government” and “Risk Management – Exposure to USVI Government” below for information on the Corporation’s credit exposure to PR and USVI government entities. As of March 31, 2024, the Corporation’s total commercial mortgage loan exposure amounted to $2.4 billion, or 19% of the total loan portfolio. In terms of geography, $1.7 billion of the exposure was in the Puerto Rico region, $0.6 billion of the exposure was in the Florida region, and $0.1 billion of the exposure was in the Virgin Islands region. The $1.7 billion exposure in the Puerto Rico region was comprised mainly of 42% in the retail industry, 25% in office real estate, and 19% in the hotel industry. The $0.6 billion exposure in the Florida region was comprised mainly of 27% in the hotel industry, 19% in the retail industry, and 11% in office real estate. Of the Corporation’s total commercial mortgage loan exposure of $2.4 billion, $533.0 million matures within the next 12 months and has a weighted-average interest rate of approximately 5.62%. Commercial mortgage loan exposure in the office real estate industry, which matures within the next 12 months, amounted to $97.1 million and has a weighted-average interest rate of approximately 6.51%. As of each of March 31, 2024 and December 31, 2023, the Corporation’s total exposure to shared national credit (“SNC”) loans (including unused commitments) amounted to $1.2 billion. As of March 31, 2024, approximately $388.4 million of the SNC exposure is related to the portfolio in the Puerto Rico region and $841.9 million is related to the portfolio in the Florida region. #### Consumer Loans and Finance Leases As of March 31, 2024, the Corporation’s consumer loan and finance lease portfolio increased by $22.2 million to $3.7 billion, reflecting growth of $17.8 million and $15.1 million in the auto loans and finance leases portfolios, respectively, mainly in the Puerto Rico region. ### Loan Production First BanCorp. relies primarily on its retail network of branches to originate residential and consumer loans. The Corporation may supplement its residential mortgage originations with wholesale servicing released mortgage loan purchases from mortgage bankers. 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 to facilitate originations. The following table provides a breakdown of First BanCorp.’s loan production, including purchases, refinancings, renewals and draws from existing revolving and non-revolving commitments, for the indicated periods: ### Quarter Ended March 31, ### 2024 ### 2023 (In thousands) Residential mortgage 88,170 77,302 Construction 43,844 35,499 Commercial mortgage 75,656 88,692 C&I 591,348 555,882 Consumer 402,259 435,318 Total loan production 1,201,277 1,192,693 During the quarter ended March 31, 2024, total loan originations, including purchases, refinancings, and draws from existing revolving and non-revolving commitments, amounted to approximately $1.2 billion, an increase of $8.6 million, compared to the first quarter of 2023. Residential mortgage loan originations for the quarter ended March 31, 2024 amounted to $88.2 million, compared to $77.3 million for the first quarter of 2023. The increase of $10.9 million in the first quarter of 2024, as compared to the same period in 2023, reflects growth of $6.2 million in the Puerto Rico region, $4.2 million in the Florida region, and $0.5 million in the Virgin Islands region. Approximately 56% of the $67.6 million residential mortgage loan originations in the Puerto Rico region during the first quarter of 2024 consisted of conforming loans, compared to 60% of $61.5 million for the first quarter of 2023. Commercial and construction loan originations (excluding government loans) for the quarter ended March 31, 2024 amounted to $685.1 million, compared to $672.8 million for the first quarter of 2023. The increase of $12.3 million in the first quarter of 2024 consisted of an increase of $110.7 million in the Florida region, partially offset by decreases of $95.0 million in the Puerto Rico region and $3.4 million in the Virgin Islands region. The growth in the Florida region includes the effect of the aforementioned origination of three commercial mortgage relationships, each in excess of $10 million, with an aggregate balance of $52.3 million, and increased utilization of C&I lines of credit. Meanwhile, the decline in the Puerto Rico region was mainly driven by decreases of $57.6 million in the C&I loan portfolio, mainly in lines of credit, and $50.1 million in the commercial mortgage loan portfolio. Government loan originations for the quarter ended March 31, 2024 amounted to $25.7 million, an increase of $18.5 million, compared to $7.2 million for the first quarter of 2023. Government loan originations during the first quarter of 2024 were mainly related to the aforementioned origination of a $13.6 million loan to a municipality in Puerto Rico that is supported by assigned property tax revenues and the utilization of a line of credit of a government entity in the Virgin Islands region. Government loan originations during the first quarter of 2023 were mainly related to the origination of a loan to an agency of the Puerto Rico government for a low-income housing project and the utilization of an arranged overdraft line of credit of a government entity in the Virgin Islands region. Originations of auto loans (including finance leases) for the quarter ended March 31, 2024 amounted to $228.0 million, compared to $245.1 million for the first quarter of 2023. The decline in the first quarter of 2024, as compared to the same quarter of 2023, consisted of decreases of $15.7 million in the Puerto Rico region and $1.4 million in the Virgin Islands region. Other consumer loan originations, other than credit cards, for the quarter ended March 31, 2024 amounted to $59.9 million, compared to $71.9 million for the first quarter of 2023. Most of the decrease in other consumer loan originations for the first quarter of 2024, as compared with the same period in 2023, was in the Puerto Rico region. The utilization activity on the outstanding credit card portfolio for the quarter ended March 31, 2024 amounted to $114.3 million, compared to $118.4 million for the same period in 2023. ### 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 March 31, 2024 amounted to $5.0 billion, a $182.8 million decrease from December 31, 2023. The decrease was mainly driven by repayments of approximately $86.3 million of U.S. agencies mortgage-backed securities (“MBS”) and debentures, repayments of $80.1 million associated to matured securities, and a $15.1 million decrease in fair value attributable to changes in market interest rates. As of March 31, 2024, the Corporation had a net unrealized loss on available-for-sale debt securities of $647.9 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 March 31, 2024, 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 March 31, 2024, the Corporation held a bond issued by the Puerto Rico Housing Finance Authority (“PRHFA”), classified as available for sale, specifically a residential pass- through MBS in the aggregate amount of $3.1 million (fair value - $1.6 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 $1.6 million as of March 31, 2024, of which $0.3 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 March 31, 2024, the Corporation’s held-to-maturity debt securities portfolio, before the ACL, decreased to $349.3 million, compared to $354.2 million as of December 31, 2023, mainly driven by repayments of approximately $5.1 million of U.S. agencies MBS. Held-to-maturity debt securities include fixed-rate GSEs’ MBS with a carrying value of $242.2 million (fair value of $228.2 million) as of March 31, 2024, compared to $247.1 million as of December 31, 2023. 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 March 31, 2024, 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 March 31, 2024, the ACL for held-to-maturity debt securities was $1.2 million, compared to $2.2 million as of December 31, 2023. The decrease in the ACL of held-to-maturity debt securities was mostly driven by improvements in the underlying updated financial information of a Puerto Rico municipal bond issuer received during the first quarter of 2024. 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 “Risk Management – 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: ### March 31, 2024 ### December 31, 2023 (In thousands) Money market investments 3,785 1,239 Available-for-sale debt securities, at fair value: U.S. government and agencies obligations 2,369,484 2,443,790 Puerto Rico government obligations 1,551 1,415 MBS: Residential 2,527,054 2,633,161 Commercial 149,090 151,618 Total available-for-sale debt securities, at fair value 5,047,179 5,229,984 Held-to-maturity debt securities, at amortized cost: MBS: Residential 142,677 146,468 Commercial 99,525 100,670 Puerto Rico municipal bonds 107,128 107,040 ACL for held-to-maturity Puerto Rico municipal bonds (1,235) (2,197) Total held-to-maturity debt securities 348,095 351,981 Equity securities, including $34.6 million of FHLB stock as of March 31, 2024 and December 31, 2023 51,390 49,675 Total money market investments and investment securities 5,450,449 5,632,879 The carrying values of debt securities as of March 31,2024 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 763,223 0.87 Due after one year through five years 1,589,404 0.82 Due after five years through ten years 8,096 2.64 Due after ten years 8,761 5.51 2,369,484 0.86 Puerto Rico government and municipalities obligations: Due within one year 3,172 9.30 Due after one year through five years 51,327 7.74 Due after five years through ten years 36,034 7.06 Due after ten years 18,146 7.42 108,679 7.51 MBS 2,918,346 1.70 ACL on held-to-maturity debt securities (1,235) Total debt securities 5,395,274 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 March 31, 2024, the Corporation had approximately $1.8 billion in callable debt securities (U.S. agencies debt securities) with an average yield of 0.79% of which approximately 64% were purchased at a discount and 2% 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 2 – “Debt Securities” to the unaudited consolidated financial statements herein for additional information regarding the Corporation’s debt securities portfolio. ### RISK MANAGEMENT ### General Risks are inherent in virtually all aspects of the Corporation’s business activities and operations. Consequently, effective risk management is fundamental to the success of the Corporation. The primary goals of risk management are to ensure that the Corporation’s risk-taking activities are consistent with the Corporation’s objectives and risk tolerance, and that there is an appropriate balance between risks and rewards to maximize stockholder value. The Corporation has in place a risk management framework to monitor, evaluate and manage the principal risks assumed in conducting its activities. First BanCorp.’s business is subject to eleven broad categories of risks: (i) liquidity risk; (ii) interest rate risk; (iii) market risk; (iv) credit risk; (v) operational risk; (vi) legal and regulatory risk; (vii) reputational risk; (viii) model risk; (ix) capital risk; (x) strategic risk; and (xi) information technology risk. First BanCorp. has adopted policies and procedures designed to identify and manage the risks to which the Corporation is exposed. The Corporation’s risk management policies are described below, as well as in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the 2023 Annual Report on Form 10-K. ### Liquidity Risk Liquidity risk involves the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet liquidity needs and accommodate fluctuations in asset and liability levels due to changes in the Corporation’s business operations or unanticipated events. The Corporation manages liquidity at two levels. The first is the liquidity of the parent company, or First Bancorp., which is the holding company that owns the banking and non-banking subsidiaries. The second is the liquidity of the banking subsidiary, FirstBank. The Asset and Liability Committee of the Corporation’s Board of Directors is responsible for overseeing management’s establishment of the Corporation’s liquidity policy, as well as approving operating and contingency procedures and monitoring liquidity on an ongoing basis. The Management’s Investment and Asset Liability Committee (“MIALCO”), which reports to the Board’s Asset and Liability Committee, uses measures of liquidity developed by management that involve the use of several assumptions to review the Corporation’s liquidity position on a monthly basis. The MIALCO oversees liquidity management, interest rate risk, market risk, and other related matters. The MIALCO is composed of senior management officers, including the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the Corporate Strategic and Business Development Director, the Business Group Director, the Treasury and Investments Risk Manager, the Financial Planning and Asset and Liability Management (“ALM”) Director, and the Treasurer. The Treasury and Investments Division is responsible for planning and executing the Corporation’s funding activities and strategy, monitoring liquidity availability on a daily basis, and reviewing liquidity measures on a weekly basis. The Financial Planning and ALM Division is responsible for estimating the liquidity gap. To ensure adequate liquidity through the full range of potential operating environments and market conditions, the Corporation conducts its liquidity management and business activities in a manner that is intended to preserve and enhance funding stability, flexibility, and diversity. Key components of this operating strategy include a strong focus on the continued development of customer-based funding, the maintenance of direct relationships with wholesale market funding providers, and the maintenance of the ability to liquidate certain assets when, and if, requirements warrant. The Corporation develops and maintains contingency funding plans. These plans evaluate the Corporation’s liquidity position under various operating circumstances and are designed to help ensure that the Corporation will be able to operate through periods of stress when access to normal sources of funds is constrained. The plans project funding requirements during a potential period of stress, specify and quantify sources of liquidity, outline actions and procedures for effectively managing liquidity through a period of stress, and define roles and responsibilities for the Corporation’s employees. Under the contingency funding plans, the Corporation stresses the balance sheet and the liquidity position to critical levels that mimic difficulties in generating funds or even maintaining the current funding position of the Corporation and the Bank and are designed to help ensure the ability of the Corporation and the Bank to honor their respective commitments. The Corporation has established liquidity triggers that the MIALCO monitors in order to maintain the ordinary funding of the banking business. The MIALCO has developed contingency funding plans for the following three scenarios: a credit rating downgrade, an economic cycle downturn event, and a concentration event. The Board’s Asset and Liability Committee reviews and approves these plans on an annual basis. #### Liquidity Risk Management The Corporation manages its liquidity in a proactive manner and in an effort to maintain a sound liquidity position. It uses multiple measures to monitor its liquidity position, including core liquidity, basic liquidity, and time-based reserve measures. Cash and cash equivalents amounted to $684.5 million as of March 31, 2024, compared to $663.2 million as of December 31, 2023. When adding $2.0 billion of free high-quality liquid securities that could be liquidated or pledged within one day (which includes assets such as U.S. government and GSEs obligations), the total core liquidity amounted to $2.7 billion as of March 31, 2024, or 14.45% of total assets, compared to $2.8 billion, or 14.93% of total assets as of December 31, 2023. In addition to the aforementioned $2.0 billion in cash and free high quality liquid assets, the Corporation had $972.5 million available for credit with the FHLB based on the value of loan collateral pledged with the FHLB. As such, the basic liquidity ratio (which adds available secured lines of credit to the core liquidity) was approximately 19.60% of total assets as of March 31, 2024, compared to 19.82% of total assets as of December 31, 2023. Further, the Corporation also maintains borrowing capacity at the FED Discount Window and had approximately $1.6 billion available for funding under the FED’s Borrower-in-Custody (“BIC”) Program as of March 31, 2024 as an additional source of liquidity. Total loans pledged to the FED BIC Program amounted to $2.7 billion as of March 31, 2024. The Corporation also does not rely on uncommitted inter-bank lines of credit (federal funds lines) to fund its operations and does not include them in the basic liquidity measure. On a combined basis, as of March 31, 2024, the Corporation had $5.4 billion, or 121% of uninsured estimated deposits, excluding fully collateralized government deposits, available to meet liquidity needs. Liquidity at the Bank level is highly dependent on bank deposits, which fund 87.8% of the Bank’s assets (or 84.0% excluding brokered CDs). In addition, as further discussed below, the Corporation maintains a diversified base of readily available wholesale funding sources, including advances from the FHLB through pledged borrowing capacity, securities sold under agreements to repurchase, and access to brokered CDs. Funding through wholesale funding may continue to increase the overall cost of funding for the Corporation and adversely affect the net interest margin. #### Commitments to extend credit and standby letters of credit As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the financial needs of its customers. These financial instruments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval processes used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements of financial condition. As of March 31, 2024, the Corporation’s commitments to extend credit amounted to approximately $2.0 billion. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since certain commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to additional disbursements. There have been no significant or unexpected draws on existing commitments. In the case of credit cards and personal lines of credit, the Corporation can cancel the unused credit facility at any time and without cause. The following table summarizes commitments to extend credit and standby letters of credit as of the indicated dates: ### March 31, 2024 ### December 31, 2023 (In thousands) Financial instruments whose contract amounts represent credit risk: Commitments to extend credit: Construction undisbursed funds 228,748 234,974 Unused credit card lines 887,725 882,486 Unused personal lines of credit 38,736 38,956 Commercial lines of credit 844,210 862,963 Letters of credit: Commercial letters of credit 60,636 69,543 Standby letters of credit 13,321 8,313 The Corporation engages in the ordinary course of business in other financial transactions that are not recorded on the balance sheet or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction and, thus, affect the Corporation’s liquidity position. These transactions are designed to (i) meet the financial needs of customers, (ii) manage the Corporation’s credit, market and liquidity risks, (iii) diversify the Corporation’s funding sources, and (iv) optimize capital. In addition to the aforementioned off-balance sheet debt obligations and unfunded commitments to extend credit, the Corporation has obligations and commitments to make future payments under contracts, amounting to approximately $4.4 billion as of March 31, 2024\. Our material cash requirements comprise primarily of contractual obligations to make future payments related to time deposits, long-term borrowings, and operating lease obligations. We also have other contractual cash obligations related to certain binding agreements we have entered into for services including outsourcing of technology services, security, advertising and other services which are not material to our liquidity needs. We currently anticipate that our available funds, credit facilities, and cash flows from operations will be sufficient to meet our operational cash needs and support loan growth and capital plan execution for the foreseeable future. Off-balance sheet transactions are continuously monitored to consider their potential impact to our liquidity position and changes are applied to the balance between sources and uses of funds, as deemed appropriate, to maintain a sound liquidity position. #### Sources of Funding The Corporation utilizes different sources of funding to help ensure that adequate levels of liquidity are available when needed. Diversification of funding sources is of great importance to protect the Corporation’s liquidity from market disruptions. The principal sources of short-term funding are deposits, including brokered CDs. Additional funding is provided by securities sold under agreements to repurchase and lines of credit with the FHLB. In addition, the Corporation also maintains as additional sources borrowing capacity at the FED’s BIC Program , as discussed above. The Asset and Liability Committee reviews credit availability on a regular basis. The Corporation may also sell mortgage loans as a supplementary source of funding and obtain long-term funding through the issuance of notes and long-term brokered CDs. While liquidity is an ongoing challenge for all financial institutions, management believes that the Corporation’s available borrowing capacity and efforts to grow core deposits will be adequate to provide the necessary funding for the Corporation’s business plans in the next 12 months and beyond. #### Retail and commercial core deposits – The Corporation’s deposit products include regular saving accounts, demand deposit accounts, money market accounts, and retail CDs. As of each of March 31, 2024 and December 31, 2023, the Corporation’s core deposits, which exclude government deposits and brokered CDs, totaled $12.6 billion. The $25.8 million decrease in such deposits was primarily related to a decline of $28.3 million in the Florida region, partially offset by increases of $1.3 million in the Virgin Islands region and $1.2 million in the Puerto Rico region. This decrease is net of a $93.9 million increase in time deposits. #### Government deposits (fully collateralized) - As of March 31, 2024, the Corporation had $2.8 billion of Puerto Rico public sector deposits ($2.6 billion in transactional accounts and $150.9 million in time deposits), compared to $2.7 billion as of December 31, 2023\. Government deposits are insured by the FDIC up to the applicable limits and the uninsured portions are fully collateralized. Approximately 20% of the public sector deposits as of March 31, 2024 were from municipalities and municipal agencies in Puerto Rico and 80% were from public corporations, the central government and its agencies, and U.S. federal government agencies in Puerto Rico. In addition, as of March 31, 2024, the Corporation had $463.6 million of government deposits in the Virgin Islands region, as compared to $449.4 million as of December 31, 2023, and $12.2 million in the Florida region as compared to $10.2 million as of December 31, 2023. The uninsured portions of government deposits were collateralized by securities and loans with an amortized cost of $3.4 billion and $3.5 billion as of March 31, 2024 and December 31, 2023, respectively, and an estimated market value of $3.1 billion as of each of such periods. In addition to securities and loans, as of each of March 31, 2024 and December 31,2023, the Corporation used $175.0 million in letters of credit issued by the FHLB as pledges for a portion of public deposits in the Virgin Islands. #### Estimate of Uninsured Deposits – As of March 31, 2024 and December 31, 2023, the estimated amounts of uninsured deposits totaled $7.5 billion and $7.4 billion, respectively, generally representing the portion of deposits that exceed the FDIC insurance limit of $250,000 and amounts in any other uninsured deposit account. As of each of March 31, 2024 and December 31, 2023, the uninsured portion of fully collateralized government deposits amounted to $3.0 billion. Excluding fully collateralized government deposits, the estimated amounts of uninsured deposits amounted to $4.4 billion, which represent 27.93% of total deposits (excluding brokered CDs), as of March 31, 2024, compared to $4.4 billion, or 28.13%, as of December 31, 2023. The amount of uninsured deposits is calculated based on the same methodologies and assumptions used for our bank regulatory reporting requirements adjusted for cash held by wholly-owned subsidiaries at the Bank. The following table presents by contractual maturities the amount of U.S. time deposits in excess of FDIC insurance limits (over $250,000) and other time deposits that are otherwise uninsured as of March 31,2024: (In thousands) ### 3 months or ### less ### 3 months to ### 6 months ### 6 months to ### 1 year ### Over 1 year ### Total U.S. time deposits in excess of FDIC insurance limits 321,274 163,085 461,011 131,218 1,076,588 Other uninsured time deposits 14,390 9,486 20,745 2,741 47,362 #### Brokered CDs - Total brokered CDs decreased by $57.6 million to $725.7 million as of March 31, 2024, compared to $783.3 million as of December 31, 2023. The decline reflects maturing short-term brokered CDs amounting to $195.4 million with an all-in cost of 5.42% that were paid off during the first quarter of 2024, partially offset by $138.0 million of new issuances with original average maturities of approximately 2 years and an all-in cost of 4.79 %. The average remaining term to maturity of the brokered CDs outstanding as of March 31, 2024 was approximately 1.1 years. The future use of brokered CDs will depend on multiple factors including excess liquidity at each of the regions, future cash needs and any tax implications. Brokered CDs are insured by the FDIC up to regulatory limits and can be obtained faster than regular retail deposits. The following table presents the contractual maturities of brokered CDs as of March 31, 2024: ### Total (In thousands) Three months or less 174,639 Over three months to six months 170,215 Over six months to one year 209,581 Over one year to three years 98,233 Over three years to five years 57,582 Over five years 15,436 Total 725,686 Refer to “Net Interest Income” above for information about average balances of interest-bearing deposits and the average interest rate paid on such deposits for the quarters ended March 31, 2024 and 2023. From time to time, the Corporation enters into repurchase agreements as an additional source of funding. #### Securities sold under agreements to repurchase – As of March 31, 2024 and December 31, 2023, there were no outstanding repurchase agreements. Under the Corporation’s repurchase agreements, as is the case with derivative contracts, the Corporation is required to pledge cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines due to changes in interest rates, a liquidity crisis or any other factor, the Corporation is required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Given the quality of the collateral pledged, the Corporation has not experienced margin calls from counterparties arising from credit-quality-related write-downs in valuations. #### Advances from the FHLB – The Bank is a member of the FHLB system and obtains advances to fund its operations under a collateral agreement with the FHLB that requires the Bank to maintain qualifying mortgages and/or investments as collateral for advances taken. As of each of March 31, 2024 and December 31, 2023, the outstanding balance of long-term fixed-rate FHLB advances was $500.0 million. Of the $500.0 million in FHLB advances as of March 31, 2024, $400.0 million were pledged with investment securities and $100.0 million were pledged with mortgage loans. As of March 31, 2024, the Corporation had $972.5 million available for additional credit on FHLB lines of credit based on collateral pledged at the FHLB of New York. #### Trust Preferred Securities – In 2004, FBP Statutory Trusts I and II, statutory trusts that are wholly-owned by the Corporation and not consolidated in the Corporation’s financial statements, sold to institutional investors variable-rate TRuPs and used the proceeds of these issuances, together with the proceeds of the purchases by the Corporation of variable rate common securities, to purchase junior subordinated deferrable debentures. The subordinated debentures are presented in the Corporation’s consolidated statements of financial condition as other long-term borrowings. Under the indentures, the Corporation has the right, from time to time, and without causing an event of default, to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest payment period at any time and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. As of each of March 31, 2024 and December 31, 2023, the Corporation had junior subordinated debentures outstanding in the aggregate amount of $161.7 million, with maturity dates ranging from June 17, 2034 through September 20, 2034. As of March 31, 2024, the Corporation was current on all interest payments due on its subordinated debt. See Note 10 – “Other Long-Term Borrowings” and Note 7 – “Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets” to the unaudited consolidated financial statements herein for additional information. #### Other Sources of Funds and Liquidity \- The Corporation’s principal uses of funds are for the origination of loans, the repayment of maturing deposits and borrowings, and deposits withdrawals. Over the years, in connection with its mortgage banking activities, the Corporation has invested in technology and personnel to enhance the Corporation’s secondary mortgage market capabilities. These enhanced capabilities improve the Corporation’s liquidity profile as they allow the Corporation to derive liquidity, if needed, from the sale of mortgage loans in the secondary market. The U.S. (including Puerto Rico) secondary mortgage market is still highly liquid, in large part because of the sale of mortgages through guarantee programs of the Federal Housing Authority (“FHA”), U.S. Department of Veterans Affairs (“VA”), U.S. Department of Housing and Urban Development (“HUD”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corp. (“FHLMC”). During the first quarter of 2024, loans pooled into Government National Mortgage Association (“GNMA”) MBS amounted to approximately $24.7 million. Also, during the first quarter of 2024, the Corporation sold approximately $6.8 million of performing residential mortgage loans to FNMA. The FED Discount Window is a cost-efficient source of short-term funding for the Corporation in highly-volatile market conditions. As previously mentioned, as of March 31, 2024, the Corporation had approximately $1.6 billion fully available for funding under the FED’s Discount Window. #### Effect of Credit Ratings on Access to Liquidity The Corporation’s liquidity is contingent upon its ability to obtain deposits and other external sources of funding to finance its operations. The Corporation’s current credit ratings and any downgrade in 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 its results of operations. Also, changes in credit ratings may further affect the fair value of unsecured derivatives whose value takes into account the Corporation’s own credit risk. The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit rating downgrades. Furthermore, given the Corporation’s non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume to credit ratings, the liquidity of the Corporation has not been affected in any material way by downgrades. The Corporation’s ability to access new non-deposit sources of funding, however, could be adversely affected by credit downgrades. As of the date hereof, the Corporation’s credit as a long-term issuer is rated BB+ by S&P and BB by Fitch. As of the date hereof, FirstBank’s credit ratings as a long-term issuer are BB+ by S&P, one notch below S&P’s minimum BBB- level required to be considered investment grade; and BB by Fitch, two notches below Fitch’s minimum BBB- level required to be considered investment grade. The Corporation’s credit ratings are dependent on a number of factors, both quantitative and qualitative, and are subject to change at any time. The disclosure of credit ratings is not a recommendation to buy, sell or hold the Corporation’s securities. Each rating should be evaluated independently of any other rating. #### Cash Flows Cash and cash equivalents were $684.5 million as of March 31, 2024, an increase of $21.4 million when compared to December 31, 2023\. The following discussion highlights the major activities and transactions that affected the Corporation’s cash flows during the first quarters of 2024 and 2023: #### Cash Flows from Operating Activities First BanCorp.’s operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of cash flows. Management believes that cash flows from operations, available cash balances, and the Corporation’s ability to generate cash through short and long-term borrowings will be sufficient to fund the Corporation’s operating liquidity needs for the foreseeable future. For the quarters ended March 31, 2024 and 2023, net cash provided by operating activities was $118.2 million and $115.4 million, respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for non-cash items such as depreciation and amortization, deferred income tax expense and the provision for credit losses, as well as cash generated from sales and repayments of loans held for sale. #### Cash Flows from Investing Activities The Corporation’s investing activities primarily relate to originating loans to be held for investment, as well as purchasing, selling, and repaying available-for-sale and held-to-maturity debt securities. For the quarter ended March 31, 2024, net cash provided by investing activities was $39.7 million, primarily due to repayments of U.S. agencies MBS and debentures; proceeds from sales of loans, mainly driven by the bulk sale of fully charged-off consumer loans during the first quarter of 2024; and proceeds from sales of repossessed assets; partially offset by net disbursements on loans held for investment. For the quarter ended March 31, 2023, net cash provided by investing activities was $50.5 million, primarily due to repayments of U.S. agencies MBS, partially offset by net disbursements on loans held for investment. #### Cash Flows from Financing Activities The Corporation’s financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance of and payments on long-term debt, the issuance of equity instruments, return of capital, and activities related to its short-term funding. For the quarter ended March 31, 2024, net cash used in financing activities was $136.6 million, mainly reflecting capital returned to stockholders and a decrease in total deposits. For the quarter ended March 31, 2023, net cash provided by financing activities was $177.1 million, mainly reflecting net proceeds of $347.8 million from borrowings reflecting precautionary measures taken by management in light of instability in the banking sector during such period, partially offset by a decrease in total deposits and capital returned to stockholders. ### Capital As of March 31, 2024, the Corporation’s stockholders’ equity was $1.5 billion, a decrease of $17.9 million from December 31, 2023\. The decrease was driven by the repurchase of approximately 3.0 million shares of common stock for a total cost of $50.0 million, common stock dividends declared in the first quarter of 2024 totaling $26.9 million or $0.16 per common share, and a $15.1 million decrease in the fair value of available-for -sale debt securities recorded as part of accumulated other comprehensive loss in the consolidated statements of financial condition. These variances were partially offset by the net income generated in the first quarter of 2024. On April 25, 2024, the Corporation’s Board declared a quarterly cash dividend of $0.1 6 per common share. The dividend is payable on June 14, 2024 to shareholders of record at the close of business on May 30, 2024. The Corporation intends to continue to pay quarterly dividends on common stock. The Corporation’s common stock dividends, including the declaration, timing and amount, remain subject to the consideration and approval by the Corporation’s Board at the relevant times. On July 24, 2023, the Corporation announced that its Board of Directors approved a stock repurchase program, under which the Corporation may repurchase up to $225 million of its outstanding common stock, which it expects to execute through the end of the third quarter of 2024. Repurchases under the program may be executed through open market purchases, accelerated share repurchases, and/or privately negotiated transactions or plans, including under plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions. The Corporation’s stock repurchase program does not obligate it to acquire any specific number of shares and does not have an expiration date. The stock repurchase program may be modified, suspended, or terminated at any time at the Corporation’s discretion. As of May 2, 2024, the Corporation has repurchased approximately 8.4 million shares of common stock for a total cost of $129.9 million under such stock repurchase program. The Corporation’s holding company has no operations and depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments, stock repurchases, and to fund all payments on its obligations, including debt obligations. For more information, see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Quarterly Report on Form 10-Q. The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity less goodwill and other intangible assets. Tangible assets are total assets less the previously mentioned intangible assets. See “Non-GAAP Financial Measures and Reconciliations” above for additional information. The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets, non-GAAP financial measures, to total equity and total assets, respectively, as of March 31, 2024 and December 31, 2023, respectively: ### March 31, 2024 ### December 31, 2023 (In thousands, except ratios and per share information) Total common equity - GAAP 1,479,717 1,497,609 Goodwill (38,611) (38,611) Other intangible assets (11,542) (13,383) ### Tangible common equity - non-GAAP ### 1,429,564 ### 1,445,615 Total assets - GAAP 18,890,961 18,909,549 Goodwill (38,611) (38,611) Other intangible assets (11,542) (13,383) ### Tangible assets - non-GAAP ### 18,840,808 ### 18,857,555 ### Common shares outstanding ### 166,707 ### 169,303 ### Tangible common equity ratio - non-GAAP ### 7.59% ### 7.67% ### Tangible book value per common share - non-GAAP ### 8.58 ### 8.54 See Note 21 – “Regulatory Matters, Commitments and Contingencies” to the unaudited consolidated financial statements herein for the regulatory capital positions of the Corporation and FirstBank as of March 31, 2024 and December 31, 2023, respectively. The Puerto Rico Banking Law of 1933, as amended (the “Puerto Rico Banking Law”) requires that a minimum of 10% of FirstBank’s net income for the year be transferred to a legal surplus reserve until such surplus equals the total of paid-in-capital on common and preferred stock. Amounts transferred to the legal surplus reserve from retained earnings are not available for distribution to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal surplus reserve to an amount of at least 20% of the original capital contributed. FirstBank’s legal surplus reserve, included as part of retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $199.6 million as of each of March 31, 2024 and December 31, 2023, respectively. There were no transfers to the legal surplus reserve during the quarter ended March 31, 2024. ### Interest Rate Risk Management First BanCorp manages its asset/liability position to limit the effects of changes in interest rates on net interest income and to maintain stability of profitability under varying interest rate scenarios. The MIALCO oversees interest rate risk and monitors, among other things, current and expected conditions in global financial markets, competition and prevailing rates in the local deposit market, liquidity, loan originations pipeline, securities market values, recent or proposed changes to the investment portfolio, alternative funding sources and related costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory issues which may be pertinent to these areas. The MIALCO approves funding decisions in light of the Corporation’s overall strategies and objectives. On at least a quarterly basis, the Corporation performs a consolidated net interest income simulation analysis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a one-to-five-year time horizon. The rate scenarios considered in these simulations reflect gradual upward or downward interest rate movements in the yield curve, for gradual (ramp) parallel shifts in the yield curve of 200 and 300 bps during a twelve-month period, or immediate upward or downward changes in interest rate movements of 200 bps, for interest rate shock scenarios. The Corporation carries out the simulations in two ways: (1) Using a static balance sheet, as the Corporation had on the simulation date, and (2) Using a dynamic balance sheet based on recent patterns and current strategies. The balance sheet is divided into groups of assets and liabilities by maturity or repricing structure and their corresponding interest yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future funding sources and costs, the possible exercise of options, changes in prepayment rates, deposit decay and other factors, which may be important in projecting net interest income. The Corporation uses a simulation model to project future movements in the Corporation’s balance sheet and income statement. The starting point of the projections corresponds to the actual values on the balance sheet on the simulation date. These simulations are highly complex and are based on many assumptions that are intended to reflect the general behavior of the balance sheet components over the modeled periods. It is unlikely that actual events will match these assumptions in all cases. For this reason, the results of these forward-looking computations are only approximations of the sensitivity of net interest income to changes in market interest rates. Several benchmark and market rate curves were used in the modeling process, primarily, SOFR curve, Prime Rate, U.S. Treasury yield curve, FHLB rates, brokered CDs rates, repurchase agreements rates, and the mortgage commitment rate of 30 years. As of March 31, 2024, the Corporation forecasted the 12-month net interest income assuming March 31, 2024 interest rate curves remain constant. Then, net interest income was estimated under rising and falling rates scenarios. For the rising rate scenario, a gradual (ramp) and immediate (shock) parallel upward shift of the yield curve is assumed during the first twelve months (the “+300 ramp”, “+200 ramp” and “+200 shock” scenarios). Conversely, for the falling rate scenario, a gradual (ramp) and immediate (shock) parallel downward shift of the yield curve is assumed during the first twelve months (the “-300 ramp”, “-200 ramp” and “-200 shock” scenarios). The SOFR curve for March 31, 2024, as compared with December 31, 2023, reflects an increase of 12 bps on average in the short- term sector of the curve, or between one to twelve months; an increase of 57 bps in the medium-term sector of the curve, or between 2 to 5 years; and an increase of 47 bps in the long-term sector of the curve, or over 5-year maturities. A similar behavior in market rates changes was observed in the Constant Maturity Treasury yield curve with an increase of 8 bps in the short-term sector, an increase of 50 bps in the medium-term sector, and an increase of 42 bps in the long-term sector. The following table presents the results of the static simulations as of March 31,2024 and December 31, 2023. Consistent with prior years, these exclude non-cash changes in the fair value of derivatives: ### Net Interest Income Risk ### (% Change Projected for the next 12 months) ### March 31, 2024 ### December 31, 2023 Gradual Change in Interest Rates: \+ 300 bps ramp 1.56 1.08 \+ 200 bps ramp 1.05 0.73 \- 300 bps ramp -3.39 -3.09 \- 200 bps ramp -2.19 -2.02 Immediate Change in Interest Rates: \+ 200 bps shock 2.37 2.45 \- 200 bps shock -5.62 -5.67 The Corporation continues to manage its balance sheet structure to control and limit the overall interest rate risk by managing its asset composition while maintaining a sound liquidity position. See “Risk Management – Liquidity Risk Management” above for liquidity ratios. As of March 31, 2024, and December 31, 2023, the net interest income simulations show that the Corporation continues to have an asset sensitive position for the next twelve months under a static balance sheet simulation. Under gradual rising scenarios, the net interest income simulation shows a slight increase in interest rate sensitivity, when compared with December 31, 2023, due to lower sensitivity in the liabilities side. The decrease in sensitivity in the liabilities side was mainly driven by an increase in repricing lag, mainly in public sector non -maturity deposits, partially offset by higher sensitivity in time deposits as a result of higher balances. On the assets side, the sensitivity increased slightly in the investment securities portfolio due to an increase in the prepayment rate assumptions of MBS and the level of scheduled maturities of U.S. agencies debentures over the next twelve months. Gradual falling rates scenarios also show an increase in interest rate sensitivity, when compared with December 31, 2023, as decreases in interest rates are estimated to occur at a slower pace on the liabilities side as pricing pressures, deposits competition and retention strategies will impact the pace of repricing, mainly in the public sector non-maturity deposits, partially offset by higher sensitivity on the assets side, as explained above. Under the static simulation, the Corporation assumes that maturing instruments are replaced with similar instruments at the repricing rate upon maturity. The Corporation’s results may vary significantly from the ones presented above under alternative balance sheet compositions, such as a dynamic balance sheet scenario which, for example, would assume that cash flows from the investment securities portfolio and loan repayments will be redeployed into higher yielding alternatives. ### Credit Risk Management First BanCorp. is subject to credit risk mainly with respect to its portfolio of loans receivable and off-balance-sheet instruments, principally loan commitments. Loans receivable represents loans that First BanCorp. holds for investment and, therefore, First BanCorp. is at risk for the term of the loan. Loan commitments represent commitments to extend credit, subject to specific conditions, for specific amounts and maturities. These commitments may expose the Corporation to credit risk and are subject to the same review and approval process as for loans made by the Bank. See “Risk Management – Liquidity Risk” and “Risk Management – Capital” above for further details. The Corporation manages its credit risk through its credit policy, underwriting, monitoring of loan concentrations and related credit quality, counterparty credit risk, economic and market conditions, and legislative or regulatory mandates. The Corporation also performs independent loan review and quality control procedures, statistical analysis, comprehensive financial analysis, established management committees, and employs proactive collection and loss mitigation efforts. Furthermore, personnel performing structured loan workout functions are responsible for mitigating defaults and minimizing losses upon default within each region and for each business segment. In the case of the C&I, commercial mortgage and construction loan portfolios, the Special Asset Group (“SAG”) focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs, and sales of OREO. In addition to the management of the resolution process for problem loans, the SAG oversees collection efforts for all loans to prevent migration to the nonaccrual and/or adversely classified status. The SAG utilizes relationship officers, collection specialists and attorneys. The Corporation may also have risk of default in the securities portfolio. The securities held by the Corporation are principally fixed-rate U.S. agencies MBS and U.S. Treasury and agencies securities. Thus, a substantial portion of these instruments is backed by mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government. Management, consisting of the Corporation’s Chief Risk Officer, Commercial Credit Risk Officer, Retail Credit Risk Officer, Chief Credit Officer, and other senior executives, has the primary responsibility for setting strategies to achieve the Corporation’s credit risk goals and objectives. Management has documented these goals and objectives in the Corporation’s Credit Policy. ### Allowance for Credit Losses and Non-Performing Assets #### Allowance for Credit Losses for Loans and Finance Leases The ACL for loans and finance leases represents the estimate of the level of reserves appropriate to absorb expected credit losses over the estimated life of the loans. The amount of the allowance is determined using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience is a significant input for the estimation of expected credit losses, as well as adjustments to historical loss information made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term. Additionally, the Corporation’s assessment involves evaluating key factors, which include credit and macroeconomic indicators, such as changes in unemployment rates, property values, and other relevant factors to account for current and forecasted market conditions that are likely to cause estimated credit losses over the life of the loans to differ from historical credit losses. Such factors are subject to regular review and may change to reflect updated performance trends and expectations, particularly in times of severe stress. The process includes judgments and quantitative elements that may be subject to significant change. Further, the Corporation periodically considers the need for qualitative reserves to the ACL. Qualitative adjustments may be related to and include, but are not 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 ACL for loans and finance leases is reviewed at least on a quarterly basis as part of the Corporation’s continued evaluation of its asset quality. The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading national and regional economic indicators, and industry trends. As of March 31, 2024, the Corporation applied the baseline scenario for the commercial mortgage and construction loan portfolios as deterioration in the CRE price index in these portfolios was expected at a lower extent than projected in the alternative downside scenario. The economic scenarios used in the ACL determination contained assumptions related to economic uncertainties associated with geopolitical instability, the CRE price index, unemployment rate, inflation levels, and expected future interest rate adjustments in the Federal Reserve Board’s funds rate. As of March 31, 2024, the Corporation’s ACL model considered the following assumptions for key economic variables in the probability-weighted economic scenarios: CRE price index at the national level with an average projected contraction of 6.25% for the remainder of 2024 and an average projected appreciation of 1.98% for the year 2025, compared to an average projected contraction of 6.81% for the remainder of 2024 and an average projected appreciation of 2.01% for the year 2025 as of December 31, 2023. Regional Home Price Index forecast in Puerto Rico (purchase only prices) is projected to remain relatively flat for the remainder of 2024, while for the year 2025 shows a deterioration of 1.22%, when compared to the same period projection as of December 31, 2023. For the Florida region, the Home Price Index forecast shows an improvement of 0.72% for the remainder of 2024 and an improvement of 0.91% for the year 2025, when compared to the same period as of December 31, 2023. Average regional unemployment rate in Puerto Rico is forecasted at 7.03% for the remainder of 2024 and 8.16% for 2025, compared to 7.35% for the remainder of 2024 and 8.08% for the year 2025 as of December 31, 2023. For the Florida and the U.S. mainland, average unemployment rate is forecasted at 4.07% and 4.53%, respectively, for the remainder of 2024, and 4.34% and 4.73%, respectively, for the year 2025, compared to 4.27% and 4.74%, respectively, for the remainder of 2024, and 4.12% and 4.52%, respectively, for the year 2025 as of December 31, 2023. Annualized change in gross domestic product (“GDP”) in the U.S. mainland of 1.61% for the remainder of 2024 and 1.33% for the year 2025, compared to 0.82% for the remainder of 2024 and 1.64% for the year 2025 as of December 31, 2023. It is difficult to estimate how potential changes in one factor or input might affect the overall ACL because management considers a wide variety of factors and inputs in estimating the ACL. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one factor or input may offset deterioration in others. However, to demonstrate the sensitivity of credit loss estimates to macroeconomic forecasts as of March 31, 2024, management compared the modeled estimates under the probability- weighted economic scenarios against a more adverse scenario. The more adverse scenario incorporates an additional adverse scenario and decreases the weight applied to the baseline scenario. Under this more adverse scenario, as an example, average unemployment rate for the Puerto Rico region increases to 7.45% for the remainder of 2024, compared to 7.03% for the same period on the probability-weighted economic scenario projections. To demonstrate the sensitivity to key economic parameters used in the calculation of the ACL at March 31, 2024, management calculated the difference between the quantitative ACL and this more adverse scenario. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in the ACL of approximately $47 million at March 31, 2024\. This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall ACL as it does not reflect any potential changes in other adjustments to the qualitative calculation, which would also be influenced by the judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these estimates based on current circumstances and conditions. Recognizing that forecasts of macroeconomic conditions are inherently uncertain, particularly in light of recent economic conditions and challenges, which continue to evolve, management believes that its process to consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected credit losses were reasonable and appropriate for the period ended March 31, 2024. The ratio of the ACL for loans and finance leases to total loans held for investment decreased to 2.14% as of March 31, 2024, compared to 2.15% as of December 31, 2023. An explanation for the change for each portfolio follows: The ACL to total loans ratio for the residential mortgage loan portfolio decreased from 2.03% as of December 31, 2023 to 2.02% as of March 31, 2024, primarily reflecting a more favorable economic outlook, particularly in the projection of unemployment rates. The ACL to total loans ratio for the construction loan portfolio was 2.61% as of each of March 31, 2024 and December 31, 2023. The ACL to total loans ratio for the commercial mortgage loan portfolio decreased from 1.41% as of December 31, 2023 to 1.38% as of March 31, 2024, mainly driven by improvements in the financial information of certain borrowers and delinquency improvements, partially offset by deterioration on the economic outlook of certain macroeconomic variables. The ACL to total loans ratio for the C&I loan portfolio increased from 1.05% as of December 31, 2023 to 1.07% as of March 31, 2024, mainly due to newly originated loans which have a longer life. The ACL to total loans ratio for the consumer loan portfolio decreased from 3.64% as of December 31, 2023 to 3.63% as of March 31, 2024, mainly driven by updated macroeconomic variables, partially offset by increases in historical charge- off levels, mainly in credit cards. The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 283.54% as of March 31, 2024, compared to 312.81% as of December 31, 2023. Substantially all of the Corporation’s loan portfolio is located within the boundaries of the U.S. economy. Whether the collateral is located in Puerto Rico, the U.S. and British Virgin Islands, or the U.S. mainland (mainly in the state of Florida), the performance of the Corporation’s loan portfolio and the value of the collateral supporting the transactions are dependent upon the performance of and conditions within each specific area’s real estate market. The Corporation believes it sets adequate loan-to-value ratios following its regulatory and credit policy standards. As shown in the following tables, the ACL for loans and finance leases amounted to $263.6 million as of March 31, 2024, or 2.14% of total loans, compared with $261.8 million, or 2.15% of total loans, as of December 31, 2023. See “Results of Operations - Provision for Credit Losses” and Note 4 – “Allowance for Credit Losses for Loans and Finance Leases” above for additional information. ### Quarter Ended March 31, ### 2024 ### 2023 (Dollars in thousands) ACL for loans and finance leases, beginning of year 261,843 260,464 Impact of adoption of ASU 2022-02 2,116 Provision for credit losses - (benefit) expense: Residential mortgage (464) 73 Construction 571 860 Commercial mortgage (10) 1,246 C&I (3,360) (1,650) Consumer and finance leases 16,180 15,727 Total provision for credit losses - expense 12,917 16,256 Charge-offs: Residential mortgage (516) (983) Commercial mortgage (18) C&I (459) (118) Consumer and finance leases (28,364) (16,798) Total charge offs (29,339) (17,917) Recoveries: Residential mortgage 272 497 Construction 10 63 Commercial mortgage 40 168 C&I 5,119 90 Consumer and finance leases 12,730 (1) 3,830 Total recoveries 18,171 (1) 4,648 Net charge-offs (11,168) (13,269) ACL for loans and finance leases, end of period 263,592 265,567 ACL for loans and finance leases to period-end total loans held for investment 2.14% 2.29% Net charge-offs (annualized) to average loans outstanding during the period 0.37% (2) 0.46% Provision for credit losses - expense for loans and finance leases to net charge-offs during the period 1.16x 1.23x (1) For the quarter ended March 31, 2024 includes a recovery totaling $9.5 million associated with the bulk sale of fully charged -off consumer loans. (2) The recovery associated with the aforementioned bulk sale reduced the ratio of total net charge-offs to related average loans by 31 basis points in the first quarter of 2024. The following tables set forth information concerning the composition of the Corporation's loan portfolio and related ACL by loan category, and the percentage of loan balances in each category to the total of such loans as of the indicated dates: ### As of March 31, 2024 ### Residential ### Mortgage ### Loans ### Commercial ### Mortgage ### Loans ### C&I Loans ### Consumer and ### Finance ### Leases ### Construction ### Loans (Dollars in thousands) ### Total Total loans held for investment: Amortized cost of loans 2,801,587 237,288 2,361,731 3,230,995 3,679,847 12,311,448 Percent of loans in each category to total loans 23 2 19 26 30 100 Allowance for credit losses 56,689 6,186 32,661 34,490 133,566 263,592 Allowance for credit losses to amortized cost 2.02 2.61 1.38 1.07 3.63 2.14 ### As of December 31, 2023 ### Residential ### Mortgage ### Loans ### Commercial ### Mortgage ### Loans ### C&I Loans ### Consumer and ### Finance Leases ### Construction ### Loans (Dollars in thousands) ### Total Total loans held for investment: Amortized cost of loans 2,821,726 214,777 2,317,083 3,174,232 3,657,665 12,185,483 Percent of loans in each category to total loans 23 2 19 26 30 100 Allowance for credit losses 57,397 5,605 32,631 33,190 133,020 261,843 Allowance for credit losses to amortized cost 2.03 2.61 1.41 1.05 3.64 2.15 #### Allowance for Credit Losses for Unfunded Loan Commitments The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk as a result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of March 31, 2024, the ACL for off-balance sheet credit exposures increased by $0.3 million to $4.9 million, when compared to December 31, 2023. #### Allowance for Credit Losses for Held-to-Maturity Debt Securities As of March 31, 2024, the ACL for held-to-maturity securities portfolio was entirely related to 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. As of March 31, 2024, the ACL for held-to-maturity debt securities was $1.2 million, compared to $2.2 million as of December 31, 2023. The decrease was mostly driven by improvements in the underlying updated financial information of a Puerto Rico municipal bond issuer received during the first quarter of 2024. #### Allowance for Credit Losses for Available -for-Sale Debt Securities The ACL for available-for-sale debt securities, which is associated with private label MBS and a residential pass-through MBS issued by the PRHFA, was $0.4 million as of March 31, 2024, compared to $0.5 million as of December 31, 2023. ### Nonaccrual Loans and Non-Performing Assets Total non-performing assets consist of nonaccrual loans (generally loans held for investment or loans held for sale for which the recognition of interest income was discontinued when the loan became 90 days past due or earlier if the full and timely collection of interest or principal is uncertain), foreclosed real estate and other repossessed properties, and non-performing investment securities, if any. When a loan is placed in nonaccrual status, any interest previously recognized and not collected is reversed and charged against interest income. Cash payments received are recognized when collected in accordance with the contractual terms of the loans. The principal portion of the payment is used to reduce the principal balance of the loan, whereas the interest portion is recognized on a cash basis (when collected). However, when management believes that the ultimate collectability of principal is in doubt, the interest portion is applied to the outstanding principal. The risk exposure of this portfolio is diversified as to individual borrowers and industries, among other factors. In addition, a large portion is secured with real estate collateral. #### Nonaccrual Loans Policy #### Residential Real Estate Loans - The Corporation generally classifies real estate loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more. #### Commercial and Construction Loans - The Corporation classifies commercial loans (including commercial real estate and construction loans) in nonaccrual status when it has not received interest and principal for a period of 90 days or more or when it does not expect to collect all of the principal or interest due to deterioration in the financial condition of the borrower. #### Finance Leases - The Corporation classifies finance leases in nonaccrual status when it has not received interest and principal for a period of 90 days or more. #### Consumer Loans - The Corporation classifies consumer loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more. Credit card loans continue to accrue finance charges and fees until charged-off at 180 days delinquent. #### Purchased Credit Deteriorated Loans (“PCD”) - For PCD loans, the nonaccrual status is determined in the same manner as for other loans, except for PCD loans that prior to the adoption of CECL were classified as purchased credit impaired (“PCI”) loans and accounted for under ASC Subtopic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC Subtopic 310-30”). As allowed by CECL, the Corporation elected to maintain pools of loans accounted for under ASC Subtopic 310-30 as “units of accounts,” conceptually treating each pool as a single asset. Regarding interest income recognition, the prospective transition approach for PCD loans was applied at a pool level, which froze the effective interest rate of the pools as of January 1, 2020. According to regulatory guidance, the determination of nonaccrual or accrual status for PCD loans with respect to which the Corporation has made a policy election to maintain previously existing pools upon adoption of CECL should be made at the pool level, not the individual asset level. In addition, the guidance provides that the Corporation can continue accruing interest and not report the PCD loans as being in nonaccrual status if the following criteria are met: (i) the Corporation can reasonably estimate the timing and amounts of cash flows expected to be collected; and (ii) the Corporation did not acquire the asset primarily for the rewards of ownership of the underlying collateral, such as the use in operations or improving the collateral for resale. Thus, the Corporation continues to exclude these pools of PCD loans from nonaccrual loan statistics. ### Other Real Estate Owned OREO acquired in settlement of loans is carried at fair value less estimated costs to sell the real estate acquired. Appraisals are obtained periodically, generally on an annual basis. ### Other Repossessed Property The other repossessed property category generally includes repossessed boats and autos acquired in settlement of loans. Repossessed boats and autos are recorded at the lower of cost or estimated fair value. ### Other Non-Performing Assets This category consists of a residential pass-through MBS issued by the PRHFA placed in non-performing status in the second quarter of 2021 based on the delinquency status of the underlying second mortgage loans. ### Loans Past-Due 90 Days and Still Accruing These are accruing loans that are contractually delinquent 90 days or more. These past-due loans are either current as to interest but delinquent as to the payment of principal ( #### i.e. , well secured and in process of collection) or are insured or guaranteed under applicable FHA, VA, or other government-guaranteed programs for residential mortgage loans. Furthermore, as required by instructions in regulatory reports, loans past due 90 days and still accruing include loans previously pooled into GNMA securities for which the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria ( #### e.g. borrowers fail to make any payment for three consecutive months). For accounting purposes, these GNMA loans subject to the repurchase option are required to be reflected in the financial statements with an offsetting liability. In addition, loans past due 90 days and still accruing include PCD loans, as mentioned above, and credit cards that continue accruing interest until charged-off at 180 days. The following table presents non-performing assets as of the indicated dates: ### March 31,2024 ### December 31, 2023 (Dollars in thousands) Nonaccrual loans held for investment: Residential mortgage 32,685 32,239 Construction 1,498 1,569 Commercial mortgage 11,976 12,205 C&I 25,067 15,250 Consumer and finance leases 21,739 22,444 Total nonaccrual loans held for investment 92,965 83,707 OREO 28,864 32,669 Other repossessed property 6,226 8,115 Other assets (1) 1,551 1,415 Total non-performing assets 129,606 125,906 Past due loans 90 days and still accruing (2) (3) (4) 57,515 59,452 Non-performing assets to total assets 0.69 0.67 Nonaccrual loans held for investment to total loans held for investment 0.76 0.69 ACL for loans and finance leases 263,592 261,843 ACL for loans and finance leases to total nonaccrual loans held for investment 283.54 312.81 ACL for loans and finance leases to total nonaccrual loans held for investment, excluding residential real estate loans 437.28 508.75 (1) Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities portfolio. (2) Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more amounted to $8.6 million and $8.3 million as of March 31,2024 and December 31, 2023, respectively. (3) Includes FHA/VA government-guaranteed residential mortgage as loans past-due 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $13.7 million and $15.4 million of FHA government guaranteed residential mortgage loans that were over 15 months delinquent as of March 31, 2024 and December 31, 2023, respectively. (4) These includes rebooked loans, which were previously pooled into GNMA securities, amounting to $8.8 million and $7.9 million as of March 31, 2024 and December 31, 2023, respectively. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. Total non-performing assets increased by $3.7 million to $129.6 million as of March 31, 2024, compared to $125.9 million as of December 31, 2023. The increase in non-performing loans was driven by a $9.3 million increase in total nonaccrual loans held for investment, partially offset by a $3.8 million decrease in the OREO portfolio balance and a $1.9 million decrease in other repossessed property. Total nonaccrual loans were $93.0 million as of March 31, 2024 . This represents a net increase of $9.3 million from $83.7 million as of December 31, 2023, consisting of increases of $9.5 million and $0.5 million in nonaccrual commercial and construction loans and nonaccrual residential mortgage loans, respectively, partially offset by a decrease of $0.7 million in nonaccrual consumer loans. The increase in nonaccrual commercial and construction loans was primarily driven by the inflow to nonaccrual status of a $10.5 million C&I loan in the Florida region in the power generation industry. The following table shows non-performing assets by geographic segment as of the indicated dates: ### March 31,2024 ### December 31, 2023 (In thousands) ### Puerto Rico: Nonaccrual loans held for investment: Residential mortgage 17,521 18,324 Construction 531 595 Commercial mortgage 3,037 3,106 C&I 13,431 13,414 Consumer and finance leases 21,503 21,954 Total nonaccrual loans held for investment 56,023 57,393 OREO 24,577 28,382 Other repossessed property 5,916 7,857 Other assets 1,551 1,415 Total non-performing assets 88,067 95,047 Past due loans 90 days and still accruing 51,614 53,308 ### Virgin Islands: Nonaccrual loans held for investment: Residential mortgage 6,693 6,688 Construction 967 974 Commercial mortgage 8,939 9,099 C&I 1,119 1,169 Consumer 203 419 Total nonaccrual loans held for investment 17,921 18,349 OREO 4,287 4,287 Other repossessed property 287 252 Total non-performing assets 22,495 22,888 Past due loans 90 days and still accruing 5,762 6,005 ### United States: Nonaccrual loans held for investment: Residential mortgage 8,471 7,227 C&I 10,517 667 Consumer 33 71 Total nonaccrual loans held for investment 19,021 7,965 Other repossessed property 23 6 Total non-performing assets 19,044 7,971 Past due loans 90 days and still accruing 139 The following tables present the activity of commercial and construction nonaccrual loans held for investment for the indicated periods: ### Construction ### Commercial ### Mortgage ### C&I ### Total (In thousands) ### Quarter Ended March 31,2024 Beginning balance 1,569 12,205 15,250 29,024 Plus: Additions to nonaccrual 11,041 11,041 Less: Loans returned to accrual status Nonaccrual loans transferred to OREO (48) (48) Nonaccrual loans charge-offs (459) (459) Loan collections (23) (229) (765) (1,017) Ending balance 1,498 11,976 25,067 38,541 ### Construction ### Commercial ### Mortgage ### C&I ### Total (In thousands) ### Quarter Ended March 31,2023 Beginning balance 2,208 22,319 7,830 32,357 Plus: Additions to nonaccrual 127 544 7,470 8,141 Less: Loans returned to accrual status (361) (152) (513) Nonaccrual loans transferred to OREO (332) (162) (183) (677) Nonaccrual loans charge-offs (18) (118) (136) Loan collections (209) (730) (1,443) (2,382) Reclassification 6 6 Ending balance 1,794 21,598 13,404 36,796 The following table presents the activity of residential nonaccrual loans held for investment for the indicated periods: ### Quarter Ended March 31, ### 2024 ### 2023 (In thousands) Beginning balance 32,239 42,772 Plus: Additions to nonaccrual 4,596 2,081 Less: Loans returned to accrual status (2,833) (3,937) Nonaccrual loans transferred to OREO (404) (2,710) Nonaccrual loans charge-offs (125) (220) Loan collections (788) (1,570) Reclassification (6) Ending balance 32,685 36,410 The amount of nonaccrual consumer loans, including finance leases, decreased by $0.7 million to $21.7 million as of March 31, 2024, compared to $22.4 million as of December 31, 2023. The decrease was mainly reflected in the finance lease and auto loan portfolios. As of March 31, 2024, approximately $23.8 million of the loans placed in nonaccrual status, mainly commercial and residential mortgage loans, were current, or had delinquencies of less than 90 days in their interest payments. Collections on these loans are being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant. During the quarter ended March 31, 2024, interest income of approximately $0.1 million related to nonaccrual loans with a carrying value of $33.4 million as of March 31, 2024, mainly nonaccrual commercial and construction loans, was applied against the related principal balances under the cost-recovery method. Total loans in early delinquency ( #### i.e. , 30-89 days past due loans, as defined in regulatory reporting instructions) amounted to $133.7 million as of March 31, 2024, a decrease of $17.1 million, compared to $150.8 million as of December 31, 2023. The variances by major portfolio categories are as follows: Consumer loans in early delinquency decreased by $15.5 million to $96.5 million, mainly reflected in the auto loan portfolio. Residential mortgage loans in early delinquency decreased by $4.0 million to $32.5 million. Commercial and construction loans in early delinquency increased by $2.4 million to $4.7 million, mainly due to certain commercial loans that matured and are in the process of renewal but for which the Corporation continues to receive interest and principal payments from the borrower. In addition, the Corporation provides homeownership preservation assistance to its customers through a loss mitigation program. Depending upon the nature of a borrower’s financial condition, restructurings or loan modifications through this program are provided, as well as other modifications of individual C&I, commercial mortgage, construction, and residential mortgage loans. See Note 1 – “Basis of Presentation and Significant Accounting Policies” to the unaudited consolidated financial statements herein for additional information related to the accounting policies of loan modifications granted to borrowers experiencing financial difficulty. In addition, see Note 3 – “Loans Held for Investment” to the unaudited consolidated financial statements herein for additional information and statistics about the Corporation’s modified loans. The OREO portfolio, which is part of non -performing assets, amounted to $28.9 million as of March 31, 2024 and $32.7 million as of December 31, 2023. The following tables show the composition of the OREO portfolio as of March 31, 2024 and December 31, 2023, as well as the activity of the OREO portfolio by geographic area during the quarter ended March 31, 2024: ### OREO Composition by Region ### As of March 31,2024 (In thousands) ### Puerto Rico ### Virgin Islands ### Florida ### Consolidated Residential 15,254 1,452 16,706 Construction 1,656 25 1,681 Commercial 7,667 2,810 10,477 24,577 4,287 28,864 ### As of December 31, 2023 (In thousands) ### Puerto Rico ### Virgin Islands ### Florida ### Consolidated Residential 18,809 1,452 20,261 Construction 1,576 25 1,601 Commercial 7,997 2,810 10,807 28,382 4,287 32,669 ### OREO Activity by Region ### Quarter Ended March 31, 2024 (In thousands) ### Puerto Rico ### Virgin Islands ### Florida ### Consolidated Beginning Balance 28,382 4,287 32,669 Additions 1,213 1,213 Sales (4,451) (4,451) Subsequent measurement adjustments (152) (152) Other adjustments (415) (415) Ending Balance 24,577 4,287 28,864 #### Net Charge-offs and Total Credit Losses Net charge -offs totaled $11.2 million for the first quarter of 2024, or 0.37% of average loans on an annualized basis, compared to $13.3 million, or an annualized 0.46% of average loans, for the first quarter of 2023. Net charge-offs for the first quarter of 2024 include a $9.5 million recovery associated with the bulk sale of fully charged-off consumer loans, which reduced by 31 basis points the ratio of total net charge-offs to average loans for the first quarter of 2024. C&I loans net recoveries for the first quarter of 2024 were $4.7 million, or an annualized 0.59% of related average loans, compared to net charge-offs of $28 thousand for the first quarter of 2023. The net recoveries for the first quarter of 2024 include a $5.0 million recovery associated with a C&I loan in the Puerto Rico region. Consumer loans and finance leases net charge-offs for the first quarter of 2024 were $15.6 million, or an annualized 1.70% of related average loans, compared to net charge-offs of $13.0 million, or an annualized 1.54% of related average loans, for the first quarter of 2023. The increase, which was primarily reflected in the auto and personal loan portfolios, was partially offset by the recovery associated with the aforementioned bulk sale, which reduced by 104 basis points the ratio of consumer loans and finance leases net charge-offs to related average loans for the first quarter of 2024. The following table presents annualized net charge-offs (recoveries) to average loans held-in-portfolio for the indicated periods: ### Quarter Ended March 31, ### 2024 ### 2023 Residential mortgage 0.03 0.07 Construction (0.02) (0.17) Commercial mortgage (0.01) (0.03) C&I (0.59) Consumer and finance leases 1.70 (1) 1.54 Total loans 0.37 (1) 0.46 (1) The $9.5 million recovery associated with the bulk sale of fully charged-off consumer loans during the first quarter of 2024 reduced the ratios of consumer loans and finance leases and total net charge-offs to related average loans by 104 basis points and 31 basis points, respectively. The following table presents annualized net charge-offs (recoveries) to average loans held in various portfolios by geographic segment for the indicated periods: ### Quarter Ended March 31, ### 2024 ### 2023 ### PUERTO RICO: Residential mortgage 0.05 0.10 Construction (0.47) C&I (0.93) 0.01 Consumer and finance leases 1.67 (1) 1.53 Total loans 0.42 (1) 0.58 ### VIRGIN ISLANDS: Residential mortgage (0.08) Commercial mortgage (0.22) (0.21) C&I (0.01) Consumer and finance leases 3.73 2.19 Total loans 0.57 0.29 ### FLORIDA: Construction (0.05) (0.05) Commercial mortgage (0.09) C&I 0.11 Consumer and finance leases 0.55 0.17 Total loans 0.05 (0.03) (1) The recovery associated with the aforementioned bulk sale reduced the ratios of consumer loans and finance leases and total net charge-offs to related average loans for the quarter ended March 31, 2024 by 106 basis points and 40 basis points, respectively. The following table presents information about the OREO inventory and related gains and losses for the indicated periods: ### Quarter ended March 31, ### 2024 ### 2023 (Dollars in thousands) ### OREO OREO balances, carrying value: Residential 16,706 24,984 Construction 1,681 1,764 Commercial 10,477 6,114 Total 28,864 32,862 OREO activity (number of properties): Beginning property inventory 277 344 Properties acquired 16 59 Properties disposed (46) (59) Ending property inventory 247 344 Average holding period (in days) Residential 526 533 Construction 2,399 2,266 Commercial 1,579 2,468 Total average holding period (in days) 1,017 986 OREO operations (gain) loss: Market adjustments and (gains) losses on sale: Residential (1,826) (2,490) Construction (9) (40) Commercial 19 67 Total net gain (1,816) (2,463) Other OREO operations expenses 364 467 ### Net Gain on OREO operations (1,452) (1,996) ### Operational Risk The Corporation faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products. Coupled with external influences, such as market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased. To mitigate and control operational risk, the Corporation has developed, and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. The purpose of these mechanisms is to provide reasonable assurance that the Corporation’s business operations are functioning within the policies and limits established by management. The Corporation classifies operational risk into two major categories: business-specific and corporate-wide affecting all business lines. For business specific risks, Enterprise Risk Management works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, and legal and compliance, the Corporation has specialized groups, such as the Legal Department, Information Security, Corporate Compliance, Operations and Enterprise Risk Management. These groups assist the lines of business in the development and implementation of risk management practices specific to the needs of the business groups. ### Legal and Compliance Risk Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements, the risk of adverse legal judgments against the Corporation, and the risk that a counterparty’s performance obligations will be unenforceable. The Corporation is subject to extensive regulation in the different jurisdictions in which it conducts its business, and this regulatory scrutiny has been significantly increasing over the years. The Corporation has established, and continues to enhance, procedures that are designed to ensure compliance with all applicable statutory, regulatory and any other legal requirements. The Corporation has a Compliance Director who reports to the Chief Risk Officer and is responsible for the oversight of regulatory compliance and implementation of an enterprise-wide compliance risk assessment process. The Compliance division has officer roles in each major business area with direct reporting responsibilities to the Corporate Compliance Group. ### Concentration Risk The Corporation conducts its operations in a geographically concentrated area, as its main market is Puerto Rico. Of the total gross loan portfolio held for investment of $12.3 billion as of March 31, 2024, the Corporation had credit risk of approximately 80% in the Puerto Rico region, 17% in the United States region, and 3% in the Virgin Islands region. ### Update on the Puerto Rico Fiscal and Economic Situation A significant portion of the Corporation’s business activities and credit exposure is concentrated in the Commonwealth of Puerto Rico, which has experienced economic and fiscal distress over the last decade. See “Risk Management — Exposure to Puerto Rico Government” below. Since declaring bankruptcy and benefitting from the enactment of the federal Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) in 2016, the Government of Puerto Rico has made progress on fiscal matters primarily by restructuring a large portion of its outstanding public debt and identifying funding sources for its underfunded pension system. #### Economic Indicators On March 18, 2024, the Puerto Rico Planning Board (“PRPB”) published an analysis of the Puerto Rico’s economy during fiscal year 2023, as well as a short-term forecast for fiscal years 2024 and 2025. According to the preliminary estimates issued by the PRPB, Puerto Rico’s real gross national product (“GNP”) grew by 0.7% in fiscal year 2023, the third consecutive year with a positive year- over-year variance. The main drivers behind growth in fiscal year 2023 were personal consumption expenditures and fixed investments in both construction, and machinery and equipment. The PRPB also revised previously published real GNP growth estimates for fiscal years 2022 and 2021 from 3.7% to 3.8% and from 0.9% to 1.4%, respectively. There are other indicators that gauge economic activity and are published with greater frequency, for example, the Economic Development Bank for Puerto Rico’s Economic Activity Index (“EDB-EAI”). Although not a direct measure of Puerto Rico’s real GNP, the EDB-EAI is correlated to Puerto Rico’s real GNP. For December 2023, estimates showed that the EDB-EAI stood at 127.4, up 3.5% on a year-over-year basis. Over the 12-month period ended December 31, 2023, the EDB-EAI averaged 127.5, the highest level since September 2014 and approximately 3.3% above the comparable figure a year earlier. Labor market trends remain positive. Data published by the Bureau of Labor Statistics showed that March 2024 payroll employment in Puerto Rico increased by 2.2% when compared to March 2023, supported by a year-over-year increase of 6.2% in Leisure and Hospitality payroll employment and an 4.4% year-over-year increase in construction-related payroll employment. The unemployment rate remained relatively at a near-record-low of 5.8%. #### Fiscal Plan On April 3, 2023, the PROMESA oversight board certified the 2023 Fiscal Plan for Puerto Rico (the “2023 Fiscal Plan”). Unlike previous versions of the fiscal plan, the PROMESA oversight board segregated the 2023 Fiscal Plan into three different volumes. As the first fiscal plan certified in a post-bankruptcy environment, Volume 1 presents a Transformation Plan that highlights priority areas to cement fiscal responsibility, accelerate economic growth in a sustainable manner, and restore market access to Puerto Rico. Volume 2 provides additional details on economic trends and financial projections, and Volume 3 maps out the supplementary implementation details to guide the government’s implementation of the requirements of the 2023 Fiscal Plan, as well as additional initiatives from prior fiscal plans which remain mandatory and are still pending to be implemented. 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. On April 25, 2024, the PROMESA oversight board sent a letter to the Governor of Puerto Rico extending the deadline for certification of the 2024 Fiscal Plan for Puerto Rico (the “2024 Fiscal Plan”) on or before May 3, 2024; however, as of the date of this filing, the 2024 Fiscal Plan had not been published or certified by the PROMESA oversight board. #### Debt Restructuring Over 80% of Puerto Rico’s outstanding debt has been restructured to date. On March 15, 2022, the Plan of Adjustment of the central government’s debt became effective through the exchange of more than $33 billion of existing bonds and other claims into approximately $7 billion of new bonds, saving Puerto Rico more than $50 billion in debt payments to creditors. Also, the restructurings of the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Highways and Transportation Authority (“HTA”), and the Puerto Rico Aqueducts and Sewers Authority (“PRASA”) are expected to yield savings of approximately $17.5 billion, $3.0 billion, and $400 million, respectively, in future debt service payments. The main restructurings pending include that of the Puerto Rico Electric Power Authority (“PREPA”) and the Puerto Rico Industrial Company (“PRIDCO”). On June 23, 2023, the Fiscal Oversight and Management Board for Puerto Rico certified a new fiscal plan for PREPA which included the most recent projections of energy consumption in Puerto Rico and consequently reflected a significant reduction in the projected revenues for PREPA over the next years. As such, PREPA concluded that its ability to repay its outstanding debt was significantly less than what was previously stated. On June 26, 2023, Judge Laura Taylor Swain resolved that PREPA’s bondholders have an unsecured claim of $2.4 billion against PREPA and not the approximately $9.0 billion that bondholders were claiming. On February 23, 2024, the PROMESA oversight board filed the fourth amended Plan of Adjustment to reduce more than $10 billion of total asserted claims by various creditors against PREPA by approximately 80% to $2.5 billion, excluding pension liabilities. According to the PROMESA oversight board, bondholders who support the plan would recover 12.5% of their original asserted claim, while bondholders who do not agree to the proposed plan would recover 3.5% of their asserted claim. Combined with other previous agreements and settlements that remain in place, approximately 43% of PREPA’s creditors support the third amended plan. In addition to conforming to Judge Taylor Swain’s ruling made in June, the amended plan also conforms to the previously disclosed debt sustainability analysis in the revised PREPA Fiscal Plan certified in June 2023 that is based on the most recent projections of PREPA’s operating costs and future demand for its services. The PREPA pension treatment remains unchanged under the third amended plan. PREPA retirees will be paid in full for all benefits earned through the effective date of the plan. After that date, no further benefits can be earned under the defined benefit plan by existing or new participants. From March 4, 2024, through March 18, 2024, the court held multiple hearings concerning the request of the PROMESA oversight board for approval of the PREPA plan. At the end of the confirmation hearings, Judge Taylor Swain reserved judgement. On April 2, 2024, Judge Taylor Swain approved the PROMESA oversight board’s request of extending the appointment of the lead mediator through September 30, 2024. #### Other Developments Notable progress continues to be made as part of the ongoing efforts of prioritizing the restoration, improvement, and modernization of Puerto Rico’s infrastructure, particularly in the aftermath of Hurricane Maria in 2017. During the 12-month period ended February 29, 2024, over $3.36 billion in disaster relief funds were disbursed through FEMA’s Public Assistance program and the Department of Housing and Urban Development’s Community Development Block Grant (“CDBG”) program, a 46% increase when compared to the same period in 2023. These funds will continue to play a key role in supporting Puerto Rico’s economic stability and are expected to have a positive impact on the Island’s infrastructure. For example, approximately 86% of the projects that FEMA has obligated to address damage caused by Hurricane Maria have resources to reinforce their infrastructure, among other hazard mitigation measures, that will prepare these facilities for future weather events. As of April 29, 2024, over 2,750 projects had already been completed under FEMA’s Public Assistance programs while over 21,000 projects were active across different stages of execution for a total cost of $10.6 billion, equivalent to approximately 31% of the agency’s $33 billion obligation, according to the Central Office for Recovery, Reconstruction and Resiliency (“COR3”). ### Exposure to Puerto Rico Government As of March 31, 2024, the Corporation had $313.7 million of direct exposure to the Puerto Rico government, its municipalities and public corporations, compared to $297.9 million as of December 31, 2023. The $15.8 million increase was mainly due to the origination of a $13.6 million loan to a municipality in Puerto Rico that is supported by assigned property tax revenues. As of March 31, 2024, approximately $202.9 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 $59.2 million consisted of loans and obligations which are supported by one or more specific sources of municipal revenues. Approximately 69% of the Corporation’s exposure to Puerto Rico municipalities consisted primarily of senior priority loans and obligations concentrated in four 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 notes. Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from expense, revenue, or cash management measures taken to address the Puerto Rico government’s fiscal problems and measures included in fiscal plans of other government entities. In addition to municipalities, the total direct exposure also included $8.9 million in a loan extended to an affiliate of the Puerto Rico Electric Power Authority (“PREPA”), $39.6 million in loans to agencies or public corporations of the Puerto Rico government, and obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.1 million as part of its available-for-sale debt securities portfolio (fair value of $1.6 million as of March 31, 2024). The following table details the Corporation’s total direct exposure to Puerto Rico government obligations according to their maturities: ### As of March 31,2024 ### Investment ### Portfolio ### (Amortized ### cost) ### Loans ### Total ### Exposure (In thousands) Puerto Rico Housing Finance Authority: After 10 years 3,112 3,112 ### Total Puerto Rico Housing Finance Authority 3,112 3,112 Agencies and public corporation of the Puerto Rico government: After 1 to 5 years 15,732 15,732 After 5 to 10 years 23,841 23,841 Total agencies and public corporation of the Puerto Rico government 39,573 39,573 Affiliate of the Puerto Rico Electric Power Authority: After 1 to 5 years 8,878 8,878 Total Puerto Rico government affiliate 8,878 8,878 ### Total Puerto Rico public corporations and government affiliate 48,451 48,451 Municipalities: Due within one year 3,172 7,173 10,345 After 1 to 5 years 51,327 52,336 103,663 After 5 to 10 years 36,034 95,505 131,539 After 10 years 16,595 16,595 ### Total Municipalities 107,128 155,014 262,142 ### Total Direct Government Exposure ### 110,240 ### 203,465 ### 313,705 In addition, as of March 31, 2024, the Corporation had $76.5 million in exposure to residential mortgage loans that are guaranteed by the PRHFA, a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2023 – $77.7 million). 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 Puerto Rico government guarantees up to $75 million of the principal for all loans under the mortgage loan insurance program. According to the most recently released audited financial statements of the PRHFA, as of June 30, 2022, the PRHFA’s mortgage loans insurance program covered loans in an aggregate amount of approximately $418 million. The regulations adopted by the PRHFA require the establishment of adequate reserves to guarantee the solvency of the 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 March 31, 2024, the Corporation had $2.8 billion of public sector deposits in Puerto Rico, compared to $2.7 billion as of December 31, 2023. Approximately 20% of the public sector deposits as of March 31, 2024 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. ### Exposure to USVI Government The Corporation has operations in the USVI and has credit exposure to USVI government entities. 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 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 $5.1 billion in disaster recovery funds had been disbursed through February 2024 and $8.6 billion were remaining obligated funds waiting to be disbursed. Moreover, labor market trends remain stable with payroll employment for the first quarter of 2024 up 0.1% when compared to the fourth quarter of 2023. On December 14, 2023, Fitch Ratings announced that it withdrew the ratings of the U.S. Virgin Islands Water and Power Authority (“WAPA”) primarily due to limited availability of the authority’s operating and financial information from public sources or from WAPA’s management. 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 March 31, 2024, the Corporation had $97.4 million in loans to USVI public corporations, compared to $90.5 million as of December 31, 2023. As of March 31, 2024, all loans were currently performing and up to date on principal and interest payments. ## Market risk As filed, 270 characters. For information regarding market risk to which the Corporation is exposed, see the information contained in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in this Quarterly Report on Form 10-Q. ## Controls and procedures As filed, 1,674 characters. ### 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 Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2024 the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2024 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 Chief Executive Office and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. ### Internal Control over Financial Reporting There were 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 March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting. ### PART II - OTHER INFORMATION In accordance with the instructions to Part II of Form 10-Q, the other specified items in this part have been omitted because they are not applicable, or the information has been previously reported. ## Risk factors As filed, 5,195 characters. The Corporation’s business, operating results and/or the market price of our common stock may be significantly affected by a number of factors. A detailed discussion of certain risk factors that could affect the Corporation’s future operations, financial condition or results for future periods is set forth in Part I, Item 1A, “Risk Factors,” in the 2023 Annual Report on Form 10-K. These risk factors, and others, could cause actual results to differ materially from historical results or the results contemplated by the forward-looking statements contained in this report. Also, refer to the discussion in “Forward-Looking Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Quarterly Report on Form 10-Q for additional information that may supplement or update the discussion of risk factors in the 2023 Annual Report on Form 10-K. Other than as described below, there have been no material changes from those risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” in the 2023 Annual Report on Form 10-K. ### 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 recent bank failures, the banking agencies have increased regulatory requirements and costs that may impact capital ratios or the FDIC deposit insurance premium. For example, on November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund 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 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 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, as of December 31, 2023, the Corporation recorded an initial special assessment of $6.3 million. On February 23, 2024, the FDIC informed that the estimated loss attributable to the protection of uninsured depositors of the aforementioned failed institutions is $20.4 billion, an increase of approximately $4.1 billion from the estimate of $16.3 billion described in the final rule. The estimated loss may be partially offset by any potential future recoveries from the residual interests retained in each of the trusts. In connection with this notice, during the first quarter of 2024, the Corporation recorded a $0.9 million additional expense in the consolidated statements of income as part of “FDIC deposit insurance” expenses to increase the estimated FDIC special assessment to $7.3 million. 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 failed institutions are terminated. The collection period may change due to updates to the estimated loss pursuant to the systemic risk determination or if assessments collected change due to corrective amendments to the amount of uninsured deposits reported for the December 31, 2022 reporting period. The FDIC will provide any updates on the estimated loss and collection period for the special assessment with the first quarter 2024 special assessment invoice, to be released in June 2024. The federal financial regulatory agencies may take other measures to address macroeconomic conditions, as well as the effect of regional bank failures in the U.S. mainland during the first half of 2023, although the nature and impact of such actions cannot be predicted at this time. Filed May 9, 2024. Source: SEC EDGAR, the filing index for accession 0001057706-24-000007. Last ingested by Listed: Nov 6, 2026, 13:17 ET. No prices; not investment advice.